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Superannuation reform Bill released for consultation

Superannuation reform Bill released for consultation

July 31, 2017 12:13 PM | Print this page

The government has released draft legislation and explanatory material proposing reforms of the superannuation system for consultation. The legislation would amend the Superannuation Industry (Supervision) Act 1993, the Corporations Act 2001, and the Financial Sector (Collection of Data) Act 2001 to 'modernise' the superannuation system.

Consultation closes on 11 August 2017.

Key changes
Proposed amendments include:

  • New Outcomes Test: replacing the current 'scale test' with an 'outcomes test'. The outcomes test would requires trustees to undertake an annual determination considering a number of features to ensure the outcomes being delivered are in the financial interests of their members.
  • Enhanced powers for the Australian Prudential Regulatory Authority (APRA):
    • enhanced capacity to refuse or cancel a MySuper authorisation, where it believes that the registrable superannuation entity (RSE) licensee may not comply with its obligations; and
    • providing APRA with improved directions powers to enable it to intervene at an early stage to address prudential concerns; and
    • requiring people to seek approval from APRA prior to a change in ownership or control of an RSE licensee occurring; and
    • enabling APRA to gather more information on the operational and managerial expenses of RSE's.
  • Penalty regime: aligning the superannuation director penalty regime with the penalty regime that applies to directors of managed investment schemes.
  • Annual member's meetings: requiring RSE licensees to hold annual members' meetings to enable members to ask questions about all areas of their RSEs performance and operation.

Minister's announcement of the changes
Minister for Revenue and Financial Services minister, Kelly O'Dwyer has said in a media release announcing the release of the bill that the planned superannuation reforms 'will give consumers more power': 'This comprehensive package will help deliver all Australians a strong and modern superannuation system that is solely focused on outcomes for all Australians who rely on these funds to secure their retirement'.

  • According to the media release, the changes include measures that: Make superannuation providers more accountable to consumers through the introduction of annual member meetings. This is already a longstanding requirement for the public companies in which superannuation funds invest their members’ money.
  • Require funds to report and publish annually more transparent information on how their fund is being managed, including information on how the fund sets its fees and the way it spends members’ money.
  • Strengthen default MySuper products including a stronger annual assessment of MySuper product outcomes to ensure the investment and insurance strategies, fees, scale and returns are promoting the financial interests of MySuper members.
  • Close a legal loophole that has been used by unscrupulous employers to short-change employees who choose to make salary sacrifice contributions into their superannuation accounts.
  • Give APRA more capacity to take preventive and corrective action if it has prudential concerns about a fund or if a fund is not acting in the best interests of members.
  • Give APRA greater capacity to refuse or cancel a MySuper authorisation where it believes a licensee will fail to meet its obligations.
  • Provide stronger protection for consumers by requiring APRA approval before transferring ownership or control of a licensee to operate a fund.
  • Will make directors of superannuation funds who breach their duties to members subject to the same civil and criminal penalties as directors of ordinary managed investment schemes.
  • The Minister also noted that the government has tasked APRA with making it easier for consumers to opt-out of automatic life and disability insurance policies provided through superannuation.

In a separate address to the Financial Services Council Leaders’ Summit, International Convention Centre, Sydney the Minister again highlighted measures in the Bill to require funds to hold annual general meetings; to enable consumers to more easily 'opt-out' of their automatic insurance in superannuation; stronger supervision and enforcement mechanisms for APRA and measures to 'lift the bar for fund performance' as key changes.

Media reports

  • Money Management writes that though initial industry response has been positive, the bill 'carries with it the significant danger of worsening Australia's already serious under-insurance problem' by making it easier for consumers to 'opt out' of insurance policies tied to superannuation contributions. The article is critical of Minister Kelly O'Dwyer's reasoning in 'pushing' for 'opt out' arrangements (ie parliamentary joint committee heard evidence that superannuation balances of low income workers and some women can be undermined by the cost of the premiums necessary to pay for their insurance) arguing that this view ignores evidence from the insurance industry that changing existing arrangements could lead to '13 million fund members being left without protection and seeing a drop from 90 per cent of insured individuals to a low of 18 per cent'.
  • Investment Magazine writes that The Australian Institution of Superannuation Trustees has said that 'some time was needed' to closely examine the new 'outcomes test' to ensure it did not lead to the 'Mysuper licensing regime become too focused on fees'.

APRA has reportedly welcomed move to enable it to shut down sub-standard funds
Investment Magazine reports that the Australian Prudential Regulation Authority (APRA) deputy chair Helen Rowell has said at a recent panel discussion at the Financial Services Council 2017 Leaders' Summit, that she 'certainly hopes' a draft bill to expand the regulator’s powers to intervene in under-performing funds is enacted in legislation.

The report adds that he comments come after APRA revealed that it has identified a 'watchlist' of at least 21 super funds that it is concerned about and plans to write to their trustees seeking further explanation about how they intend to serve their members best interest in the future.
In addition, Ms Rowell reportedly welcomed the new outcomes test and indicated she believes strengthening the MySuper licensing regime will lay good groundwork for whatever changes the government decides to make to the rules around how employers select default funds for their staff.

[Sources: Treasury consultation and submissions announcement: Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation) Bill 2017 26/07/2017; Explanatory memorandum; Exposure Draft; Minister for Revenue and Financial Services Media Release: Reforms to give consumers more power at the heart of a stronger superannuation system 24/07/2017; Address to the Financial Services Council Leaders’ Summit, International Convention Centre, Sydney 26/07/2017; Money Management 26/07/2017; Investment Magazine 24/07/2017; Independent Financial Adviser 25/07/2017; SBS 24/07/2017; The ABC 24/07/2017; Investment Magazine 26/07/2017]

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