Issue 838, 11 January 2022
In this issue:
Superannuation co-contribution regulations: consultation
Treasury is consulting on a draft replacement version of regulations to support the Government co-contribution for low-income earners, with the existing regulations due to sunset (expire) on 1 April.
According to Treasury, the draft Superannuation (Government Co contribution for Low Income Earners) Regulations 2022 will improve upon the existing Superannuation (Government Co contribution for Low Income Earners) Regulations 2004 by omitting redundant provisions, simplifying language and restructuring provisions for ease of navigation. This includes minor changes to increase the use of headings and references to ‘section’ rather than ‘regulation’ in accordance with modern drafting practice.
Treasury has indicated that the only substantive changes in the draft regulations are:
- amending the definition of an eligible account so it excludes those which only provide terminal medical condition benefits, in addition to the existing exclusion for accounts which provide only death or incapacity benefits. This change is consistent with the intention that the super co contribution should not be paid to insurance only accounts, where the contribution would subsidise the payment of insurance premiums rather than contribute to increasing an individual’s retirement savings
- clarifying the operation of section 7 relating to where a Government co contribution is to be directed in specific circumstances. The draft regulations ensure that only one item will apply in the event of multiple circumstances being applicable.
Treasury is seeking submissions on the draft regulations by close of business Friday 14 January.
Royal Commission implementation: consultations on advice review and adviser education
The Government is consulting on two reform packages to support its response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in relation to financial advice.
Quality of Advice Review
Treasury has released draft terms of reference for a review of the quality of financial advice. The Review will consider how the regulatory framework could better enable the provision of high quality, accessible and affordable financial advice for retail investors. In particular, it will investigate:
- opportunities to streamline and simplify regulatory compliance obligations to reduce cost and remove duplication, recognising that the costs of compliance by businesses are ultimately borne by consumers and serve as an impediment to consumers’ access to quality advice
- where principles-based regulation could replace rules-based regulation to allow the law to better address fundamental harms and reduce the cost of compliance
- how to improve the clarity and availability of documents and disclosures so that consumers are presented with clear and concise information without unnecessary complexity
- whether parts of the regulatory framework have in practice created undesirable unintended consequences and how those consequences might be mitigated or reduced.
Treasury has noted that submissions should focus on the draft Terms of Reference — there will be opportunities to comment on substantive policy issues once the review is underway.
If you have any feedback you would like ASFA to consider in relation to the terms of reference (or the Review more broadly), please forward it to Byron Addison by close of business Friday 28 January.
Financial adviser education standards
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 winds-up the Financial Adviser Standards and Ethics Authority (FASEA) and moves its function of setting education and training standards for financial advisers to the Minister for Superannuation, Financial Services and the Digital Economy. The Act received Royal Assent in October (see ASFA Action issue 830 for background).
Treasury has now released Education Standards for Financial Advisers. This policy paper seeks feedback on the education standards and whether they remain fit for purpose including by ensuring that they adequately recognise on-the-job experience of advisers. Unless the standards made by FASEA are amended or replaced, the existing standards continue to set the requirements for financial advisers.
Treasury is seeking comments on the policy paper by close of business Tuesday 1 February.
Australian Data Strategy: consultation
The Government has released Australia’s first Data Strategy, to set “a clear path for Australia’s data system over the next four years”. The Data Strategy also complements the Government’s broader Digital Economy Strategy and the Digital Government Strategy.
The Strategy signposts the Australian Government’s data intent and efforts over the period to 2025. It focuses on three key themes:
- maximising the value of data – why data is important, its economic and social value, its use in responding to priority issues, and the benefit that can be gained through using and safely sharing data. Data can create new value when shared between different levels of government, and the private and non-government sectors.
- trust and protection – the settings that can be adopted in the private and public sectors to keep data safe and secure, and the frameworks available to protect Australians’ data and ensure its ethical use through the entire data lifecycle.
- enabling data use – approaches and requirements to leverage the value of data, such as capabilities, legislation, management and integration of data, and engaging internationally.
The Strategy considers both public sector data, which is managed by the government, and data in the broader economy, where the Australian Government both enables data users and regulates its use and sharing to provide greater certainty in how people deal with their data.
The Strategy is supported by an Action Plan which sets out tangible measures the Government is implementing to improve our data settings across the economy. The Action Plan will be regularly reviewed to ensure it evolves to meet the changing priorities of Australians and continuously raises the bar to meet the Government’s goal of being a leading digital economy and society by 2030.
While the Data Strategy and Action Plan do not introduce new regulations or legislation, they align with a range of existing legislation, strategies, policies, and reviews which regulate data.
