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ISA and ME bank appear before Parliament
Industry Super Australia (ISA) has reiterated the importance of scheduled rises in the Super Guarantee going ahead during questioning today by the House of Representatives Economic Standing Committee hearing into superannuation and banking.
Asked about the potential impact of scheduled SG rises on unemployment caused by the COVID pandemic, ISA CEO Bernie Dean said the legislated SG timetable was critical to ensure Australians' super balances were not too depleted as a result of recent market volatility and the Government’s early release scheme.
Mr Dean told the Committee that industry funds had processed early payouts for 541,000 members, worth more than $4 billion. Roughly 5 per cent of requests processed had resulted in the member’s account being depleted.
"If anything, the recent downturn caused by the coronavirus pandemic just reinforces why you would want to have a guaranteed increase in super contributions," Mr Dean said.
In a 90 minute appearance before the Committee, ISA was questioned on a wide range of issues.
Questioning from Committee Chair Tim Wilson largely repeated topics covered at ISA’s last appearance before the Committee, including political donations, and valuations of unlisted assets. ISA was also questioned on assumptions behind its early release modelling and transparency in reporting, and asked questions about its relationship with IFM and the New Daily.
Other members of the Committee focused primarily on the early release scheme, including extensive discussion of the impact of the scheme on retirement savings, the fraud issues that have arisen and how the industry has worked together to implement the scheme. The cost of implementing the scheme and the impact of early release on funds’ ability to invest counter-cyclically were also discussed.
Following ISA’s appearance, ME Bank CEO, Jamie McPhee, appeared before the Committee to answer extensive questions about the recent changes to the bank’s redraw facilities.
Mr McPhee opened his appearance with an apology, acknowledging that while the change itself was valid, the timing was wrong and there was a communication failure.
Questioning explored the drivers of the change to redraw arrangements, which primarily arose from an ongoing transfer to a new technology platform. Committee members asked questions about internal processes involved in making the decision, and communication with the regulators about the change.
Questioning clarified that the redraw change was not related to COVID-19 and that it did not involve removing funds from member accounts.
The Chair followed lines of questioning around ME Bank’s products and business model, asking about the ACTU member connect program, and focusing on where low interest rates are offered. A further line of questioning centered around ME Bank shareholdings, dividend arrangements and capital.
Early release update
More than 1.4 million requests for early release super have now been approved, worth a total of $11.8 billion.
Despite there being another six weeks before the first tranche of the Scheme closes on June 30, the number of early release requests is already close to the Government’s estimate of the Scheme’s take up at around 1.6 to 1.7 million people. According to industry estimates, roughly 75% of requests for early release have now been processed, with an average amount withdrawn of $8216.
APRA releases fund-level data on early release payments
As reported in an AIST policy alert earlier this week, APRA has released the first fund-level statistics on the Government’s early release scheme, revealing the number and value of the payments processed by each fund, as well as the time taken to make payments.
The fund-level data shows that of the 142 funds to make payments, 117 (82%) have made more than 90 per cent of payments within the five business days guideline indicated by APRA. That includes 57 funds that made all payments within five business days, 24 that paid 99 per cent within that time frame, and another 18 funds that paid 98% within five business.
Processing times by profit-to-member funds were among the quickest to members in need. Across the six profit-to-member funds which received the highest volumes of applications, more than 99.6% of payments made were within the five business day timeframe.
APRA Deputy Chair Helen Rowell said an overall average payment time so far of 3.1 days following receipt of applications from the ATO was a positive story.
“We recognise, however, that it may be both necessary and appropriate for trustees to take longer in some cases. This is no doubt frustrating to those awaiting payments, but the recent attempted fraud being investigated by the Australian Federal Police emphasises that care is needed to ensure payments go to the right people,” Ms Rowell said.
Changes to ATO file delivery
Also reported earlier this week, the ATO has changed the delivery of daily early release application files to be one business day later than the previous process, following a pause on files being sent out due to instances of fraud.
The delivery of early release files was paused on Friday 8 May and resumed Monday 11 May at which time the ATO investigated its processes regarding verification and fraud security.
The ATO sends an SMS to a member to inform them of a successful application only once the data file has been sent back to the ATO.
Additional information in a new second file
The ATO now sends a second ‘additional information file’ when required.
The additional file contains determinations where the ATO recommends funds further strengthen verification processes with the member over and above existing verification processes that apply to all determinations.
ASIC defers Design and Distribution Obligations
Design and Distribution Obligations due to commence on 5 April 2021 will now commence on 5 October 2021, following an announcement from ASIC that they were deferring the start date by six months.
The design and distribution obligations require issuers to design products that are consistent with the likely objectives, financial situation and needs of the consumers for whom they are intended.
Although MySuper products are not subject to the obligations, Choice super products are included. The obligations will apply to both products launched after commencement of the regime (new products) and existing products that continue to be issued to consumers after commencement of the regime (continuing products).
ASIC released draft guidance for the design and distribution obligations in December 2019 and will continue to work towards final guidance in mid-2020, responding to industry request for guidance to be finalised as soon as possible.
For further information, please contact AIST’s Policy Analyst, Zach Tung at firstname.lastname@example.org
Permanent CGT relief for merging funds
AIST has welcomed the passage of legislation through Parliament today that provides permanent capital gains tax rollover relief for merging super funds.
