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Choice of fund returns to Parliament for more debate
Parliament has confirmed that Your Super, Your Choice Bill is returning to the House of Representatives on 12 June.
Two bills are set to be debated on this date:
Earlier this year AIST appeared before the Senate Standing Committee on Economics to argue that the Your Super Your Choice Bill should only be supported with substantial amendments that would ensure no members will be worse off.
The Bill will amend the Superannuation Guarantee (Administration) Act 1992 to prevent Enterprise Bargaining Agreements nominating only one superannuation fund in a workplace.
AIST is concerned that the current drafting of Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 has the potential to prejudice interests of some super fund members as it puts at risk the additional superannuation benefits, such as higher super than SG, enjoyed by many employees covered by EBAs.
Early release update
1.75 million approved applications, worth $14.3 billion. Average withdrawal is $8,172.
AIST’s analysis of the latest APRA data shows that the impact of early release withdrawals stretches across the super industry to all types of funds.
While more than 41% of total applications received were for funds with amember base with a concentration in specific industries, 52% of total applicants had a general base, followed by 5% government and 2% corporate.
Only 5 out of the top 15 funds (by numbers of applications received) are from funds with an member base with a concentration in specific industries whereas 9 had a non specifc industry base.
As a percentage of total accounts, 5 of the top 10 funds have with a concentration in specific industries and 5 are non-specific industry based.
As a percentage of FUM, 3 of the top 10 funds have with a concentration in specific industries and 7 are non specific industry based.
As expected, funds with a higher young member base also have higher proportionate early release applications.
Meanwhile, new data insights into why people are withdrawing their super has cast doubt on whether a significant number of applicants really needed to dip into their super.
Survey data released this week by analytics firm AlphaBeta and credit bureau Illion suggests as many as 40 per cent of those withdrawing their super did not experience any drop in their income during the COVID crisis.
The survey of 1300 people found they spent $2855 more than normal in the fortnight after their super withdrawal. While some of this money was used to pay down debt, two thirds was spent on what AlphaBeta classifies as discretionary items such as clothing, furniture, restaurants and alcohol.
What’s on APRA’s radar
APRA has indicated that it will recommence consultations before the end of the calendar year on two key items: SPS 250 Insurance in Super and the review of the Sole Purpose test.
The regulator is also monitoring the impact of early release in relation to accounts with very small balance. It is aware of concerns about fee cap rebates but will not address these through FAQs and instead expects trustees to make a decision in line with their trust deed.
Meanwhile, as raised by AIST, APRA has recognised there is an oversight in the Early Release regulations in regard to the treatment of super splitting under Family Law. It is working with the ATO on a response to this.
ASIC update - review of COVID comms, PDS updates & DDO
ASIC has commenced a review of super funds communications regarding COVIC -19, notably around the temporary early release of super and other changes.
ASIC has reviewed fund websites and found a number of issues of concern including:
ASIC expects funds to regularly update web content and member communications.
ASIC have also expressed some concerns about the industry’s approach to PDS updates. It says funds are being too rigid in their updates, notably that they had determined some time ago what updates will be made and have not diverted from this even where new information or requirements exist.
Meanwhile in news concerning the new Design and Distribution Obligations, ASIC is discussing with APRA the overlap with member outcomes and how to align the obligations where possible.
ATO issues scam alert
The ATO has this week issued a scam alert in regard to identity theft and people charging for services that are available free through the ATO.
In the alert, the ATO says it is particularly concerned about:
The ATO is advising consumers against providing personal information and clicking any links, recommending consumers can contact it later to check if the communication was genuine.
Consultation on proposed reduction in industry levies
Treasury have released for consultation the 2020-2021 Financial Institutions Supervisory Levies, flagging a reduction on the amount paid by the super industry during this financial year.
The discussion paper sets out the proposed levies to recover the operational costs of APRA and other specific costs incurred by certain Commonwealth agencies and departments, including ASIC, the ATO and the Australian Competition and Consumer Commission.
The total funding required under the proposed levies for all relevant Commonwealth agencies and departments is $222.5 million (representing a 5.7 per cent reduction from the previous financial year). This includes a return to industry (primarily the superannuation industry) of $1.1 million due to levy over-collection in 2019-20.
