APRA and ASIC release new FAQs on the implementation of the retirement income covenant (1 June 2022)
APRA and ASIC jointly released five new FAQs on the implementation of the retirement income covenant. These FAQs include:
- FAQ 1: What are APRA's expectations of RSE licensees in relation to developing their retirement income strategy and meeting the requirements of the retirement income covenant by 1 July 2022?
- FAQ 2: Can RSE licensees submit draft retirement income strategies to APRA for feedback before 1 July 2022?
- FAQ 3: What do RSE licensees need to do from 1 July 2022 to implement their retirement income strategies?
- FAQ 4: Is there any existing guidance on reviewing the outcomes of retirement income products?
- FAQ 5: Can the retirement income strategy cover the provision of financial product advice?
ATO statement: Updating rulings following the term 'employee' (3 June 2022)
The ATO updated its webpage, 'Advice under development - superannuation issues'. The page now states that the following taxation rulings will be updated to reflect the direction the High Court took on the meaning of the term "employee":
- SGR 2005/2 Superannuation guarantee: Work arranged by intermediaries
- SGR 2005/1 Superannuation guarantee: Who is an employee?
- TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees
- TR 2013/1 Income tax: The identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties
- SGR 2009/1 Superannuation guarantee: Payments made to sportspersons
- ATO Interpretive Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees.
Letter to trustees: 'Response to submissions - Minor amendments to Prudential Standard SPS 310 Audit and Related matters' (9 June 2022)
APRA published a letter informing trustees that it has decided to delay the commencement of the updated Prudential Standard SPS 310 Audit and Related Matters (SPS 310). APRA stated that the updated SPS 310 will commence on 30 June 2023.
ATO website update: 'Super contributions - too much can mean extra tax' (10 June 2022)
The ATO updated its website, outlining the limits on the amount of contributions that an individual can make each year. The updated topics include:
- understanding contribution caps
- concessional contributions and contribution caps
- if you exceed your concessional contributions cap
- non-concessional contributions and contribution caps
- if you exceed your non-concessional contributions cap
- total superannuation balance
- acceptance of member contributions and work test
- interaction between Excess Contributions and First Home Super Saver Scheme
- seeking ATO advice
- if the information used for excess contributions is wrong
- contributions for 2012-13 and earlier years.
ASIC Information Sheet 271: 'How to avoid greenwashing when offering or promoting sustainability-related products' (14 June 2022)
ASIC released Information Sheet 271 (INFO 271), outlining how trustees can avoid 'greenwashing' to comply with their existing regulatory obligations. INFO 271 states greenwashing "is the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical." INFO 271 advises trustees to consider the following questions to ensure greenwashing does not occur:
- is your product true to label?
- have you used vague terminology?
- are your headline claims potentially misleading?
- have you explained how sustainability-related factors are incorporated into investment decisions and stewardship activities?
- have you explained your investment screening criteria? Are any of the screening criteria subject to any exceptions or qualifications?
- do you have any influence over the benchmark index for your sustainability-related product? If you do, is your level of influence accurately described?
- have you explained how you use metrics related to sustainability?
- do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved?
- is it easy for investors to locate and access relevant information?
We believe that disclosure representing a fund's ESG (environmental, social, and governance) or SRI (socially responsible investing) features and options can provide greater complexities than the usual investment and fee and costs disclosure that are often placed in PDSs. Trustees need to consider how many layers along an investment or asset chain their disclosure will cover and whether the disclosure should be on an inclusive, exclusive or combination basis. Particular terminology is also important, for example, the terms "gambling" and "gaming" (if used in a PDS, when describing an SRI option) have different meanings, with one being a subset of the other. It may also be that fund members have a better grasp of ESG or SRI terms and features than ordinary investment and fee and cost terms, and are more likely (because of their understanding) to hold a trustee to account on representations made regarding ESG and SRI.
