Superannuation monthly update – October 2021

Regulator updates

APRA frequently asked questions – MySuper Heatmap (6 October 2021)

APRA released a new set of frequently asked questions in respect of the MySuper Product Heatmap. APRA’s FAQs address:

• the MySuper Product Heatmap – December 2021
• the MySuper Product Heatmap – December 2020                          
• Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements
• general questions about the MySuper Product Heatmap
• technical questions about the MySuper Product Heatmap.

ASIC Information Sheet 89 Communicating with employees about choice of superannuation fund: What you can and cannot do (15 October 2021)

ASIC updated Information Sheet 89 (INFO 89) in the context of the introduction of design stapling. INFO 89 reminds employers of their roles and the boundaries in which employers may assist employees in respect of their choice of superannuation fund, as follows:

• employers can give factual information to employees, including documents relating to superannuation
• employers can refer employees to information on government websites, such as the YourSuper comparison tool and Moneysmart resources
• employers can ask a superannuation fund provider to present to employees
• employers can refer employees to a licensed financial adviser.

Our comment

The extent to which trustees may advise employers and unions as to how they may act, within the confines of stapling, anti-hawking and general advice rules, has been an issue occupying trustees over the past few months. It is our view that INFO 89 provides guidance to ensure employers and unions do not fall foul of the rules.

APRA Prudential Practice Guide CPG 511 Remuneration (18 October 2021)

APRA released Prudential Practice Guide CPG 511 Remuneration (CPG 511), setting out guidance and examples of better practices to assist trustees in meeting their requirements under APRA Prudential Standard CPS 511. CPG 511 provides guidance and examples of better practice for:

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

APRA frequently asked questions – Protecting your Superannuation Package and Putting Members’ Interests First (21 October 2021)

APRA states that the Federal Government has indicated that it will pursue amendments to the SIS Act to ensure the Government’s original policy intent is achieved in a number of areas that have been raised by industry.

APRA understands the Government will seek to amend the SIS Act to provide that the application and transition provisions of the Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 apply such that members who were not required to make an election under the Act (such as members who provided an election before 1 November 2019 or members under 25 before 1 April 2020, or members with an account balance that is less than $6,000 but who had an account balance equal to or greater than $6,000 on or after 1 November 2019) are not required to elect following a successor fund transfer (SFT).

APRA frequently asked questions – Superannuation Data Transformation (22 October 2021)

APRA updated the following FAQs on Superannuation Data Transformation Phase 1:

• “SRS 705.0 d: For SRF 705.0 Components of Net Return, how many decimal places should be reported for columns 13-15: ‘Charge Minimum Percent’, ‘Charge Maximum Percent’ and ‘Expense or Benefit Account Balance Percent’?”
  • APRA notes that there is a difference between the reporting standard which specifies that numbers should be reported as percentages to 2 decimal places and APRA Connect which allows percentage up to 4 decimal places (6 decimal places in total)
  • RSE licensees should report data for these columns to 4 decimal places (for percentages, this will mean six numbers after the decimal point). APRA intends to update this requirement the next time the reporting standard is determined.
• “For Table 2 of SRF 705.1 Investment Performance and Objectives, how many decimal places should be reported for columns 11-12: ‘Return Investment Five Year Volatility Comparison Percent’ and ‘Return Investment Ten Year Volatility Comparison Percent’?”
  • APRA notes that there is a difference between the reporting standard which specifies that numbers should be reported as percentages to 2 decimal places and APRA Connect which allows percentage up to 4 decimal places (6 decimal places in total)
  • RSE licensees should report data for these columns to 4 decimal places (for percentages this will mean six numbers after the decimal point). APRA intends to update this requirement the next time the reporting standard is determined.

APRA frequently asked questions – outcomes assessment under section 52(9) of SIS (25 October 2021)

APRA published the following FAQs in respect of the outcomes assessment under section 52(9) of the SIS Act:

• are RSE licensees required to consider their performance test result in their annual outcomes assessments?
• what are the requirements for assessing and publishing an outcomes assessment where the RSE licensee of a fund has changed, or an SFT has occurred during the assessment period?
• how should RSE licensees use APRA’s heatmap publication in undertaking the outcomes assessment?
• (new FAQ) what information should be included in the summary of the outcomes assessment that must be published on the RSE website?
• does the RSE licensee need to send the summary of the outcomes assessment to the RSE’s members?

