Issue 698, 18 February 2019
In this issue:
- Royal Commission: responses from the Government and APRA
- Protecting Your Super Package bill: major amendments
- Member outcomes bill: major amendments
- Omnibus amending bill passed by Parliament
- Social services legislation: Budget measures bill
- Stronger penalties for financial sector misconduct: progress of bill
- First Home Super Saver Scheme: amending bill introduced
- SMSF membership limit increased: bill introduced
- Repeal of SIS transition arrangements: bill introduced
- Consumer Data Right: bill introduced
- Remaking of superannuation contributions (surcharge) regulations
Royal Commission: responses from the Government and APRA
Following the release of the final report from the Banking, Superannuation and Financial Services Royal Commission and the Government’s initial response (see ASFA Action issue 697), the Government and APRA have released further information about the approach they will take to implement the Commission’s recommendations.
In particular, the Government has:
- confirmed the details for the capability review of APRA, to be undertaken by a panel comprising Graeme Samuel AC (chair), Diane Smith-Gander and Grant Spencer
The Treasurer, the Hon Josh Frydenberg MP, said it is “anticipated that the panel will give specific consideration to APRA’s capability to promote financial stability within its frameworks as well as its readiness to respond to issues raised by the Royal Commission and the Productivity Commission. This includes APRA’s capability to regulate superannuation entities for the benefit of members, the role of enforcement activities and coercive powers and the supervision of culture, governance and remuneration in regulated institutions.”
The review will commence in March 2019 and the panel will report to government by 30 June 2019.
- indicated its intention to amend the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 (currently before Parliament) to enhance accountability of superannuation funds, by:
- ensuring that breach of a trustee’s covenants, or the covenant or obligations on trustee directors, would be enforceable by action for civil penalty
- prohibiting trustees from ‘treating’ employers.
These amendments were passed by the Senate on 14 February and now await consideration by the House of Representatives (see separate item in this ASFA Action).
APRA has provided an update on its plans in relation to those recommendations made by the Commission that relate to its prudential and supervisory framework. In particular, APRA has:
- indicated it is “committed to implementing the recommendations expeditiously” and has identified those recommendations it expects to address during 2019 and 2020. As relevant to superannuation, these primarily relate to amendment of its prudential standards (flowing from APRA’s current post-implementation review of the standards) and enhancement of its cooperation and coordination arrangements with ASIC.
- noted that The Commission’s Final Report also contains many other recommendations relevant to APRA—such as an extension of the Banking Executives Accountability Regime (BEAR), a strengthening of trustee duties in superannuation and additional penalties in the Superannuation Industry (Supervision) Act 1993—which will require legislative change.
Protecting Your Super Package bill: major amendments
The bill to implement the Government’s ‘protecting your super’ reforms has been passed by the Senate with significant amendments and must now be reconsidered by the House of Representatives.
The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 seeks to reform the circumstances in which insurance can be offered to members, imposes caps and a prohibition on the charging of certain fees, and expands the circumstances in which inactive, low-balance accounts must be transferred to the ATO for consolidation. These reforms were announced by the Government in its May 2018 Budget (see ASFA Action issues 669 and 677 for background).
The Bill passed through the Senate on 14 February, with detailed amendments made by the Greens in agreement with the Government.
In particular, the amendments:
- remove from the Bill provisions which would have made insurance opt-in for members under age 25 and for low-balance accounts (provisions effectively requiring members with inactive accounts to opt-in for insurance remain)
- extend the period of inactivity for an ‘inactive account’ and an ‘inactive low-balance account’ from 13 months to 16 months and prescribe a list of member actions that will mean the account is taken not to be an inactive low-balance account
- require the ATO to pay inactive account balances transferred to it under the new rules to an active account for the member, where satisfied it is possible to do so, within 28 days.
There were no amendments to the provisions in the Bill that impose a cap on administration and investment fees charged to members and prohibit the charging of exit fees. The commencement date for the measures in the Bill remains at 1 July 2019.
The Bill will now return to the House of Representatives for consideration of the Senate’s amendments. The Government has indicated that it will continue to work toward implementing the measures making insurance opt-in for members under age 25 and for low-balance accounts, that were removed from the Bill.
ASFA members can access a more detailed summary of the measures in the Bill, with particular emphasis on amendments made to the previously circulated versions, on the ASFA website.
Member outcomes bill: major amendments
The Bill to implement the Government’s ‘member outcomes’ reforms has been passed by the Senate with significant amendments, and now awaits consideration by the House of Representatives.
The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2017 proposes a wide range of reforms intended to enhance trustee accountability (see ASFA Action issue 644 for background).
The Bill was passed by the Senate on 14 February, with detailed amendments made by the Government, Opposition and Greens.
