Issue 657, 23 January 2018
In this issue:
- Means testing of lifetime retirement income streams: consultation
- Witnessing of binding death benefit nominations: ASIC reminder
- Superannuation tax integrity measures
- AML/CTF amendments
- May 2016 Budget reforms: updates to ATO guidance
Means testing of lifetime retirement income streams: consultation
The Department of Social Services (DSS) has launched a further round of consultation on the social security means test arrangements for retirement income streams.
The government announced in its 2016-17 Budget that it would address superannuation rules and regulations that restrict the development of new retirement income products and act as barriers to innovation in the creation of retirement income products (see ASFA Action issue 601). The Treasury Laws Amendment (2017 Measures No. 1) Regulations 2017 were made in June 2017 to give effect to this announcement, and commenced from 1 July 2017 (see ASFA Action issue 632).
The government had also committed to consult on social security means test arrangements for retirement income streams, including for products that may be developed as a result of the 201617 Budget changes. DSS conducted initial consultation with stakeholders in December 2016 and a public consultation in early 2017, before advising that a further round of consultation would be required (see ASFA Action issue 634).
DSS has now released a consultation paper seeking views on proposed new social security means test rules for pooled lifetime retirement income stream products. The paper indicates that the rules seek to provide more consistent means test outcomes for lifetime products over retirement. This is intended to support broader retirement income policy objectives, including work to develop a framework for MyRetirement products
The proposed new rules involve:
- income testing a fixed percentage of all product payments as income (assessing 70 per cent of payments as income)
- assets testing a consistent asset value of 70 per cent of the nominal purchase price until life expectancy at purchase, and half that amount (35 per cent) from then on.
It is proposed that deferred products will receive the same asset test assessment as products that commence payments immediately, but income will only be assessed once payments from the product commence.
If you have any comments you would like ASFA to consider including in a submission to DSS, please forward them to Ross Clare by close of business Tuesday 6 February.
Witnessing of binding death benefit nominations: ASIC reminder
ASIC has reminded the financial advice sector about requirements for witnessing signatures, after finding issues with advisers failing to correctly witness binding death nomination forms for superannuation benefits.
On 19 January, ASIC indicated it had become aware of a widespread practice among advisers of witnessing or having staff members witness client signatures on binding death nomination forms without being in the presence of the signatory. In other cases, forms are being backdated. Each of these practices fails to comply with the law and may lead to the nominations being invalid.
The proper execution of binding death nominations is important because the form directs the trustee of the superannuation fund to pay superannuation and insurance benefits in accordance with the account holder’s instructions. Improper witnessing of the form can make it invalid, resulting in rejection of the nomination. The trustee may then choose to exercise its discretion in a manner other than in accordance with the account holder’s nomination, potentially causing delays and uncertainty about the payment of the death benefit.
ASIC has noted that financial services licensees and advisers have a professional and legal obligation to comply with the law. Taking short cuts which result in important forms being invalidated and thereby jeopardising the account holder’s wishes does not meet the minimum advice and conduct standards expected by ASIC.
Acting ASIC Chair Peter Kell said, “Improper and unethical practices around binding death nomination forms can lead to very poor consumer outcomes. Advisers, licensees and their staff who engage in these practices should consider this a final warning. AFS licensees have ultimate responsibility for the conduct of their representatives and need to effectively monitor and supervise their representatives.”
Superannuation tax integrity measures
Treasury has released a consultation paper and draft legislation detailing two measures designed to support the integrity of the significant superannuation tax reforms announced in the May 2016 Budget.
The measures, which will primarily impact self-managed funds:
- include a member’s share of the outstanding balance of a limited recourse borrowing arrangement (LRBA) in their total superannuation balance
- ensure that non-arm’s length expenditure is taken into account when determining whether the non-arm’s length income tax rules apply to a transaction.
These measures were included in the May 2017 Budget (see ASFA Action issue 627) and are intended to ensure that LRBAs or related party transactions cannot be used to circumvent contribution caps. They are not intended to prevent the use of LRBAs.
The consultation paper seeks feedback on whether the proposed measures will meet their policy objectives, whether their objectives could be achieved in some other way, and any unintended consequences the measures might have.
Treasury is seeking submissions by Friday 9 February.
AML/CTF amendments
AUSTRAC has amended several parts of the Anti-Money Laundering/CounterTerrorism Financing (AML/CTF) rules, impacting matters such as identification and due diligence of customers, and the content of entities’ AML/CTF programs.
The amendments implement recommendations arising out of a statutory Review of the AML law that was completed in 2016. They seek to remove complexity in existing drafting and provide reporting entities with greater flexibility in complying with their obligations, while continuing to strengthen Australia’s AML/CTF regime and protect our financial system from criminal abuse.
The amendments, set out in Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2018 (No. 1), include:
- expanding the list of persons who can provide certified copies of documents to include a person in a foreign country who is authorised by law in that jurisdiction to administer oaths or affirmations, or to authenticate documents
- inserting new procedures for reporting entities to follow in certain limited and exceptional circumstances where a customer is unable to provide satisfactory evidence of their identity
- requiring inclusion in AML/CTF programs of processes to identify, mitigate and manage money laundering and terrorism financing (ML/TF) risk in respect of new designated services, new methods of delivering designated services and new technologies
- inserting requirements to guarantee the independence of the reviewer of AML/CTF programs
- requiring reporting entities to incorporate guidance on ML/TF risks provided or disseminated by AUSTRAC in developing or updating their AML/CTF programs.
The amendments commenced on 12 January.
May 2016 Budget reforms: updates to ATO guidance
The ATO has finalised updates to some of its guidance material relating to the transfer balance cap and the total superannuation balance – concepts introduced as part of the superannuation reforms announced in the May 2016 Budget.
The Treasury Laws Amendment (2017 Measures No. 2) Act 2017, which received Royal Assent in June 2017 (see ASFA Action issue 632), made a number of minor and technical amendments to the reform package. In late December, the ATO updated the following law companion guidelines to reflect these amendments:
- LCG 2016/08 – Superannuation reform: transitional CGT relief for complying superannuation funds and pooled superannuation trusts
- LCG 2016/9 – Superannuation reform: transfer balance cap
- LCG 2016/12 – Superannuation reform: total superannuation balance.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