The following FAQ was also updated:

• how can an RSE licensee make the product determination under section 52(9) for a lifecycle MySuper product with multiple lifecycle stages?

AFCA appoints seven Senior Ombudsmen (26 October 2021)

AFCA has created the new role of Senior Ombudsman, announcing seven appointments, as it progresses projects to enhance the efficiency and effectiveness of dispute resolution. The appointments include Anne Maree Howley, Senior Ombudsman, for superannuation.   

Findings from APRA’s superannuation thematic reviews (26 October 2021)

APRA published its findings of three thematic reviews, undertaken over the past 12 months, covering:

• strategic and business planning, and assessing performance against strategy, via a benchmarking review of the implementation of Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515)
• RSE licensee expenditure decision-making
• unlisted asset valuation practices, which are central to delivering investment outcomes in the best financial interests of beneficiaries.

APRA observations included:

• SPS 515 benchmarking:
  • practices that RSE licensees need to strengthen as part of their next business performance review and business planning cycle include:
    • creating a better connection between business performance review findings and updates to business plans
    • greater clarity on how strategic objectives support desired member outcomes
    • more robust analysis of the drivers of business performance
    • consideration of entire business operations, not just individual RSEs, for RSE licensees of multiple RSEs
    • stress testing of financial projections
    • robust and appropriate member cohort analysis.
• RSE licensee expenditure:
  • many RSE licensees failed to rigorously measure and assess anticipated benefits to fund members of expenditure on marketing campaigns and related activities
  • prevalence of qualitative assessment over quantitative measures, including a general absence of appropriate metrics and deep analysis
  • instances of RSE licensees being unable to demonstrate how additional benefits associated with sponsorships, that were provided to directors, executives and staff of the fund resulted in any improved outcomes for members.
• unlisted asset valuation:
  • where robust frameworks, clear accountability and holistic approaches to planning existed, practices were of a better standard across the board, regardless of the area of the RSE licensee’s business being reviewed.

ASIC identifies conflicts with super fund executives switching investments (27 October 2021)

ASIC conducted surveillance on personal investment switching by trustee directors and senior executives, identifying concerns with trustees’ management of conflicts of interest. ASIC’s key concerns include:  

• failure to identify investment switching as a risk: The majority of trustees either did not identify a director or an executive having an interest in the superannuation fund for which she or he works as a ‘relevant interest’ (for the purposes of their conflicts management policies) or identify investment switching as giving rise to a conflict of interest. This meant there was often a commensurate lack of controls or guidance for how any associated conflicts should be managed
• disparity in board-level engagement: There was significant disparity among trustees in the level of engagement by their boards on the issue of conflicted investment switching by directors and executives. This flowed into the prescriptiveness of relevant policies outlining restrictive measures to adequately deal with this issue. Some boards were proactively engaged, while others were not able to demonstrate that they had considered the issues at all
• lack of restrictive measures: Almost half of the trustees (10 of the 23) did not have preventative controls such as trade pre-approvals or switching blackout periods to limit executives’ ability to switch investment options. Even when trustees had restrictive measures in place that covered investment switching, directors and executives were sometimes given a blanket exclusion from the policies even though the policies applied to all other employees
• inadequate oversight of investment switching: Many trustees did not have mechanisms in place to regularly review switching activity by their directors and executives, including checks to ensure compliance with policies. Trustees were instead reliant on directors and executives self-reporting any breaches of the policies
• lack of oversight of related parties: A common issue was a failure by trustees to identify switching by related individuals (such as a spouse) of directors and executives as giving rise to a perceived or potential conflict of interest. Even where the trustee’s policies might have extended to cover related individuals, there was often no or very limited ability for the trustee to identify these individuals or monitor their trading activity.

