- AIST Policy News - 3 August 2017
AIST Policy News
Inquiry into default fund selection – important update
The Productivity Commission is planning to survey 130 super funds as part of its Inquiry into the selection of default funds.
The first set of surveys are expected to reach funds in late August, a week or so after the 21 August deadline for industry responses to the Productivity Commission’s stage three Issues Paper. Another round of surveys for fund CEOs to complete on governance will be sent a month or two after that. The Commission has also indicated that it will survey fund members as part of the Inquiry.
AIST’s response to the Issues Paper will include commentary about the Commission’s proposed assessment criteria and indicators, insurance and the operation of the default system. We strongly encourage members to provide input to help shape AIST’s submission.
At a well-attended meeting of AIST super fund members last week – held jointly with Industry Super Australia (ISA) – concerns were raised that the Productivity Commission Inquiry has not provided an opportunity for recently implemented reforms, including MySuper and SuperStream, to demonstrate their benefits, and that the existing default fund selection process under the Fair Work Commission has not been allowed to implement improvements legislated in 2013. We remain concerned that this Inquiry will be used as a vehicle to dismantle the existing default fund system, which has served members so well.
AIST will update member funds on further developments to the Inquiry as they emerge. In the meantime, enquiries or feedback should be directed to AIST senior policy manager, David Haynes, at firstname.lastname@example.org or 03 8677 3803.
Online choice form must not dilute consumer protections
AIST has called on the Australian Taxation Office (ATO) to delay implementation of its proposed online choice form – scheduled for October 2017 – until crucial issues are addressed.
In a submission to the ATO, AIST argues the online choice form should not be implemented via any portal until industry agrees that it will not disadvantage members.
AIST believes the form should provide an up-to-date listing of the employee's existing super funds (including SMSFs), together with near real-time information about balances, insurance, recent contributions, and MySuper status.
If implemented in its proposed model, the form will reduce consumer protections and potentially display incomplete, out-of-date and misleading information to members.
Importantly, any form must contain at the least the same level of information as the existing paper-based choice form. This must include listing the employer’s default fund by name as highlighted in a media release issued by AIST last month.
AIST also called on the ATO to undertake further consumer testing and de-couple the implementation of the online choice form from Single Touch Payroll, and we have recommended that the ATO commence discussions with stakeholders on an appropriate project plan and timetable. We are recommending that implementation not occur before 2019, to allow adequate time for our concerns to be addressed.
Members wanting further information can contact AIST senior policy manager, David Haynes, at email@example.com
ASIC grants partial relief from RG97 disclosure requirements
A joint application by AIST, ASFA and the FSC seeking relief from disclosing certain fees and costs in periodic statements has been partially granted.
The Australian Securities and Investments Commission (ASIC) has agreed to allow interim relief regarding the inclusion of borrowing costs in periodic statements for super products. This means that rather than report the borrowing costs incurred during the period on statements for periods ending on or before 29 June 2018, information may be included as to how members can access borrowing costs for each MySuper and other investment options. AIST in conjunction with ASFA and the FSC has advocated to ASIC that while we are grateful for this relief, further consultation is needed regarding how borrowing costs are to be disclosed.
The joint application also requested interim relief from including implicit costs eg market impact costs for super products and managed investment schemes, however this relief is no longer required. ASIC has confirmed that disclosure of implicit transaction costs ie costs that are a necessary part of the price of an investment are not required for periodic statements.
However requests for interim relief from inclusion of buy sell spreads in periodic statements for super products were denied. AIST in conjunction with ASFA and the FSC is again taking up this issue with ASIC.
AIST and the RG97 Industry Wide Working Group will continue to discuss our concerns with ASIC in regards to this issue. Members wishing to be involved in these discussions should contact AIST senior policy advisor Karen Volpato at firstname.lastname@example.org
APRA maintains focus on mergers
The Australian Prudential Regulatory Authority (APRA) has released final guidance on successor fund transfers and wind-ups.
Prudential Practice Guide SPG 227 Successor Fund Transfers and Wind-ups (SPG 227) provides guidance to RSE licensees that may be considering merging their fund with another fund, or winding-up a fund entirely.
The guide covers the key areas of equivalent rights including rights under the trust deed; legally enforceable rights: rights as a ‘bundle of rights’; and rights for the individual member/groups of members. It also covers MySuper to MySuper successor fund transfers; and planning for a successor fund transfer, including an RSE licensee’s strategic direction, business plan and due diligence assessment.
The Guidance follows an extensive consultation period. In a letter to RSE Licensees, APRA clarified a number of issues raised in submissions from the industry including providing specifications around equivalent rights, details on MySuper to MySuper successor fund transfers, due diligence requirements and general clarity of language.
First Home Super Saver Scheme faces implementation hurdles
AIST’s upcoming submission to Treasury will highlight a number of reservations we have about the Budget super measures, notably the proposed First Home Super Saver Scheme (FHSSS) and new downsizing measure.
Under the FHSSS first home buyers are allowed to salary sacrifice up to $15,000 per year into their super (to a max of $30,000) and then withdraw this money at a concessional tax rate for a home deposit.
AIST’s submission highlights that the implementation of the scheme would be very complex, particularly in regards to the transfer of funds to the homebuyer. Based on the seven year experience with the previous First Home Saver Accounts (FHSA), AIST expects that there will be a low take up rate, and members may also find many aspects of the new scheme confusing. We also point out that the proposal is at odds with the sole purpose test which states that all money saved through super should be used for retirement.
Our concern about the downsizing measure - that would see retirees aged 65 and over who downsize their homes able to contribute up to $300,000 of the proceeds into superannuation as a non-concessional (post-tax) contribution - relates to its treatment under the Age Pension asset test. As it stands now, pensioners who downsize can lose benefits. Hence the measure will only benefit non-pensioners.
AIST’s submission is due tomorrow and a copy will be on our website by Friday COB. Members wishing to provide commentary and who have not yet done so should contact AIST policy and regulatory analyst, Richard Webb, at email@example.com.
$450 monthly threshold disadvantaging Aboriginal & Torres Strait Islander peoples
The Indigenous Super Working Group (ISWG) has called for the removal of the $450 monthly income threshold that is preventing many Aboriginal and Torres Strait Islander peoples from receiving superannuation.
Under the current $450 monthly income threshold policy, employers are not required to pay superannuation guarantee (SG) to employees over the age of 18 that earn less than $450 per month.
Australian Bureau of Statistics data shows an estimated 220,000 Australian females and 145,000 males are missing out on around $125 million of superannuation contributions each year.
In a media release issued last week, the group said that as the weekly household income for Aboriginal and Torres Strait Islander adults is almost half that of other Australian adults, they are more likely to be affected by the income threshold.
As a result, many Indigenous people aren’t being paid superannuation from their employer meaning less compound interest is being earned, and ultimately, they are getting less money in retirement.