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ASFA Action Issue 954, 9 July 2024
In this issue:

 

Superannuation forecasts: consultation on updates to ASIC relief instrument

ASIC is proposing updates to the relief instrument that applies in relation to superannuation calculators and forecasts.

ASIC intends to update the rate of nominal wage inflation in ASIC (Superannuation Calculators and Retirement Estimates) Instrument 2022/603, and Regulatory Guide RG 276  Superannuation forecasts: Calculators and retirement estimates in view of Treasury’s revised long-term wage growth forecasts.

Instrument 2022/603 exempts providers of superannuation calculators and retirement estimates (collectively referred to as ‘superannuation forecasts’) from certain regulatory requirements related to providing financial product advice if they provide their superannuation forecasts within the terms of the ASIC relief.

When providing superannuation forecasts under ASIC Instrument 2022/603, providers must present superannuation forecasts in today’s dollars and must, by default, convert future dollars to today’s dollars using the prescribed default inflation rates, unless a user has inputted an alternate rate.

The prescribed default inflation rates reflect nominal wage inflation while a user is in the accumulation phase (currently at 4 per cent pa), and consumer price inflation while a user is in the retirement phase (2.5 per cent pa). These rates respectively align with modelling in the 2021 Intergenerational Report (IGR), as well as in the Retirement Income Review, and the current midpoint of the Reserve Bank of Australia’s target range for consumer price inflation.

To ensure the default inflation assumptions in Instrument 2022/603 continue to reflect long-term economic conditions, ASIC proposes to revise the prescribed rate of nominal wage inflation in Instrument 2022/603 and RG 276 from 4 per cent to 3.7 per cent pa, aligning the default rate with the long-term forecast of nominal wage inflation in the 2023 IGR.

ASIC is not proposing any further changes to other relief settings, including to the prescribed default rate of consumer price inflation (CPI). These settings were the subject of a consultation in November 2021-January 2022 and ASIC’s response to the issues raised in that consultation is set out in Report 731 Response to submissions on CP 351 Superannuation forecasts: Update to relief and guidance. ASIC also sought advice from the Australian Government Actuary on key actuarial issues before finalising its relief instrument settings.

ASIC has proposed a transition period to 31 December 2024, recognising that providers delivering superannuation forecasts may need time to make updates. Up to 31 December 2024, providers can adopt either the existing default nominal wage inflation rate (4 per cent pa) or the revised rate (3.7 per cent pa) when converting future dollars to today’s dollars if a provider is relying on the ASIC relief. From 1 January 2025 the revised default nominal wage inflation rate of 3.7 per cent pa will apply.

If you have any feedback you would like ASFA to consider in relation to the proposed updates to the relief instrument, please forward it to Ross Clare by close of business Friday 26 July.

 

Strategic planning and member outcomes: prudential standard updated

APRA has published an updated version of prudential standard and related guidance SPS 515 and SPG 515 Strategic Planning and Member Outcomes, with the amendments to apply from 1 July 2025.

The updates reinforce trustees’ duty to act in the best financial interests of members. According to APRA, the changes ensure members’ interests are front-and-centre in trustees’ strategic and business planning, financial resource management, implementation of the retirement income covenant and fund transfers.

The revised standard and guidance also set clear expectations for trustees on expenditure. The guidance sets out:

Deputy Chair Margaret Cole said:

“By strengthening this core strategic planning standard, APRA is setting a clear expectation for trustees to put members front of mind in every decision they make and the way they run their businesses every day.

Fund expenditure is a significant area of focus for APRA and the broader community. In addition to tightening the obligations under SPS 515, APRA is now collecting, analysing and will be publishing detailed expenditure data at a fund level. APRA will review the data to ensure spending aligns with the best financial interests of members, and will follow up trustees with outlying discretionary expenditure.

The industry will face further scrutiny on spending when the Financial Accountability Regime comes into effect for superannuation next March, with trustees required to identify an accountable person with responsibility for expenditure.”

The updates follow consultation by APRA in September-December last year (see ASFA Action issue 916). APRA has published a response paper for the consultation.

The updates to SPS 515 will take effect from 1 July 2025 (commencement was originally proposed for 1 January 2025).

 

Bill updates: Delivering Better Financial Outcomes, Build to Rent, PTRS

Parliament has now concluded its Winter sittings and will resume on 12 August.

Delivering Better Financial Outcomes

As reported in ASFA Action issue 940, the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 includes amendments to implement tranche 1 of the Delivering Better Financial Outcomes reforms, the Government’s response to the Quality of Advice Review.