ASIC statement: 'Relief on PDSs, superannuation dashboards and FSGs remade' (14 June 2022)
ASIC released a statement advising trustees that it has combined seven legislative instruments relating to financial disclosure and converted them into three new instruments:
- ASIC Corporations (In-use Notices for Employer-sponsored Superannuation and Superannuation Dashboards) Instrument 2022/496, which provides relief in relation to PDS in-use notices for employer-sponsored superannuation and choice product dashboard disclosure
- ASIC Corporations (Shorter PDS and Delivery of Accessible Financial Products Disclosure by Platform Operators and Superannuation Trustees) Instrument 2022/497, which provides relief in relation to shorter PDSs and PDS obligations for superannuation trustees, IDPS operators and responsible entities of IDPS-like schemes
- ASIC Corporations (Financial Services Guide Given in a Time Critical Situation) Instrument 2022/498, which provides relief in relation to the giving of Financial Services Guides in time-critical situations.
APRA publishes a new set of FAQs on the Your Future, Your Super package (15 June 2022)
APRA published new FAQs providing trustees with further guidance on administering the Government's Your Future, Your Super performance test. The new FAQs include:
- will APRA use data submitted after 15 August for the performance test?
- when will RSE licensees be notified of their annual performance test results?
- can new beneficiaries hold a product that fails the performance test for a second consecutive year?
- will APRA combine (or "stitch") history in the performance test where APRA has granted a new MySuper product authorisation on the basis of material goodwill?
APRA frequently asked questions - Superannuation Data Transformation (23 June 2022)
APRA updated one FAQ and published 12 additional FAQs as follows:
- new FAQ 550.0 r: SRF 550.0 table 2 requires modified duration reporting for all exposures where the asset class sector type is Fixed Income. Where the RSE licensee is unable to attain this information broken down for all combinations of fixed income characteristics, can the RSE Licensee report the portfolio-level modified duration for the 'Fixed Income' strategic sector?
- new FAQ 550.0 s: For table 2 of SRF 550.0 Asset Allocation, how should RSE licensees report derivatives with synthetic exposure?
- new FAQ 550.0 t: How should synthetic exposure be reported for different types of derivatives in table 1 of SRF 550.1 Investments and Currency Exposure?
- new FAQ 550.0 u: For SRF 550.0 table 2, when should an RSE licensee report an allocation to the 'Currency Exposure' strategic sector and when should an RSE licensee report currency hedged ratio for internationally domiciled strategic sectors?
- new FAQ 550.0 v: Can APRA provide guidance on the definition of 'Strategic Subsector' allocations to be reported in SRF 550.0 table 1?
- new Faq 550.0 w: For externally managed investment options, how should RSE licensees report the strategic asset allocation?
- new FAQ 550.0 x: How should APRA-look through basis be interpreted in respect of strategic asset allocation?
- new FAQ 550.0 y: Are RSE licensees required to report the information required under SRF 550.0 table 2 for each reporting period ending on or after 30 June 2021 but before 30 June 2022 in respect of investment options other than those underlying a MySuper product or trustee-directed product?
- new FAQ 705.1e: 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'?
- new FAQ 705.1 g: When is the 30 June 2022 submission of SRF 705.1 due?
- new FAQ 332.0 r: How should an RSE licensee classify an expense when considering APRA's look-through requirements?
- new General FAQ 1.23: When will APRA respond to the consultation on the SDT Phase 2 Directions Discussion Paper?
- updated historical FAQ 1.0: What data is required for the historical data collection and what are the due dates for submission of data under the SDT reporting standards?
APRA Chair Wayne Byres and Executive Director of Superannuation Suzanne Smith - Trans-Tasman Business Circle "Meet the regulators" event (23 June 2022)
APRA published a speech by its Chair, Wayne Byres, and Executive Director of Superannuation, Suzanne Smith, outlining its latest priorities across the superannuation industry. The speech made the following points:
- it is difficult for trustees to get away from the fact "that size, translating into economies of scale, helps deliver better member outcomes, and trustees that can't compete on that basis need to think very hard about how (and whether) they can deliver in their members' best financial interests, now and into the future."
- of the 220 odd underperforming options, around 120 are now closed or will soon be closed
- APRA will next release a refreshed investment governance prudential standard, updating a standard that has been in place since 2013. The refresh follows a review of unlisted asset valuation practices and transactions in the wake of COVID-inspired market volatility, which identified several areas for improvement, including how funds manage their liquidity and conduct stress testing of their investment strategy
- over the coming months, APRA will undertake a thematic review of trustees' implementation of the retirement income covenant and release the findings in due course, along with examples of better practice, to assist the industry to continue to evolve and strengthen its role in supporting their members in this phase of their superannuation journey.
