AIST Policy News - 13 December 2018

AIST Policy News - 13 December 2018


APRA’s new member outcomes test misses the mark

AIST has raised concerns that the new ‘member outcome’ requirements – released by the Australian Prudential Regulation Authority (APRA) this week – will not produce the best outcomes for members.

While the new requirements will require super funds to annually benchmark and evaluate their performance in delivering sound, value-for-money outcomes to all members, net returns have not been given primary consideration in this evaluation.

AIST is concerned that this will downplay the negative impact of long-term under performance on members’ retirement outcomes.

AIST has previously noted that the profit-to-member super sector has consistently pursued net returns and, on average, has achieved significantly higher returns over all time periods. This has been a major focus of the Financial Services Royal Commission, and the subject of extensive analysis by the Productivity Commission. 

The Response Paper, Strengthening Superannuation Member Outcomes, covers two prudential standards: SPS 515 Strategic Planning and Member Outcomes, and SPS 220 Risk Management, along with two prudential practice guides: SPG 515 Strategic and Business Planningand 516 Outcomes Assessment.

In releasing the outcomes paper, APRA has preceded The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 that will introduce a legislated outcomes assessment.

The commencement date for the new measures has been set as 1 January 2020, to provide industry with sufficient time to meet the new requirements.


ASIC to ramp up its monitoring of complaints handling

Against the background of its own research on customer satisfaction with complaints handling, the Australian Securities & Investments Commission (ASIC) is set to ramp up its monitoring of complaints handling among financial firms, including super funds.

According to the ASIC research, more than a quarter of people making complaints against financial services firms feel they have not been listened to or heard. Almost half of those who did not make a complaint reported that they did not think it would make a difference or it was not worth their time.

The research – which explores the consumer experience of internal dispute resolution (IDR) procedures across the financial services sector – is the first step in work that ASIC is undertaking to raise financial services IDR standards and transparency.

ASIC is asking all financial firms to closely review the research findings and consider whether their complaints procedures need to be reformed to improve the experience for consumers and to ensure that identified problems are remedied effectively and promptly. Firms should also prepare to engage with ASIC about its review of the complaints handling standards and requirements.

From February 2019, ASIC will be consulting publicly on a review of existing IDR guidance set out in Regulatory Guide 165, Licensing: Internal and external dispute resolution.  


AFCA’s big opening month

The Australian Financial Complaints Authority (AFCA) has reported that financial complaints have soared since opening its doors on 1 November.

In a snapshot of their first month of operation, the new financial complaints body has reported a 47 per cent increase in activity, compared with the complaints bodies that it replaced.

During November, AFCA received 13,000 phone enquiries, and a total of 6,544 official complaints from consumers and small businesses in relation to financial products and services. Complaints relating to superannuation accounted for 8 per cent of this total. Of these, incorrect fees and costs and account administration errors were the most common complaints.

Despite the overall jump in activity, AFCA CEO and Chief Ombudsman, David Locke, said that the volume of complaints was on par with what they were expecting, and that they were handling the increased level of interest well.

“15% of the complaints we received in the month of November have already been finalised. 80% of complaints have been lodged online, meaning consumers and small businesses have been able to access our service whenever and wherever they need it,” Mr Locke said.

The most common type of complaint made was in relation to decisions made by financial firms related to denial of insurance claims and issues around responsible lending.

This was followed by complaints about service issues, such as service quality, or delay in claim handling.


Retirement income disclosure paper released

Treasury has released a new consultation paper in relation to proposed retirement income disclosure for use with retirement income products. The proposed disclosure requirements – which would promote standards in relation to disclosure of amounts, risk and a dashboard-style presentation format – are aimed at assisting consumers to compare different retirement income products.

Consultation is open until 23 March 2019. For all questions or comments in relation to this consultation, please contact Richard Webb, Policy & Regulatory Analyst at rwebb@aist.asn.au.


Lack of understanding and contrition sees regulator act on IOOF

The Australian Prudential Regulation Authority (APRA) is taking action against IOOF entities, directors and executives for failing to act in the best interests of superannuation members.

APRA has commenced disqualification proceedings and is seeking to impose additional license conditions and issue directions to APRA-regulated entities in the IOOF group.

If successful, the disqualification proceedings would prohibit senior IOOF individuals from being a responsible person of a trustee of a superannuation entity.

APRA Deputy Chair, Helen Rowell, said APRA had decided to take stronger action after concluding the company was not making adequate progress, or likely to do so in an acceptable period of time.

“APRA’s efforts to resolve its concerns with IOOF have been frustrated by a disappointing level of acceptance and responsiveness to the issues raised by APRA, which is not the behaviour we expect from an APRA-regulated entity,” Mrs Rowell said.

“Furthermore, the individuals included in the proceedings have shown a lack of understanding of their personal and trustee obligations under the SIS Act and at law, and a lack of contrition in relation to the breaches of the SIS Act identified by APRA.”


Extended transition period for fee and cost disclosure requirements

The Australian Securities and Investments Commission (ASIC) announced this week that it is extending the transition periods for key fee and cost disclosure requirements.