Legislative updates

ASIC Corporations (Design and Distribution Obligations Interim Measures) Instrument 2021/784 (1 October 2021)

ASIC has placed interim measures to provide certainty to financial product providers on the application of Design and Distribution Obligations (DDO). The instrument:

• ensures the definitions of retail and wholesale clients, for the proposes of DDO, is consistent with other parts of the Corporations Act
• removes the requirement for distributors to report to issuers whether a complaint has been received, including where nil complaints are received. However, there remains a requirement for distributors to report the number of complaints they receive, to the extent they receive any during the reporting period
• removes the requirement for distributors to report that information specified by the issuer in its target market determination (TMD) has not been acquired during the reporting period (i.e. where nil information is acquired), while retaining a requirement to report such information where it is acquired by distributors during the reporting period
• expands the meaning of “excluded conduct” to clarify that it includes giving a PDS in the course of providing personal advice about a financial product
• amends regulation 7.8A.25 of the Corporations Regulations to address any uncertainty that employers remain exempt from the DDO when they provide a PDS for their default fund to employees
• exempts products from the DDO where these products are within the scope of the DDO only as non-cash payment facilities (aside from debit cards, credit products and stored value facilities)
• exempts, from the DDO regime, foreign exchange contracts that settle immediately
• exempts, from the DDO regime, margin lending facilities provided to non-natural individuals
• exempts, from the DDO regime, cashless welfare arrangements.

Corporations (Director Identification Numbers—Transitional Application Period) Instrument 2021 (5 October 2021)

The instrument extends the transitional application period, for those appointed as directors of a company before the director identification number obligations commenced, to 30 November 2022.

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 (8 October 2021)

The instrument applies to decisions by the Commissioner of Taxation (Commissioner) about whether or not to reduce an employer’s individual superannuation guarantee shortfall for an employee for a quarter for the purposes of section 19(2F) of the Superannuation Guarantee (Administration) Act 1992 (SG Act) where the conditions in section 19(2G) of the SG Act apply.

Superannuation Guarantee (Administration) – Choice of Fund – Written Guidelines for the Reduction of an Increase in an Employer’s Individual Superannuation Guarantee Shortfall Determination 2021 (8 October 2021)

This instrument provides written guidelines the Commissioner must have regard to for the purpose of section 19(2E) of the SG Act in deciding the level of reduction to apply to an increase in an employer’s individual superannuation guarantee shortfall under section 19(2A).

Superannuation Guarantee (Administration) Amendment Bill 2021 (18 October 2021)

This Bill has been introduced to amend the SG Act to exempt employees who work in a dangerous occupation from the stapling provisions.

Treasury Laws Amendment (2021 Measures No. 7) Bill 2021 (19 October 2021)

The Bill proposes to amend the AFCA Act to facilitate the closure and any transitional arrangements associated with AFCA replacing the SCT. The Bill also provides for the transfer of records and documents from SCT to ASIC and the remittal of matters on appeal by the Federal Court to AFCA.

Corporations Amendment (Meetings and Documents) Bill 2021 (20 October 2021)

The Bill proposes to:

• ensure that company meetings can be held physically, as a hybrid or, if expressly permitted by the entity’s constitution, virtually, provided that members, as a whole, are given reasonable opportunity to participate in the meeting
• ensure that companies and registered schemes can meet their obligations to send documents in hardcopy or softcopy and give members the flexibility to receive documents in their preferred format
• allow documents, including deeds, to be validly executed in technology-neutral and flexible manners, including by company agents.

Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 (27 October 2021)

The Bill proposes to:

• amend the SG Act to remove the $450-a-month threshold before an employee’s salary or wages count towards the Superannuation Guarantee
• amend the Taxation Administration Act 1953 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
• amend the Income Tax Assessment Act 1997 (ITAA 1997) to allow individuals aged 60 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their home
• amend the ITAA 1997 to apply the work test to individuals aged between 67 to 75 who claim a deduction for personal superannuation contributions
• amend the ITAA 1997 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 a part, but not all, of the income year.

Cases

Australian Securities & Investments Commission v Diversa Trustees Limited (8 October 2021)

ASIC commenced civil penalty proceedings in the Federal Court against Diversa Trustees Limited (Diversa) for alleged contraventions of sections 912A(1)(a) & (ca) of the Corporations Act between 13 March 2019 and 18 December 2020 (Relevant Period).

