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In a long-awaited and welcome move, the Australian Prudential Regulation Authority (APRA) is set to update its collection of super data, with a new focus on ‘choice’ products.
Releasing its policy priorities for super in 2019, APRA said expanding the information collected on choice (non-Mysuper) products would improve transparency on fees and expenses and provide information that was crucial to understand the performance of the super sector.
AIST has long called for APRA to collect data on ‘choice’ funds so that policy makers, the public and other stakeholders have a much clearer understanding of the performance of this sector.
AIST research, released in September last year, showed that members in ‘choice’ funds could be as much as $50,000 worse off in retirement compared to members in MySuper funds. Releasing the research last year, we noted that high fees and poor performing Choice products were a constant drag on the efficiency of our super system, which ultimately was a cost to all Australians in the form of higher government outlays for the Age Pension.
APRA’s other priorities for super in 2019 are:
Ahead of the fast-approaching July 1 deadline for the Protecting Your Super reforms to take effect, AIST has raised concerns with Treasury about the challenges involved in implementing some of the key measures.
Key reforms under the Protecting Your Super legislation include a three per cent fee cap for account balances under $6,000; the removal of insurance from accounts that have been inactive for more than 16 months; and mandated processes for the auto-consolidation of low balance inactive accounts.
While the new legislation applies from 1 July, it contains measures that will need to be operation earlier than this date. For example, funds must identify inactive accounts with insurance by 1 April and write to insured members who haven’t received a contribution in six months by 1 May.
The legislation was significantly amended after the Government reached agreement with the Greens last month. However, the speed with which it proceeded through Parliament has left some areas requiring clarity and greater consistency.
The draft regulations to support the legislation have been released for comment and AIST’s submission can be viewed here. The regulations contain detail about the communications to be sent to inactive members with insurance, calculation of the fee cap, and arrangements for the transfer of accounts to and from the ATO.
AIST has met with Federal Treasury and raised concerns about the timeframe and details for implementation of the measures which require new processes to be settled with administrators and, in some instances, insurance policies to be repriced. The 1 July implementation date is already set by law and the Government shows no signs of moving on it.
Following the Treasurer’s announcement that the Government will act on the recommendation from the Hayne Royal Commission to end grandfathered commissions, Treasury has commenced consultations on exposure draft legislation.
The draft legislation proposes that the grandfathered arrangements be removed from 1 January 2021. It also will enable regulations to ensure that any existing arrangements are rebated to affected customers.
Meanwhile, ASIC has been directed to undertake a review into existing grandfathered commission arrangements, and the extent to which licensees are moving to end arrangements as part of their current business practices.
The Opposition has announced that if elected, it would ban grandfathered commissions effective 1 January 2020.
Submissions are due to Treasury on 22 March. Member feedback can be directed to AIST Policy and Regulatory Analyst, Richard Webb: firstname.lastname@example.org
A highly contested Bill to provide employers with an amnesty period to deal with unpaid super has been caught up in a legislative backlog ahead of the Federal Election.
Legislation to give effect to a Super Guarantee amnesty was introduced into Parliament on 24 May 2018, with the proposed amnesty intended to be available for 12 months from 24 May 2018 to 23 May 2019. However, the proposed amnesty Bill had not been enacted when Parliament concluded on 22 February 2019.
As the Bill is contested and there is little parliamentary time available, it is unlikely to be passed before the government calls an election. When an election is called, all legislation before Parliament lapses.
AIST has opposed the amnesty as it rewards bad employers at the expense of good employers that do the right thing: Employers should always be required to make SG contributions for their employees, and non-compliant employers should not be given a get out of jail free card.
Hundreds of employers have lodged applications to the ATO to access the amnesty. The Tax Office has confirmed that it will now treat these employers as though they had voluntarily reported their SG non-compliance under existing rules. These employers will now be required to repay the unpaid super, with interest and pay an administration charge.
Lower investment returns and a decrease in super contributions combined to slow the growth of Australia’s super sector to just 1.3 per cent to $2.65 trillion in 2018.
Australian Prudential Regulation Authority (APRA) statistics released last month reveal a 4.3 per cent drop in net contributions over the year and an annual industry-wide return of just 0.2 per cent. Given Australia’s relatively steady employment rate, the drop off in contributions points to a fall in voluntary contributions. Meanwhile, growth in the SMSF sector also slowed, with total assets decreasing by 0.2 per cent, or $1.6 billion.
The story for MySuper-only assets was more positive, with the sector growing 5.3 per cent over the period. At the end of 2018, MySuper held $670 billion in assets, more than a quarter of the total super funds under management.
Acting on a recommendation from the Hayne Royal Commission, Treasury has released a consultation paper aimed at improving regulatory oversight of the insurance claims handling process and making insurers more accountable.
Currently, many claims handling activities do not fall within the definition of providing a ‘financial service’. Even when they do fall within this definition, the Corporations Regulations expressly excludes these activities from the definition.
The Royal Commission Final Report recommended that these exemptions be removed so that insurers would be obliged to handle claims efficiency, honestly and fairly and subject to greater oversight by ASIC.
In September last year, ASIC advised trustees to review their claims handling processes. In 2019, ASIC intends to assess whether trustee reviews have been undertaken within the past three years.
Submission to the Treasury consultation paper are due by Friday 29 March 2019.
AIST will be making a submission to this consultation process. For more information or to provide feedback, contact AIST Senior Policy Advisor Karen Volpato at email@example.com
08 March 2019