Parliament returns from its winter break on 13 August, with a long list of superannuation bills awaiting the Senate’s consideration.

‘Protecting your super’ Bill

The government has introduced into Parliament the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 to implement major reforms to insurance and fees within superannuation and consolidation of low-balance, inactive accounts. The ‘protecting your super’ package, announced in the May 2018 Budget, proposes three substantial sets of reforms:

  1. Fees – from 1 July 2019, trustees will be prevented from charging:
    • certain fees and costs exceeding 3 per cent of the balance of a MySuper or choice product annually where the balance of the account is below $6,000. The cap applies to administration and investment fees, and to certain cost amounts as prescribed in regulations
    • exit fees, regardless of the type of superannuation account or the member’s balance.
  2. Insurance – unless a member has directed otherwise, trustees will be prevented from providing opt-out insurance to these cohorts of members within MySuper or choice accounts:
    • new members aged under 25 years who begin to hold a new account
    • members with balances below $6,000
    • members with inactive accounts (no amount received in the last 13 months).
      Some limited exclusions will apply. Trustees will be required to notify members with existing insurance arrangements before 1 July 2019, who might be affected by the new measures, to provide them with an opportunity to elect for their insurance to continue.
  3. Inactive low-balance accounts – where a MySuper or choice account has been inactive for 13 months and has a balance less than $6,000, the trustee will be required to transfer the balance to the ATO unless the member has opted in to have insurance through that account. The new rule will apply as at 30 June 2019, with the initial transfer of inactive low-balance accounts to the ATO to occur during 2019-20. The ATO will be given greater powers to proactively consolidate amounts it holds for a person who has an active superannuation account, where the reunited account balance would be greater than $6,000.
  4. The Bill has been passed by the House of Representatives and referred to the Senate Economics Legislation Committee for report by 13 August.

A stocktake of super bills

Several other bills remained before the Senate when it rose on 28 June, including:

  • Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 – this provides a one-off 12-month amnesty for unpaid superannuation guarantee (SG), allows a partial opt-out from SG for higher income earners with multiple employers, and makes integrity measures to support the 2016-17 Budget reforms
  • Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 – this amends laws in relation to SG compliance and penalties, single touch payroll, fund reporting, employee commencement, Superannuation Complaints Tribunal (SCT) secrecy provisions, and the taxation treatment of deferred annuities and reversionary transition to retirement income streams
  • Treasury Laws Amendment (APRA Governance) Bill 2018 – this strengthens APRA’s governance arrangements by providing for the appointment of a second deputy chair
  • Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill 2018 – this 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 system, and removes the requirement for ASIC to engage staff under the Public Service Act 1999
  • Treasury Laws Amendment (2018 Measures No. 2) Bill 2018 – this creates the framework for an enhanced ‘regulatory sandbox’ to support innovation in financial services
  • Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 – this introduces a single, strengthened whistleblower protection regime for the corporate, financial and credit sectors as well as a regime to protect individuals who report breaches of the tax laws or misconduct
  • Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 – this strengthens APRA’s powers in relation to registrable superannuation entity (RSE) licensees and provides it with the ability to obtain information on expenses incurred in managing or operating the RSE. It also introduces an annual ‘member outcomes’ test for MySuper products, requires RSE licensees to hold annual members’ meetings, and amends the portfolio holdings disclosure rules
  • Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 – this Bill amends the SG law to provide that employees under workplace determinations or enterprise agreements made on or after 1 July 2018 have the right to choose their superannuation fund. It also provides that salary sacrificed amounts will not reduce an employer’s mandated SG contributions
  • Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017 – this introduces a requirement that superannuation trustees have at least one third independent directors
  • Superannuation Objective Bill 2016 – this Bill seeks to legislate primary and subsidiary objectives for the superannuation system.

Australian Financial Complaints Authority (AFCA)

Significant progress has been made toward preparing the new financial services external dispute resolution body, the Australian Financial Complaints Authority (AFCA), to commence hearing complaints from 1 November.

Following a recent consultation on its draft rules, AFCA has consulted on proposed funding arrangements for its transition (establishment) funding and interim funding for its first three years of operations. For superannuation trustees, the proposed interim funding arrangements will be based on the APRA levy model. A long-term funding model will be developed after a full review based on complaint forecasts, operational efficiency savings and resource requirements for AFCA’s long-term future.

ASIC has released Regulatory Guide RG 267 Oversight of the Australian Financial Complaints Authority, and issued ASIC Corporations (Amendment) Instrument 2018/549 to correct errors in the transitional disclosure relief provided by ASIC Corporations (AFCA Transition) Instrument 2018/447.

Finally, David Locke has commenced as AFCA’s Chief Ombudsman and Chief Executive Officer.

