The last month has been a hectic one for the industry, with a pre election Budget, further progress on implementation of the Royal Commission recommendations, and a spate of releases from the regulators before the move into caretaker government.

2019-20 Budget

The Budget delivered on 2 April contained a few measures targeted specifically at superannuation, but no sweeping reforms. The most significant of these measures include:

  1. fund tax rules: the current tax relief for merging superannuation funds (due to expire on 1 July 2020) will be made permanent and the requirements for the calculation of exempt current pension income will be simplified from 1 July 2020.
  2. contributions: from 1 July 2020, individuals aged 65 and 66 will be permitted to make voluntary contributions (concessional and non-concessional) without meeting the work test, and will be eligible for the ‘bring forward’ arrangements which effectively allow access to a higher non-concessional contributions cap
  3. SuperStream: the application of the SuperStream rollover standard to SMSF rollovers (due to take effect from 30 November 2019) will be deferred until 31 March 2021, and the rollover standard will be expanded from the same date to allow the ATO to send ‘release authorities’ to funds in electronic form
  4. Superannuation Consumer Advocate: funding will be provided to identify options to support the establishment of a Superannuation Consumer Advocate, to provide input on behalf of consumers in policy discussions and provide information to educate and assist consumers navigate the superannuation system
  5. Superannuation Complaints Tribunal: the SCT will be provided with additional funding to resolve outstanding complaints and cease operations by 31 December 2020 (previously the SCT was funded only until 30 June 2020). The additional funding will be recouped via funds’ APRA levies.
  6. unpaid superannuation liabilities – the ATO will receive additional funding to increase activities to recover unpaid tax and superannuation liabilities from larger businesses and high wealth individuals.

The Budget also recognised the delayed commencement date—1 October 2019—for the elements of the Protecting Your Superannuation (PYS) reforms that will require superannuation fund trustees to offer insurance to members on an opt-in (rather than opt-out) basis for accounts with balances under $6,000 and new accounts belonging to members under age 25. The commencement of these measures was deferred from 1 July 2019 when they were transferred from the PYS legislation in February, prior to its passage by Parliament, to the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019. The Budget also recognised and accounted for other amendments that were made to the remaining aspects of the PYS legislation, but did not contain any new announcements in relation to PYS.

As expected, the Government’s focus was directed more toward implementation of its response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, with in excess of $600 million in funding allocated over five years for measures including:

  • designing and implementing an industry funded compensation scheme of last resort for consumers and small business
  • providing the Australian Financial Complaints Authority with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008
  • paying compensation owed to consumers from legacy unpaid external dispute resolution determinations
  • resourcing ASIC to implement its new enforcement strategy and expand its capabilities and roles
  • resourcing APRA to strengthen its supervisory and enforcement activities, including with respect to governance, culture and remuneration and supporting the extension of the Banking Executive Accountability Regime to all APRA-regulated entities, including superannuation funds
  • establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives
  • undertaking a capability review of APRA
  • establishing a Financial Services Reform Implementation Taskforce within the Treasury
  • funding additional judges for the Federal Court of Australia, for the expansion of its jurisdiction to include financial sector criminal misconduct.

The APRA and ASIC funding components of this package are substantial and will be partially offset by revenue received through ASIC’s industry funding model and increases in the financial institutions supervisory levies collected by APRA.

Additional details about the Budget announcements can be found in the Budget night ASFA Action, available in the member section of the ASFA website.

The outcome of the election on 18 May will determine if the Budget measures go ahead, or if the industry will instead be faced with implementation of an incoming Labor government’s superannuation reforms.

Implementing the Royal Commission

Prior to the calling of the election, the Government released consultation papers on it proposed response to two of the recommendations from the Royal Commission, following on from the series of consultations released during March.

Default MySuper group life cover
The Royal Commission recommended that Treasury determine, in consultation with industry, the practicability and likely pricing effects of legislating key definitions, terms and exclusions for default MySuper group life policies. Commissioner Hayne also recommended that this review should consider the merits of prescribing:

  • higher minimum coverage for life insurance than is currently provided for by the Superannuation Guarantee (Administration) Regulations 2018
  • minimum coverage for permanent incapacity insurance
  • maximum coverage for life and/or permanent incapacity insurance
  • a fixed level of coverage for life and/or permanent incapacity insurance so as to set a standard amount of default insurance across all MySuper products.

The Government agreed to this recommendation in its initial response to the Commission’s report. On 28 March Treasury released an issues paper, Universal terms for insurance within MySuper, addressing the Commission’s recommendations. Submissions closed on 26 April.

Superannuation binding death benefit nominations and kinship structures
During the Royal Commission evidence was heard about the Lockhart River community and the difficulties that some Aboriginal and Torres Strait Islander people faced when accessing their superannuation entitlements due to complexities associated with Indigenous kinship structures. While not making any specific recommendation, Commissioner Hayne urged “consultation with relevant Aboriginal and Torres Strait Islander people about whether they, as the relevant users of the system, see difficulties about binding death benefit nominations that should be met”.

On 29 March Treasury released a discussion paper exploring the law surrounding the distribution of superannuation death benefits, Aboriginal and Torres Strait Islander peoples’ kinship structures and how these kinship structures are accommodated elsewhere in the law. The consultation process aims to identify if any law changes are required to address how the kinship structures of Aboriginal and Torres Strait Islander communities are treated by laws applying to superannuation death benefits. Submissions close on 24 May.

