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Compulsory super saves the taxpayer billions: Rice Warner report reveals
A combination of the super guarantee supplemented with a means tested Age Pension incurs a significantly lower budget cost than providing a similar retirement income via a more generous publicly funded age pension, new analysis by Rice Warner Actuaries shows.
The Rice Warner report found the Superannuation Guarantee will save the budget $17 billion this year, rising to $100 billion, (in current dollars) by 2058.
The new report, commissioned by Industry Super Australia, assesses various policy scenarios using a comprehensive group based fiscal model that considers all relevant variables including the impact of the super guarantee on the age pension, personal wealth, income and company taxes.
The analysis, which is the first of its kind, considers the full fiscal impact of effectively abandoning the Super Guarantee and all associated tax benefits and reverting to a more generous, but means tested, publicly funded pension that would deliver broadly equivalent retirement benefits.
In the scenario, the maximum rate of age pension is increased by 50% to deliver the same outcome as the current age pension and the SG for a median wage earner.
In effect it replicates the path other countries have taken when they don’t have compulsory privately funded retirement schemes.
The report also found the scheduled rise in the super rate - which has increased only once in 18 years and is due for its first affordable incremental rise of 0.5 per cent next year – will improve the budget bottom line through lower age pension payments in the future and increased revenues on the extra assets accrued through compound returns.
Freezing the super rate at the current level of 9.5 per cent – about 6 per cent less than the 15.4 per cent super the federal politicians calling for the rate to be scrapped take home - will not result in an improved fiscal position over time.
Repealing the legislated rise would mean that both current and future taxpayers would be forced to pay more personal income tax, and age pension costs will rise in the coming years and decades.
AUSTRAC extends relief on Early Release of Super
AUSTRAC has extended to 31 December the rule that allows a reporting entity to be exempt from the applicable customer identification procedure (ACIP) in section 32 of the AML/CTF Act when making payments to a member of a superannuation fund or a retirement savings account holder.
As reported in an earlier Policy Alert this week, AUSTRAC has said the relief is based on the payment being approved by the Australian Taxation Office (ATO) as part of the early release of superannuation initiative established under the Coronavirus Economic Response Package Omnibus Act 2020.
To view the updated rule click here
Early income tax cuts: men to gain twice as much as women
New modelling from The Australia Institute has shown that bringing forward the Government’s income tax cuts will disproportionality advantage men over women, despite women being hardest hit in terms of lost employment due to the COVID-19 recession.
The modelling shows tax cuts will mainly benefit high income earning men, with men getting more than twice the benefit of women. This will lead to more gender inequality, the Institute says.
Previous Australia Institute research has shown that bringing forward the tax cuts would be poor stimulus because it mostly benefits high income earners, who are more likely to save it than lower income earners.
Key findings include:
ASIC clarifies intrafund advice for Parliamentary hearings
ASIC has provided further information on intrafund advice to the Parliamentary Committee hearings on super and banking.
In response to a Question on Notice from the House of Representatives Standing Committee on Economics last month, ASIC has clarified that advice providers can provide scaled personal advice or limited scope personal advice (including intrafund advice) and comply with the best interests duty and related obligations in the Corporations Act.
The question put to ASIC from Liberal MP Jason Falinski related to whether the approach taken by Industry Fund Services (IFS) on intrafund advice – as outlined to the Committee in IFS’ Cath Bowtell presentation - met the members’ best interests test and all legal requirements.
In its response, ASIC notes that financial product advice can be either personal advice or general advice. It goes on to say that personal advice is financial product advice that is provided to a person in circumstances where the provider of the advice has considered the person’s individual circumstances or a reasonable person might expect that the provider has considered the person’s individual circumstances.
The regulator notes that retail clients rely on personal advice and may suffer significant loss if the advice is not of good quality. “For this reason, there are specific legal obligations that apply to personal advice provided to retail clients. These specific obligations include the best interests duty and related obligations.”
It further notes that ‘scaled’ advice can meet all the relevant legal requirements for personal advice. This is because what an advice provider must do to meet the legal requirements, including the best interests duty and related obligations, can be ‘scaled up’ or ‘scaled down’ depending on the nature or scope of the advice.
“Intra-fund advice is not a legal concept or a separate type of advice. Intra-fund advice is a term widely used in the industry to refer to the scaled or limited scope personal advice that a superannuation trustee can provide to members on the basis that the cost of the advice is borne by all members of the fund.”
Early release applications update
The weekly rate of applications to the COVID early release scheme for week continues to hover around the 50,000 number, according to APRA figures.
The weekly rate for the week ending 6 September (the latest available data) shows 49,000 applications were received by funds. This compares to 52,000 applications in the previous week.
Of the applications received by funds, 27,000 were initial and 21,000 were repeat applications. The total number of initial applications since inception of the scheme is around 3.2 million and repeat applications are 1.2 million.
More than $33 billion in early release has been paid out by super funds since the scheme began.
APRA and ACCC update MoU
The Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC) have signed an updated Memorandum of Understanding (MoU) designed to broaden their model of engagement and improve information sharing.
APRA and the ACCC have worked together during the COVID-19 pandemic on issues including resolution planning and authorisations on anti-competitive arrangements in the financial system.
APRA Chair Wayne Byres said APRA and the ACCC have a strong working relationship, founded on a common focus in supporting a safe, competitive and efficient financial system.
“Although APRA’s mandate requires our primary focus to be financial soundness and stability, we are also required to balance this with a range of other considerations, including competition. Updating this MoU reflects the importance of our relationship with the ACCC, and acknowledges the importance of competition in maintaining a healthy and efficient financial system.”
The updated MoU is available on the APRA website at: Memoranda of understanding and letters of arrangement.
NAB Wealth cops $57 million penalty for charging fees for no service
The Federal Court of Australia this week ordered two entities in NAB’s wealth management division to pay a total $57.5 million penalty for charging fees for no services to its members. It is the largest total penalty yet imposed in a civil action filed by ASIC, and stems from evidence heard at the Financial Services Royal Commission.
The Court found that NULIS Nominees Limited and MLC Nominees Pty Ltd made false and misleading representations to members about their entitlement to charge plan service fees and members’ obligations to pay the fees.
The Court also made declarations that MLC Nominees and NULIS failed to ensure that their financial services were provided efficiently, honestly and fairly.
ASIC Deputy Chair Daniel Crennan QC said the penalty imposed by the court reflected “very serious” contraventions by MLC Nominees and NULIS.
Download the full judgement
AIST’s weekly update on the status of legislation
The current status of superannuation Bills currently before Parliament can be found here.