It was our pleasure to host Wayne Byres, Suzanne Smith, and representatives from several superannuation funds at Holding Redlich for this event.
ASIC warns super trustees to be transparent in their underperformance communications to members (24 June 2022)
ASIC released findings from its review of superannuation trustees' performance test communications, which showed trustees generally complied with their notification legal obligations. The review also concluded that the communication strategies of some trustees may have risked confusing or misleading members about their product's performance. These "less than ideal" communications include:
- publishing the MySuper product's failure of the test on a webpage less likely to be visited by individuals interested in the product
- highlighting other performance measures that were more favourable, such as recent positive past performance figures
- criticising aspects of the test to suggest it was not relevant to the particular product.
APRA's letter to trustees: 'Defined Benefit funds: Review of amendments to the Superannuation Guarantee (Administration) Act 1992' (30 June 2022)
APRA is seeking feedback from trustees of defined benefit funds on the ongoing viability and profitability of defined benefit schemes considering the amendments made to SGAA from the Treasury Laws Amendment (Your Superannuation, Your Choice) Act 2020 (Cth). APRA requests trustees to consider the following questions when providing feedback:
- do you currently have any DB schemes that are open to new members? If so, how many?
- have any of your DB schemes closed to new members since 30 June 2020? If yes, what was the reason for closing the scheme?
- have you wound-up any DB schemes since 30 June 2020? If so, what was the reason for winding up the scheme?
- how have the amendments affected your DB scheme(s)? In particular, have the amendments affected the operation, profitability, funding and viability of your DB scheme(s)? Please provide details, including any impact on the vested benefits index (VBI) resulting from the changes
- have you taken any actions as a direct consequence of the amendments? For example, have you provided information about the amendments, and their impact, to members? If so, please provide details about these actions
- how many members of your DB scheme have opened, or moved to, non-DB products since 1 January 2021? Please provide details where you are aware these members have done so, to access choice of fund
- are there any members for whom notional contributions were made into your DB scheme under a workplace determination or enterprise agreement in circumstances not covered by ss. 20(2) to (3A)? Please provide details about the number of members affected and how many are eligible for choice of fund as a result of the amendments made by the Act
- how many of the employers of the members of your DB scheme offered choice of fund to the members as a result of the amendments? Where this has been the case, how has this choice been offered to members?
- do your fund rules permit employers to offer choice of fund on a voluntary basis? If so, have any employers offered choice of fund to any members of your DB scheme on a voluntary basis since 1 January 2021? How has this choice been offered to members?
- have any employers ceased to provide choice of fund to employees who fall within ss. 20(3A) and do they now contribute to the DB scheme in respect of those employees as a result of this amendment?
- before September 2020, were any of the employers of members of your DB scheme subject to a penalty increase in the SG shortfall under subsection 19(2B) as a result of not providing choice of fund to members of the DB scheme who would otherwise have fallen within the new s. 20(3A)?
- please provide any other information relating to the impacts of ss. 20(3A) (if any) on your DB scheme
- do you have any further comments to make about the impact of these amendments beyond those outlined above?
Submissions are due by 8 September 2022.
Prudential Standard SPS 250 Insurance in Superannuation (3 June 2022)
APRA registered Superannuation (prudential standard) determination No. 1 of 2022 (Cth) (SPS 250). SPS 250 will require trustees to:
- strengthen arrangements to protect members from potential adverse outcomes caused by conflicted life insurance arrangements. This will include robust decision-making in the negotiation and ongoing review of insurance arrangements
- obtain an independent certification of related party insurance arrangements before entering into, or materially altering, an insurance arrangement, and on a triennial basis. Rather than mandating certification for priority and privilege arrangements, APRA has responded to industry concerns by enhancing the prudential framework to emphasise that trustees must be alert to any business practices or terms and conditions in insurance arrangements that may not be in the best financial interests of beneficiaries
- strengthen data management to improve analysis of member outcomes across different groups of superannuation fund members.
