AIST Policy News - 29 November 2018

AIST Policy News - 29 November 2018


Royal Commission update

With just one more day of hearings tomorrow, the Royal Commission into financial services is set to retreat from the public gaze for the next few months to prepare its final report due for release in February 2019.

After seven rounds of intense hearings where the major banks and insurance companies have been called to account for an extraordinary litany of misconduct and misbehavior, the Commission will now sit down to compile its list of findings, recommendations and final observations.

Widely expected to recommend sweeping changes to the way banking and insurance business is conducted in Australia, there will also be recommendations directed at super funds.

The Commission’s report on the Round Five super hearings concluded it was open to the Commission to find that eight retail funds and related parties – covering almost the entire retail sector – may have engaged in more than 150 separate instances of misconduct. By contrast, two instances of possible misconduct involving two not-for-profit funds were identified.

Notably, the Commission is exploring how to manage the inherent conflicts in the for-profit model of bank and insurance-owned super funds. It is also focusing on whether new accountability structures are needed in financial services, along with whether changes are needed to the industry's culture overall.

This could lead to recommendations concerning executive remuneration structures and the role and licensing of financial advisers, including an overhaul of ongoing advice fees. There is already a widely held view that grandfathered commissions are all but dead.

AIST will continue to provide timely updates on any developments ahead of the Commission’s final report.


Productivity Commission finds economies of scale

New modelling by the Productivity Commission has found evidence of economies of scale in the super system, pointing to annual savings of at least $1.8 billion if mergers were to go ahead between the 50 highest cost funds and the 10 lowest cost funds.

A supplementary paper, Economies of Scale, released this week as part of the Commission’s ongoing review of the efficiency of super, concluded that larger scale was strongly associated with lower (average) expenses across the super system notably in administration.

The paper said the relationship between investment fees and economies of scale is less pronounced particularly in industry and corporate funds.

The Productivity Commission estimates that gains in super savings occurring from increases in scale at about $340 million each year or $4.5 billion in total from 2004 to 2017. It further estimates annual cost savings of at least $1.8 billion could be realized if the 50 highest costs funds merged with the 10 lowest cost funds.

The paper said there was little evidence that scale benefits had been passed through to members in the former of lower fees, although it noted that ‘net returns are positively related to size for not-for-profit funds.’

It further noted that not-for-profit funds, on average, may have passed through some scale economies by investing more heavily in (higher cost) unlisted assets and securing higher returns as a result, but data limitations precluded a firm finding.


Uncertainty on super measures before Parliament

Uncertainty remains over the Protecting Your Super Bill currently in front of the Senate, and it may be another six months before other super measures in Parliament are debated.

With only one more week of sitting days to the end of the parliamentary year, time is running out for bills relating to super to be finalised. 

The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 (Protecting Your Super Bill) is the most urgent of these as funds need to be able to make alternative arrangements with insurers in time for the proposed 1 July 2019 implementation date. While the Bill is yet to be scheduled for debate - with the Government still negotiating with crossbenchers for support – AIST remains optimistic that it will be debated next week.

AIST’s view is that the Bill should be amended to ensure:

  • insurance is available to young members in high-risk occupations and others with dependants on a default basis,
  • the definition of inactive is increased to 16 months to cover maternity leave,
  • the ATO be positively obliged to administer the auto-consolidation measure.

AIST has called for an extended implementation period given the need for funds to negotiate new insurance contracts in an orderly fashion.

As for the other seven bills before Parliament impacting super, debate is likely to be some months off and it is also possible that some Bills will never see the light of day if there is a change of Government in May. With the exception of the Social Services Amendment Bill concerning changes to the pension work bonus and means testing of lifetime income streams, the other bills do not appear to be priorities of the government. With the announcement that the Federal Budget will be held in April next year, ahead of a likely May Federal Election, this reduces the time available to debate bills to the two sitting weeks in February, one of which is a House-only sitting week.

Click here for further information on all the Bills AIST is monitoring.


