Parliamentary Joint Committee report: life insurance inquiry
The long-awaited final report from the Parliamentary Joint Committee’s inquiry into the life insurance industry has been tabled in the House of Representatives.
One aspect of the inquiry involved assessing the relative benefits and risks to consumers of insurance arrangements in superannuation. While the Committee did not recommend any fundamental change to the policy settings relating to the automatic issuance of group policies to superannuation fund members, a range of its recommendations will—if adopted by the government—impact on funds.
Key recommendations in relation to insurance in superannuation include:
- enhancing communications to fund members
- requiring the ATO to display information about insurances that individuals have on their account(s)
- a review of trustees’ compliance with the Superannuation Industry (Supervision) Act 1993 when setting default insurances
- funds and insurers to work on standardising definitions and policy terms
- mechanisms to make the Insurance in Superannuation Voluntary Code of Practice binding on trustees and enforceable by ASIC.
The report has been referred for parliamentary debate at a later time.
Omnibus amendment bill
The government has introduced into Parliament the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 – a significant omnibus reform bill, impacting a wide range of superannuation-related legislation.
The major reforms include:
- Superannuation guarantee (SG)-related reforms to:
- enable the Commissioner of Taxation to issue directions to an employer to pay outstanding SG obligations or undertake education in relation to their obligations
- allow the Commissioner to disclose to an individual information about their employer’s failure to comply with SG obligations
- strengthen the penalty provisions for directors who fail to comply with their SG and PAYG withholding obligations.
- Amendments to the single touch payroll (STP) reporting requirements, which involve employers providing payroll and superannuation information to the ATO at the time the amounts are paid or withheld. These include:
- bringing all employers under STP from 1 July 2019
- requiring employers to report salary sacrificed amounts paid to employees’ superannuation funds under STP
- removing a requirement that employers report payment of SG contributions (these will now be reported by funds, under the event-based reporting regime).
- Amendments to funds’ ATO reporting obligations, including:
- allowing the Commissioner to give superannuation providers a grace period for correcting false or misleading statements
- removing the requirement for superannuation funds to lodge bi-annual lost member statements with the ATO.
- Amendments in relation to employee commencement arrangements, allowing the ATO to pre fill an individual’s tax file number declaration and superannuation standard choice form (at their request) and provide it to their employer.
- An amendment in relation to reversionary transition to retirement income streams (TRIS) to ensure a TRIS paid to a reversionary beneficiary remains in retirement phase, irrespective of whether the beneficiary has satisfied a condition of release, and allow a reversionary TRIS to be paid to a dependant beneficiary without commuting and commencing a new income stream.
- Amendments to ensure consistent treatment of deferred annuities, whether purchased from a life company by an individual or by a complying superannuation fund in order to meet its liabilities to provide deferred superannuation income streams.
Tax relief for mergers, SuperStream funding, ATO-held super and compassionate grounds
A package of important superannuation measures has received Royal Assent as Treasury Laws Amendment (2018 Measures No. 1) Act 2018. The key reforms include:
- extending tax relief for merging superannuation funds until 1 July 2020
- enabling the government to recover the cost of the governance of the superannuation transaction network (SuperStream) from the superannuation supervisory levy
- transferring regulatory responsibility for the early release of superannuation benefits on compassionate grounds from the Department of Human Services to the ATO
- allowing the Commissioner of Taxation to pay certain ATO-held superannuation amounts directly to individuals with a terminal medical condition, without transferring them into a complying superannuation fund.
ATO event-based reporting: MAAS legislative instrument
The ATO has formally set the timeframe for superannuation providers and life insurance companies to report account phases and attributes under the new event-based reporting regime, the Member Account Attribute Service (MAAS).
The Taxation Administration Member Account Attribute Service – the Reporting of Information relating to Superannuation Account Phases and Attributes 2018 generally requires a MAAS form to be lodged within five business days after an account is opened, a life insurance policy is first held, or any relevant change occurs in relation to the account or policy.
MAAS reporting requirements commenced on 1 April 2018, however transitional arrangements will apply until 31 October 2018.
Reforms to ASIC’s capabilities and governance
The government has moved to strengthen ASIC’s capabilities and reform its governance arrangements, introducing two bills into Parliament. The Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill 2018 requires ASIC to consider the effects that the performance of its functions and the exercise of its powers will have on competition in the financial systems and allow ASIC to employ staff outside the Public Service Act 1999. The Treasury Laws Amendment (ASIC Governance) Bill 2018 gives the Governor-General the discretion to appoint a second ASIC Deputy Chairperson.
- Review of access to superannuation – the government has indicated it will proceed with enabling victims of serious crimes to access the superannuation of the perpetrators, with legislation to be introduced before year-end. Work on the remaining aspects of the review of early release, relating to financial hardship and compassionate grounds, is ongoing.
- Superannuation and retirement calculators – ASIC has further deferred rules requiring providers to ensure their generic financial calculators account for inflation at the assumed rate of 2.5 per cent. ASIC Corporations (Amendment) Instrument 2018/40 defers the commencement of the requirement from 1 July 2018 to 1 July 2019.
- ASIC industry funding model – ASIC has published estimates of the levies regulated sectors will pay under its new industry funding model, ahead of the issue of invoices in January 2019. ASIC has also indicated that all regulated entities will be required, between July and September, to submit or validate their ‘business activity metrics’ to enable calculation of invoices.
- Executive remuneration – APRA has recently reviewed remuneration practices at large financial institutions, including superannuation funds. APRA found that remuneration frameworks and practices failed to consistently and effectively promote sound risk management and long-term financial soundness, and fell short of the better practices set out in APRA’s guidance. APRA will consider ways to strengthen its prudential framework.
- Insurance in Superannuation Voluntary Code of Practice – following the release of the Code last December, a newly-formed Transition Committee has released guidance to help funds adopt the Code and commence transition planning. The Code applies from 1 July 2018 and funds have until 30 June 2021 to fully comply with its obligations on an “if not – why not” basis.