The key amendments made in the Senate relate to:
- the annual outcomes assessment for superannuation products – this has been completely rewritten and will now apply to both MySuper and choice products, with relevant ‘benchmarks’ and ‘comparable choice products’ to be specified in regulations. The outcomes assessment measure will continue to apply from the day after the Bill receives royal assent
- the application of civil and criminal penalties for contravention the trustee and directors’ covenants in sections 52 and 52A of the Superannuation Industry (Supervision) Act 1993 – this amendment represents part of the Government’s response to the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The penalties will apply to contraventions occurring from the day after the Bill receives royal assent
- the scope and commencement date of the portfolio holdings disclosure regime – RSE licensees will be required to look through pooled superannuation trusts in order to satisfy their portfolio holdings disclosure obligations. The disclosure obligation has also been clarified to ensure it applies equally in respect of all MySuper and choice products and the commencement time has been extended so the disclosure obligation will now apply to reporting days on or after 31 December 2019 (rather than 2018)
- the requirement to hold annual members’ meetings – the description of the information that must be included in meeting notices will now be linked to APRA’s reporting standards. The measure will continue to apply from the day after the Bill receives royal assent
- the prohibition on ‘treating’ or ‘incentivising’ employers – new criminal and civil penalties will be imposed on trustees who use goods or services to influence employers to nominate the fund as their default fund, or influence employers to encourage their employees to nominate the fund as their chosen fund. These amendments represent part of the Government’s response to the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The penalties will apply to contraventions occurring from the day after the Bill receives royal assent.
The Bill was initially introduced in the Senate and will now proceed to the House of Representatives.
ASFA members can access a more detailed summary of the measures in the Bill, with particular emphasis on amendments made to the previously circulated versions, on the ASFA website.
Omnibus amending bill passed by Parliament
Parliament has now passed the Treasury Laws Amendment (2018 Measures No 4) Bill 2018.
This omnibus amendment Bill makes a number of amendments in relation to superannuation guarantee compliance and penalties, single touch payroll (extension to small employers from 1 July 2019), fund reporting, employee commencement, Superannuation Complaints Tribunal secrecy provisions, and the taxation treatment of deferred annuities and reversionary transition to retirement income streams.
See ASFA Action issue 665 for more details about the superannuation-related measures in this Bill. Amendments were made to the Bill by the Senate, but these did not affect the superannuation-related measures.
The Bill now awaits Royal Assent.
Social services legislation: Budget measures bill
The Bill to amend the social services legislation to implement changes announced in the Government’s May 2018 Budget has now been passed by Parliament without amendment.
The Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Bill 2018 proposes to introduce amendments to the social services legislation to:
- introduce new means testing rules to encourage the development and take-up of lifetime retirement income stream products
- expand the Pension Loans Scheme
- increase and expand the Pension Work Bonus.
For more information refer ASFA Action issue 639.
The Bill now awaits Royal Assent.
Stronger penalties for financial sector misconduct: progress of bill
The Government’s bill to strengthen penalties for corporate and financial sector misconduct has been passed by the Senate with amendments, and now awaits reconsideration by the House of Representatives.
The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 proposes a number of reforms to the penalties for certain criminal offences in ASIC-administered legislation, introduces new offences and significantly increases the penalties for others. The Bill implements some of the recommendations of the ASIC Enforcement Review Taskforce (see ASFA Action issues 625, 668 and 689 for background.)
The Bill was passed by the Senate on 14 February with Opposition amendments that further increased the penalties for a number of offences. ASIC has welcomed the Senate’s passage of the Bill, which must now be reconsidered by the House of Representatives.
First Home Super Saver Scheme: amending bill introduced
The Government has introduced into Parliament amendments to the First Home Super Saver Scheme (FHSSS) to bring forward the time that an individual can enter into a contract to purchase or construct their first home under the scheme. The amendments implement an announcement made in the Government’s Mid-Year Economic and Fiscal Outlook statement in December (see ASFA Action issue 695).
The legislation governing the FHSS currently requires individuals to wait until amounts have been released from their superannuation under the scheme before they can enter into a contract to purchase or construct their home. The time it takes to release and be paid these amounts can result in individuals missing out on opportunities to purchase their desired home.
Amendments in the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019 provide for an earlier time for individuals to satisfy the scheme requirements. If the amendments are legislated, individuals will be able to enter into a contract to purchase or construct their home as long as they have applied for and received a First Home Super Saver determination and have applied for a valid request for release under that determination within 14 days of entering into the contract. Individuals will not have to wait for the administrative release process to finalise and receive their released amount before they can enter into a contract to purchase or construct their home.