Profit-to-member sector grows to $1.3 trillion on fund inflows

The latest quarterly APRA statistics show the size of the profit-to-member sector (which covers industry, corporate and public-sector funds) has reached $1.3 trillion, nearly half the size of total super assets of $2.8 trillion.

APRA’s September 2018 quarterly statistics for the profit-to-member sector reflect a large overall increase in assets, particularly for industry funds, at the expense of retail funds which recorded only slight growth. This increase comes against a backdrop of flattening markets throughout the quarter.

Total assets in MySuper products grew to just under $700 billion during the quarter.

APRA’s new Quarterly Superannuation Performance Statistics may be accessed here.


ATO calls on funds to act on unpaid super

The ATO is calling on super funds to alert them to employers showing a lack of commitment to meeting their SG obligations, or a lack of responsiveness. The ATO will follow up every notification.

The ATO advises funds who have reason to believe that an employer is not meeting their obligations, to first contact the employer and encourage them to check their records to ensure their SG obligations are up to date. Late payments may be the result of an administrative oversight rather than a deliberate non-payment.

The ATO has resources to assist interactions with employers:

However, in cases where employers have outstanding contributions, and are showing a lack of commitment to paying, or a lack of response, funds are advised to notify the ATO, which is committed to following up every notification.

This can be done by sending an email to SGThirdPartyReferrals@ato.gov.au, including the:

  • employer’s name and ABN
  • nature of concern (eg super not paid, not enough super paid, or super paid late)
  • period (dates) involved
  • number of employees affected.

In the 2017-18 financial year the ATO received more than 2000 third party referrals regarding the non-payment of SG, including 40 from funds. Those fund referrals identified $950,589 in SG contributions owed.

In addition to third party referrals, each year the ATO receives approximately 30,000 reports from employees, former-employees and contractors who believe they have not been paid their SG entitlements.

For more information, visit ato.gov.au/reportingunpaidsuper


Consultation on the early release of super

Treasury has released a further consultation paper containing over a dozen draft proposals related to the early release of superannuation.

This review continues from the initial consultation process announced in December 2017. During the initial consultation period the Government was examining whether the grounds of early release required expansion or modification and whether additional grounds should be introduced, including a proposal for victims of crime to be provided with the ability to access a perpetrators superannuation. The victims of crime consultation process has been separated from the general review of early release.

The current consultation is focused on:

  • Five proposals that relax the current release regime and expand the scope for individuals to obtain early release
  • Eight proposals to strengthen the integrity of the release arrangements
  • Two proposals to modify the administration arrangements regarding early release on compassionate and severe financial hardship grounds

AIST will be preparing submission and welcomes member input. Please contact Jake Sims at jsims@aist.asn.au or on (03) 8677 3855 by Monday 7 January 2019.


AFCA deadline tomorrow

With the Australian Financial Complaints Authority (AFCA) now open for business, super funds have until Friday (tomorrow) to inform the Australian Securities Industries Commission (ASIC) of the fund’s membership.

Failure to inform ASIC by the due date will result in a late fee being incurred.

The obligation to inform ASIC applies to any trustee that relied on ASIC’s disclosure relief. Further information about the obligation can be found in ASIC Corporations and Credit (Transition to AFCA) Instrument 2018/814.


New financial literacy body

The Government has established a new consumer help organization called Ecstra to improve financial literacy.

The new body – announced by Federal Minister for women and industrial relations, Kelly O’Dwyer – has been given $10 million in funding to provide educational support to increase Australians’ awareness of financial products and services. It will also administer grants to support specific initiatives.

The new organization will be chaired by well-known financial analyst and media personality, Mr Paul Clitheroe.


ATO update on 2019 deadlines

The ATO has confirmed the following key super deadlines for 2019.

The deadlines are:

  • SuperStream to be used for SMSF rollovers from 30 November 2019.
  • Event-based reporting (MATS/MAAS) to be completed by April 2019.
  • Last annual Member Contribution Statement on 31 October 2019.

The ATO has also confirmed that new reporting arrangements will allow members to see up-to-date account information for all their funds on myGov, as well as information about the SG paid by their employer.