Superannuation fund cash investment options: APRA guidance

APRA has highlighted concerns about superannuation funds’ cash investment options. This follows a targeted review of registrable superannuation entities (RSEs), in which APRA identified examples where ‘cash’ investment options appear to include exposure to investments that would not generally be considered cash or cash-like in nature – including asset-backed and mortgage-backed securities, commercial bonds and hybrid debt instruments, credit-default swaps, loans and other credit instruments.

APRA will take specific action in relation to RSEs identified as part of the review and expects all RSE licensees to review their ‘cash’ investment options.

Other developments

There have also been a number of other important developments since the last rules and regs. The most significant are outlined below.

Superannuation prudential framework: APRA consultation

As part of its post-implementation review of the superannuation prudential framework, APRA has released ‘short topic papers’ on financial requirements, operational risk and outsourcing, and investments. Submissions are due by 26 September. APRA expects to release a final report on the review by early 2019.

Catch up measure

The government has highlighted the 1 July commencement of the ‘catch up’ measure implemented as part of its May 2016 Budget reforms. The measure will allow individuals with superannuation balances below $500,000 to carry forward unused portions of their concessional contributions cap for five years from 2019-20 onwards.

Super complaints regulations

The government has made the Superannuation (Resolution of Complaints) Regulations 2018. These remake the Superannuation (Resolution of Complaints) Regulations 1994 which support the operation of the SCT, as the existing regulations were due to expire on 1 October. The regulations are needed because, despite AFCA commencing to hear new superannuation complaints from 1 November, the SCT will continue to operate for a period to clear its existing caseload.

Tax withholding

The ATO has issued a legislative instrument to prevent excessive withholding for beneficiaries of superannuation income streams who are turning 60. The PAYG Withholding variation to the rate of withholding for superannuation income stream beneficiaries who turn 60 during the financial year, commenced on 1 July and replaced an earlier instrument that had expired.

Extensions of SuperStream to SMSFs

Treasury has released for consultation a draft of regulations to extend SuperStream to cover rollovers between an APRA-regulated fund and a self-managed superannuation fund (SMSF).

According to the Minster for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, the benefits of electronic interactions between SMSFs and APRA funds will include:

  • reducing compliance costs for SMSF and APRA trustees by reducing current manual, paper based processes
  • expediting rollovers between APRA funds and SMSFs
  • improving the integrity of the superannuation system through the mandatory use of the ATO’s SMSF verification service by APRA funds, to verify SMSF data before a rollover can be processed.

Once the regulations are finalised, it is intended they will apply to SuperStream rollovers to or from an SMSF requested on or after 30 November 2019. Submissions close on 3 August 2018.

SMSF advice

ASIC has released the findings from a review of advice provided in relation to self-managed superannuation funds (SMSFs) indicating that around 90 per cent of reviewed advice on setting up a SMSF was non-compliant. Report 575 SMSFs: Improving the quality of advice and member experiences and Report 576 Member experiences with self-managed superannuation funds provide findings in relation to an ASIC review assessing compliance with the ‘best interests’ duty and related obligations in the Corporations Act 2001.

First home super saver scheme (FHSSS)

The government has made regulations to support the FHSSS, introduced following the May 2017 Budget. To use the FHSSS an individual must never have held an ownership or similar interest in Australian real property, unless the Commissioner of Taxation determines they have suffered ‘financial hardship’. The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Regulations 2018 prescribe the circumstances in which the Commissioner is able to make such a determination.

Downsizer contributions

The ATO has published the form an individual must complete and lodge with their fund in order to make a ‘downsizer’ contribution. It has also provided guidance regarding the information the approved form for this election must contain, if funds wish to design their own version. The ‘downsizer’ measure, implemented after the May 2017 Budget, allows individuals aged 65 and older to make a contribution to superannuation from the proceeds of the sale of their main residence.

Member Account Transaction Service

The ATO has finalised an instrument setting the timeframe for superannuation providers to give Member Account Transaction Service (MATS) forms to the ATO under the new event-based reporting framework. The Taxation Administration Member Account Transaction Service – the Reporting of Information Relating to Superannuation Account Transactions 2018 generally requires a provider to lodge a MATS form within 10 days after a reportable event. However, member contribution balance amounts must be reported by 31 October following the end of the relevant financial year. MATS reporting will commence from 1 July 2018, with a transitional period until 31 March 2019.

‘Rules and regs’ provides a snapshot of key regulatory developments. ASFA members also have access, via the ASFA website, to the ASFA Thomson Geer Regulatory Update. Delivered in partnership with Thomson Geer, this comprehensive quarterly Update seeks to keep members informed on the changing superannuation environment across new legislation, developing policy and pertinent case law developments.