AIST Policy News - 25 January 2018

AIST Policy News - 25 January 2018


Funds urged to adopt Insurance in Super Code

AIST is encouraging member funds to become signatories to the new Insurance in Super of Code of Practice.

With insurance set to be a high-profile issue in the media and political arena throughout 2018, AIST believes the Code is an important piece in the industry’s commitment to continuous improvement of insurance practices.

Insurance is part of the scope of the Royal Commission into the financial services and insurance has been added to the Productivity Commission’s inquiry into superannuation efficiency. The Parliamentary Joint Committee inquiry into life insurance is also due to report in March and APRA is considering measures to make it easier to opt out of default insurance. The convergence of these inquiries – and the Government’s response – mean the spotlight on insurance will only get brighter.

AIST is available to help funds assess the Code and consider becoming signatories.

Launched late last year the voluntary Code will come into effect from 1 July 2018. It is a first for the super industry and sets standards that provide greater understanding, clearer accountability and consistency of delivery across the super industry.

As a co-owner of the Code along with ASFA and the Financial Services Council, AIST expects the final version of the Code will receive wide support from our member funds. AIST is aware of a number of funds that have indicated they will become signatories to the Code, with many other funds currently in the process of considering its adoption.

AIST will be conducting information sessions for member funds over the next two months.

Funds have until 31 March 2018 to state their intention to subscribe to the Code. 

If you have any questions about or would like to discuss any aspect of the Code please contact David Haynes, Senior Policy Manager at dhaynes@aist.asn.au.


ASIC report reveals staggering rate of non-compliant bank advice on super

In a ground-breaking investigation into the way super products are sold by the major banks and AMP, the Australian Securities and Investments Commission (ASIC) found most financial planners working for these five big retail firms have failed to act in their customers’ best interests when advising on superannuation.

In a review that took place over two years to 2017, ASIC found a staggering 75 per cent of the advice on super from financial advisers working for ANZ, CBA, NAB, Westpac and AMP was ‘non-compliant’.

Releasing a damning report yesterday ASIC said 10 per cent of the advice on super left consumers significantly worse off, due to higher insurance premiums than necessary or higher super fees.

The review found that, overall, 79 per cent of the financial products on the five firms' approved products lists (APL) were external products and 21 percent were internal or 'in-house' products. However, 68 per cent of clients’ funds were invested in in-house products.

The split between internal and external product sales varied across different licensees and across different types of financial products. For example, it was more pronounced for platforms compared to direct investments. However, in most cases there was a clear weighting in the products recommended by advisers towards in-house products.

ASIC said it plans to consult with the financial advice industry (and other relevant groups) on a proposal to introduce more transparent public reporting on approved product lists, including where client funds are invested, for advice licensees that are part of a vertically integrated business.

ASIC said it would ensure that appropriate customer remediation takes place.


New measures to tackle non-payment of super

The Government this week announced a package of measures to protect workers’ super entitlements and tackle the problem of unpaid super.

The proposed measures contained in draft legislation will improve the Australian Tax Office’s (ATO) ability to get real time information about an employer’s compliance with their super obligations.

The measures include extending Single Touch Payroll to all small employers from 1 July 2019, providing the ATO with more timely information to support earlier detection and proactive prevention of non-payment of superannuation that is owed to workers.

In media commentary AIST welcomed the move to make Single Touch Payroll mandatory for small business. Evidence points to employer non-compliance with super being most acute in the small business sector.

We also welcomed measures to introduce court-ordered penalties, including up to 12 months imprisonment, where employers defy directions to pay their superannuation guarantee liabilities.

However, we noted that further measures were still needed to tackle the problem of unpaid and lost super.

This includes aligning superannuation payment with pay slip reporting cycles, removing the $450 monthly income threshold and the ATO developing a framework for a more holistic approach to the problem.


AIST meets with ASIC on concerns about fee and cost disclosure

With ASIC’s review of the controversial fee and cost disclosure requirements underway, AIST, together with member funds, has met with the newly-appointed head of the review, Darren Mc Shane, to highlight key profit-to-member sector concerns.

The key focus of our position is that disclosure should enable members to compare products. Our key concerns are:

  • The objectives and underlying principles for RG97 need to be clearly stated.
  • Members are unable to compare products.
  • Fees, costs and returns cannot be properly analysed at system level. 
    RG97 information flows onto APRA reporting.
  • Profit-to-member sector is placed at a competitive disadvantage.
  • The Industry Working Group (IWG) has been dealing with implementation issues, but the policy framework needs fixing through legislative change. 

Our specific concerns are the carveouts for platforms, the differences between superannuation and Managed Investment Scheme disclosure, Property (treated differently as an asset class; the industry agreed that property operating costs should be excluded; different treatment of listed and unlisted property), and the degree of subjectivity enabled by RG97 (eg. performance fees being calculated prospectively).

AIST emphasized its constructive approach to RG97 through drafting the AIST manual, being involved on the IWG, writing 17 RG97 submissions, and attending over 100 meetings in 2017.

AIST will provide ASIC with both short term solutions (eg remove property operating costs) and long term solutions (eg what legislative amendments are needed to ensure comparability for members).

Reflecting on the protracted RG 97 consultation process, AIST is also working on a framework for designing effective processes for consulting on proposed changes to the super industry. Read more in this recent opinion piece by AIST’s new Head of Advocacy, Ailsa Goodwin.

For further information, contact Karen Volpato, Senior Policy Advisor at kvolpato@aist.asn.au or 0419127496)


Royal Commission hearings to kick off in Melb early Feb

The Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry will hold its first public hearing in Melbourne on Monday 12 February.

At this hearing the Commissioner and Senior Counsel Assisting will make short opening statements.

No witnesses will be called. The hearing will be held at Level 6, 11 Exhibition Street in Melbourne and will be open to the public although seating will be limited.

The hearing will be streamed live through the Royal Commission's website and a transcript will be available on this site shortly after the hearing.

Further information about the Royal Commission and Terms of Reference are available on the Royal Commission’s website.


DSS means testing of lifetime income streams

A consultation paper has been released by the Department of Social Services (DSS) as a follow-up to their earlier discussion paper of last year in respect of means testing of innovative retirement income streams. The paper sets out their proposed new means test rules for lifetime products, including pooled products. Proposed new rules include:

  • Inclusion of 70% of product payments from pooled lifetime products in the income test, as well as 70% of nominal purchase price in assets test, up until life expectancy from purchase;
  • Inclusion of 35% of nominal purchase price of pooled lifetime products in assets test, if one were to outlive their life expectancy;
  • Exempt deferred products from the income test during the period of deferral;
  • Treatment of non-superannuation income streams which are not constrained by the new capital access schedule; and
  • Treatment of pooled lifetime products held within account-based income streams to remain subject to ordinary assets and income test rules.

If you have any feedback in relation to this consultation, please contact Richard Webb, Policy & Regulatory Analyst at rwebb@aist.asn.au.


Treasury moves to protect integrity of balance cap

Treasury has issued a consultation paper, together with draft legislation, designed to support the integrity of the 2016 Budget changes.

 The measures are designed to prevent trustees using Limited Recourse Borrowing Arrangements (LRBAs) to circumventing the Total Superannuation Balance limit, as well as requiring non-arm’s length expenditure to be taken into account where assessing non-arm’s length income.

If you have any feedback in relation to this consultation, please contact Richard Webb, Policy & Regulatory Analyst at rwebb@aist.asn.au.