The relief, which would have expired on 1 July without the Treasury Laws Amendment (2020 Measures No. 1) Bill 2020, reduces the tax liability that could arise for fund members when super funds merge, removing a significant impediment to mergers.
The new legislation implements an announcement in the 2019 Federal Budget to make these arrangements permanent.
The temporary loss relief and asset roll-over was first introduced in late 2008 and has been extended on several occasions, but its temporary nature has not provided certainty to funds considering mergers.
In 2019, the Productivity Commission Inquiry Report—Superannuation: Assessing Efficiency and Competitiveness stated that temporary nature of capital gains tax relief for funds that merge could also be a factor on why more funds have not merged. The report also recommended that Government legislate to make permanent the temporary loss relief and asset rollover provisions that provide relief from capital gains tax liabilities to superannuation funds in the event of fund mergers and transfer events.
More clarity needed on proposed independence disclosure by advisers
AIST has called for more clarity on proposed regulations that will require financial advisors to disclose if they lack independence.
In a submission to ASIC on its proposed approach to implementing aspects of law reform relating to royal commission recommendations concerning advice fee consents and independence disclosure, AIST has recommended that the regulator provide examples of the sort of disclosure that would comply with the new requirements. This should include a clear explanation of why a financial adviser is not independent and the impact that this could have on advice being provided.
New superannuation related Bills introduced into Parliament
A number of superannuation-related Bills were introduced into the House of Representatives when Parliament resumed on 13 May 2020. A summary of the Bills is outlined in the table below:
Anticipated start date
Treasury Laws Amendment (More Flexible Superannuation) Bill 2020
The Bill partially implements the improved flexibility for older Australians measures announced in the 2019-2020 Budget. Specifically, the Bill extends the bring forward rule by enabling individuals aged 65 and 66 to make up to three years of non-concessional contributions under the bring forward rule.
1 July 2020
Levy Imposition Amendment Bills & APRA Industry Funding Bill
Makes amendments to respective Levy Imposition Acts to increase the statutory upper limit on the amount of levies APRA can collect from the entities it prudentially regulates. Bills also make amendments to allow the indexation factor used in calculating the statutory upper limit to use the most recently published CPI figures available.
In increasing the upper limit, APRA has noted that legislation is currently preventing the largest banks from paying the appropriate share of the cost of its regulation.
The APRA industry funding bill and the levy imposition bills will fix these issues.
Also accompanies the APRA Industry Funding Bill, which makes amendments to the Australian Prudential Regulation Authority Act 1998 to ensure that the Commonwealth can recover the costs of a wider range of activities that are funded by the Commonwealth and recoverable through the financial institution supervisory levy framework.
Upper limit to increase from 1 July 2020, other amendments to commence on the day after the Bills receive Royal Assent.
Treasury Laws Amendment (2020 Measures No. 2) Bill 2020
There are Six Schedules to this Bill making amendments to a number of Acts. This include:
Schedule 1 to the Bill amends the hybrid mismatch rules.
Schedule 2 to the Bill broaden the amounts that employers can voluntarily report under the Single Touch Payroll rules to include employer withholding of child support deductions from salary or wages and child support garnishee amounts from salary or wages that are paid to the Child Support Registrar.
Schedule 2 ensures that if employers choose to report under Single Touch Payroll to the Commissioner of Taxation, they do not also have to report the amounts to the Child Support Registrar.
Schedule 5 allows additional entities to be deductible gift recipients under income tax law, including Superannuation Consumers’ Centre Ltd.
Majority of amendments due to commence from 1 July 2020
ABS stats reveal three out of 10 women retire with no super
Three out of every ten women who retired in 2018/19 had no superannuation savings, while almost four out of ten of women rely on their partner’s income to meet their living costs in retirement, according to statistics released by the Australian Bureau of Statistics (ABS).
The Retirement and Retirement Intentions statistics taken between 2016/17 and 2018/19 reveal a number of indicators underpinning the superannuation gender gap such as more women retiring to provide care, and a gap of 7.4 years between average retirement age (men 59.5, women 52.1). Eight percent of women are retiring to care for an ill, disabled or elderly person, compared with 2 percent of men.
While the government pension remains the main source of income for most retirees, people retiring with superannuation as a source of income has increased over the two-year period.
Key 2018/19 Statistics
Govt defers implementation of RC measures due to COVID
The Government has deferred for six months the implementation of commitments associated with the Hayne Royal Commission as a result of the significant impacts of the coronavirus.
The Government says the deferral balances the need to implement the recommendations of the Royal Commission with the need to ensure financial institutions are in a position to devote resources to responding to the significant challenges posed by the coronavirus.
Under the updated timetable, those measures that the Government had indicated would be introduced into the Parliament by 30 June 2020, will now be introduced by December 2020. Similarly, those measures originally scheduled for introduction by December 2020 will now be introduced by 30 June 2021.
In relation to commencement dates contained in Royal Commission related exposure draft legislation issued prior to the coronavirus pandemic, the Government will also extend these dates by an additional six months.
Since Commissioner Hayne’s Final Report was released, the Government has implemented 24 commitments with a further 35 progressed through consultation and the preparation of draft legislation.