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AIST has raised concerns that APRA’s proposed standard on remuneration needs to better reflect practices in the profit-to-member super sector.
Our submission on the proposed prudential standard CPS 511, notes that the draft standard is based exclusively on variable remuneration practices, which while prevalent in banking and insurance, are less common in the profit-to-member sector.
Another key concern is that where variable remuneration is used by profit-to-member funds, the standard’s proposal for the long-term deferral of cash incentives is considered unworkable and could have the effect of driving talent outside the sector. AIST argues that deferral structures need to be shorter in duration, with three to four years considered more workable.
Our submission also provides feedback on:
AIST has recommended that APRA consult further with the profit-to-member sector ahead of the final drafting of the standard.
For further information on the AIST’s submission please contact Senior Manager, Governance, Holly Lindsay at email@example.com
AIST has welcomed findings that Australia’s retirement income system – of which compulsory superannuation is an integral component - has once again rated highly on a world scale.
Australia achieved third place in the 2019 Melbourne Mercer Global Pension Index with a B+ rating, ranking behind the Netherlands and Denmark who both achieved A grade status.
AIST CEO Eva Scheerlinck said it was pleasing that the strength and success of Australia’s super system had been acknowledged, adding that with a few key improvements, Australia could achieve the coveted A grade rating.
“Importantly, this Report ranks Australia highly, but it also reinforces that we cannot become complacent when it comes to improving the adequacy of retirement incomes. We must stick to the legislated timeline to increase the compulsory super rate to 12% by 2025.”
Both the Netherlands and Denmark have a net contribution rate of 12% while another seven countries scored a higher adequacy rating than Australia, at 70.1. In terms of retirement income adequacy, Australia ranked 11th out of 37 countries.
"We believe that the legislated increase in the Super Guarantee rate is key to improving our adequacy rating, and without it we risk slipping down the scale.”
Ms Scheerlinck said the Index also reinforced the need to moderate the Age Pension taper rate to improve fairness for middle income earners. The Coalition Government changed the taper rate in 2017 so that for each $1000 worth of assets above the full pension threshold, the age pension was cut by $3. Previously, the taper rate was $1.50 per $1000.
“The severity of the taper rate is not only unfair to many retirees but also a threat to the integrity of our savings system as it does not provide enough benefit for saving more. AIST is calling on the Government to moderate the taper rate in the next 2020 budget.”
“In terms of incentives to save, hard-working Australians deserves a better deal from our super system.” Ms Scheerlinck said.
A review into the Insurance in Super Code has commenced to ensure it aligns with new laws.
The Code owners – AIST, ASFA and FSC - are reviewing the Code to ensure it aligns with both the Protecting Your Super and Putting Members Interests First Bills. The review – to be conducted in two stages - is being supported by a Code review committee involving industry stakeholders. There will be opportunities for further industry and community consultation at the end of each stage of the review.
Stage one of the review will cover alignment with PMIF and PYS, and address the ‘operational’ issues raised by ASIC. This stage has a target completion date of 14 February.
Additional items for Code review suggested by ASIC will be considered in stage 2. These include ongoing monitoring and enforcement arrangements and the structure of codes on insurance in super.
For further information or to be involved in the review, contact AIST Senior Policy Manager David Haynes at firstname.lastname@example.org
The ATO has signalled it will temporarily waiver a fund’s duty to transfer member money into their account within three days when Protecting Your Super changes take effect from 1 November 2019.
The ATO has acknowledged that when inactive low-balance accounts are consolidated next month, super funds will be hit with higher volumes of transactions, possibly causing delays to the administrative capacity of some funds.
Several funds have raised that this will affect their ability to allocate the amount to a member’s account within three days as required by regulation 6.34D of the SIS Act.
Given the exceptional nature of the circumstances, the ATO and APRA jointly support the application of a short period where, if a super fund can demonstrate that despite taking every reasonable action, non-compliance is unavoidable, action against an RSE licensee would be unlikely.
The issue is further explained in APRA’s SuperStream FAQ 8 in which APRA states that a fund will have to demonstrate:
A highly critical ASIC report on the design and performance of Total and Permanent Disability insurance (TPD) both within and outside the super industry has called for trustees to lift their game to improve member outcomes.
The ASIC report, which examined 2016/17 data from seven insurers, identified that where TPD claims were assessed under the “activities of daily living” definition, they had a concerningly high decline rate. The report also identified problems with lodgement processes, poor communication practices, and excessive delays.
AIST welcomed the report, with CEO Eva Scheerlinck saying the evidence contained in the report was essential reading for all super trustees.
“It is incumbent on all superannuation trustees to review this report and ensure that their fund’s TPD offering provides good value and delivers appropriate outcomes for members,” Ms Scheerlinck said. “There is no role for junk insurance in superannuation and we need to weed out such products.”
The report was released on the same day that ASIC’s Senior Executive Leader of Superannuation Jane Eccleston presented to delegates at AIST’s Super Insurance Symposium.
While Ms Eccleston noted the importance of getting member communications right.
“If the vibe of communication sent to members is that they need a law degree to understand it, then it is failing as a piece of communication,” she said.
Ahead of the Financial Adviser Standards and Ethics Authority (FASEA) Code of Ethics coming into effect on Jan 1, 2020, FASEA has released a Guidance to assist stakeholders in understanding and applying the Code.
The Code of Ethics, compulsory for all relevant providers who provide financial services to retail clients, addresses conflicts of interest; personal responsibility; compliance; and enforcement.
The Guidance includes case studies to illustrate how the Code impacts on the responsibilities of financial advisors.
FASEA notes that: “Doing what is right will depend on the particular circumstances and requires you to exercise your professional judgement in the best interests of each of your clients.”
The Code aims to establish ethical duties that go beyond the minimum requirements of existing law.
FASEA will hold a series of briefing sessions for educational, professional, consumer and industry stakeholders before the start date.
Super’s three key regulators - ASIC, APRA and the ATO - have released their annual reports, with the regulators eager to demonstrate their work following the Financial Services Royal Commission, the Productivity Commission and, in APRA’s case, the capability review.
ASIC’s report includes a focus on enforcement activity, noting there has been a:
APRA lists its current strategic priorities as being:
In terms of APRA’s regulatory remit, the annual report shows a drop in licensed trustees by 12 per cent over the past 12 months.
The ATO’s annual report highlights reforms including:
The ATO notes that the inaugural year of Single Touch Payroll had a large impact on its activities.
Australian Securities & Investments Commission
Australian Prudential Regulation Authority
Australian Taxation Office
24 October 2019