Welcome to the latest issue of the KHQ Super Alert. The news item of note this week is that the much-anticipated Bill to implement the Financial Accountability Regime has been introduced into Parliament. Also, APRA released its initial views in relation to the performance of choice products (ahead of its Choice Product Heatmap) and some FAQs on the performance assessment of trustee directed products under the Your Future Your Super regime. The Queensland Supreme Court has also handed down a decision relating to trust deed amendments to permit trustee remuneration.
Parliament – FAR legislation and CSLR Bills introduced
On 28 October 2021, the Financial Accountability Regime Bill 2021 (Cth), the Financial Sector Reform (Hayne Royal Commission Response No.3) Bill 2021 (Cth), the Financial Services Compensation Scheme of Last Resort Levy Bill 2021 (Cth) and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021 (Cth) were introduced into the House of Representatives. A joint Explanatory Memorandum has been issued for all four Bills. It provides that the Bills propose to:
- introduce ‘a new accountability regime for the banking, insurance and superannuation industries’ following the closure of the Treasury consultation referred to in our Super Alert of 23 July 2021 – it is proposed that this regime ‘will apply to the insurance and superannuation industries on 1 July 2023 or 18 months after Royal Assent, whichever is later’;
- introduce the compensation scheme of last resort which ‘will provide compensation where a determination issued by AFCA remains unpaid and the determination relates to a financial product or service within the scope of the scheme’; and
- provide that the ‘Commonwealth will fund the establishment of the [compensation scheme of last resort] and its operation in the first year’ and set out the levy to ‘be imposed on the financial services industry to fund the scheme in future years’.
Click here, here, here and here for details.
APRA – Analysis of choice products performance released
On 28 October 2021, APRA published ‘its analysis of the performance of choice superannuation products ahead of releasing its first Choice Product Heatmap in late 2021’. APRA’s initial analysis based on a review of SuperRatings data is that:
- ‘[a]dministration fees for choice products are materially higher on average than they are for MySuper products … (40 per cent higher)’;
- ‘[t]here was considerable variation in investment performance for choice investment options with similar allocations to growth assets. For example, for investment options with 70 to 80 per cent growth allocation, investment performance ranged between 1.05 per cent p.a. to 8.60 per cent p.a. over the five years to 30 June 2020’; and
- ‘[a]pproximately 15 per cent of choice investment options underperformed a risk-adjusted, peer-derived benchmark by more than 75 basis points compared to 7 per cent of MySuper investment options (based on analysis of data from the 2020 MySuper Product Heatmap)’.
Click here for details.
Parliament – Bill to facilitate changes to a suite of superannuation rules
On 27 October 2021, the Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 (Bill) was introduced to the House of Representatives. The Bill, amongst other things, proposes to amend the following Acts:
- Income Tax Assessment Act 1997 (Cth) to:
- ‘allow superannuation trustees to choose their preferred method of calculating exempt current pension income when they have member interests in both accumulation and retirement phases for part, but not all, of the income year’;
- ‘allow individuals aged 60 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their home’; and
- ‘apply the work test to individuals aged between 67 to 75 years who claim a deduction for personal superannuation contributions’;
- Superannuation Guarantee (Administration) Act 1992 (Cth) ‘to remove the $450-a-month threshold before an employee’s salary or wages count towards the Superannuation Guarantee’; and
- Taxation Administration Act 1953 (Cth) ‘to increase the limit on the maximum amount of voluntary contributions made over multiple financial years that are eligible to be released under the First Home Super Saver Scheme from $30,000 to $50,000’.
The changes are expected to commence from 1 July 2022.
Click here for details.
Queensland Supreme Court decision – Trustee remuneration and best financial interests
On 27 October 2021, the Supreme Court of Queensland handed down its decision in Re QSuper Board [2021] QSC 276. The trustee applied to the Supreme Court for a direction in relation to whether the trustee was justified in amending its deed to confer upon the trustee ‘powers to charge, and to retain for its own benefit, remuneration which it determines to be reasonable and to deduct such remuneration from the assets of the [fund]’ (as the deed does not currently provide it with this power).
The Court determined that adding the proposed remuneration power to the deed was justifiable because:
- the ‘broad scope of the power would appear to be appropriate given the complex and varied nature of the [fund]’;
- ‘the remuneration power can be expected to be exercised with reference to specific considerations including fairness between classes of beneficiaries and intergenerational equity’; and
- it ‘is clearly in the best financial interests of the members’ for the trustee to ‘take steps to ensure the due and proper administration of the [fund]’ and therefore the amendment to the deed was ‘reasonably justifiable’ having regard to ‘the interests of present and future beneficiaries and…the commercial and practical realities of the superannuation industry generally’.
The Court also determined that the trustee’s costs of making the application could be reimbursed out of the fund’s assets.
Click here for details.
