Super Alert – 22 October 2021

Welcome to the latest issue of the KHQ Super Alert. This week, APRA issued its finalised remuneration guidance (CPG 511) and APRA’s Executive Board Member, Margaret Cole, delivered a speech on super’s sustainability. We also summarise a recent decision of the District Court of South Australia, which highlights the tension between the requirements for trustees to cease insurance benefits for inactive accounts and their duty to act in the best interests of members.

KHQ Lawyers - Super Alert

APRA – APRA Annual Report 2020/21 released

On 21 October 2021, APRA published its 2020/21 Annual Report (Report). Relevantly for trustees, the Report highlights, amongst other things, APRA’s:

  • scrutiny of the ‘ongoing need to lift standards and weed out underperformers in the superannuation sector’;
  • focus on maintaining ‘its strong track record of maintaining financial safety and stability … to protect the interests of … superannuation members’;
  • continued emphasis to ‘actively drive a superannuation trustee culture of continuous improvement and delivering quality outcomes to superannuation members to and through retirement’;
  • continued work with ‘Treasury and ASIC on the new Financial Accountability Regime (FAR), which will extend BEAR [the Banking Executive Accountability Regime] to the insurance and superannuation sectors’; and
  • focus on facilitating ‘greater and more effective use and sharing of data by transforming its data collections … in line with APRA’s strategic priorities, commencing with superannuation’.

Click here for details.

Parliament – Better Advice Bill passes both houses of Parliament

On 21 October 2021, the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 (Bill) passed both Houses of Parliament and now awaits Royal Assent. The Bill amends the Corporations Act 2001 (Cth), the Australian Securities and Investment Commission Act 2001 (Cth) and other relevant Acts, to (amongst other things):

  • ‘create new penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act 2001’;
  • ‘transfer the functions from the Financial Advisers Standards and Ethics Authority to the minister and to the Australian Securities and Investments Commission’;
  • ‘introduce a single registration and disciplinary system for financial advisers who provide tax (financial) advice services’; and
  • make amendments to the Corporations Act 2001 (Cth) ‘contingent on the commencement of the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020’.

The passing of the Bill follows Treasury’s consultation period earlier this month, discussed in our Super Alert of 1 October 2021.

Click here for details.

Parliament – Bill to make electronic document execution permanent

On 20 October 2021, the Corporations Amendment (Meetings and Documents) Bill 2021 was introduced into the House of Representatives. According to the Explanatory Memorandum, the Bill seeks to amend the Corporations Act 2001 (Cth) to permanently allow ‘companies and registered schemes to hold hybrid meetings (which give shareholders the option of either attending in person or remotely) and use technology to execute company documents, sign meetings-related documents and provide those documents to their members’. It is proposed that the Bill will apply to all documents sent and meetings held on or after 1 April 2022.

The current temporary relief in the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) will expire on 31 March 2022. See our Super Alert of 13 August 2021 for further information.

Click here for details.

APRA – APRA Executive Board Member delivers speech on super’s sustainability

On 20 October 2021, APRA published a speech given by its Executive Board Member, Margaret Cole. Mrs Cole noted that while ‘[size] is not the sole determinant of performance’, it remains a ‘key factor influencing not only member outcomes, but also the sustainability of outcomes into the future. Increased scale enables trustees to spread fees and costs over a larger membership base, and access higher earning investments in unlisted assets, such as major infrastructure projects’.  Regarding the long-tail of the superannuation industry, Mrs Cole suggested that challenges facing these funds are likely to intensify ‘as the mega-funds use their financial strength and higher profile to grow further by attracting new members, and fund stapling breaks the traditional nexus between employers and default super funds’.

Mrs Coles also noted the superannuation industry’s ‘$3.3 trillion value, equal to 160 per cent of GDP as at 30 June 2021’ is forecast ‘to grow to around 244 per cent of GDP by 2061’.

Click here for details.

APRA – CPG 511 Remuneration released

On 18 October 2021, APRA released its finalised prudential guide CPG 511 Remuneration ‘which sets out guidance and examples of better practice to assist entities in meeting their requirements under the new prudential standard, CPS 511 Remuneration’.

According to APRA, ‘CPS 511, which comes into effect from 1 January 2023, is designed to strengthen remuneration practices across all APRA-regulated entities’ and CPG 511 will ‘assist industry in complying with CPS 511 by setting out guidance and examples of better practice for:

  • strengthening incentives for individuals to prudently manage the risks they are responsible for;
  • implementing appropriate consequences for poor risk outcomes; and
  • improving oversight, transparency and accountability on remuneration’.

Click here for details.

ASIC – Updated information in relation to the distribution of superannuation products

On 15 October 2021, ASIC issued a media release advising that it has ‘updated information for employers and trustees about changes affecting the distribution of superannuation products as a result of recent law reforms’.

