Issue 844, 8 March 2022
In this issue:
Superannuation fund holdings of Russian assets
In light of the ongoing Russian invasion of Ukraine and the continued escalation of sanctions imposed against Russia in response, the Government has outlined its “strong expectation that Australian superannuation funds will review their investment portfolios and take steps to divest any holdings in Russian assets”.
APRA has also made a statement on this matter, indicating it will not be taking action against Trustees regarding divestment of Russian assets:
“Data provided to APRA indicates that superannuation fund holdings of Russian assets are a very small proportion of the $3.5 trillion superannuation asset pool.
APRA will not be taking any action against trustees who seek to divest Russian assets in this context where trustees have considered such divestments in accordance with their duties.”
2021-22 Budget measures: regulations made
The Government has made regulations supporting recent legislative amendments to implement superannuation-related measures announced in the 2021-22 Budget. The regulations impact the work test and bring-forward rule for superannuation contributions and the eligibility age for downsizer contributions.
The Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Act 2022 (Enhancing Superannuation Outcomes Act) amended the Income Tax Assessment Act 1997 (ITAA 1997) to:
- remove the work test for voluntary (non-concessional) and salary sacrificed contributions for individuals under age 75, so the work test will only apply to individuals aged between 67 and 75 years who claim a deduction for their personal contributions
- allow individuals under age 75 (rather than age 67) to ‘bring-forward’ non-concessional contributions in a particular financial year
- reduce the eligibility age for downsizer contributions from age 65 to age 60.
The associated Explanatory Memorandum made it clear that regulations would be required to complete the implementation of these measures. In particular it was noted that the regulations would effectively relocate the existing work test from the Superannuation Industry (Supervision) Regulations 1993 (SIS Regulations) and the Retirement Savings Account Regulations 1997 (RSA Regulations) and remove the work test as a general condition for funds to accept personal contributions.
The Government has now made the Treasury Laws Amendment (Enhancing Superannuation Outcomes) Regulations 2022 (Enhancing Superannuation Outcomes Regulations) to support the implementation of these reforms. In addition to amending the SIS Regulations and RSA Regulations, these also amend the Income Tax Assessment (1997 Act) Regulations 2021 (ITAA 1997 Regulations).
The explanatory material makes it clear that the work test has been removed as a condition of acceptance of contributions by funds and that:
“Work test conditions may still apply, however, at the point of deducting certain contributions rather than at the point of a fund accepting contributions (see subsection 290-165(1A) of the ITAA 1997).”
In general terms, the Enhancing Superannuation Outcomes Regulations amend the SIS Regulations to:
- remove from sub-regulation 7.04(1) the current table of rules that govern funds’ acceptance of contributions for individuals dependant on their age and replace it with a new, simplified table. The new table allows acceptance of contributions, without regard to any work test, as follows:
- for a member under age 60 – employer contributions or member contributions
- for a member who is not under age 60, but is under age 75 – employer contributions or member contributions (including downsizer contributions)
- for a member who is not under age 75 – mandated employer contributions or downsizer contributions.
- remove definitions and concepts that supported the ‘work test’ aspects of the current table.
- remove a ‘recent retiree’ exemption that previously applied to the current table, that effectively allowed a fund to accept contributions in respect of a member under age 75 who had satisfied the work test in the prior year but not the current year, if their total superannuation balance is under $300,000 and they had not previously relied on the exemption. (This exemption is now located in the ITAA 1997 as part of the age-related conditions on deductibility of contributions.)
- correspondingly amend sub-regulation 7.05, which relates to the accrual of benefits for a member by a defined benefit fund.
The Enhancing Superannuation Outcomes Regulations also:
- amend the RSA Regulations in a manner consistent with the amendments made to the SIS Regulations
- amend the ITAA 1997 Regulations to provide that an individual cannot rely on the ‘recent retiree’ exemption now located in the ITAA 1997 if they have previously relied on one of the equivalent exemptions removed from the SIS Regulations and RSA Regulations.
The amendments apply in relation to contributions made in 2022-23 and later financial years.
It is important to note that some rules relevant to acceptance of contributions by funds still remain in the SIS Regulations (and RSA Regulations) – for example, the requirement not to accept any member contributions if the fund does not have the member’s tax file number and the requirement to return a contribution within 30 days of becoming aware it was received in a manner inconsistent with the acceptance rules.
The Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Act 2022 received Royal Assent on 22 February — see ASFA Action issues 843 and 831 for background. The Act also removed the $450 per month earnings threshold that applies before an employer is required to make Superannuation Guarantee contributions for an employee, increased the maximum releasable amount for the First Home Super Saver Scheme from $30,000 to $50,000 and reformed the ‘segregated current pension assets’ rules under which a fund calculates its exempt current pension income. The Enhancing Superannuation Outcomes Regulations are not relevant to these reforms.
The government did not consult publicly on the Regulations, but did undertake confidential consultation with the ATO.
