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Super legislation and regulatory update

Media release - 15 March 2022

An update on super legislation and regulations.

1. Stapled super account measure commences

As covered in previous reports, from 1 November 2021, where an employee has an existing superannuation account, that account will be “stapled” and follow them when they change jobs.

Schedule 1 to the Treasury Laws Amendment (Your Future, Your Super) Act 2021 limits the creation of multiple superannuation accounts for employees who do not choose a superannuation fund when they start a new job. Under the measure, employers are required to pay superannuation contributions into their new employee’s existing superannuation account (“stapled fund”), unless the employee nominates a different account. For more information, see the ATO website.

Source: Treasurer and Minister for Superannuation, Financial Services and Digital Economy, From today “Your Super Follows You”, [joint media release], 1 November 2021, accessed 1 November 2021

2. APRA finalises guidance on managing financial risks of climate change

The Australian Prudential Regulation Authority (APRA) has released its final prudential practice guide on climate change financial risks, following consultation on the draft Prudential Practice Guide CPG 229 Climate Change Financial Risks released in April this year.

The guide is designed to assist banks, insurers and superannuation trustees to manage the financial risks of climate change. The guide imposes no new regulatory requirements or obligations but will instead assist APRA-regulated entities to manage climate-related risks and opportunities within their existing risk management and governance practices.

Source: APRA finalises prudential guidance on managing the financial risks of climate change, [media release], 26 November 2021, accessed 29 November 2021.

3. Review of AFCA operations — final report and government response

The government has released the final report on the review of the Australian Financial Complaints Authority (AFCA), as well as its response to the review.

AFCA’s establishment, in November 2018, was a significant overhaul of the Australian financial services dispute resolution framework. This Review has provided an opportunity to seek feedback on AFCA’s operation in its establishment phase, and to consider whether changes can be made to ensure the scheme is appropriately calibrated and operating effectively within the existing framework, rather than reopening AFCA’s fundamental settings.

The Review considered submissions received from current and former complainants, financial firms, consumer advocacy organisations, industry bodies and others, as well as detailed data on AFCA’s operations. The Review also included an independent expert assessment of selected case studies.

The overall finding of the Review is that AFCA is performing well in a difficult operating environment and a changing regulatory landscape. It has successfully brought together the 3 predecessor schemes – the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT) – to produce an effective dispute resolution service for consumers and small businesses. While this is an endorsement of its performance in its establishment phase, AFCA will need to continue to develop and improve its processes as it consolidates its place in the financial system.

Sources: Review of the Australian Financial Complaints Authority - Final Report and Government response to the Review of the Australian Financial Complaints Authority, Treasury website, 24 November 2021, accessed 25 November 2021.

4. APRA seeks feedback on super trustee financial strength

APRA is seeking information from superannuation trustees on their plans to maintain financial strength to best protect members’ financial interests.

APRA has issued the Strengthening Financial Resilience in Superannuation discussion paper through which it seeks feedback on current approaches to the management of financial resources, the role and use of the operational risk financial requirement (ORFR), reserving practices, and protections afforded to RSE licensees via insurance, and how these practices might need to adapt over time.

APRA welcomes feedback from all super industry stakeholders. Submissions close 11 March 2022.

The discussion paper is available on the APRA website.

Sources: APRA seeks answers on superannuation trustee financial resilience, [media release], 19 November 2021, accessed 19 November 2021, and Strengthening Financial Resilience in Superannuation, discussion paper, November 2021, accessed 19 November 2021.

5. ASIC consults on proposed updates to relief for superannuation calculators and retirement estimates

ASIC has released Consultation Paper 351 Superannuation forecasts: Update to superannuation calculators and estimates relief (CP 351) on the proposed updates to relief and guidance on superannuation calculators and retirement estimates.

Superannuation calculators and retirement estimates are forecasting tools that assist members in reviewing their financial situation and seeking further information or financial advice. ASIC currently exempts trustees and other providers of forecasting tools from certain licensing and disclosure requirements associated with providing personal financial advice.