Proposed levies funding for superannuation is $82.1 million, compared to $89.9 million in 2019–20. Levies funding for superannuation in 2020–21 represents 36.9 per cent of total levies, compared with 38.1 per cent in 2019–20.
The levy amounts in the proposed discussion paper for the largest Authorised Deposit-taking Institutions are subject to legislation currently before Parliament being passed before 30 June 2020. The legislative amendments will increase the levy maximum statutory cap.
AIST has previously advocated that the raising of any levies on the industry should be on a risk-weighted basis, taking into account the volume of regulator activities spent on various entities and sub-sectors.
Submissions on the proposed levies are due 12 June 2020. For further information, please contact AIST’s Policy Analyst, Zach Tung at email@example.com
JobKeeper Super Guarantee amendments released
Regulations have now been registered to ensure that employers are not subject to additional Superannuation Guarantee obligations as a result of participation in the JobKeeper scheme.
The regulations set out that SG payments will only be required to be paid to an employee for the performance of work (including the taking of leave).
The regulations recognise that employees may in some cases receive an amount greater than their usual salary or wages because of the JobKeeper payment, including where the employee has been stood down. The regulations set out that employers would not be required to make superannuation contributions in relation to these additional amounts paid.
The regulations also provide further clarity in relation to salary sacrifice arrangements, confirming that amounts paid under an effective salary sacrifice arrangement will count towards the $1,500 per fortnight however do not reduce SG requirements.
The Explanatory Statement has a number of examples, including further information regarding when an employee’s earnings for the performance of work are less than $450 per month but the employee received an additional payment due to JobKeeper.
Example - a long term casual employee earns $400 in April 2020 for the performance of work. To satisfy the wage condition for JobKeeper payment, his employer pays him $400 for the month, plus an additional $2,600, totalling $3,000 before tax for that month.
The additional payment of $2,600 is excluded from being salary or wages because it is not an amount that is required to be paid to Nelson for the performance of work. Because the employees remaining $400 is less than the $450 threshold, his employer is not required to make a superannuation contribution in respect to this month.
Work test age to be increased
Regulations have been finalised to increase the age at which the work test starts to apply for voluntary concessional and non-concessional superannuation contributions.
The changes increase the work test from age 65 to 67, and also increase the age limit for spouse contributions from age 69 to 74. The changes apply to contributions made in the 2020-2021 financial year, and later financial years.
The Regulations implement the first two elements of the announced 2019-2020 budget measures - improving flexibility for older Australians.
The third element of this budget measure – increasing the age limit for accessing the bring forward non-concessional contributions cap – is implemented through amendments to the Income Tax Assessment Act 1997 and the accompanying Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 was introduced into House of Representatives 13 May 2020.
AIST supports the changes as they give members more opportunity to boost super savings and consequently to achieve better financial security in retirement.
Whilst supportive of the changes AIST has advocated for the removal of the work test entirely.
Age-based restrictions such as the work test add complexity for individuals and red tape to the system: when accepting contributions, a trustee must be mindful of whether a member is in a position to make a contribution, based upon their age and employment status.
Regulatory sandbox expanded to superannuation
Regulations have been made to allow an expanded FinTech sandbox, extending the exemption to include super products and increasing the timeframe from 12 to 24 months.
The changes were first announced in the 2017-2018 budget and whilst the respective legislation was passed in February its complementary regulations have now been made.
The regulatory sandbox framework has been in operation since December 2016, allowing financial products and services to be tested in Australia without obtaining an Australian Financial Services Licence (AFSL) and/or an Australian Credit Licence (ACL). Previously the exemption did not apply to products with a long-term focus (e.g. superannuation) as it was considered that some products are not suitable for unlicensed testing.
To date, seven fintech businesses have used the fintech licensing exemption.
The enhanced sandbox will broaden the range of financial services available for market testing, including services which advise on, or distribute, non-cash payment products, insurance, superannuation, simple managed investment schemes, listed securities and consumer credit contracts between $2,000 and $25,000.
The enhanced sandbox will be available from 1 September 2020.