The Government is seeking feedback on the Data Strategy by close of business Thursday 30 June. The Government will respond to submissions by the end of 2022.
Super benefits paid in breach of legislative requirements: ATO consultation
The ATO is consulting on two draft instruments relating to the treatment of superannuation benefits paid in breach of legislative requirements.
Superannuation benefits received by members of a superannuation fund are generally taxed at a more concessional rate than ordinary assessable income. Payments from a superannuation fund lose their concessional tax treatment if they are paid in breach of relevant superannuation regulations. The amounts are instead included in the member’s assessable income under Division 304 of the Income Tax Assessment Act 1997 and taxed at the relevant marginal tax rate. This may occur where members access amounts before they meet a condition of release (such as retirement). However, a superannuation benefit is not included in a member’s assessable income under Division 304 if the Commissioner is satisfied that this would be unreasonable, having regard to the matters in subsection 304-10(4).
The ATO has now issued:
- Draft Taxation Determination TD 2021/D6 Income tax: tax treatment of a superannuation benefit when the Commissioner exercises the discretion in subsection 304-10(4) of the Income Tax Assessment Act 1997. This clarifies the income tax treatment of a superannuation benefit where the Commissioner exercises the discretion in subsection 304-10(4). In particular, it considers how Division 304 interacts with other provisions setting out the relevant tax rules for amounts paid as superannuation member benefits or superannuation death benefits.
- Draft Law Administration Practice Statement PS LA 2021/D3 Superannuation – Commissioner’s discretion where members receive benefits in breach of legislative requirements. This sets out the principles relevant to consideration of whether the Commissioner will exercise the discretion in subsection 304-10(4).
The ATO is seeking feedback on TD 2021/D6 and PS LA 2021/D3 by close of business Friday 4 February.
APRA MySuper and Choice heatmaps
On 16 December, APRA published its third annual heatmap for MySuper products along with its first heatmap for Choice superannuation products. In aggregate, the two heatmaps cover 60 per cent of member benefits in the APRA-regulated superannuation sector.
The MySuper heatmap has been expanded to include each product’s assessment result received under the new Your Future, Your Super (YFYS) performance test. The inaugural Choice heatmap focuses on multi-sector investment options in open, accumulation products (excluding platform products), representing 40 per cent of total member benefits in the APRA-regulated choice sector. APRA intends to leverage its Superannuation Data Transformation project to further refine and expand its Choice heatmap over coming years to cover more of the sector.
Key insights from the latest refresh of the MySuper heatmap include:
- 45 per cent of MySuper products delivered returns below APRA’s heatmap benchmarks
- 22 MySuper products have closed since the release of the first MySuper Heatmap; of those 22 products, 3 failed the YFYS performance test in 2021
- investment returns are the primary driver of underperformance
- fees and costs for MySuper products are declining, but there remains considerable scope for further reductions.
APRA’s analysis of the Choice heatmap shows:
- 60 per cent of investment options in the Choice heatmap delivered returns below APRA’s heatmap benchmarks over seven years, with over 25 per cent of options delivering significantly poor returns
- performance of choice products varies considerably more than MySuper products
- fees and costs of choice products are considerably higher than MySuper products, without obvious benefit in financial outcomes for members.
Alongside the heatmaps, APRA has also published an insights paper highlighting key findings plus technical and methodology papers for each of the MySuper and Choice heatmaps.
Proxy advice: regulations
The Government has made regulations “strengthening the transparency and accountability of proxy advice services, and improving the disclosure of superannuation funds’ voting records on company resolutions”.
The Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021, registered on 17 December, amend the Corporations Regulations 2001 to specify:
- circumstances in which voting advice is proxy advice (a kind of financial service). The new definition will include advice relating to the exercise of voting rights attaching to a security or an interest in a managed investment scheme where the security or interest (or a beneficial interest therein) is held by an APRA-regulated superannuation fund (excluding a small APRA fund), the advice addresses how to vote on a particular resolution, and a fee, charge or other amount is paid or payable in connection with the provision of the advice
- obligations for financial services licensees who provide proxy advice to:
- provide any proxy advice to the entity that is the subject of the proxy advice on the same day it is provided to the client; and
- be independent of their clients.
The Regulations also amend the Superannuation Industry (Supervision) Regulations 1994 to expand the range of information that Registrable Superannuation Entity (RSE) licensees must make publicly available on the registrable superannuation entity’s website. The new information requirements include a summary of how voting rights attaching to shares in listed companies that the trustee of the RSE holds, or in which the trustee holds beneficial interests, have been exercised.
The Regulations commenced on 18 December 2021, however the amendments have a range of commencement dates:
- the amendments relating to when proxy advice is a financial service apply in relation to a service provided on or after 7 February 2022.
