AIST Policy News - 15 November 2018

AIST Policy News - 15 November 2018

Debate on key super bills delayed

The much-anticipated Senate debate on key superannuation bills in front of Parliament looks unlikely to happen this week.

With this week’s Senate-only sittings finishing later tonight, debate on the bills can now commence, at the earliest, when the Senate resumes sitting for the week starting 26 November. However the last two sitting weeks of the year are traditionally very busy, and competition for space in the legislative programme is fierce.

The Government may well decide to list the Protecting Your Super package during the last sitting period, as the auto-consolidation measure included in this Bill has significant implications for the Budget.

The Government had listed the bills for debate in the Senate this week, including the Protecting Your Super Bill which includes significant changes to the way insurance is offered in superannuation.

In a move welcomed by AIST, the Opposition announced yesterday that it would move to amend several key measures in the Bill.

The amendments will allow super funds or cohorts of members with a demonstrated need for insurance to be provided with opt-out insurance.

This includes those working in industries with physically demanding or dangerous jobs. The amendments will also ensure that mothers on maternity leave do not have their super swept up in the definition of inactive accounts.

Meanwhile, the Government has also proposed an amendment to allow super funds to provide opt-out insurance to young members in high-risk occupations. AIST has concerns about the practicality of this.

AIST continues to call on all Senators to extend the implementation period for the overall package of insurance in super reforms, noting that the tight deadline is unworkable and could harm member outcomes.

The other bills up for debate deal with the ATO’s power on unpaid super; tax integrity measures and SG non-compliance; and MySuper outcomes. More information and updates on all bills due for debate can be found here.

AIST reiterates need to go to 12%

AIST has rejected arguments by in a Grattan Institute report that compulsory super payments should halt at 9.5%, warning that this would prevent millions of Australians from achieving a dignified retirement.

Responding to the report on ABC Radio and in other media outlets this week, AIST CEO Eva Scheerlinck said Australians living longer in retirement; the changing nature of work; rising aged care and health costs; and declining home ownership rates in retirement were key reasons why ordinary working Australians would need 12% super to retire with dignity.

Ms Scheerlinck said leaving super at 9.5% would consign low income workers – as well as millions of women and men with broken work patterns – to financial hardship in retirement. It would also lead to more Australians needing to rely on the Age Pension.

“Why should low income earners and women in unpaid work caring for children or other family members suffer financial stress in retirement?” Ms Scheerlinck said. “It’s not fair and we can do better.”

Ms Scheerlinck said while Grattan’s report – released last week - correctly identified that more needed to be done to help the growing cohort of non-home owning retirees, providing more rental housing assistance, while welcome, would not be enough.

In 2017, AIST’s report – No place like home; the impact of declining home ownership in retirement, noted the impact of Australia’s falling home ownership rates on the retirement wellbeing of future generations. The report found that more people were retiring with mortgage debt or having to rely on private rental housing, with twice as many retired households paying more than 30% of income for housing. “Older retirees who are forced to rent – many of them single women – deserve both housing security and a decent income,” Ms Scheerlinck said.

Ms Scheerlinck said AIST agreed with Grattan that the Age Pension asset test needed to be revised and that more should be done to ensure a fairer distribution of the super tax concessions.

Senate motion gives hope to carers

The Senate has recognised that people in unpaid work caring who are family members or friends struggle to build adequate retirement savings.

The motion - made by SA Senator, Stirling Griff - highlighted that 4 per cent of all employees annually become carers and paves the way for further consideration by political parties as to whether unpaid carers should receive super payments. 

Importantly, the motion recognized that women make up the majority of people who take time away from work to provide care and that this was a major contributor to the super gender gap issue.

Senator Griff called on the Government to:

  • Model the costs and benefits of providing the superannuation guarantee to carers on the Carer Payment or other carer-related benefits, including the Commonwealth Paid Parental Leave Scheme.
  • Seriously consider providing the superannuation guarantee to carers on the Carer Payment or other benefit they are paid as a result of their caring responsibilities.

“Most unpaid carers are women, and too many women retire with insufficient super - and indeed too many retire in poverty.” said Senator Griff.