The case involved Diversa failing to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly, and failing to take reasonable steps to ensure that its representatives complied with the financial services laws.

ASIC alleges that between March 2019 and December 2020:

• Mr Nizi Bhandari (Bhandari) operated a “lost superannuation” consolidation business described as Australian Super Finder (ASF), through his company, The Australian Dealer Group Pty Ltd (ADG), which itself had a licence. They were engaged by the OneVue Entities, as described below. Their business model was as follows:
  • services were promoted through a website and a call centre based in the Philippines, on the premise of a free service being offered to superannuation fund members to search for and consolidate lost superannuation
  • however, customers became liable to pay substantial fees (and to Diversa),  including:
    • administration fees of approximately 0.25% p.a. asset-based fee (for an average daily balance under $250,000)
    • $150 account-keeping fee
    • 0.03% expense recovery fee plus $50 p.a.
    • insurance administration fees of $77 or $99 for the establishment and approximately $77 or $99 p.a. thereafter (should the member choose to take up retail insurance cover) or 10% of the premium as an administration fee (should the member decide to take up group insurance cover)
    • super consolidation service fees ranging from $110 to $4,400 (depending on the number of super accounts to be recovered and the extent of work required to consolidate them).
  • they promoted and signed up or rolled-over customers to Diversa’s sub-plan, YourChoice Super, and used it in their superannuation aggregation business. Following engagement by the OneVue Entities, ADG and Bhandari were registered on the OneVue Secure Online Portal, which gave them access to the platform and enabled them to use, promote and sign up or rollover customers to, YourChoice Super. They used the OneVue platform to access SuperMatch, a free online service provided by the Australian Taxation Office, to find details of the customers’ existing super fund accounts
  • once a customer has signed up or rolled over, YourChoice Super was used as a “temporary consolidation account” into which the customer’s superannuation would be consolidated, and from which fees were deducted before any rollover into the customer’s subsequent superannuation fund
  • for many customers who signed up or rolledover, once the funds from their other accounts were temporarily consolidated in YourChoice Super, an application was submitted on their behalf to withdraw money, including on the basis of financial hardship
  • during the Relevant Period, 77 “financial hardship” withdrawal applications from YourChoice Super were processed by Diversa. These applications came from customers of Bhandari, ADG and ASF (comprising 15.65% of the total applications for financial hardship processed by Diversa over the same period)
  • a significant volume of other (non-“financial hardship”) withdrawals by Bhandari, ADG and ASF on behalf of customers were processed by Diversa. During the Relevant Period, at least 4,283 such withdrawal applications from YourChoice Super were processed by Diversa, from customers of ASF (comprising 48.94% of the total non-hardship applications from YourChoice Super processed by Diversa over that period).
• throughout the Relevant Period, Diversa, further or alternatively the OneVue Entities, knew or ought to have known in relation to Bhandari, ASF and ADG that, among other things:
  • their business was super aggregation
  • they charged customers adviser service fees for the consolidation service upfront
  • they used YourChoice Super in their superannuation aggregation business, and promoted, and signed up or rolled over customers to, YourChoice Super, having been engaged by the OneVue Entities
  • a very high number of financial hardship and other withdrawal claims were submitted on behalf of their customers
  • it was likely that many customers were vulnerable and unsophisticated
  • customers became liable for exorbitant fees as a proportion of their account balance
  • prior to their relationship with the OneVue Entities, they had been asked to leave another financial services licensee, MLC, because of the way in which they conducted their super aggregation business
  • they had used ‘dummy’ email accounts to establish new YourChoice Super accounts
  • there was at least a risk that Bhandari, ASF and ADG were engaging in misleading or deceptive conduct or unconscionable conduct or not doing all things necessary to ensure that the financial services covered by ADG’s licence were provided efficiently, honestly and fairly, and were thereby not complying with the financial services laws.
• Diversa, further or alternatively the OneVue Entities, also knew or ought to have known (including inter alia through Mr Blood, and through other Diversa and OneVue employees) in relation to Bhandari, ASF and ADG, that, among other things:
  • (from at least February 2019) they were being investigated by the ASIC (plaintiff);
  • (from at least May 2019) their business model was substantially as described above
  • (from at least August 2019) they were charging high fees on recently activated accounts of customers (who became YourChoice Super members), and the closure of many of those customers’ initial accounts would have resulted in a loss of insurance benefits attached to those accounts, and further withdrawals (both hardship and other) were being processed in relation to customers
  • (from at least October 2019) they had submitted a withdrawal request containing a false certification
  • (from at least 5 March 2020) a customer complained to the AFCA concerning their sales tactics and the fees
  • (from at least 5 March 2020) their practice of handling customer complaints was to refund them early to prevent escalation
  • (from at least 17 March 2020) their use of the “SuperMatch” service resulted in the Australian Taxation Office’s revocation of the OneVue Platform’s access to that service.
• Diversa outsourced the day-to-day operations to the OneVue Entities without adequately retaining control over or supervising, or monitoring those operations
• Diversa did not take any, or any sufficient, action in response to issues that were brought or should have come to its attention in relation to Bhandari, ASF and ADG
• Diversa did not supervise or monitor the conduct of the OneVue Entities properly nor take steps to reduce the risks of them, via Bhandari, ASF and ADG, engaging in, or permitting, conduct which was inefficient, dishonest and unfair towards customers, or in contravention of financial services laws
• Diversa allowed Bhandari, ASF and ADG to continue operating the business using YourChoice Super until 18 December 2020, when the business was sold. In February 2021, ASIC permanently banned Bhandari as an adviser and cancelled ADG’s licence.