- the amendments relating to when proxy advice must be provided to a body or responsible entity apply in relation to proxy advice provided by a financial services licensee on or after 7 February 2022 and under a contract entered into or renewed on or after the commencement of the Regulations.
- the amendments relating to the independence obligation for financial services licensees apply in relation to proxy advice provided by a licensee on or after 1 July 2022 and under a contract entered into or renewed on or after the commencement of the Regulations.
- the amendments relating to the obligation to make information publicly available on the RSE’s website apply on and after 1 July 2022 in relation to a half of a financial year that begins on or after 1 January 2022.
The Regulations follow consultation on the adequacy of the current regulatory regime for proxy advice, undertaken last year (see ASFA Action issue 802 for background).
Miscellaneous and technical amendment regulations
The Government has registered regulations making miscellaneous and technical amendments to a range of Treasury portfolio regulations, including some of relevance to superannuation.
According to the explanatory material, the Treasury Laws Amendment (Miscellaneous and Technical Amendments No. 2) Regulations 2021 make minor and technical changes that correct typographical and referencing errors, address unintended outcomes, update out of date references, and repeal inoperative provisions. The changes ensure that the Treasury regulations are fit for purpose and operate as intended. These Regulations also incorporate certain instruments which modify the law directly into the text of the law to improve readability and reduce the incidence of laws being modified via legislative instrument.
Of particular relevance to superannuation, the Regulations:
- amend superannuation funds’ disclosure obligations in the Corporations Regulations 2001, to formalise (with some amendments) long term performance reporting measures that were first implemented in 2010 via ASIC Class Order [CO 10/630]
- amend the Superannuation (Unclaimed Money and Lost Members) Regulations 2019 to ensure the recovery of overpayment in Part 4B of the Superannuation (Unclaimed Money and Lost Members) Act 1999 operates properly and is consistent with the other recovery of overpayment provisions in that Act.
The amendments were included in a package of draft regulations that were the subject of consultation late last year (see ASFA Action issue 826). That consultation package also included several other amendments, relevant to superannuation, that are not included in these Regulations.
Family law super splitting: extension to de facto couples in Western Australia
The Government has made regulations supporting recent legislation that provided for separating de facto couples in Western Australia (WA) to access the superannuation splitting regime set out in the Commonwealth Family Law Act 1975 (FL Act).
The Commonwealth Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Act 2020 (the WA Superannuation Splitting Act) gives effect to a referral of power from Western Australia to the Commonwealth in respect of superannuation matters in family law proceedings for separating de facto couples in Western Australia. The Act received Royal Assent in December 2020 (see ASFA Action issue 786 for background).
Rather than applying the existing provisions dealing with superannuation splitting in Part VIIIB of the FL Act to WA de facto couples, the WA Superannuation Splitting Act replicates the relevant provisions in an entirely new Part VIIIC. This is because — unlike other states and territories — the WA government limited its referral of power so the Commonwealth could legislate only in relation to superannuation interests of de facto couples and not in relation to all financial matters.
The WA Superannuation Splitting Act made consequential amendments to 21 pieces of primary Commonwealth legislation. These amendments generally provide that any reference to definitions of terms that apply to Part VIIIB of the FL Act (which provides for splitting superannuation interests) will also apply to the new Part VIIIC (which will provide specifically for superannuation splitting for separating WA de facto couples).
The Government has now made the Superannuation Legislation Amendment (Western Australia De Facto Superannuation Splitting) Regulations 2021 to support the WA Superannuation Splitting Act. These amend various Commonwealth regulations to ensure consistency with the 21 amended Acts. The Regulations ensure that any provisions in regulations which deal with superannuation splitting under the FL Act will also apply to superannuation splits made by de facto couples in Western Australia in accordance with Part VIIIC of the FL Act.
Despite the registration of these Regulations, it should be noted that the commencement date for the WA Superannuation Splitting Act has not yet been proclaimed. As a result, it is not yet possible for separating WA de facto couples to access the Commonwealth family law superannuation splitting regime.
In addition to amendments arising from the WA de facto superannuation splitting reform, the Regulations also update references to outdated FL Act provisions contained in a number of regulations, to ensure they are correct.
Royal Commission implementation: Financial Services and Credit Panel
The Government has registered regulations dealing with the operation of the Financial Services and Credit Panel (FSCP), a new disciplinary body to be established as part of the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Under reforms implemented via the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021, the role of the FSCP within ASIC was expanded, to operate as a single disciplinary body for financial advisers. The powers of the FSCP under the Act include the power to direct financial advisers to undertake specified training, counselling or supervision and to report certain matters to ASIC. The FSCP may also suspend or cancel a financial adviser’s registration, issue infringement notices in specified circumstances, recommend that ASIC commence civil penalty proceedings, and enter into enforceable undertakings with financial advisers. The reforms also require that ASIC must issue a warning or reprimand in relation to certain misconduct. The reforms commenced on 1 January 2022.
