Super funds will receive new powers to support their members as part of extensive reforms announced by Minister for Financial Services and Assistant Treasurer, Dr Daniel Mulino MP on Wednesday, 19 August.
In an address to the National Press Club, Dr Mulino outlined a raft of changes aimed at improving consumer protections for fund members and went some way to addressing the super sector’s concerns regarding the Compensation Scheme of Last Resort (CSLR).
One of the most significant announcements was confirmation that the Government will proceed with the long-awaited New Class of Adviser regime for APRA-regulated super funds and life insurers. This is a major step forward in expanding access to simple, affordable and trusted advice through super funds, alongside changes to intra-fund charging, targeted prompts and statements of advice.
There were also long-awaited changes to the rules around financial advice announced, with the Minister flagging several adjustments to make it easier for funds to provide these much-needed services to their members.
ASFA welcomes the changes as important steps forward which will improve member safety while also making the system simpler to navigate.
The key changes are summarised below, along with ASFA’s responses regarding the changes and the work still left to be done.
Lead generation and hawking
- A ban on unsolicited real-time communications about a person’s superannuation
- Targeted exemptions will protect legitimate advocacy, educational and employment communications
- Anti-hawking rules will also be strengthened so that these approaches are effectively limited to existing customer relationships
ASFA strongly welcomes this.
ASFA’s public position on the Government’s consultation on this matter back in May was to support restrictions on lead generation activity. In its submission, ASFA identified that there were many legitimate activities undertaken by superannuation funds and others in the ecosystem which could inadvertently be impacted by any ban on lead generation.
ASFA urged caution to ensure that these activities were carved out, and specifically referred to matters relating to education, advocacy and other legitimate superannuation communications.
It is positive to see those carve-outs announced, and this is a position that ASFA strongly supports. ASFA, on behalf of our members funds, will work constructively on the definitions here so that there are no unintended consequences.
Consumer protections and SMSFs
- Mandatory trustee education will be introduced before an SMSF can be registered.
- The Australian Taxation Office (ATO) will be given the power to delay rollovers from an APRA-regulated fund to a new self-managed super fund where fraud, financial abuse, misconduct or potential harm are suspected.
- To monitor this, increased reporting requirements for SMSFs will be introduced, including the requirement to list the SMSF’s relevant adviser, and to have greater oversight from the ATO in relation to trustee duties.
ASFA supports these measures. In our public submission from May, ASFA cautioned against introducing unnecessary friction and limiting informed member choice within the superannuation system. But if the ATO acts where suspected fraud or abuse is occurring, that is a reasonable set of steps to uphold member safety while not unduly limiting member choice.
ASFA supports the important role that SMSFs play in the superannuation ecosystem. The reforms announced by government are reasonable steps to ensure that those considering establishing an SMSF have a full and informed understanding of the obligations involved.
Financial Advice Reforms
- Major progress on financial advice reforms, including greater options for superannuation funds wishing to provide intra-fund advice and other supports to members
- Simplifying Statements of Advice into more efficient Client Advice Records
- Introducing a New Class of Adviser for superannuation funds and life insurers
- Super funds will be able to nudge or send targeted communications to their members
The Government has also acknowledged the importance of trustees having a clearly stated cap on advice fee deductions, whilst not explicitly stating the amount of the caps, instead allowing trustees to determine an appropriate amount.
ASFA strongly welcomes these announcements which align closely with ASFA’s longstanding advocacy in relation to financial advice reform.
ASFA supports superannuation funds providing high-quality advice to their members and has long called for progress on the second tranche of the Delivering Better Financial Outcomes package.
These announcements go a substantial way towards delivering what the superannuation sector needs.
Platform and trustee governance
- APRA will be able to set risk-based capital requirements for trustees offering higher-risk investment options.
- ASIC will have the power to direct remediation where it suspects trustee governance or due diligence failures.
ASFA supports these measures.
In ASFA’s public submission from May, we called for governance requirements to be on a level playing field for all entities within the superannuation sector.
It should not matter whether an entity is its own trustee, has an outsourced trustee, or operates as a platform. All members of the public should have the expectation that their super fund is acting with good governance. That is precisely what we have seen reflected here, and it is good to see that concept of a level playing field confirmed by government.
Compensation Scheme of Last Resort
- Substantial reforms to the Compensation Scheme of Last Resort.
- Removal of the “but-for” test in relation to counterfactual losses.
- Introducing a clear funding ‘waterfall’ to allocate special levies to unimpacted sectors.
- All SMSFs will be included as levy payers in future years when a special levy is required.
ASFA supports the direction being taken by government. ASFA has long held the view that levying the compulsory retirement savings of Australians, particularly when superannuation is one of the only financial sectors that cannot claim from the CSLR, has not been a sustainable position.
Moving towards a more sustainable CSLR which introduces a more equitable funding model while maintaining consumer recourse is a positive step.
ASFA will continue to advocate for a risk-based funding model where low-risk sectors, such as APRA-regulated superannuation, would not be required to contribute to special levies for losses caused in other sectors.
However, in ASFA’s view, the changes announced today by government strike the right balance and represent a positive pathway forward.
Conclusion
The announcements made by the minister are a very positive set of steps in the right direction. ASFA’s policy positions are aimed to present a united consensus position of the superannuation sector during the April/May Treasury consultations.
With the announcements today, ASFA is very comfortable with the direction of travel of government. We believe this set of reforms strikes the right balance between improving safety in the superannuation sector, maintaining the importance of informed member choice, and flexibility over investment options, whilst also progressing much-needed reforms to make the superannuation system simpler to engage with for the average member, particularly through these advice reforms.
Read the Government’s full annoucement here and their factsheet here.