Issue 611, 14 October 2016
In this issue:
- ASFA Thomson Geer Regulatory Update (September 2016 quarter)
- Fees and costs disclosure – frequently asked questions
- Life insurance code of practice
- Life insurance claims review
- Departing Australia superannuation payments – changes to tax treatment
ASFA Thomson Geer regulatory update (September 2016 quarter)
Delivered in partnership with Thomson Geer, the latest edition of the ASFA Thomson Geer Regulatory Update has been released and is now available for members to download from the Regulatory Update section of the ASFA website.
This free ASFA member service seeks to keep you up to date with the changing superannuation environment, new legislation, developing policy and pertinent case law developments. The Update is issued quarterly and provides essential information for those wanting to stay abreast of the challenges and issues facing superannuation funds.
The information is of particular use to:
- trustees
- compliance managers
- risk managers
- operations managers
- administrators and self-managed superannuation fund (SMSF) service providers
- members of investment committees
- government and regulatory liaison managers.
For trustees, the Update will provide an overview of key information, with more detailed information directed at senior managers and administrators.
Members wishing to discuss the Update can contact Julia Stannard.
Fees and costs disclosure – frequently asked questions
Following on from the Frequently Asked Questions (FAQs) mentioned in ASFA Action Issue 609, ASIC has published 20 new FAQs in relation to fees and costs disclosure. ASIC has also moved all of the fees and costs FAQs to a dedicated page on its website.
The new FAQs relate to:
- periodic statements
- indirect costs
- performance fees
- interposed vehicles
- borrowing costs
- transactional and operational costs.
Life insurance code of practice
The first-ever industry-led consumer Code of Practice for Life Insurance was launched by the Financial Services Council (FSC) on 11 October 2016.
Announcing the Code, the FSC indicated that insurer practices and obligations are lifted substantially to better meet consumer needs and expectations. Disclosure to consumers will be improved to provide greater transparency in communications, claims will be decided within set timeframes, the use of surveillance will be limited and additional support is to be provided to vulnerable consumers.
While the Code places obligations on life insurers who provide group insurance through superannuation, it is acknowledged that superannuation trustees often carry out most of the member interactions. It has been recognised that an ‘end-to-end’ commitment to delivering a consistent insurance experience to superannuation fund members is now required.
ASFA has expressed with the FSC, the Australian Institute of Superannuation Trustees, Industry Super Australia and Industry Funds Forum, through a Statement of Intent, the common belief in several principles underlying group insurance in superannuation. The industry will now begin work to develop an equivalent code for superannuation fund trustees.
Life insurance claims review
On 12 October 2016, both APRA and ASIC released their findings and recommendations of recent reviews into life insurance claims handling.
Based upon information APRA recently sought from a selection of 25 registrable superannuation entity (RSE) licensees, expectations for superannuation trustees have been set as to where improvements of the oversight and handling of insurance claims are required.
APRA has written to RSE licensees indicating the following areas for improvement of practices, in order to better meet member expectations:
- closer co-operation and alignment with insurers and re-insurers
- clarifying approaches to claims to improve claimants understanding of how claims will be managed
- improved data sharing and reporting on key performance indicators
- reviewing insurance benefit design and definitions.
ASIC’s report: REP 498 Life Insurance claims: an industry review examined 15 insurers covering 90 per cent of the life insurance market. The report concluded that while life insurers are paying the considerable majority of claims (90 per cent in the first instance) there are significant shortcomings in a number of areas of life insurance claims handling.
ASIC’s findings included:
- the rates of declined claims were highest for TPD cover
- a considerable variation in declined claims among insurers
- the most common types of life insurance disputes were about the evidence insurers require when assessing claims (including surveillance), and delays in claims handling
- higher claims denial rates in relation to insurance policies sold direct to consumers with no financial advice (compared to policies sold through advisers and group insurance policies).
A key outcome of these reviews is that in 2017, ASIC and APRA will establish a new public reporting requirement for life insurance claims data and claims outcomes.
Departing Australia superannuation payments – changes to tax treatment
On 12 October, the government introduced a bill into Parliament proposing an increase in the tax that must be withheld from a departing Australia superannuation payment (DASP). A DASP is a superannuation benefit paid to a person who was a temporary resident of Australia, once they have departed Australia and their visa has expired or been cancelled.
The amendments—set out in the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016 —are part of a package of reforms to the tax arrangements for ‘working holiday makers’ that include modifications to measures announced in the May 2015 Budget, colloquially referred to as the ‘backpacker tax’. A ‘working holiday maker’ will be defined as an individual who holds a subclass 417 (Working Holiday) visa, a subclass 462 (Work and Holiday) visa, or certain related bridging visas.
Under the changes, a tax withholding rate of 95 per cent will apply to any taxable component of a DASP made on or after 1 July 2017, if the DASP includes amounts attributable to superannuation contributions made while the person was a working holiday maker. This contrasts with the withholding rates that are currently legislated to apply from 1 July 2017 of 47 per cent from any taxed element of the taxable component and 35 per cent from any untaxed element of the taxable component. (Note – the latter rates are currently increased by three per cent and two per cent respectively for the temporary budget repair levy, which ceases after the 2016/17 financial year.)
The changes proposed by the Bill will not apply to payment of a DASP if the recipient was not a working holiday maker.