Steer v AMP Life Limited & AMP Superannuation Ltd (11 October 2021)

The South Australian Supreme Court held that AMP Super breached it duties to act in the best interests of a member by failing to notify a member, in the appropriate manner, that the member’s insurance would cease under the Protecting Your Superannuation (PYS) measures, unless an election to retain cover was made. In this case, AMP sent out electronic communication as its basis for notifying the member of the PYS requirement. There was no evidence to suggest the member received the electronic notification.

In this case, AMP relied upon an inference that the member had consented to receive electronic communications, on the basis that the member, at some stage, had provided the trustee with an email address (not via an application form) and had failed to notify the trustee to the contrary that the member did not agree to receive electronic communications in response to a 2014 and 2016 letter sent by AMP to the member in respect of AMP moving to a digital service. However, no evidence suggested the member ever consented to receive electronic communications and, furthermore, the member’s email address was the member’s work email address, of which the member had left that particular employer in 2014.

The Court held that AMP could not infer that the member consented to receive electronic communications and, therefore, AMP failed to ensure that the member could make a PYS insurance election. This failure meant that AMP contravened the PYS requirements and, in doing so, failed to act in the member’s best interests.

Our comment

This case goes to show how careful trustees must be in relying upon electronic communications and agreements made by members to receive information electronically. It may be that trustees should seek to agree to personal email addresses, rather than workplace email addresses and have protocols in place when receiving “bounced” or invalid email response notifications. A breach of section 52 of the SIS Act is clearly a penalty provision for which trustees cannot be indemnified for.

ASIC v Colonial First State Investments Limited (19 October 2021)

The Federal Court has Ordered Colonial First State Investments Limited (Colonial), as trustee for the Colonial First State FirstChoice Superannuation Trust, to pay a penalty of $20 million in respect of misleading and deceptive conduct to members regarding investment directions that may have encouraged members not to move to the relevant MySuper product.

As reported in our September update, the Federal Court declared that Colonial, between 18 March 2014 and 21 July 2016:

• engaged in misleading and deceptive conduct by sending 12,911 letters to members containing misleading representations about investment directions
• made false or misleading representations and engaged in misleading and deceptive conduct in 70 calls to members about investment directions
• failed to provide a “general advice warning”, as required by the Corporations Act, in 17 calls to members
• failed to do all things necessary to ensure the financial services covered by its financial services licence were provided efficiently, honestly and fairly.

Authors: Luke Hooper & Michael O’Connor

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 update is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Luke Hooper

Michael O'Connor

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