The past month has been a busy one in the regulatory space, as the industry gears up for the retirement income review and deals with a flood of new legislative and regulatory developments.
Review of the Retirement Income System
In late September the Government announced the terms of reference for an independent review of the retirement income system, as recommended by the Productivity Commission in their report Superannuation: Assessing Efficiency and Competitiveness .
The review will establish a fact base of the current system to improve understanding of its operation and the outcomes it is delivering for Australians and identify:
- how the retirement income system supports Australians in retirement
- the role of each pillar (Age Pension, superannuation, voluntary savings) in supporting Australians through retirement
- distributional impacts across the population and over time
- the impact of current policy setting on public finances.
A consultation paper is expected to be released this month, with the final report to be provided to Government by June 2020.
Heatmaps and member outcomes
In recent speeches, senior APRA personnel have made strong comments about their intensive focus on member outcomes in superannuation.
In response to findings that the superannuation system is not delivering sufficiently well—from both the Productivity Commission and the Royal Commission into Banking, Superannuation and Financial Services—Chair Wayne Byres has outlined a three-pronged approach involving:
- stronger standards, supported by stronger enforcement powers – Mr Byres said the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019 and new prudential standard SPS 515 Strategic Planning and Member Outcomes “provide a strong platform for APRA to drive a much more intense focus on member outcomes. It will inevitably produce some difficult discussions with trustees who are not delivering for their members—put very bluntly, are you going to get better or get out?—but all have had fair warning given the increased attention on this issue in recent years.”
- overhauled and expanded data collection – APRA will shortly commence consultation on a major overhaul of the superannuation data reporting regime
- increased transparency and ‘heatmaps’ – later this year, starting with MySuper products, APRA will publish a set of performance-related measures and benchmarks. These will initially focus on investment returns, fees and charges, and measures of sustainability/viability and will subsequently be expanded to include insurance costs.
According to Deputy Chair Helen Rowell, APRA is finalising the methodology and measures for the heatmap, and how they will be presented. The heatmap “is intended to be a starting point for member outcomes and performance assessment. Trustees will be expected to build on the heatmap and consider a broader range of metrics appropriate to their operations, and to also consider performance at a cohort level.”
Expectations about insurance communications
With trustees due to make communications by 1 December about the latest legislative changes to default insurance cover, ASIC has outlined its expectations on trustees.
The Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 contains provisions making insurance opt-in for members under 25 or with account balances under $6,000. Trustees are required to provide certain notices in writing to members potentially affected by the reforms, including, by 1 December, notice to members who have balances under $6,000 and hold insurance cover. Other disclosure obligations include updates to product disclosure statements and, potentially, significant event notices.
ASIC has emphasised that trustees’ communication plans should be holistic and centred around members. It has outlined a number of key considerations for trustees in communicating with members:
- include information about the importance and purpose of the reforms and make sure messages are balanced
- include a call to action for members to review the appropriateness of their insurance cover to their needs and to seek help if needed
- tailor the language and structure of the communication to the audience
- as far as possible, provide the information that members generally need to make an informed decision or suggest additional sources of assistance
- make sure any messages are not misleading.
TPD insurance: outcomes of ASIC review
ASIC has released the outcomes of a review of total and permanent disability (TPD) insurance, highlighting “significant industry-wide problems” with the design of cover and the claims handling process.
Report 633 Holes in the safety net: a review of TPD insurance claims outlines the findings from a review of 35,000 TPD claims across seven insurers. The review found particular issues with policies using an ‘activities of daily living’ definition—60 per cent of these claims were declined, as opposed to 12 per cent of other TPD claims.
ASIC notes that superannuation trustees “have a crucial role to play in the delivery of life insurance to their members. We expect trustees to act in their members’ best interests by providing access to affordable insurance products that are suitably designed for their members while also safeguarding superannuation balances from inappropriate erosion”.
ASIC expects trustees and insurers to take steps, by 31 March 2020, to change their claims handling practices and redesign TPD products to offer significantly better value for consumers.
Effectiveness of disclosure
ASIC has released research concluding that reliance on mandated disclosure as a consumer protection tool has often proved ineffective, and at times even contributed to consumer harm.