Protecting Your Super

The Government has finalised the Treasury Laws Amendment (Protecting Your Superannuation Package) Regulations 2019, to implement its Protecting Your Superannuation (PYS) package.

The PYS package prevents trustees from providing insurance by default when an account has been inactive for more than 16 months. It also imposes caps and a prohibition on the charging of certain fees and expands the circumstances in which inactive, low-balance accounts must be transferred to the ATO for consolidation.

The regulations, which commenced on 6 April, address:

  • further detail on when a trustee must notify members about certain matters, including:
    • where an account has been inactive and insurance may no longer be offered or maintained without a direction from the member
    • how a member who has directed the trustee to take out or maintain their insurance coverage can later cancel their insurance
    • the information that must be included in those notices
  • additional detail needed to administer the fee cap including the percentage of the cap
  • rules to direct the ATO as to which fund an amount should be paid to when consolidating amounts held by the ATO and the member has more than one active fund.

Separately, ASIC has outlined its expectations on superannuation fund trustees when communicating with members in relation to PYS. In particular, ASIC has emphasised that all notices/communications issued to members (and any other information published by trustees in respect of the changes introduced by the PYS legislation) should provide information in a balanced and factual way, that is not misleading and/or deceptive.

Status of superannuation bills

Parliament was prorogued on 11 April ahead of the election on 18 May. A number of Bills relevant to superannuation were finalised before Parliament rose and subsequently received Royal Assent, including:

  • The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Act 2019 – this Bill includes amendments to strengthen APRA’s powers in relation to registrable superannuation entity (RSE) licensees and provide APRA with the ability to obtain information on expenses incurred by RSEs and RSE licensees in managing or operating the RSE. It also introduces an annual ‘member outcomes’ test for MySuper products, strengthens the prohibition on trustees incentivising employers, requires RSE licensees to hold annual members’ meetings, and amends the portfolio holdings disclosure rules.
  • The Treasury Laws Amendment (2019 Measures No. 1) Act 2019 – this was significantly amended prior to its passage, to remove provisions that would have increased the maximum number of members for a self-managed superannuation fund or small APRA fund from four to six. As passed, the Act still includes provisions bringing forward the time that an individual can enter into a contract to purchase or construct their first home under the First Home Super Saver Scheme, and repealing redundant rules that related to the transition of funds to the Superannuation Industry (Supervision) Act 1993.
  • The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 – this Bill seeks to impose design and distribution obligations on issuers of financial products and provide ASIC with a product intervention power.
  • The Corporations Amendment (Strengthening Protections for Employee Entitlements) Act 2019 – this proposes amendments to the Corporations Act 2001 to deter behaviours that prevent, avoid or significantly reduce the recovery of employment entitlements—including superannuation contributions—in insolvency.

All Bills that had not been passed when Parliament was prorogued have now lapsed.

Updates from the regulators

APRA and ASIC have jointly written to all registrable superannuation entity licensees to reinforce the importance of trustees undertaking appropriate oversight of fee deductions from members’ superannuation accounts for payment to third parties such as financial advisers. The letter follows the identification, during the Royal Commission, of cases of financial advice fees being charged without the provision of the relevant services.

The letter states an expectation that all trustees will review the robustness of their existing governance and assurance arrangements for fees charged to members’ superannuation accounts, address any identified areas for improvement in a timely manner, and consider whether any reportable breaches have occurred. It also highlights questions that are to be considered by trustees in their oversight practices in relation to the deduction of financial advice fees, as well as the regulators’ concerns regarding the remediation arrangements adopted by trustees in some circumstances.

Separately, APRA has also:

  • written to registrable superannuation entity licensees to outline its expectations on superannuation trustees and its areas of focus for the year ahead. In particular, the letter notes that APRA’s focus will continue to be on ensuring that all trustees are putting their members first and meeting their responsibilities under the Superannuation Industry (Supervision) Act 1993
  • indicated it will increase its scrutiny of how regulated entities—including superannuation trustees—are managing the financial risks of climate change to their businesses
  • released for consultation an updated version of cross-industry on information security risks, following the recent finalisation of its cross-industry CPS 234 Information Security, which comes into effect from 1 July. Prudential Practice Guide 234 Information Security will replace the existing CPG 234 Management of Security Risk in Information and Information Technology. Submissions close on 17 May and APRA is aiming to finalise CPG 234 before CPS 234 comes into force on 1 July
  • released details on the future role and use of enforcement activities in achieving its prudential objectives, as well as the final report from its recent Enforcement Strategy Review.

Since the last Superfunds, ASIC has:

  • released Report 614 Financial advice: Mind the gap, confirming that many consumers are confused about the distinction between ‘general’ and ‘personal’ advice
  • issued ASIC Corporations (Amendment) Instrument 2019/240, extending to 1 July 2023 the date from which choice product dashboards must be published. The instrument also extends interim relief from the requirement that dashboards must be included as part of a periodic statement given to members, allowing a trustee to instead include a website address for the latest product dashboard either in, or in a document accompanying, the periodic statement for reporting periods ending before 1 July 2023.