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Following the completion of two days of superannuation hearings last week, the Parliamentary Review into Banks and other Financial Services will this week turn its attention to smaller banks.
Hearings to be held in Canberra this Friday will kick off with the Australian Banking Association (ABA) as the first witness for the day, followed by witnesses from five banks including Macquarie Group, Suncorp and Citi Australia.
The Review’s focus will then turn to the topics of financial advice and insurance, with both of these yet-to-be-scheduled hearings potentially requiring appearances from representatives of superannuation funds.
Day One and Two of the superannuation hearings saw three retail and four profit-to-member super funds (AustralianSuper, Rest, QSuper, Hostplus) give evidence, along with Industry Super Australia, ASFA and IFM Investors.
Questioning covered a broad scope of topics, broader than what was indicated by the terms of reference for the Review which directed the Committee to consider issues arising from the banking Royal Commission.While funds did answer questions on their activity related to issues raised in the Royal Commission, much of the questioning focussed on relationships between super fund performance, fees, scale and investment strategies, notably around asset allocation.
Differences between for profit and profit-to-member approaches and outcomes were highlighted with particular attention given to the reasons for retail fund underperformance of profit-to-member funds as evidenced by the Productivity Commission report. Drivers discussed included the cost of liquidity, unlisted assets and differing, approach to risk and investment management approaches.
Other themes included approaches to managing multiple accounts; ESG investment issues; and governance and conflicts of interest.
Copies of the official transcripts can be found here: Day One and Day Two
APRA has this week released proposed revisions to its prudential standard on insurance in super requiring trustees to provide more feedback on insurers as well as additional evidence that their insurance offerings are in the best interests of members.
The revisions to Prudential Standard SPS 250 Insurance in Superannuation – released for consultation until 3 February - include new requirements around trustees engaging with related parties to provide insurance arrangements as well as enhanced processes for making opt-out of insurance easier.
The revisions are part of a suite of regulatory enhancements identified as necessary in APRA’s Post-Implementation review of its superannuation prudential framework. The revisions also address concerns highlighted by cases considered by the Royal Commission, including where members were adversely impacted by being inappropriately attributed with a particular employment status under insurance arrangements.
Key revisions/new requirements include:
APRA said it would particularly welcome feedback on aspects of insurance arrangements that may give “priority or privilege” to an insurer and other areas related to this proposed requirement where guidance in SPG 250 would be helpful.
APRA anticipates that some transitional requirements will commence on July 2020, with the rest commencing January 2021.
AIST will be making a submission on the revisions. For further information or to provide feedback, please contact AIST’s senior policy manager David Haynes at firstname.lastname@example.org
Following a six-week consultation period, APRA has released a final Prudential Practice Guide SPG 516 Business Performance Review and a response to stakeholder’s submissions letter.
While the final Practice Guide is broadly consistent with the original draft Guide, APRA has made some tweaks to address industry concerns.
A particular issue that AIST raised in its submission was the need for primacy to be given to long-term net returns to members. As such, we called for the removal of wording which only asked an RSE licensee to ensure sufficient weight is given to the net returns delivered to members.
APRA has now removed this wording with revised wording stating that an RSE licensee should ensure that the net returns delivered to members are a primary consideration in reaching the overall determination for each product.
According to APRA the submissions were broadly supportive of the revisions to SPG 516 however they did raise some issues and some stakeholders sought additional guidance.
Key issues raised include:
APRA’s response to each of these issues is contained in the stakeholder’s submissions letter
For further information please contact AIST’s Policy Analyst, Zachary Tung at email@example.com
Strong performance and a steady stream of inflows saw the profit-to-member super sector, most notably the industry and public-sector funds, once again experience solid growth in the latest quarter.
APRA’s latest data shows the industry fund sector growing by an impressive 5% over the last quarter, and 15% over the past year. Public sector super funds grew by 2% in the last quarter and 11 % over the year. This compares to 1% growth for retail funds over the entire year and a 2% growth for the self-managed funds over the year.
The total funds under management for the profit-to-member super sector is now $1.49 trillion, compared to $632.4 billion of FUM for retail funds and $746.2 billion of FUM of self-managed super funds.
A lapsed Bill relating to ‘choice of fund’ has been reintroduced into Parliament this week.
The Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 reintroduces amendments to the SGAA 1992 that were previously introduced into Parliament through Schedule 1 to the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017. This Bill lapsed following the Federal Election.