“Continuing the Superannuation Guarantee on carer benefits such as the Carer Payment and Paid Parental Leave can only be a positive.”

Senator Griff said superannuation 'investment' in carers would be partially offset by a reduced reliance on the aged pension in the long term.

The Senator said he was pleased that Labor had supported his motion and would pursue this with them should they be successful at the next federal election.

Cbus welcomes phoenixing measures

Cbus has backed the introduction of Director Identification Numbers (DINs) in a submission to Treasury, warning that phoenixing is particularly damaging to its members.

Noting that phoenixing - the act of creating a new company to continue the business of a company that has been deliberately liquidated to avoid paying its debts - is a significant problem in the building and construction industry, Cbus says DINs would help to protect members’ super entitlements.

“The introduction of DINs would help level the playing field for the majority of companies who do the right thing by removing some of the unfair competitive advantages gained by people who wilfully avoid their legal and regulatory obligations,” said Cbus Group Executive Robbie Campo.

Over the past 10 years, Cbus has recovered more than $31m in members’ superannuation entitlements from insolvency actions, and in the past five years recovered around $330m in unpaid superannuation owed to members.

APRA to re-examine misconduct

APRA is re-examining cases of potential misconduct of financial entities raised during the Royal Commission, potentially leading to enforcement action.

In his first official speaking engagement since becoming APRA deputy chair, John Lonsdale said evidence presented that was either new to APRA or contradicted what the regulator had been previously told, was being re-examined, with the process to continue into 2019.

Outlining top strategic and policy priorities for 2019 at a FINSIA event, Mr Lonsdale said a key priority for the regulator would be to review its enforcement strategy before the end of March.

Mr Lonsdale said this review – supported by an External Advisory Panel of experts – would make recommendations on which enforcement issues APRA would consider acting on, what factors to take into account, and whether there were any practical or legislative impediments to it pursuing a strong approach.

While acknowledging the need for APRA to strengthen its enforcement action, Mr Lonsdale said APRA would remained a supervision-led entity. He also noted that a high priority for APRA would be responding to the Royal Commission’s final report and the Government’s response.

Other priorities for APRA in 2019 include:

  • Development of a formal prudential framework for recovery/resolution
  • Further roll out Basel III capital requirements and BEAR.
  • Finalisation of the super member outcomes package.
  • Engagement with trustees of underperforming funds.
  • New powers to direct licensees to take early action eg merging or wind up.

Financial Services Royal Commission technical paper released

The Commission has released a technical paper written by Professor Pamela Hanrahan.

The paper covers various aspects of foreign financial services regulation, including:

  • Remuneration in financial institutions.
  • Commissions and ongoing advice fees.
  • Separation of product issuers from advice.
  • Regulatory architecture.

The paper may be found here.

APRA seeks feedback on its reporting framework

As part of its post-implementation review, APRA is now seeking feedback in relation to its reporting framework.

APRA seeks feedback on the following questions:

  • Does the reporting framework support the prudential framework in meeting objectives?
  • Implementation of the reporting framework?
  • Any scope for improvement in implementation?
  • Is the reporting framework fit for purpose, are there any changes to reporting framework warranted to reflect changes/evolution in industry structure?

AIST will be writing a submission addressing these questions. To provide feedback, please contact Richard Webb, Policy & Regulatory Analyst at or on 03 8677 3835.

APRA moves on enforcement strategy review

APRA has announced the terms of reference for a review into its current enforcement strategy and infrastructure and how it interacts with the regulator’s core supervisory approach.

APRA established the enforcement review in recognition both of new regulatory responsibilities under the Banking Executive Accounting Regime (BEAR), as well as case studies examined by the Royal Commission.

APRA said it would make recommendations on:

  • The breadth of issues APRA seeks to address through public and non-public enforcement action
  • The considerations in determining when APRA should take enforcement action to hold entities and individuals to account, including under the Bank Executive Accountability Regime (BEAR) and other powers
  • The considerations in determining whether and when it may be appropriate for APRA to take public enforcement action, including litigation, to achieve general deterrence effects in appropriate cases
  • APRA’s internal governance, organisation, enforcement strategy, resourcing and any other factors relevant to APRA’s enforcement function

Read the full terms of reference here.