The amendments are intended to apply in relation to valid requests made to the ATO to release an amount in respect of a FHSSS determination made on or after 1 July 2018.
SMSF membership limit increase: bill introduced
The Government has introduced into Parliament amendments to increase the maximum number of members for a self-managed superannuation fund (SMSF) or small APRA fund from four to six, as announced in the May 2018 Budget (see ASFA Action issue 669).
The Superannuation Industry (Supervision) Act 1993 (SIS Act) currently includes a definition that requires a SMSF to have fewer than five members. The SIS Act also contains provisions dealing with small superannuation funds, with the threshold for small funds set at the same level as the member limit for SMSFs (that is, fewer than five members). Some of these provisions apply to all superannuation funds that have fewer than five members (including SMSFs). Others are limited to small funds that are not SMSFs. Small funds that are not SMSFs are regulated by APRA and are usually referred to in general terms as ‘small APRA funds’, or SAFs.
Amendments in the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019 increase the number of members referred to in the definition of SMSF in the SIS Act from fewer than five members to fewer than seven members. As a result, the maximum number of members of an SMSF and a SAF is increased from four to six. The Bill also makes corresponding amendments to related tax legislation.
The amendments will commence on the later of 1 July 2019 and the first 1 January, 1 April, 1 July or 1 October to occur after the Bill receives Royal Assent.
Repeal of SIS transition arrangements: bill introduced
The Government has introduced into Parliament amendments to remove or amend a number of transitional provisions that were included in the Superannuation Industry (Supervision) Act 1993 (SIS Act) when it was enacted. These provisions assisted the move by superannuation funds that were previously regulated under the Occupational Superannuation Standards Act 1987 to the SIS regulatory regime.
These transitional rules are now largely redundant. Amendments in the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019 remove the redundant aspects of the transitional rules, while ensuring that those aspects that remain relevant will continue to apply.
The Government recently made regulations in preparation for the repeal of the transitional arrangements (see ASFA Action issue 693).
Consumer Data Right: bill introduced
The Government has introduced into Parliament a bill to introduce a Consumer Data Right (CDR).
The Treasury Laws Amendment (Consumer Data Right) Bill 2019 provides for introduction of the CDR with intended effect from 1 July 2019.
The CDR is intended to provide individuals and businesses with a right to efficiently and conveniently access specified data in relation to them held by businesses, and will authorise secure access to this data by trusted and accredited third parties. The CDR will require businesses in designated industry sectors to provide public access to information on specified products they have on offer.
According to the explanatory material, the CDR is designed to give customers more control over their information leading, for example, to more choice in where they take their business, or more convenience in managing their money and services.
The Government has indicated that it will apply to banking (‘open banking’) and the energy sector initially, then to the telecommunications industry. The Bill provides a framework under which the CDR can be expanded to other industries and sectors over time, through designation of those sectors and the implementation of specific rules and data standards.
The CDR will not initially apply to superannuation products. However, it should be noted that the recent final report from the Productivity Commission’s review of the efficiency and competitiveness of the superannuation industry, specifically recommended that the CDR be extended to superannuation (see ASFA Action issue 696).
Remaking of superannuation contributions (surcharge) regulations
Treasury has released draft regulations to remake a set of regulations dealing with the superannuation contributions tax (also known as the superannuation contributions surcharge). The existing regulations were due to sunset (expire) on 1 April 2019.
The surcharge is an additional tax on certain superannuation contributions for superannuation benefits accrued by high income earners that applied to contributions accrued between 1 July 1996 and 30 June 2005. While the tax is no longer imposed, payment of accrued surcharge liabilities relating to some members for superannuation contributions accrued on or before 30 June 2005 are deferred until, generally, the relevant members receive a superannuation benefit. As a result, there is a need to maintain regulations supporting the legislation that imposes the surcharge and deals with its assessment and collection.
On 5 February, Treasury released drafts of the Superannuation Contributions Tax (Assessment and Collection) Regulations 2019 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Regulations 2019 for a brief consultation. Submissions closed on 15 February.
Once finalised, the draft regulations will repeal and replace the Superannuation Contributions Tax (Assessment and Collection) Regulations 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Regulations 1997 (the 1997 regulations).
According to the explanatory material, the draft regulations:
- remake and repeal redundant regulations in 1997 regulations, including by removing provisions that are inoperative for financial years commencing on or after 1 July 2005 and updating the manner and form in which information must be provided to the ATO
- simplify language and restructure provisions for ease of navigation.
The explanatory material states that apart from these changes, the remaking of the Regulations is not intended to affect the substantive meaning or operation of the remade provisions. Transitional provisions preserve the operation of the prior Regulations in respect of financial years commencing prior to 1 July 2005.
Once finalised, the regulations will commence on 1 April.
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