The Government successfully moved significant amendments in the Senate to the proposed rewrite of section 99FA of the Superannuation Industry (Supervision) Act 1993, which specifies when a fund trustee may deduct advice fees from a member’s superannuation account. The House of Representatives agreed to the amendments and the Bill is now awaiting Royal Assent.

Build to Rent tax concessions

As reported in ASFA Action issue 953, the measures to increase the tax concessions for build to rent (BTR) developments were to be split out of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024  and into a standalone Bill. This occurred on 2 July, with the amendments now located in the Treasury Laws Amendment (Build to Rent) Bill 2024. The new Bill is taken to have already passed through the House of Representatives, effectively picking up the history of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.

The Treasury Laws Amendment (Build to Rent) Bill 2024 has now been referred to the Senate Economics Legislation Committee, along with the Capital Works (Build to Rent Misuse Tax) Bill 2024, for a separate inquiry and report by 4 September. Submissions are due by close of business Thursday 25 July.

Payment Times Reporting Scheme

The Payment Times Reporting Amendment Bill 2024 has now concluded its passage through Parliament . As reported in ASFA Action issue 949, this Bill makes amendments to the legislation supporting the Payment Times Reporting Scheme (PTRS) to implement the Government’s response to a 2023 statutory review. Under the PTRS, large businesses and government enterprises – including some superannuation funds – must submit payment times reports to the Payment Times Reporting Regulator every 6 months.

 

Transfer balance amendments for capped DB income streams in SFTs: regulations

The Government has amended the income tax regulations to ensure that individuals with a capped defined benefit income stream(CDBIS) are not adversely impacted in the event of a Successor Fund Transfer (SFT).

The Income Tax Assessment Amendment (Superannuation) Regulations 2024 amend the Income Tax Assessment (1997 Act) Regulations 2021 to remove the potential for recipients of CDBISs to have their transfer balances impacted by involuntary fund transfers such as an SFT.

Under current provisions, if an individual is a retirement phase recipient of a CDBIS, an SFT results in a debit and a credit to their transfer balance account, as the original superannuation income stream ceases and a new one commences in the successor fund. Currently, the debit and credit could be different amounts, resulting in a net increase or decrease to their transfer balance. In the case of a net increase, this could cause their transfer balance account to exceed their transfer balance cap, which could result in additional taxation or require them to commute funds from a non-CDBIS pension that they hold, or both.

The amendments provide that, when an SFT occurs, the credit that arises in a CDBIS recipient’s transfer balance account is equal to the debit that arises. This means the debit and credit cancel each other out and the SFT has no net impact on the recipient’s transfer balance. This puts CDBIS recipients of funds who undergo an SFT in the same net position as if the SFT did not occur.

The amendments apply retrospectively where a CDBIS recipient has been disadvantaged by an SFT that occurred before commencement in relation to their transfer balance. Where a CDBIS recipient has had their transfer balance reduced due to an SFT that occurred before commencement, they can retain that benefit and will not be impacted by the amendments in relation to that SFT.

Treasury consulted on a draft of the amendments in April (see ASFA Action issue 941 for background).

 

Delivering Better Financial Outcomes: legislative instrument

The ASIC Corporations (Amendment) Instrument 2024/554 amends three existing instruments in response to amendments to the Corporations Act 2001 to be made by the DBFO Act. In particular, Instrument 2024/554:

 

Parliamentary Committee report on ASIC investigation and enforcement

The Senate Economics References Committee, chaired by Senator Andrew Bragg, has tabled a report following its inquiry into ASIC’s capacity and capability to undertake proportionate investigation and enforcement action arising from reports of alleged misconduct.

The Committee’s recommendations include:

 

ASIC Cost Recovery Implementation Statement 2023-24

As recommended by the 2023 industry funding model review, ASIC has announced that from 2022–23 they will only publish a final Cost Recovery Implementation Statement (CRIS) each year, removing the annual consultation on a draft CRIS. Together with Treasury, ASIC will undertake more substantive consultation every five years on the industry funding model. There will be an opportunity for stakeholders to make written submissions during the consultation and industry roundtables will be considered as needed. 

For 2023-24, ASIC’s estimated cost of regulating superannuation trustees is $27.3 million, down from $29.6 million for 2022–23. 

 

 

ASFA REGULATORY WATCHLIST

ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations

and other regulatory announcements relevant to superannuation.

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