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Superannuation monthly update – March 2020

01 April 2020

#Superannuation, Funds Management & Financial Services

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Superannuation monthly update – March 2020

Regulator updates

ASIC commences proceedings against Colonial First State over dealings with MySuper accounts (17 March 2020)

ASIC commenced civil penalty proceedings in the Federal Court against Colonial First State Investments Limited (Colonial) in its own capacity, and as the trustee for the Colonial First State FirstChoice Superannuation Trust (FirstChoice Fund). ASIC commenced proceedings for alleged breaches of the ASIC Act and the Corporations Act regarding alleged misleading or deceptive communications with members of the FirstChoice Fund.

ASIC alleges that, between March 2014 and August 2016, Colonial communicated with FirstChoice Fund members in a misleading or deceptive manner regarding the provision of investment directions to stay within the FirstChoice Fund rather than transitioning to Colonial’s MySuper product.

ASIC’s case focuses on template letters sent to members, as well as 46 telephone calls made in accordance with scripts. ASIC also alleges that Colonial failed to provide a general advice warning during the telephone calls. According to ASIC, a total of 8,605 members directed Colonial that they remain in the existing product.

ASIC contends that the communications also amounted to breaches of Colonial’s obligations:

  • to do all things necessary to ensure that the financial services covered by its Australian Financial Services License (AFSL) were provided efficiently, honestly and fairly
  • to comply with financial services laws.

ASIC is seeking declarations of breaches of:

  • the ASIC Act, section 12DA (misleading and deceptive conduct)
  • the Corporations Act, sections 912A (general obligations of AFSL holders), 949A (general advice obligations to warn clients that advice does not take into account their objectives, financial situations or needs), and 1041H (misleading or deceptive conduct).

Further, ASIC is seeking the imposition of civil penalties under the ASIC Act, sections 12DB (false or misleading representations) and 12DF (certain misleading conduct) in relation to the communications.

The proceeding will be listed for a first case management conference on a date to be fixed by the Court.

MySuper Heatmap Frequently Asked Questions (19 March 2020)

APRA released the following updates to its MySuper Heatmap Frequently Asked Questions[1]:

1. What are APRA’s plans for the next update to the December 2019 MySuper Product Heatmap?

Further to FAQ no. 10 in the general questions section below, APRA will publish in June 2020, the concise and expanded ‘fees and costs’ metrics included in the December 2019 heatmap with updated data. APRA’s decision to solely publish fee data reflects the purpose of the update - to show actions taken by trustees to address areas of underperformance, which APRA considers to reasonably be expected to have occurred since the heatmap was published in December 2019. Improvements to investment performance and sustainability would be expected to manifest over a longer timeframe, which APRA will reflect in later heatmap publications.

2. Why isn’t APRA publishing updates to the heatmap to reflect resubmitted historical data?

A small minority of trustees have resubmitted changes to their Strategic Asset Allocation in Reporting Standard SRS 533.0 Asset Allocation and their investment performance in Reporting Standard SRS 702.0 Investment Performance. APRA is validating these resubmissions and, if substantiated, the revised data will be reflected in the next iteration of the heatmap, planned for release in December 2020.

3. How can trustees ensure updated fees and costs are reflected in the heatmap?

Any ad-hoc submission of Reporting Standard SRS 703.0 Fees Disclosed received by APRA by 5pm on 29 May 2020 via Direct to APRA (“D2A”) will be included in the updated heatmap to be released in June 2020. Trustees can make a request to submit an ad-hoc submission of Reporting Standard SRS 703.0 Fees Disclosed by emailing DataAnalytics@apra.gov.au. Refer to guidance on APRA’s website.

4. What if the updated fees and costs are submitted to APRA after 29 May 2020?

Any updated fees and costs submitted to APRA after 29 May 2020 will be reflected in the next iteration of the heatmap, planned for release in December 2020.

5. Some trustees have indicated they are increasing fees as a result of the Protecting Your Super measures. Will APRA publish increases in fees as well as reductions?