Family Law (Superannuation) (Interest Rate for Adjustment Period) Determination 2022 (Cth) (Determination) (6 June 2022)
The Determination specifies the interest rate for calculating the "base amount" allocated in a court order or a superannuation agreement under the Family Law Act 1975 (Cth) for defined benefits and SMSF interest. The interest rate is now set to 0.047%.
Australian Prudential Regulation Authority Supervisory Levies Determination (Levy Determination) (28 June 2022)
The Levy Determination implements the following levies for superannuation funds for the 2022 financial year:
- restricted component of 0.00459% of assets held by the fund with a minimum restricted levy of $10,000 and a maximum restricted levy of $800,000
- unrestricted component of 0.002925% per cent of assets held by the fund.
The above levies do not apply to small APRA funds or pooled superannuation trusts.
ASIC Corporations (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 (29 June 2022)
Instrument 2022/603 provides conditional "AFS licensing relief" for trustees who publish 'retirement estimates' and 'superannuation calculators' (collectively, Superannuation Forecasts). Instrument 2022/603 consolidates previous relief arrangements, which contained ambiguities in the calculation of Superannuation Forecasts, leading to different default assumptions between superannuation calculators and retirement estimates.
Cases and other recent developments
Host-Plus Pty Limited v Blackwell SASC 59 (17 June 2022)
The Supreme Court of South Australia published its judgement granting orders to Host-Plus Pty Ltd (Host-Plus) to charge members a trustee risk fee (Risk Charge). Due to changes in SIS, the Risk Charge will ensure Host-Plus acquires enough capital to remain solvent, which the court, through evidence provided by Host-Plus, has determined is in the best financial interest of members.
Host-Plus made the application, under section 59C of the Trustee Act 1939 (SA), after amendments were made to SIS preventing all superannuation trustees and directors from being indemnified out of assets of their respective superannuation funds.
Consistent with recent judgements from trustees seeking similar relief, Justice Blue determined:
- the proposed amendments to charge a Risk Charge, to address the risk of insolvency, is clearly not caught under the scope of indemnification and, therefore, not caught by sections 56 and 57 of the SIS Act
- when proposing to introduce a new trustee fee, the best financial interests of members is to be considered, and this requires a broad interpretation of whether the trustee is "reasonably justified" in concluding the proposed amendments are in the best financial interests of members
- Host-Plus was successful in establishing the trustee fee was in
the best financial interests of members because they provided
evidence of the following considerations:
- there is a clear detriment to beneficiaries if the trustee was to go insolvent
- there has been a significant increase in the potential for, and quantum of, fines and civil penalties for contraventions of Chapter 7 of the Corporations Act
- there is a higher risk of civil penalties for contravention of the trustee covenants in sections 52 and 52A of the SIS Act
- APRA and ASIC have indicated an active enforcement agenda with respect to regulated superannuation funds post the Hayne Royal Commission
- the obligation that the power to charge a trustee fee still requires the trustee to comply with its duties under the trust deed, statute and general law
- other options and factors had been considered, including the availability and scope of insurance for the trustee and directors when permitted under law
- the reasonableness of the trustee fee proposed and cap
- the impact of members to charge a fee and how the fee may be structured to minimise impact.
ASIC sues Mercer Financial Advice for misleading customers about fees for no service and fee disclosure statement failures (30 June 2022)
ASIC has commenced civil penalty proceedings in the Federal Court against Mercer Financial Advice (Australia) Pty Ltd (Mercer) for allegedly making false or misleading representations to its customers about fees charged and services that were not provided and for failing to provide fee disclosure statements. ASIC alleges:
- Mercer contravened section 962P of the Corporations Act by continuing to charge ongoing fees to certain retail clients, despite the applicable ongoing fee arrangement with these clients having been terminated by operation of sections 962F and 962G through Mercer's failure to provide them with a fee disclosure statement
- Mercer contravened section 962S of the Corporations Act by failing to give certain retail clients a fee disclosure statement as required by that provision
- Mercer made false or misleading representations within fee disclosure statements provided to certain clients
- Mercer failed to do all things necessary to ensure that the
financial services covered by its financial services licence were
provided efficiently, honestly and fairly, in contravention of it:
- failing to have in place systems, practices and or policies capable of preventing contraventions listed above
- failing to provide certain clients with invitations to review meetings.
- as a result of the alleged contraventions above, failed to comply with financial services law.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.