Report 632 Disclosure: Why it shouldn’t be the default, looks at the effectiveness of disclosure on consumer outcomes across a range of financial products and services. The report concludes that disclosure does not ‘solve’ complexity in financial services markets, and disclosure as the default consumer protection should not be relied upon as a ‘silver bullet’. ASIC notes it will take a more consumer outcome-focused approach going forward, making the most of its enhanced regulatory tool kit, including its new product intervention powers and the new design and distribution obligations on providers.
In its recent Consultation Paper 311 Internal Dispute Resolution: Update to RG 165, ASIC indicated it expected to publish updated complaint handling standards, via a revised version of Regulatory Guide RG 165, in December 2019. ASIC has now indicated that requirements involving recording and reporting of prescribed data will be finalised in mid-2020 after further consultation. These aspects will be temporarily carved out of the updated RG 165, which ASIC still aims to publish in December 2019.
In addition, ASIC has registered the ASIC Corporations and Credit (Internal Dispute Resolution—Transitional) Instrument 2019/965 and ASIC Corporations and Credit (Repeal) Instrument 2019/966 to continue its current complaints handling standards until 30 June 2020.
Portfolio holdings disclosure: ASIC deferral
ASIC has registered the ASIC Corporations (Amendment) Instrument 2019/1056 to defer the first reporting date under portfolio holdings disclosure (PHD) regime from 31 December 2019 to 31 December 2020.
Under the PHD regime, most superannuation trustees will be required to publish investment holdings information on their websites within 90 days of each ‘reporting day’, being 30 June or 31 December each year.
ASIC has registered the ASIC Corporations Unclaimed Superannuation – Former Temporary Residents 2019/873 to continue existing relief from the requirement for trustees to notify and give exit statements to departed former temporary residents when their superannuation benefits are paid to the ATO under the unclaimed superannuation rules. The relief is subject to conditions, including that specified information is included in product disclosure documentation and on the fund’s website. A minor policy change was made in the instrument to require disclosure on the website of the fund rather than the trustee.
During October, a number of superannuation related pieces of legislation were passed—or at least considered—by Parliament.
Interest on reunited unclaimed superannuation
The Treasury Laws Amendment (2019 Measures No 2) Act 2019 has become law. This Act amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 and the related regulations to:
- provide that interest is payable on amounts proactively reunified with an active account by the ATO, at a rate prescribed by the regulations
- prescribe the rate of interest payable on inactive low balance accounts being paid out by the ATO on the direction of a member or a member’s beneficiary and on amounts being proactively reunited with an active superannuation account.
Superannuation Guarantee reforms
Three sets of Superannuation Guarantee (SG) reforms have progressed in the last month.
Amendments allowing eligible individuals to apply to the ATO for a certificate exempting an employer from SG liability for a particular quarter have now become law, after the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Act 2019 received royal assent in early October. Several conditions must be satisfied, including that the individual would still have at least one employer liable for SG in relation to the quarter, and is likely to exceed their concessional contributions cap if the partial opt-out is not approved. The opt-out will apply for SG quarters commencing on or after 1 July 2018.
Reforms to ensure an individual’s salary sacrificed contributions cannot be used to reduce an employer’s SG obligations have also become law after the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019. The legislation was amended during its passage through Parliament and the amendments now apply to SG quarters commencing on or after 1 January (rather than 1 July) 2020.
The Government has re-introduced into Parliament a Bill to provide an amnesty for employers in relation to unpaid SG contributions. The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 will:
- allow employers to claim tax deductions for payments of SG charge or contributions made during the amnesty period to offset SG charge
- reduce penalties and fees that may otherwise apply in relation to historical SG non-compliance to nil.
The amnesty period runs from 24 May 2018 (the date the amnesty was originally announced) until six months after the Bill receives royal assent and relates to SG quarters starting between 1 July 1992 and 1 January 2018 (inclusive). To qualify, an employer must disclose their SG shortfall to the ATO during the amnesty period. The Bill has been referred to the Senate Economics Legislation Committee for report by 7 November.
Amendments to the non-arm’s length income ‘total superannuation balance’ rules to support the integrity of the superannuation reforms introduced in the 2016-17 Budget have now become law. The amendments are contained in the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Act 2019.
Reforms to remuneration arrangements for advisers have now become law. The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 has been passed by Parliament. The Act:
- removes grandfathering arrangements for conflicted remuneration and other banned remuneration from 1 January 2021
- enables regulations to provide for a scheme under which amounts that would otherwise have been paid as conflicted remuneration are rebated to affected customers.