ASIC – Surveillance in relation to executives’ personal investment activity
On 27 October 2021, ASIC issued a media release in relation to personal investment activity of superannuation fund executives. According to ASIC, given that ‘[directors] and senior executives of superannuation funds are potentially privy to price-sensitive valuation information’ it surveilled 23 trustees ‘to look into concerns about whether fund executives were using this information for personal gain by switching investment options’.
As a result of this surveillance, ASIC noted that some conduct fell below its expectations. Some of its ‘key concerns with trustees’ management of conflicts of interest include’:
- ‘Failure to identify investment switching as a risk’;
- ‘Disparity in board-level engagement’;
- ‘Lack of restrictive measures’;
- ‘Inadequate oversight of investment switching’; and
- ‘Lack of oversight of related parties’.
ASIC intends to ‘continue to follow up with trustees about areas for improvement in their conflict management frameworks’.
Click here for details.
APRA – Your Future, Your Super FAQs updated for trustee directed products
On 27 October 2021, APRA published a new set of frequently asked questions (FAQs) in relation to Your Future, Your Super. According to APRA, the FAQs ‘provide clarity to RSE licensees on the introduction of trustee directed products (TDPs) into the Government’s Your Future, Your Super performance test’.
Despite the language of the relevant regulations being focused on products as a class of beneficial interest, APRA asserts that ‘the performance test applies at the investment option level’.
Click here for details.
APRA – Three thematic reviews published
On 26 October 2021, APRA published findings from three thematic reviews (covering fund expenditure, strategic and business planning and unlisted asset valuation practices) undertaken over the last 12 months. Key findings from the reviews were:
- Strategic and business planning review: APRA found that a key area of improvement is for trustees to make a ‘better connection between BPR [business performance review] findings and updates to business plans’;
- Fund expenditure review: APRA found ‘a lack of evidence of clear metrics to assess the benefits of marketing expenditure to their members’; and
- Unlisted asset valuation review: while APRA found that some re-evaluation frameworks lacked ‘formalised monitoring processes’, APRA also indicated that ‘most RSE licensees demonstrated a proactive approach to revaluing unlisted assets as a result of heightened market volatility’.
According to APRA, the purpose of sharing this information is to highlight to ‘RSE licensees a number of risks and vulnerabilities that they must have front of mind to drive better practices across the industry that lead to continuing improvements in outcomes’.
Click here for details.
APRA – Outcome assessment FAQs updated
On 25 October 2021, APRA published a new set of frequently asked questions (FAQs) and updated an existing FAQ in relation to the outcomes assessments under section 52(9) of the Superannuation Industry (Supervision) Act 1993 (Cth). According to APRA, the FAQs ‘assist RSE licensees to undertake the outcomes assessment, and explain how the assessment must consider the performance test’.
APRA has indicated that a review of these FAQs will take place in 2022 ‘to align the approach with the performance test for trustee-directed products’.
Click here for details.
ATO – Annual balance reporting reminder
On 25 October 2021, the ATO issued a reminder to trustees in relation to the annual reporting of members’ account balances. Trustees have until 1 November 2021 ‘to report the 30 June 2021 account balance amount and any applicable phase values, notional taxed contributions and defined benefit contributions…via the member account transaction service (MATS)’.
The ATO has advised that trustees should pay particular attention to ensuring that:
- ‘member account information has been reported through the member account attribute service (MAAS)’;
- ‘the Australian business number (ABN), unique superannuation identifier (USI) and member account identifier reported in the MATS is identical to those reported through MAAS for the member account’; and
- ‘when reporting other amounts and there is no account balance to report, that a zero value is reported in the mandatory account balance field’.
Click here for details.
Legislation – Stapling measures
On 22 October 2021, the following legislative instruments (Instruments) were registered on the Federal Register of Legislation:
- Superannuation Guarantee (Administration) – Choice of Fund – Written Guidelines for the Reduction of an Increase in an Employer’s Individual Superannuation Guarantee Shortfall Determination 2021; and
- Superannuation Guarantee (Administration) – Stapled Fund – Guidelines for the Reduction of an Employer’s Individual Superannuation Guarantee Shortfall for Late Contributions Due to Non-acceptance by Notified Stapled Fund Determination 2021.
The Instruments provide that, from 1 November 2021 to 30 October 2022:
- ‘employers will, in the first instance of non-compliance [with the new stapling rules], be provided with help and assistance to comply with stapled fund requirements’;
- the ATO ‘will reduce any choice shortfall to nil if that shortfall arose due to the employer’s lack of knowledge of the stapled fund requirements rather than intentional disregard’; and
- the ATO ‘may reduce the amount of [an] employer’s shortfall in whole or in part’ depending on the existence of certain circumstances.
Both Instruments commence on 1 November 2021.
Click here and here for details.
Legislation – Director Identification Numbers (DIN)
As reported in our Super Alert of 8 October 2021, the Corporations (Director Identification Numbers—Transitional Application Period) Instrument 2021 was registered on the Federal Register of Legislation and is now operational. Our Corporate & Commercial team has summarised the process directors must follow in order to obtain a DIN, including the timeframes within which an application must be made.
Click here for details.
