Issue 779, 7 October 2020
In this issue:
- Budget 2020-21: additional announcements of interest
- COVID-19 Coronavirus: interaction between JobKeeper and contributions work test rules
- COVID-19 Coronavirus: early release of super – APRA data
- COVID-19 Coronavirus: APRA resumes work on sustainability of individual disability income insurance
- APRA: new supervision risk & intensity model
- Derivative transaction reporting
Budget 2020-21: additional announcements of interest
Given this year’s shortened lockup arrangements, last night’s Budget edition ASFA Action focused on the major superannuation-specific announcements in the 2020-21 Budget.
A number of additional measures may also be of interest to superannuation providers:
- as widely reported prior to the Budget, the tranche of cuts to personal income tax rates that is currently legislated to apply from 1 July 2022 will be brought forward to apply from 1 July 2020 – this may have some tax withholding impacts for superannuation providers
- the Government will undertake consultation on permanent changes to the Corporations Act 2001 to allow companies to call and conduct meetings electronically with a quorum achievable through virtual attendance of shareholders and officers and provide certainty that company officers can electronically execute a document. Temporary relief of this nature has been provided during the COVID-19 pandemic (see ASFA Action issues 776, 769 and 754)
- as part of a package of measures to strengthen the response to natural disasters and other civil emergencies, the Government will ensure that Australian Defence Force Reservists who are called out receive access to military superannuation and related benefits
- a number of measures were announced or confirmed that are relevant to those on the Age Pension and some other Commonwealth income support benefits – including additional economic support payments and changes to the Medicare levy low-income thresholds.
COVID-19 Coronavirus: interaction between JobKeeper and contributions work test rules
APRA has published a new frequently asked question (FAQ), addressing how superannuation funds should approach the ‘work test’ for acceptance of personal contributions where an individual’s employer is receiving the JobKeeper wage subsidy.
The JobKeeper scheme was introduced as part of the Government’s COVID-19 economic support package (see ASFA Action issues 749, 748 and 746). As outlined in ASFA Action issue 758, the Government has made regulations ensuring that employers are not subject to additional Superannuation Guarantee (SG) obligations as a result of their participation or anticipated participation in the JobKeeper scheme.
The Government had not indicated what—if any—impact the JobKeeper scheme might have on an individual’s ability to satisfy the work test for making personal contributions to their superannuation fund. Under the work test, a fund can (generally) only accept a contribution—other than a mandated contribution—for an individual aged 67 to 74 if they have been gainfully employed on at least a part-time basis during the financial year in which the contribution is made. (The trigger age for the work test increased from age 65 to age 67 from 1 July 2020, see ASFA Action issue 757.)
In response to a question raised by ASFA, APRA has added a new FAQ to its COVID-19 series, addressing this matter.
New FAQ 14 states APRA’s view that:
- where an employer is receiving the JobKeeper wage subsidy for an individual, registrable superannuation entity (RSE) licensees should consider the individual to be ‘gainfully employed’1for the purpose of the ‘work test,’ even if that individual has been fully stood down and is not actually performing work
- it is appropriate for an RSE licensee to take this approach because the individual is still employed and is obtaining a valuable benefit from his/her employer
- RSE licensees need not distinguish between individual members on JobKeeper who are working reduced hours or those who have been stood down, and can assume that all members in receipt of the JobKeeper subsidy satisfy the ‘work test’ for the purpose of voluntary superannuation contributions.
COVID-19 Coronavirus: early release of super – APRA data
APRA has made its twenty-third weekly publication of industry-level data from its early release initiative data collection.
The data covers applications made from inception of the early release initiative on 20 April. The data shows that from 20 April to 27 September:
- payments totalling $33.8 billion had been made, with an average payment of $7,671
- 3.2 million ‘initial’ applications had been received, with an average application amount of $7,402
- 1.3 million ‘repeat’ applications had been received, with an average application amount of $8,384
- funds were taking an average of 3.3 business days to pay an application, with 95 per cent of applications paid within five business days.
APRA has also published the twenty-second tranche of fund-level statistics from its early release data collection, revealing the number and value of the payments processed by each fund, as well as the time taken to make payments.
COVID-19 Coronavirus: APRA resumes work on sustainability of individual disability income insurance
APRA has reported that it will resume its intervention into the life insurance market to stem ongoing heavy losses in respect of individual disability income insurance (IDII), after its program of work was placed on hold earlier this year due to the COVID-19 pandemic.
APRA has written to insurers to advise that from 1 October 2020, IDII providers will be subject to upfront capital penalties until APRA is assured they have taken adequate and timely steps to address sustainability concerns. Specifically, APRA requires them to implement a number of measures designed to better manage riskier product features, including:
- ensuring IDII benefits do not exceed the policyholder’s income at the time of claim, and cease the sale of Agreed Value policies
- avoiding offering IDII policies with fixed terms and conditions of more than five years
- ensuring effective controls are in place to manage the risks associated with longer benefit periods.
APRA’s principles directed at addressing issues in relation to income at risk include the following:
2.4 where superannuation contributions are excluded from income at risk, any insurance benefits related to these contributions can be paid in addition to the above income replacement limits. In all instances, insurance benefits related to superannuation contributions should be paid into a superannuation fund and not to the claimant.
In its commentary, APRA acknowledged the value and importance of defining IDII benefits that allow for the continuation of superannuation contributions during the claim period. However, it emphasised that benefits related to these contributions should not result in an increase in the income replacement ratio, and should always be paid directly to a superannuation fund.
Importantly, APRA also expects life insurers to apply the principles set out in its letter to their other insurance products, “where appropriate”.
APRA: new supervision risk & intensity model
APRA has written to its regulated entities to advise it will, from this month, commence the roll-out of a new Supervision Risk and Intensity (SRI) model for assessing the risks faced by banks, insurers and superannuation licensees.
The new model is expected to be fully implemented by June 2021. It will replace the Probability and Impact Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS) systems that APRA has used since 2002.
APRA will use the SRI Model to assess the systemic significance of APRA-regulated entities, and the level of risk each entity faces. These assessments will then guide the nature and intensity of APRA’s supervisory response.
APRA Chair Wayne Byres said: “The new SRI Model is more contemporary and sophisticated than its predecessor. The model includes a degree of tailoring to each individual sector, and its greater flexibility will help APRA respond to changes in the risk environment, such as those posed by the current pandemic”.
To help industry prepare for the transition, APRA has released an SRI Model Guide with more detail on its design characteristics, its revised supervision philosophy, and a set of frequently asked questions.
Derivative transaction reporting
ASIC has registered legislative instruments amending existing exemptions in relation to derivative transaction reporting:
- ASIC Corporations (Amendment) Instrument 2020/827 amends the ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2015/844. Instrument 2015/844 provides reporting entities with transitional relief from certain reporting requirements under the ASIC Derivative Transaction Rules (Reporting) 2013(the Rules), for varying periods. Most of the conditional exemptions are due to expire or have ceased. New Instrument 2020/827 extends, modifies and updates some of these conditional exemptions and repeals some conditional exemptions that are expiring on 30 September 2020 or have previously expired
- ASIC Regulated Foreign Markets Determination (Amendment) Instrument 2020/828 makes a number of updates to the ASIC Regulated Foreign Markets Determination [OTC DET 13/1145] for the purposes of Rule 1.2.4(2) of the ASIC Derivative Transaction Rules (Reporting) 2013 (the Rules).
The new Instruments took effect on 1 October. See ASFA Action issue 756 for background in relation to these instruments.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