On 20 December, the Government registered the Financial Sector Reform Amendment (Hayne Royal Commission Response—Better Advice) Regulations 2021. These set out the circumstances in which ASIC must convene an FSCP, including where it reasonably believes a financial adviser is not a fit and proper person to provide advice or becomes aware that a financial adviser has become an insolvent under administration.
ASIC has indicated that it will consult on guidance regarding the operation of the FSCP and also release guidance about how it will exercise its new power to issue warnings/reprimands, in early 2022.
MYEFO: superannuation-related measures
The Government’s Mid-Year Economic and Fiscal Outlook 2021-22 (MYEFO), released on 16 December, contained new or additional funding for three measures that may impact superannuation funds or fund members, and confirmed a number of previously announced superannuation measures.
The Government has indicated it will provide funding:
- over three years from 2022-23 to the ATO to develop a service that supports superannuation funds to transfer members’ superannuation balances to the ATO for reunification with members’ eligible active accounts identified via the service. The account matching service would operate for two years, commencing in 2022-23.
- over four years from 2021-22 to Services Australia and the Department of Veterans’ Affairs for implementation of the 2021-22 Budget measure relating to conversion of legacy financial products (see ASFA Action issue 803 for background).
- over four years from 2021-22 (with a smaller component ongoing) for the establishment and ongoing operation of the Compensation Scheme of Last Resort (CSLR), to be partially offset by an increase in the cost recovery levies collected by ASIC. The CSLR will be established by the Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021, the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021, and the Financial Services Compensation Scheme of Last Resort Levy Bill 2021, which have not yet been passed by Parliament (see ASFA Action issue 831 for background).
The MYEFO statement also confirmed these superannuation measures, which have been previously announced and, in some cases, already implemented:
- The deferral of the commencement of the single default account’ component of the Your Future, Your Super reforms, from 1 July to 1 November 2021. This deferral was legislated via the Treasury Laws Amendment (Your Future, Your Super) Act 2021, which received Royal Assent in June (see ASFA Action issue 810 for background)
- the extension of the temporary reduction in the minimum drawdown rates for account based and similar superannuation income streams until 30 June 2022, as announced in late May (see ASFA Action issue 807). This announcement will require an amendment to the Superannuation Industry (Supervision) Regulations 1994, which has not yet been made.
- the ability for individuals to re-contribute amounts withdrawn as part of the COVID-19 early release of superannuation initiative as non-concessional contributions above and beyond the existing non-concessional contributions cap. Recontributions are permitted between 1 July 2021 and 30 June 2030. This measure was legislated via the Treasury Laws Amendment (More Flexible Superannuation) Act 2021, which received Royal Assent in June (see ASFA Action issue 810 for background).
- the abolition of the excess concessional contributions charge for financial years commencing 1 July 2021. This measure was legislated via the Treasury Laws Amendment (More Flexible Superannuation) Act 2021, which received Royal Assent in June (see ASFA Action issue 810 for background).
- the amendment of the tax treatment of certain invalidity superannuation pensions to ensure they are taxed as superannuation income stream benefits rather than lump sums. This amendment will apply only in relation to pensions paid under the Military Superannuation and Benefits (MSB) and Defence Force Retirement and Death Benefits (DFRDB) schemes which commenced on or after 20 September 2007, after these pensions were impacted by a 2020 decision by the Full Federal Court (Commissioner of Taxation v Douglas). In late November the Government indicated it would legislate to ensure recipients would not be adversely affected. The MYEFO statement notes that recipients of certain military invalidity pensions who would have received preferable tax treatment as a result of the court decision will receive a new non-refundable tax offset to ensure that they retain the income tax benefit from the decision. This measure will take effect from the date of Royal Assent and will apply to all financial years from 2007-08. On 4 January the ATO registered Income Tax: Alternative method for calculating the tax free component and taxable component of a superannuation benefit paid during the 2021–22 financial year for recipients of certain pensions under the Defence Force Retirement and Death Benefits Act 1973 and the Trust Deed referred to in section 4 of the Military Superannuation and Benefits Act 1991. This legislative instrument is related to the issue addressed by the MYEFO announcement and specifies an alternative method for calculating the tax free and taxable components of impacted superannuation benefits paid from the MSB and DFRDB schemes during the 2021-22 financial year.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.