APRA will publish all changes in fees and costs submitted to APRA on Reporting Standard SRS 703.0 Fees Disclosed by 5pm on 29 May 2020.

APRA and ASIC recalibrations due to COVID-19 (23 & 24 March 2020)

In response to COVID-19, ASIC announced that:

  • it will focus its regulatory efforts on challenges created by the COVID-19 pandemic. Until at least 30 September 2020, the other matters that ASIC will afford priority are where there is the risk of significant consumer harm, serious breaches of the law, risks to market integrity and time-critical matters
  • certain non-time critical activities, including consultation, regulatory reports and reviews will be suspended
  • its enhanced on-site supervisory work such as the Close and Continuous Monitoring Program will be suspended.

In suspending the above activities, ASIC states that:

  • where warranted, relief or waivers from regulatory requirements will also be provided
  • it will maintain its enforcement activities and continue to investigate and take action where the public interest warrants us to do so against any person or entity that breaks the law. However, it will focus on action necessary to prevent immediate consumer harm, egregious illegal conduct and other time critical matters
  • key business as usual functions will be maintained including registry operations and services, receipt of whistleblower, breach and misconduct reports and general contact points for industry.

APRA also announced the following in response to the health crisis:

  • the suspension of the majority of its planned policy and supervision initiatives
  • the suspension of all substantive public consultations and actions to finalise revisions to the prudential framework that are currently underway or upcoming, including consultations on prudential and reporting standards. It will keep the situation under review, but presently does not plan to recommence consultation on any non-essential matters before 30 September 2020
  • it is reconsidering the implementation dates and transition timeframes for prudential and reporting standards that have been recently finalised but not yet implemented
  • the temporary suspension of its program to replace APRA’s Direct to APRA (D2A) data collection tool with APRA Connect for approximately six months. Trustees will continue to use D2A and other current reporting channels
  • over the period ahead, its primary supervision focus will be on monitoring the impact of COVID-19 on the financial and operational capacity of regulated institutions. As a result, APRA’s supervision priorities outlined in January 2020 will be largely suspended until at least 30 September, particularly where they involve intensive engagement with regulated entities. APRA’s refocused supervision effort will involve frequent communication with entities, monitoring key financial settings, such as capital and liquidity, and responding accordingly. These engagements will be conducted virtually, unless absolutely necessary, and will continue as long as necessary.

AFCA response to COVID-19 challenges (23 March 2020)

AFCA announced that:

  • it has activated its significant event response plan that identifies and fast-tracks COVID-19 related complaints and its business continuity plan which ensures that AFCA will be able to continue to operate under changing conditions
  • complaints about COVID-19 will be prioritised and fast-tracked and AFCA will take into account the circumstances and context in which financial firms are currently operating when considering complaints. AFCA understands that firms may be putting in place alternate staffing arrangements and may not be in a position to quickly act on requests for information.

Legislation

Treasury Laws Amendment (Measures for a later sitting) Bill 2020: Improving Flexibility for Older Australians and Superannuation Legislation Amendment (2020 Measures No 1) Regulations 2020 (5 March 2020)

The exposure draft Bill and Regulations are intended to:

  • amend the Income Tax Assessment Act 1997 (Cth) to extend access to the non-concessional contributions bring‑forward arrangements to members aged 65 and 66
  • amend the SIS Regulations to both allow members aged 65 and 66 to make voluntary contributions without meeting the work test, and members aged 70 to 74 to receive spouse contributions.

Treasury is seeking submissions from interested parties by 3 April 2020.

Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 (Cth) (6 March 2020)

The Act amends the Income Tax Assessment Act 1997 (Cth) and Superannuation Guarantee (Administration) Act 1992 (Cth) to:

  • provide for a one-off amnesty to encourage employers to self-correct historical superannuation guarantee (SG) non-compliance
  • to limit the Commissioner of Taxation’s (Commissioner) ability to remit penalties for historical superannuation guarantee non-compliance, where an employer fails to disclose information relevant to their historical superannuation guarantee shortfall.