APRA/ASIC guidance on Retirement Income Covenant implementation
APRA and ASIC have jointly released a letter to RSE licensees to provide guidance on their expectations regarding Retirement Income Covenant implementation (see ASFA Actions 835, 836 and 841 for further background).
RSE licensees are required to formulate a retirement income strategy by 1 July 2022, and ASIC and APRA have provided an indicative implementation pathway for the implementation of this strategy (from 2022 to 2025) and their expectations for the process for its continuous improvement over time.
They have also provided key considerations that a prudent RSE licensee might consider in order to develop an effective retirement income strategy to assist members in or approaching retirement (Attachment A in the letter).
These are:
- Oversight and strategy implementation
- Strong product governance and distribution practices
- Robust analysis of member cohorts/sub-classes
- Quality data
- Fit-for-purpose assistance for members
Climate risk: voluntary APRA self-assessment
APRA has written to regulated entities regarding an upcoming voluntary climate risk self-assessment survey.
APRA has indicated it will shortly commence the voluntary survey with medium-to-large APRA-regulated entities, asking them to self-assess how their current practices align to APRA’s guidance on managing the financial risks of climate change.
The survey is intended to improve both APRA’s and industry’s understanding of the approaches being taken by APRA-regulated entities to identify, assess and manage climate-related financial risks. In particular, the survey will gather insights on how APRA-regulated entities are currently managing these risks, using Prudential Practice Guide CPG 229 Climate Change Financial Risks as a benchmark.
Once the survey has closed, APRA will provide participating entities with de-identified peer-comparison results so as to enable them to understand how their approaches and practices compare to peers as well as publish information on industry-level insights and themes from the results. APRA will also:
- incorporate insights from the survey into its ongoing supervisory approaches to addressing the financial risks of climate change
- consider the benefit of repeating the survey, and potentially expanding the survey to all APRA regulated entities, in future years as a means of monitoring how industry approaches to managing the financial risks of climate change are evolving over time.
Single Touch Payroll: consultation on repeal of redundant instruments
The ATO is consulting on a draft legislative instrument that will repeal a number of redundant and spent instruments relating to Single Touch Payroll (STP) reporting, including one instrument relating to the reporting of superannuation contributions by employers.
LI 2022/D7 Taxation Administration – Single Touch Payroll – Spent Instruments Repeal Determination 2022 will repeal the 2019 instrument: Taxation Administration – Single Touch Payroll – Exemption for Employers from Reporting Contribution Amounts Paid to a Superannuation Fund.
As originally enacted, Division 389 of Schedule 1 to the Taxation Administration Act 1953 — which implemented the STP regime — included a requirement to report contribution amounts paid to a superannuation fund through STP. The 2019 instrument provided an exemption for all employers from that reporting following an announcement by Government that the requirement would be repealed. That repeal occurred in 2019 on the commencement of Schedule 4 to the Treasury Laws Amendment (2018 Measures No.4) Act 2019. As the legislation imposing the obligation has been repealed, the 2019 instrument has no ongoing operation and will now be repealed.
The ATO is seeking any feedback on LI 2022/D7 by close of business Tuesday 29 March.
Financial Regulator Assessment Authority review of ASIC: survey reminder
As reported in ASFA Action issue 835, the Financial Regulator Assessment Authority (FRAA) is currently undertaking its first review into the effectiveness and capacity of ASIC.
The FRAA has asked ASFA to provide the following information to our members regarding a survey it is conducting as part of the review:
The Financial Regulator Assessment Authority (FRAA) is an independent statutory body established by the Government in response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Its role is to undertake regular reviews of ASIC and APRA to assess the effectiveness and capability of the two regulators.
The FRAA’s first review is of ASIC and covers ASIC’s effectiveness and capability, across three areas:
- Strategic prioritisation, planning and decision making
- Surveillance (a definition will be provided in the survey about the scope of surveillance activities in this review)
- Licensing
The FRAA will provide its report to the Minister by the end of July 2022 and it will be tabled in Parliament.
As part of the review, the FRAA is working with Boston Consulting Group to conduct a survey of relevant external stakeholders about their experiences with ASIC. The survey is a key input into the FRAA’s review of effectiveness and capability of ASIC. It is an opportunity for stakeholders to share their views and contribute to improving the effectiveness and capability of ASIC.
Survey responses will be anonymous, unless you nominate to provide your organisation’s name. We collect some demographic information (for example, relationship to ASIC), but will not report on any segments with less than five responses to ensure that no response is identifiable.
The survey will be open until 11 March 2022. You only need to complete the survey once.
You can access the survey through the link https://www.113.vovici.net/se/13B2588B33CC4852.
Some verbatim comments may be used in reports prepared for the FRAA and the Minister, which may be made publicly available.
We encourage you to participate and share your views. For any questions regarding the survey, please reach out to Sally Etherington from the Financial Regulator Assessment Authority (FRAA@treasury.gov.au)
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