Issue 863, 9 August 2022
In this issue:
Deferral of extension of YFYS performance test: regulations
As reported in ASFA Action issue 859, the Government has directed Treasury to review the operation of the Your Future, Your Super (YFYS) laws after the second round of MySuper performance tests have taken place, and indicated it would pause the extension of the YFYS performance test beyond MySuper products for 12 months.
The Government has now registered the Superannuation Industry (Supervision) Amendment (Your Future, Your Super—Addressing Underperformance in Superannuation) Regulations 2022. These regulations defer the date from which the YFYS performance test will apply to trustee-directed products to 1 July 2023, in line with the Government’s announcement.
Expansion of eligibility for downsizer contribution: amending Bill introduced
The Government has introduced into Parliament a Bill containing amendments to reduce the eligibility age for downsizer contributions from 60 to 55 years.
During the recent election campaign, both the former and current Governments committed to allowing eligible individuals access the downsizer contribution from age 55, instead of the current age 60 (see ASFA Action issue 852). The Treasury Laws Amendment (2022 Measures No 2) Bill 2022 contains the necessary amendments to the Income Tax Assessment Act 1997 to give effect to this change. As noted in the explanatory material, amendments will also be required to the contributions acceptance rules in the Superannuation Industry (Supervision) Regulations 1994 and Retirement Savings Account Regulations 1997.
Under the pre-election commitment, this change was to have applied from 1 July. The Bill, however, contains a different commencement date – the reduced eligibility age will apply to contributions made from the first day of the first quarter after the day on which the Bill receives Royal Assent.
SCT transition to AFCA, minor and technical amendments: Bill passed
A Bill proposing some minor and technical amendments relevant to superannuation has been passed by both houses of Parliament.
As reported in ASFA Action issue 862, the Treasury Laws Amendment (2022 Measures No. 1) Bill 2022 Bill picks up on some amendments that were in earlier Bills that lapsed when Parliament was dissolved ahead of the election. In particular, the Bill:
- contains transitional arrangements for the closure of the Superannuation Complaints Tribunal (SCT) and its replacement by the Australian Financial Complaints Authority (AFCA)
- includes minor and technical reforms to:
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- ensure the product dashboard disclosure rules do not inadvertently apply to self-managed or small APRA funds
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- amend social security legislation in relation to the asset-test exempt status of certain commutations of market-linked and life expectancy income streams that occur for the purposes of not exceeding the transfer balance cap.
These amendments were previously in Bills that lapsed when Parliament was dissolved for the election.
The Greens successfully moved amendments to the Bill in the Senate, however these were unrelated to the superannuation measures. The Bill now awaits Royal Assent.
Public sector superannuation: amending Bill
Last week, a Bill was introduced into Parliament and passed by both houses, to retrospectively address an issue in relation to the superannuation entitlements of certain public servants who, prior to 1 March 2022, received rent-free accommodation.
The Public Sector Superannuation Salary Legislation Amendment Bill 2022 seeks to retrospectively address a concern about whether the value of rent-free accommodation should have been included in the salary of impacted public servants for superannuation purposes. The concern has arisen in the context of a case currently before the Federal Court, Brendan Peace & Ors v Commonwealth of Australia and Anor. If the Court finds in favour of the applicants in that case, the flow-on impacts would mean that many former and current Commonwealth employees (likely at least thousands) could be entitled to have the value of rent-free housing treated as salary for superannuation purposes. This would have wide ranging consequences for the operation of the superannuation legislation and the extensive and interconnected series of legislated rights and obligations between Commonwealth employers, employees (as members of funds) and the Commonwealth Superannuation Corporation.
The issue impacts members of the Public Sector Superannuation Scheme (PSS), Public Sector Superannuation Accumulation Plan (PSSAP), and also members of non-Commonwealth choice funds whose entitlements under their employment instrument are defined by reference to the default superannuation salary of PSSAP members or PSS members. In some cases, including rent-free accommodation in a member’s salary for superannuation purposes could dramatically increase their superannuation outcomes.