ASIC has extended the deadline for PDS disclosure of property operating costs to 29 September 2020. This gives the industry an extra 12 months on the existing – and already once extended – deadline of 29 September 2019.

Similarly, ASIC has extended the deadline by 12 months for disclosure on periodic statements. This means super funds can continue using the interim arrangements for disclosure of buy/sell spreads, tax deductions and borrowing costs up until 29 June 2020. Similar relief is extended until 29 June 2020 for managed investment schemes.

AIST has welcomed the announcement, noting that the longer transition periods will provide the industry with the opportunity to ensure the new requirements are consistent across products and therefore meaningful to consumers.


Member feedback invited on retirement incomes bill

Following the introduction of the Social Services Legislation Amendment (Supporting Retirement Incomes) Bill 2018 to Parliament on 29 November, the Senate Economics committee is calling for submissions by 18 January.

With the announcement that the Federal Budget will be held in April this year, this reduces the time available to debate the bill to the two sitting weeks in February, one of which is a House-only sitting week, as all bills in front of Parliament will lapse once the election is called. This bill must have Royal Assent by the end of June in order to be operational by 1 July, next year.

For all questions or comments in relation to AIST’s submission, please contact Richard Webb, Policy & Regulatory Analyst at rwebb@aist.asn.au.


Two out of five people without super believe they will never retire

Two out of five people without super believe they will never retire, according to a report released by the Council on the Ageing (COTA).

The State of the (Older) Nation 2018 Report, is a comprehensive national study undertaken to seek the views of Australians aged 50 and over.

The report examines the financial concerns of Australian seniors and how superannuation fits into their view on living comfort.

Access to health services and the rising cost of living were raised as key issues in the report, particularly for vulnerable older Australians.

Regarding superannuation, the report found that 48% of people believed it was difficult to understand the changing rules around retirement income and superannuation.

For those aware of changes, feelings were largely negative, with the exception of incentives for downsizing, which 43% felt positively about. By comparison, more than half felt that changes in superannuation rules, the aged pension, and the investment shares indexation would have a negative effect on the financial outlook for retirees.

Despite the positive sentiments towards the incentives for downsizing, 48% of those who own their home reported finding the idea of downsizing unappealing.

Only half of respondents believed they would leave an inheritance, and 63% reported that superannuation was something they had in place for later life planning.


Liquidity & climate risk limiting super investment in agriculture

Liquidity risk and climate risk are among a range of factors limiting super investment in agriculture, according to a Parliamentary report.

The House Standing Committee on Agriculture and Water Resources has tabled its report into the issue of superannuation fund investment in Australian agriculture following six months of hearings.

In its report, the Committee states that the lack of super funds investing in Australian agriculture is not a black and white issue.

Committee Chair, Rick Wilson MP, noted consistent evidence found there were no legal or regulatory barriers stopping funds from investing in agriculture.

Mr Wilson noted, “a range of factors all contribute – from the liquidity requirements of super funds, to the impact of climate and inconsistent knowledge of the sector”.

The Committee made four recommendations:

  • Improving the data available on the agriculture sector and making it more suitable to investment analysis
  • Revisiting the potential negative impact of foreign investment rules and tax burdens
  • Expanding publicly available information about the sector and its investment suitability, both domestically and internationally
  • Establishing a superannuation and agriculture sector working group to stimulate mutual understanding of areas for improvement and investment.

ASIC announces replacement for Peter Kell

The Government has appointed Ms Karen Chester as a full-time Deputy Chair to the Australian Securities and Investments Commission (ASIC).

Ms Chester will commence with ASIC for a five-year period from 28 January 2019, replacing outgoing Deputy Chair, Peter Kell.

Ms Chester has worked closely with ASIC in the past including Chairing a 2015 capability review into ASIC that resulted in several key changes to ASIC’s operations.

Most notably, Ms Chester has been the Deputy Chair of the Productivity Commission since May 2016, having been appointed a Commissioner in December 2013. During this time, Ms Chester presided on over 10 Inquiries and projects including the Commission’s three stage review of the superannuation system.


Human Rights Commission recommends 2% extra super for women

The Australian Human Rights Committee has released a guideline for special measures under the Sex Discrimination Act that seek to reframe laws to improve women’s economic circumstances.

The guideline notes that some groups have suffered historical disadvantage and do not enjoy their human rights equally with others.

The gender pay gap, the under-employment of women, barriers to leadership roles, reduced retirement savings and high rates of sexual harassment at work are examples of continuing inequality.

An example of such a measure in practice is boards setting quotas for the gender ratio of their directors.

The Human Rights Commission’s recently released report makes a number of recommendations for additional special measures, including an additional 2% superannuation payment for women, including while on periods of maternity leave.


Tax Practitioner Board to crack down on outstanding tax obligations

New data from the TPB reveals that 5% of registered tax practitioners (including registered tax (financial) advisers) have late or outstanding lodgements of personal tax documentation with the ATO. The TPB is providing a limited opportunity for registered tax practitioners to rectify this, however from February 2019, firmer action will be taken against practitioners who fail to take steps to remedy their outstanding personal tax obligations.

Further information may be found in a new Information Sheet available from the TPB.