The final Review will be presented to APRA Members by 31 March 2019.

Flawed product design legislation gets the green light

In a disappointing move, The Senate has recommended that the Product Design Bill be passed without amendments.

AIST’s key concerns with theTreasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill2018 (‘the Bill’) are twofold:

  • Product ‘manufacturers’ should be included to ensure that the chain of product manufacturers and issuers take ownership. 
    The proposals are contrary to international trends.
  • The Bill cannot work meaningfully where there are over 40,000 products and systemic carveouts from disclosure and reporting to APRA obligations.

In commenting on the carve outs in the Bill, the Senate Committee notes that draft regulations with the effect of including and excluding specific products have already been published. The report said this step-by-step approach was appropriate, and that the industry must be ready for continual refinement of the bill.

AIST will continue to advocate for improvements to the new rules.

Read the Senate committee’s report here.

APRA fast tracks standard on cyber attacks

APRA has released a final version of its standard relating to cyber-attacks and information security incidents with funds having to meet the requirements by 1 July next year.

The new Prudential Standard CPS 234 Information Securityis aimed at developing and maintaining information security capabilities while realising the importance of the data that funds hold, and the significance of breaches.

CPS 234 requires APRA-regulated entities to:

  • Clearly define information-security related roles and responsibilities
  • Maintain an information security capability commensurate with the size and extent of threats to their information assets
  • Implement controls to protect information assets and undertake regular testing and assurance of the effectiveness of controls
  • Promptly notify APRA of material information security incidents.

APRA board member, Geoff Summerhayes, said it was not a question of if, but when, that an APRA-regulated entity would encounter a significant information security breach.

“In a worst-case scenario, a major breach could even force a company out of business. As a result, APRA is fast-tracking implementation of this standard,” Mr Summerhayes said.

AIST helps stamp out misleading conduct

A misleading consumer facing website has been amended following an official AIST complaint.

Earlier this year AIST lodged a complaint with ASIC about a consumer website containing several misleading and deceptive statements about the early release of superannuation, including that superannuation was an easily accessible pool of money that could be used for a variety of expenses.

Strict rules apply to the early release of superannuation.

Several member funds brought the website to our attention and as result of this collective action, ASIC has taken action. The website no longer contains the misleading statements which were clearly not in the best interests of members.

Byres to head APRA for five more years

The Federal Government has announced the reappointment of APRA chair, Wayne Byres for a further five years.

The Treasurer, Josh Frydenberg, announced the reappointment along with $58.7 million of new funding for APRA and the appointment of a second deputy chair, John Lonsdale. 

Provided over four years from 2018-19, the new funding will:

  • Enhance APRA’s supervision across regulated industries by increasing the number of frontline supervisors for the largest and most complex financial institutions
  • Enhance APRA’s ability to identify and address new and emerging risk areas, such as cyber, fintech and culture, by building internal expertise and increasing access to technical specialists outside APRA
  • Improve APRA’s data collection capabilities in order to leverage the benefits of inter-agency intelligence sharing.
  • Provide for a review of APRA’s enforcement strategy and its use of formal enforcement powers across the industries it supervises, including superannuation.

The reappointment comes at a time when questions have been raised about the ability of APRA and other financial regulators to be able to effectively monitor and act on financial misconduct.

Vale Paul Costello

Paul Costello died earlier this month after a long illness. Paul was highly regarded across the superannuation and made a significant contribution to profit-to-member super and to financial services generally.

Paul was a former CEO of the Superannuation Trust of Australian (STA - a predecessor of AustralianSuper), the Future Fund and the NZ Superannuation Fund, and a director of Qantas Super.

He also chaired the Stronger Super consultation process for the Government in response to the Cooper Review. Paul helped steer the industry and Government through the process that delivered MySuper and SuperStream. 

Paul was a good friend to many of us in the industry. He was always and genuinely friendly and helpful, and accessible to all. He had enormous knowledge of all aspects of financial services, and shared this with individuals and organisations. He did this to help build better systems, and with a strong sense of promoting members interests.

We extend our heartfelt condolences to Paul’s wife, Denise, and to his family. Vale Paul.