The Bill was introduced into Parliament on 3 August and passed on 4 August, without amendment. It now awaits Royal Assent.
ASIC industry funding model: review
The Government has commenced a review of the ASIC industry funding model.
The model, which aims to recover the costs of ASIC’s regulatory activity from entities in the sectors that create the need for regulation, has been in place for five years.
The Review will be forward looking and focused on identifying refinements to the model that may be required to ensure its settings remain appropriate. The Review will also have regard to the temporary levies relief provided to personal financial advice licensees in respect of 2020-21 and 2021-22 (see ASFA Action issue 822).
The Review will be led by Treasury, in consultation with ASIC, the Department of Finance and the Department of the Prime Minister and Cabinet.
The Government has issued a Terms of Reference for the Review and Treasury will undertake a public consultation process later in the year.
Climate risk: self-assessment findings
APRA has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance and superannuation industries.
The voluntary survey was designed to provide insights into how APRA-regulated entities are aligning their practices with the expectations set out in Prudential Practice Guide CPG 229 Climate Change Financial Risks. CPG 229 provides regulated entities with guidance on managing the financial risks and opportunities that may arise from a changing climate.
APRA reports that the responses to its survey, from 64 medium to large institutions, suggest regulated entities are generally aligning well to APRA’s guidance, especially in the areas of governance and disclosure. Climate risk, however, remains an emerging discipline compared to other traditional risk areas, with only a small portion of survey respondents indicating that they have fully embedded climate risk across their risk management framework.
APRA Deputy Chair Helen Rowell said the findings are encouraging however there is more work to do: “With stakeholder expectations on climate risk only going to rise further in coming years, we urge all regulated entities – not only those involved in the survey – to consider the findings and reflect on their preparedness”.
APRA corporate plan 2022-23
APRA has released its corporate plan for 2022-23, with a continued focus on protecting the Australian community today and preparing the financial system for tomorrow.
APRA’s strategic priorities and key activities, as they relate to superannuation, include:
- continuing to rectify sub-standard practices through robust supervision, strengthening prudential standards and reinforcing minimum expectations regarding:
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- fund expenditure including trustees’ practices as they relate to their ‘best financial interests duty’ obligations
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- investment governance, successor fund transfers and financial resilience
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- strategic planning and business performance review practices, insights and actions
- maintaining momentum on eradicating unacceptable product performance by intensifying pressure on trustees to cease offering high-fee, poor performing products, and scrutinising choice products by:
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- conducting annual legislated performance tests
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- continuing to publish MySuper and Choice heatmaps to support improved transparency, accountability and decision-making;
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- heightened supervision of trustees where products fail the performance test or otherwise demonstrate poor performance
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- using prudential powers to act against trustees where warranted.
- accelerating beneficial industry consolidation to establish viable and durable business models across the superannuation sector
- embedding good governance, risk culture, remuneration and accountability practices
- enabling better data-driven decisions including through continuing the roll-out of its APRA Connect data collection platform
- working to oversee the new retirement income strategy.
Market-linked income streams – halving of drawdown rate: veterans’ entitlements instrument
The Government has registered the Veterans’ Entitlements (Asset test Exempt Income Stream (Market-linked) — Payment Factors) Principles Amendment Instrument 2022.
The effect of this instrument is to extend the halving of the minimum draw-down rate for market-linked income streams by a year, to allow the income stream to remain asset test exempt for the purposes of veterans’ entitlements legislation. This follows amendments to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) in April to extend the halving of the drawdown rates for 2022-23 and is intended to bring the rules into alignment with the SIS Regulations.
The Government recently registered the Social Security (Asset test Exempt Income Stream (Market-linked) – Payment Factors) Amendment (Minimum Amount) Principles 2022, which has the same effect in relation to the treatment of market-linked income streams for social security purposes (see ASFA Action issue 858).
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