ASIC has updated ‘Information Sheet 241: Prohibition on influencing employer’s superannuation fund choice’, and has also expanded ‘Information Sheet 89: Communicating with employees about superannuation fund choice: what you can and cannot do’ to incorporate:

  • ‘the revised hawking prohibition, which took effect on 5 October 2021’;
  • ‘the design and distribution obligations (DDOs), which also took effect on 5 October 2021, including amendments to DDOs recently announced by Government’; and
  • ‘the ‘stapling’ measure, which commences on 1 November 2021’.

It is recommended by ASIC that ‘trustees familiarise themselves with the guidance in both information sheets to ensure appropriate engagement with employers and employees’.

Click here for details.

ASIC – 2020-21 Annual Report released

On 15 October 2021, ASIC released its 2020-21 Annual Report (Report) which ‘outlines the key measures ASIC took to achieve its goals in that time’. Relevantly for trustees, the Report highlights, amongst other things, ASIC’s:

  • continued work on establishing itself as the ‘primary regulator of conduct in superannuation’;
  • focus ‘on whether trustees act in the best interests of consumers and treat them fairly’;
  • pursuit of ‘egregious governance failures within corporations, schemes and superannuation funds’ as one of its key enforcement priorities during COVID-19; and
  • focus on ‘[the] way that superannuation trustees provide default insurance to their members’.

Click here for details.

Australian Law Reform Commission – Background papers published in relation to the review of financial services regulation

On 15 October 2021, the Australian Law Reform Commission (ALRC) published two background papers in relation to its ‘Review of the Legislative Framework for Corporations and Financial Services Regulation’ (the Inquiry). The Inquiry, which was announced in September 2020, was discussed in our Super Alert of 18 September 2020. According to the ALRC, the background papers are ‘intended to provide a high-level overview of topics of relevance to the Inquiry’.

The two background papers (which follow the publication of the first background paper ‘Initial Stakeholder Views (FSL1)’ on 21 June 2021) are:

  • ‘Complexity and Legislative Design (FSL2)’: which explores ‘legislative complexity, and considers how legislative complexity can be managed and reduced through legislative design’; and
  • ‘Improving the Navigability of Legislation (FSL3)’: which ‘discusses the range of features and techniques that can be used to make legislation more navigable’.

Click here for details.

District Court of South Australia – Trustee’s duties in cancelling member’s insurance cover

On 8 October 2021, Burnett J handed down the decision in Steer v AMP Life Limited & AMP Superannuation Limited [2021] SASC 109. The applicant, who was the executor of the estate of the deceased, was successful in claiming that the trustee, in failing to comply with legislative changes (discussed below) and cancelling the deceased’s insurance cover, breached its duty to act in the best interests of the deceased.

Under the Treasury Laws Amendment Act (Protecting Your Superannuation Package) 2019 (Cth) (PYS Act) trustees were required at the time to ensure that they:

  • identified members whose accounts, as at 1 April 2019, had been inactive for a continuous period of 16 months; and
  • provide written notice to those identified members, on or before 1 May 2019, that, on or after 1 July 2019, the member’s insurance benefit would not be maintained if:
    • the member’s account had been inactive for 16 months; and
    • the member had not elected that the benefit be maintained.

The trustee in this case had identified the deceased as an inactive member, and sent correspondence to her in compliance with the timing requirements set out above. However, the trustee sent the information to the deceased’s previous work email. The deceased had ceased working for that employer in 2014 and did not receive the emails because she no longer had access to the email account. Her insurance cover was subsequently cancelled by the trustee.

Burnett J found that the method employed by the trustee to contact the deceased in these particular circumstances was insufficient, and fell short of the trustee’s obligation to ensure the deceased could elect in writing to maintain her insurance cover. Therefore, it was held that the trustee’s failure to adequately notify the deceased of the legislative changes, and its subsequent cancellation of the deceased’s insurance cover, did not comply with section 68AAA of the SIS Act or the PYS Act. It was held that this failure was a clear breach of the trustee’s duty to act in the best interests of the deceased.

KHQ Lawyers - Jordan Diamantopoulos

Jordan Diamantopoulos Lawyer

Jordan is a graduate lawyer and is currently working across our Commercial Property & Development and Corporate & Commercial teams. Prior to joining KHQ Lawyers, Jordan worked as a Barrister’s... Read More

KHQ Lawyers - Sanela Osmanovic

Sanela Osmanovic Senior Associate

Sanela is a Senior Associate in the superannuation & financial services team, and has a broad range of experience working with a range of superannuation fund trustees, superannuation administrators,... Read More

KHQ Lawyers - Natalie Cambrell

Natalie Cambrell Principal Solicitor

Natalie Cambrell leads our superannuation and financial services team.  With more than 20 years’ experience, she has an enviable reputation for her in-depth knowledge in these highly regulated and... Read More