- AIST Policy News - 28 September 2017
AIST Policy News
Net returns must have priority in outcomes test: AIST submission
AIST has called for the Government’s proposed MySuper Outcomes assessment to be modified to protect members’ best interests and for the assessment process to be legislated for Choice products.
In our submission on the Accountability and Member Outcomes Bill, which is currently before Parliament, AIST recommends a two-tiered assessment that elevates the importance of net returns above any other criteria. We note that is in line with the stated objective of MySuper to “focus funds on the core purpose for which they exist: optimizing retirement incomes for members”.
While both the Government and APRA have indicated that the outcomes assessment will be extended to Choice products, this measure is not included in the Bill. Our submission reiterates our concern that all-APRA regulated funds should be subject to the highest standards and accountability measures.
Other recommendations in the AIST submission include:
- Extending the expansion of the director penalty regime to Choice;
- Ensuring that funds have the flexibility to choose the best method to conduct Annual Members’ Meetings; and
- APRA’s existing regulatory framework should be reviewed before expanding its powers.
Our submission will be published on the Parliamentary website next week, after which it will available on AIST’s website.
For further information please contact AIST senior policy manager David Haynes at email@example.com
New complaints authority requires careful transition and adequate funding: AIST submission
AIST has highlighted the need for the profit-to-member super sector to play a key role in the establishment of the Australian Financial Complaints Authority (AFCA) which must absorb the Superannuation Complaints Tribunal (SCT) by 1 July, 2020.
Our submission on the Bill to establish AFCA notes that success of the new complaint authority will depend on how its terms of operations are set and how the transition from existing arrangements – which includes the SCT – are handled.
AIST says the super industry must be consulted on key issues including AFCA’s ongoing funding, the funding arrangements during the transition, and AFCA’s terms of reference.
It is intended for AFCA to hear complaints from organisations across the entire finance sector, which includes superannuation funds, financial advisers, banks, and insurers. Our submission notes that as each sector of the finance industry will be required to fund AFCA it is important that each part of the sector does not pay more than their fair share. The evidence to date shows there are fewer superannuation complaints than non-superannuation complaints. For example in 2015-2016 the Financial Ombudsman Service (FOS) received 34,095 complaints (mostly regarding financial advice) whereas the SCT received only 2,368. Figures such as these highlight the risk of inappropriate cross-subsidisation if the funding model is not developed appropriately and does not account for differences between sectors.
Our submission also notes that the Government has signalled an intention to reduce the SCT’s funding over the coming years until it is wound up. We argue this could detrimentally impact more than 1,600 fund members who are existing SCT complainants, as well as any new members that open complaints prior to the establishment of AFCA.
AIST also has concerns about appeal rights in the new body. Under the Bill, parties to a complaint will not have the right to seek judicial review. We believe this leaves scheme participants worse off under the new system and therefore a right similar to judicial review should be retained.
In an environment where Australians are compelled by legislation to contribute a substantial percentage of their income into superannuation accounts and decisions relating to those accounts have potentially life changing impacts, appeal rights are extremely important.
Other concerns raised in our submission include:
- Death benefit provisions lack clarity;
- Measures around the transfer of complaints between the SCT and AFCA do not fully appreciate the complexity of super complaints;
- Fund’s internal dispute resolution (IDR) processes must comply with ASIC’s standards. This is a significant change from the current situation and therefore requires industry consultation; and
- The Bill does not contain measures requiring complainants to access a fund’s IDR process prior to lodging a complaint with AFCA, which is a current limitation on the SCT.
Our submission will be published on the Parliamentary website next week, after which it will available on AIST’s website. For further information contact AIST research officer Jake Sims at firstname.lastname@example.org
Choice of fund legislation could disadvantage some members: AIST submission
AIST has reiterated its call for a ‘no disadvantage test’ to apply to members who will be affected by new Choice of Fund legislation.
In our submission on a Bill currently before Parliament that seeks to improve salary sacrifice integrity and broaden the choice of fund, AIST supports the principle of choice in superannuation but argues this has to be provided in a way that does not leave consumers worse off.
AIST notes that a common characteristic where enterprise agreements do not provide choice of fund is that they often provide benefits in excess of that provided by the Superannuation Guarantee (Administration) Act 1992, including additional employer contributions (or their equivalent in the case of Defined Benefit funds), insurance, and in the case of some government funds, guaranteed levels of retirement benefits. It is therefore not in the interests of members of such funds to switch into superannuation funds that offer lesser benefits and may remove certainty and security.
AIST proposes a legislative amendment protecting these additional benefits by continuing to allow an exemption in such cases. In effect, this would operate as a type of ‘no disadvantage’ test.
In regards to measures contained in the Bill to improve salary sacrifice integrity, AIST welcomes these measures but notes making Superannuation Guarantee payable on gross remuneration would improve the effectiveness of the new measures.
Our submission will be published on the Parliamentary website next week, after which it will available on AIST’s website. For further information please contact AIST senior policy manager David Haynes at email@example.com
Lost and unclaimed super increases to $18 billion
The Australian Taxation Office has released new figures on lost and unclaimed superannuation.
The figures – announced late last week – show that as at 30 June 2017 there are over 6.3 million lost and ATO held super accounts with a value of almost $18 billion. These figures include monies owed to departed, temporary residents.
The figures show an increase in unclaimed super held by the ATO from $3.2 billion to $3.75 billion. This is the first time that the ATO is publishing unclaimed super accounts in addition to lost super accounts held by funds.
One of the reasons for the increase in unclaimed super is that the threshold at which super funds
must transfer inactive accounts to the ATO increased to $6,000 on 31 December 2016, capturing more accounts.
There has also been an increase in lost super held by super funds which is now at $14.12 billion, an increase from $11.65 billion in 2015-16. This is mainly due to an increase in lost “inactive” accounts.
The data also showed that as at 30 June 2017, more than 14.8 million Australians had a super fund account. The new data shows that of people that hold superannuation accounts, currently:
- 40% hold one account
- 25% hold two accounts
- 9% hold three accounts
- 4% hold four accounts
- 1% hold five accounts
- 1% hold between six and 24 accounts
Further information can be found on the ATO website here.
Changes to transfer balance cap guidance released for consultation
The Australian Taxation Office (ATO) is seeking feedback on updated draft guidance for calculating the transfer balance cap and total superannuation balance.
Changes to the below draft Law Companion Guidelines (LCGs) have been released for public consultation:
The changes reflect clarification of the status of Transition to Retirement Income Streams (TRIS) arrangements in relation to calculation of total superannuation balance and transfer balance cap amounts.
Proposed changes to LCG 2016/9 additionally reflect changes made to limited recourse borrowing arrangements via legislation in June.
The ATO has called for feedback on both draft LCGs by 27 October 2017.
AIST is interested to hear from members who would like to provide feedback to the ATO. Funds wishing to put forward views or seeking further information can contact AIST policy and regulatory analyst Richard Webb at firstname.lastname@example.org