Under the new laws:

  • the amnesty period commenced on 24 May 2018 and ends on 6 September 2020
  • to the extent that:
    • SG charge is imposed in relation to SG shortfall qualifying for the beneficial treatment under the amnesty, payments in respect of that SG charge made during the amnesty period are deductible
    • contributions are offset against SG charge imposed in relation to SG shortfall qualifying for the beneficial treatment under the amnesty, contributions made during the amnesty period are deductible
  • an employer is liable to pay SG charge equal to their SG shortfall. However, where an employer qualifies for the amnesty, their SG shortfall for a quarter does not include an administrative component for employees in respect of whom the employer has an individual SG shortfall that was only identified because of a disclosure under the amnesty
  • an employer’s liability to pay penalties for a quarter is reduced by the extent to which the employer qualifies for the amnesty for the quarter
  • generally, the Commissioner cannot remit Part 7 penalties (up to 200 per cent of the SG charge) below 100 per cent of the amount of SG charge payable by the employer for a historical quarter covered by the amnesty. This restriction starts from the end of the amnesty period where the employer has failed to disclose information that is relevant to the amount of its SG shortfall for a historical quarter covered by the amnesty. The Commissioner’s ability to remit a penalty will be unaffected where the Commissioner is satisfied that “exceptional circumstances” prevented an employer from disclosing relevant information after the start of the amnesty period.

Our thoughts

It will be interesting to see if the amnesty period is extended or remains where it is, with at least one association calling for a six-month extension.

Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Royal Assent 24 March 2020)

The Act implements the Federal Government’s COVID-19 response package, including (but not limited to) the following:

  • superannuation minimum drawdown requirements for account-based pensions and similar products will be reduced by 50 per cent for the 2020 and 2021 financial years
  • inserting a new release of benefits on compassionate grounds due to COVID-19, meaning that:
    • eligible members in financial stress as a result of COVID-19 will be able to apply to the ATO, via myGov, in order to access up to $10,000 of their superannuation during the remainder of the 2020 financial year and a further $10,000 in the 2021 financial year
    • no tax will be paid on the lump sum amounts
    • this relief expires six months from the date that the SIS Regulations, implementing this relief, are registered (in other words, 24 September 2020).

Cases and other recent developments

Key superannuation rates and thresholds (24 March 2020)

The following key superannuation rates and thresholds will apply as at the commencement of the 2021 financial year:

  • CGT cap amount: $1,565,000
  • low rate cap amount (lump sum payments): $215,000
  • untaxed plan cap amount (lump sum payments): $1,565,000
  • (indicative) minimum percentage factors (income streams): halved
  • maximum quarterly super contribution base: $57,090
  • Government con-contribution income thresholds:
    • lower income threshold: $39,837
    • higher income threshold: $54,837.

Salary sacrifice and super guarantee (26 March 2020)

The ATO issued Guidance Note GN 2020/1 Salary sacrifice and super guarantee (Guidance Note) which provides guidance for employers applying the super guarantee changes for salary sacrifice arrangements commencing on 1 January 2020.

From 1 January 2020, employers must calculate the minimum amount of super guarantee on an employee’s ordinary time earnings base even if they salary sacrifice so that contributions made under an effective salary sacrifice arrangement no longer count towards an employer’s super guarantee obligations.

Super liquidity issues up for scrutiny (27 March 2020)

The House of Representatives Standing Committee on Economics Chair, Mr Tim Wilson MP has stated that “[i]n the last round of hearings the superannuation sector dismissed the committee’s concerns about liquidity associated with the structure of their funds. Considering the super funds are now claiming liquidity issues which is inconsistent with the spirit of evidence they had previously submitted, the committee is reserving its right to hold a hearing with APRA, and the superannuation sector in the interests of financial stability”.

Our thoughts

We would imagine that all trustees have robust investment management frameworks that manage liquidity and include regular stress testing. But in saying that, and noting that there are clearly some outspoken personalities within Government that have a particular view of superannuation, watch this space.

Author: Luke Hooper

[1] https://www.apra.gov.au/mysuper-heatmap-frequently-asked-questions 

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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