Currently some employees do not have the right to choose their own superannuation fund. Where an employer makes contributions under, or in accordance with, an enterprise agreement or workplace determination, employers satisfy the choice of fund requirements in the SGAA 1992. These agreements or determinations may specify a given superannuation fund, or a number of superannuation funds, that an employer may contribute to for the benefit of the employee.
This Bill amends the SGAA 1992 to give employees under workplace determinations or enterprise agreements the right to choose their superannuation fund. This applies only to new workplace determinations and enterprise agreements made on or after 1 July 2020.
AIST has previously noted that such changes may have a negative impact on employees in super funds nominated in enterprise agreements, workplace determinations or state-based awards as well as those covered by constitutionally-exempt superannuation funds and many defined benefit funds closed to new entrants. A common characteristic of many of these environments not providing choice of fund is that they often provide benefits in excess of that provided by the Superannuation Guarantee (Administration) Act 1992, including additional employer contributions (or their equivalent in the case of Defined Benefit funds), insurance, and , in the case of some government funds, guaranteed levels of retirement benefits. It is therefore not in the interests of members of such funds to switch into superannuation funds that offer lesser benefits and may remove certainty and security.
The Bill is yet to be debated.
Legislation to allow de facto couples separating in Western Australia to achieve a fairer split of their superannuation assets was introduced in Federal Parliament yesterday.
WA is the only Australian State that cannot divide superannuation when de facto couples go through a property settlement – a situation that usually disadvantages women who, on average, tend to have less superannuation.
The move to bring WA in line with the rest of Australia, follows advocacy by AIST and others that included urging the Attorney-General Christian Porter to change the law to promote fair outcomes for WA de facto couples.
Introducing the Family Law Amendment (WA De Facto Superannuation Splitting and Bankruptcy) Bill 2019 into Parliament, Mr Porter noted that de facto couples in the West had, for too long, had to put up with a situation regarding the treatment of super assets in property settlements which was different to the rest of the country.
“This has particularly disadvantaged women and resulted in inequitable splits of property, especially in situations where superannuation is the main asset – as occurs often when housing assets are heavily mortgaged,” he said.
Between 2003 and 2010, all states and territories, except for WA, provided the Commonwealth with a full referral of powers relating to de facto financial matters, including superannuation.
“After more than a decade of wrangling, the Morrison Government last year accepted the limited referral provided by WA relating to superannuation,” Mr Porter said.
“The limited nature of the referral complicated the legislative process to deliver this Bill. But I would hope that it will now receive bi-partisan support in the Parliament and can become law as quickly as possible.
AIST has advocated for additional guidance on how the FASEA Code of Ethics will apply to intrafund advice.
In a submission to the Financial Adviser Standards and Ethics Authority (FASEA), AIST raises concerns that aspects of the Code guidance suggests that an adviser needs to always take into account a client’s broader and long-term future circumstances. This could make it difficult to provide cost-effective intra-fund advice.
In addition, AIST has called for more examples related to superannuation and retirement advice, more clarification on how the Code will apply to general advice and more detail on what is meant by value for money advice fees.
Compliance with the Code of Ethics is a requirement for all financial advisers from 1 January 2020 and it is expected that the Code guidance will be updated in December, prior to commencement in January.
In a separate media release, ASIC outlined their approach to advice licensee obligations in relation to the Code. ASIC have confirmed to licensees that they will not be in breach of the law because their financial advisers were not able to register with an ASIC-approved compliance scheme by 1 January 2020, as originally required.
In correspondence with AIST, ASIC has confirmed that the release of an updated RG 165 and the associated legislative instrument will be postponed until February 2020.
Changes to regulatory Guide 165, which details ASIC’s standards and requirements for firms that have an internal dispute resolution system in place, were consulted on in May 2019. The draft updated RG 165 proposed several changes, including reducing the maximum IDR timeframe for superannuation complaints from 90 days to 45 days and updated requirements relating to IDR date recording and reporting.
In our submission, AIST called for a deferment of the commencement date and after considering the responses during consultation. ASIC has now confirmed that transitional timeframes to implement updated RG 165 requirements will be extended – ie the updated requirements will not be in force on the day that RG 165 is published in February. While ASIC is yet to confirm the exact timeframes, it has said it will provide significantly longer transitional timeframes than had been proposed in CP 311.
Separately, ASIC will be consulting further on the requirements relating to IDR data recording and reporting in the first half of 2020 and therefore data requirements will not be included in the updated RG 165 to be published in February.