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ASIC finds positive and negatives in its review of member communications on PYSP reforms
ASIC has today released findings from its review into fund communications to members about the Protecting Your Super Package (PYSP) of reforms.
The findings are outlined in a 20 page report which covers both poor and good communication practices and includes ASIC’s expectations about future member communications.
In its media release, ASIC warns that it will continue to monitor trustee communications in relation to PYSP and related reforms and may take regulatory action if further issues are identified.
The PYSP reforms were introduced both to protect members’ super savings from erosion due to inappropriate fees and insurance premiums and reduce unintended multiple low balance accounts.
The key changes were designed to benefit members with low balances (below $6,000) and those with accounts that have been inactive for 16 months.
The report presents findings from ASIC's review of communications material from 12 unidentified superannuation funds with over 6 million members. ASIC selected the funds on the basis that, because of their relatively high number of inactive accounts, they were likely to be affected by PYSP reforms.
ASIC found that some communication material did not provide enough context for the reforms or adequately explain what the changes meant for members.
Some communications used complex language; promoted a particular option that may not have been suitable for the member; or failed to include relevant information about the member’s existing superannuation arrangements that would have been helpful.
In some instances, trustees were found to have ineffectively communicated with members as a result of incomplete data on their membership base. ASIC found that at least 21,600 member accounts did not receive a notice due to the trustee having no contact details for the member.
Between 1 April 2019 and 31 August 2019 in relation to the funds within the sample:
ASIC was critical about instances of emotive marketing phrasing being used in communications, where trustees had highlighted the value of insurance rather than the facts relating to the PYSP reforms.
Conversely, there were instances where communications used dense legal phrasing that was not member friendly.
The report also details positive instances where ASIC observed trustees had used the PYSP member communications to update their databases; had correctly communicated information on their members’ needs; encouraged consideration of the appropriateness of insurance cover; and clearly communicated timelines for when cover would cease.
Super in the Parliamentary spotlight
Choice of fund, unpaid super, 12% SG, the termination of rollover funds and extending Capital Gains Tax exemption for merging funds have all been the subject of debate in Parliament this week.
With several Bills debated, including the Your Super, Your Choice Bill and the Recovering Unpaid Super Bill, representatives from both major parties took the opportunity to raise a host of other hot button issues, including on the merits of compulsory super and 12% super.
The ensuing debates highlighted differing opinions among Coalition MPs. While the Government’s stated position supports the legislated 12% timeline, Liberal MP Tim Wilson warned of impending doom from the SG increasing, while Liberal-National senator Gerard Rennick called for superannuation to be voluntary, describing the $3 trillion retirement savings scheme as the biggest rort in Australia.
Meanwhile, Labor used an amendment to the Your Super, Your Choice Bill to claim that the government is refusing to support the legislated 12% Superannuation Guarantee.
Speakers for Labor broadly supported the objectives of the Your Super, Your Choice Bill, while noting that choice was a vexed issue that had produced varying results. The Bill will proceed to the Senate without amendments, with Labor and the Greens reserving their final position until after the Bill has been examined.
The Recovering Unpaid Super Bill, which introduces a 24 month amnesty for employers on late SG payments, was debated in the Senate. Labor spoke against the Bill and proposed amendments placing super in the National Employment Standards in the Fair Work Act. This would allow employees to recoup unpaid superannuation through the Fair Work Commission or through the courts. At the time of writing, the debate was set to continue.
In other Parliamentary developments, debate was adjourned on the Treasury Laws Amendment (2020 Measures no 1) Bill 2020 that makes permanent the current temporary capital gains tax relief for merging super funds. Temporary capital gains tax relief is due to expire on 1 July 2020.
Insurance faces scrutiny in next round of House Committee hearings
As part of its ongoing review of the four major banks and other financial institutions, the House of Representatives Standing Committee on Economics will scrutinise the insurance sector over two days of hearings in Sydney on 28 and 29 April 2020.
The list of entities appearing at this hearing is yet to be published so it remains to be seen whether any super fund representatives will be required to appear to answer questions about their fund’s insurance offerings. However, AIST understands super funds are unlikely to be called.
Following the insurance hearings, a second round of hearings – to be held in June - is scheduled for the major banks. While unconfirmed, it is expected that a second round of hearings into superannuation will be held either later in the year or early next year.
In the meantime, many super funds who received questions in the first round of hearings have been asked to respond to a broad range of follow-up questions from the Committee.
The insurance hearings will be held at House of Representatives Economics Committee Jubilee Room, NSW and will be broadcast (audio only) at aph.gov.au/live.
Bill to terminate ERFs hits Parliament
A Bill to facilitate the exit of all Eligible Rollover Funds (ERFs) from the super system by 30 June 2021 has been introduced into the House of Representatives.
The Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 follows a Productivity Commission recommendation that APRA should oversee the wind-up of all Eligible Rollover Funds within three years.
The closure of ERFs is intended to work in conjunction with the Protecting Your Super Package of reforms, with lost funds now to be directed to the ATO.
Report points to super’s role in social impact investing
A government taskforce looking into social impact investing opportunities in Australia has observed an emerging appetite from mainstream investors, particularly superannuation funds, to invest in social impact initiatives.
The taskforce is developing recommendations on a strategy for the government’s role in social impact investing, drawing on international, private sector and state and territory government experience.
In its interim report, the taskforce notes that social impact investing is in its early stages in Australia. Despite varying levels of financial return, the taskforce found examples of larger scale social impact investments which have generated market rate returns acceptable for superannuation funds.
Through industry consultations, the taskforce has found emerging themes:
A de-identified large-scale super fund investor said in the report that impact investing is an emerging but important investment opportunity.
“Generating appropriate financial returns for our members is clearly uppermost in our mind and we believe there is a positive interplay between impact and positive ESG factors that contributes to sustained ethical and financial performance.”
“Scale is a big issue for us. As a fund with over 50 billion, ideally we want to be investing at least 50 million and more in the right opportunities. We are more proactive in the impact space because we see it as having the potential to grow rapidly and it’s deeply aligned with members’ best interests,” the fund said.
While the taskforce does not recommend that government take a ‘heavy handed’ approach in the social impact investing market, it has pointed to international examples suggesting that governments do play an important role in market facilitation, participation and regulation.
A final report is due mid-2020.
APRA outlines next step of data collection system
APRA has released instructions for its reporting entities, including super funds, to assist with the updating to the new data collection system Direct to APRA (D2A).
APRA’s instructions relate to replacing AUSkey with myGovID and Relationship Authorisation Manager (RAM).
All entities who use D2A must ensure that the update is successfully completed before AUSkey is decommissioned at the end of March 2020.
Users of the APRA Extranet must also set up their myGovID and ensure they are authorised in RAM. The Extranet login link for myGovID will be available in March 2020.
Compensation to bank customers for shoddy financial advice nudges $750 million
Six of Australia’s largest banking and financial service institutions have paid or offered a total of nearly $750 million in compensation to consumers due to financial advice misconduct.
ASIC data shows that the compensation payments (up until 31 December, 2019) were made by AMP, AMZ, CBA, Macquarie, NAB and Westpac and related to customers who suffered loss or detriment because of non-compliant advice or fees for no service misconduct. The $750 million is only part of the compensation bill faced by banks.
The highest amounts of compensation paid or offered concerned AMP, CBA and NAB.