NEED TO KNOW
The Federal Government has today released a discussion paper entitled Better regulation and governance, enhanced transparency and improved competition in superannuation on regulation, governance, transparency and competition in the superannuation sector, inviting consultation from the industry. Hot on the heels of the release of the terms of reference for the Financial Systems Inquiry, this is another development which will have the superannuation industry in a frenzy. Many of the issues raised in the discussion paper were canvassed as part of the Super System Review led by Jeremy Cooper and the industry could be forgiven for feeling a sense of déjà vu.
BACKGROUND
Through four main legislative tranches and associated amending legislation and regulations to implement the Government's stronger super reforms following the Super System Review, the former Labor Government made significant changes to the superannuation system including, broadly, the following key aspects:
- introduction of 'MySuper', a default superannuation product designed to be a simple and cost-effective superannuation offering with easily comparable key characteristics;
- introduction of 'SuperStream', a package of measures designed to enhance transactions and the back-office administrative functions;
- a range of measures relating to self managed superannuation funds to improve the operation and efficiency of the sectors; and
- governance standards and transparency measures, including providing APRA with powers to set prudential standards for superannuation funds.
A portion of the reforms have already commenced such as:
- the APRA prudential standards for superannuation taking effect;
- the requirement that Registrable Superannuation Entity (RSE) licence holders be authorised to offer a MySuper product and that employers pay default contributions to a fund in which the RSE licensee is authorised to offer a MySuper product.
However, certain elements of the Stronger Super reforms are outstanding including, without limitation:
- introduction of regulations providing the display requirements for information and content on the dashboard for superannuation 'choice' products (ie products other than MySuper products); and
- finalisation of regulations prescribing the portfolio holdings disclosure requirements for superannuation fund trustees.
As part of the current Government's policy for superannuation which the Government describes as a commitment to improving regulation, governance and enhancing transparency but a pledge not to make unexpected detrimental policy changes, the Government has released a discussion paper for industry submissions ahead of making any exposure draft legislation or regulations.
The discussion paper seeks feedback in relation to superannuation prudential and governance policy proposals, outstanding aspects of the MySuper reforms, competition in default super funds in modern awards and a possible deferral of the commencement date of the MySuper transparency measures beyond 1 July 2014 as well as the regulatory costs of proposed policy measures.
SUMMARY OF THE KEY ISSUES RAISED IN THE DISCUSSION PAPER
The table below summarises the issues and measures raised in the discussion paper on which feedback is sought.
Summary of issue and/or proposed measure | Comments sought on |
A better approach to regulation |
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Issue: Ensure the compliance costs in relation to new regulations are not burdensome to ensure members do not suffer the consequences of an inefficiently operating superannuation system. |
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Better governance |
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Proposed measure: Improve the operation of superannuation trustee boards by:
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Comments also sought on:
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Enhanced transparency – superannuation choice product dashboards |
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Issue: The requirements as to how a product dashboard for MySuper products is displayed are contained in Superannuation Legislation Amendment (MySuper Measures) Regulation 2013. There are no regulations currently prescribing the detail of the requirements in relation to product dashboards for other superannuation 'choice' products and the issues are:
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Proposed measure: Delay the commencement date for the choice product dashboard beyond 1 July 2014. |
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Enhancing transparency – portfolio holdings disclosures |
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Issue: The Corporations Act 2001 requires superannuation fund trustees to provide portfolio holdings disclosures on a look through basis from 1 July 2014. This would require disclosure of information sufficient to identify each of the investments acquired with superannuation fund assets, including assets or financial products held by managed investment schemes or through chains of investments. The Treasury consulted on draft portfolio holdings regulations in early 2013 and received submissions raising various concerns in relation to requirements to disclose in-confidence material and the degree of look through involved. Alternative models suggested included:
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Issue: The introduction of a materiality threshold setting the level of disclosure required by trustees to address concerns around disclosure of sensitive information such as requiring trustees to disclose at least 95 per cent of portfolio holdings to allow selective disclosure where ASIC already has discretionary powers to grant relief from portfolio holdings disclosure obligations imposed on trustees under section 1017BB of the Corporations Act. |
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Proposed measure: Delay the commencement date for portfolio holdings disclosure beyond 1 July 2014. |
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Enhancing competition in the default superannuation market |
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Issue: Reform the process for the selection and ongoing assessment of default products in model awards to ensure transparency and remove any potential conflict of interest. The Productivity Commission conducted an inquiry in 2012 and the key aspects of its recommendations included, without limitation:
In response to the Productivity Commission's report, the former Labor Government amended the Fair Work Act 2009 to enact a model commencing on 1 January 2014 that requires:
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TIMING OF CONSULTATION
The closing date for submissions on the discussion paper is Wednesday, 12 February 2014.
Following receipt of submissions, the Government proposes further consultation on any exposure draft legislation and regulations which are developed following consultation on the discussion paper.
NEXT STEPS
We are available to provide you with further information or guidance about the issues raised in the discussion paper.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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