CP 351 proposes to:

  • continue providing relief from personal financial advice requirements to providers of forecasting tools
  • combine relief for superannuation calculators and retirement estimates into a single legislative instrument and adopt a single framework for setting economic and financial assumptions
  • prescribe standard default assumptions for retirement ages and inflation rates for forecasting tools, and
  • give greater flexibility to trustees to tailor forecasts based on their members’ investment strategies.

Submissions to CP 351 are due by 28 January 2022. ASIC intends to publish the updated instruments and guidance before the existing relief in ASIC Class Order [CO 11/1227] sunsets on 1 April 2022.

Source: ASIC, 21-309MR ASIC consults on updates to relief for superannuation calculators and retirement estimates, [media release], 18 November 2021, accessed 18 November 2021.

6. APRA finalises requirements and guidance on insurance in superannuation

APRA has finalised revisions to requirements and guidance relating to insurance in superannuation following industry consultation over 2 years.

The final revisions to Prudential Standard SPS 250 Insurance in Superannuation (SPS 250) and the accompanying Prudential Practice Guide SPG 250 Insurance in Superannuation (SPG 250) are aimed at ensuring better member outcomes through updated requirements for trustees to select, manage and monitor members’ insurance arrangements.

APRA’s response paper confirms that 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; and
  • strengthen data management to improve analysis of member outcomes across different groups of superannuation fund members.

Further, enhanced prudential guidance in SPG 250 will facilitate easy opt-out of insurance for members and ensure premiums do not unduly erode members’ retirement incomes. The enhancements to SPS 250 will commence on 1 July 2022.

The completion of this work fulfils recommendations 4.14 and 4.15 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. APRA has now finalised its response to all 10 recommendations directed to it by the Royal Commission in 2019.

Source: APRA releases finalised prudential framework for insurance in superannuation, [media release], APRA website, 12 November 2021, accessed 12 November 2021.

7. Regulations on portfolio holdings disclosure by superannuation funds made

Regulations dealing with portfolio holdings disclosure by superannuation funds have been made that require superannuation funds to disclose information about the identity, value and weightings of their investments.

The Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021 support the portfolio holdings disclosure regime by prescribing the manner in which information provided under the portfolio holdings disclosure regime must be organised.

The regulations detail the way information regarding the registrable superannuation entities (RSE’s) portfolio holdings that must be made publicly available is to be organised. However, in addition to these prescribed disclosures, superannuation trustees may provide supplementary information regarding the portfolio holdings of the RSE’s products in a separate public disclosure.

As a result, members will be able to clearly see how much of their retirement savings are being invested by superannuation funds across a range of asset classes and derivatives.

Australian Retirement Trust’s Asset Holdings at 30 June 2021 can be found here.

Source: Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021, (Legislative Instrument F2021L01531), Federal Register of Legislation website, 11 November 2021, accessed 12 November 2021.

8. APRA issues new FAQs on Your Future, Your Super Performance Test

APRA has issued 2 new frequently asked questions (FAQs) to provide general and technical guidance to registrable superannuation entity licensees on the government’s Your Future, Your Super performance test.

The new FAQs provide information on:

  • APRA’s intention to publish the 2020–21 performance test values for each MySuper product, and
  • the benchmark representative administration fees and expenses (RAFE) used for the 2020–21 performance test.

The FAQs are available on the APRA website.

Source: APRA, APRA publishes new frequently asked questions on Your Future, Your Super performance test, [media release], 3 November 2021, accessed 3 November 2021.

9. SG increase – 1 July 2022

The Superannuation Guarantee (SG) is scheduled to increase from 10% p.a. to 10.5% p.a. from 1 July 2022. It's then due to rise by 0.5% each financial year until it reaches 12% p.a. by 1 July 2025.

To ensure they meet their super obligations, employers are required to make the minimum superannuation contributions for their employees. How they are required to do that depends on the type of employment arrangements that were agreed with the employee.

Here are three possible scenarios:

  • Salary plus super – the employer will be required to pay the increase in super on top of the employee’s salary, resulting in higher payments by the employer.
  • Salary plus a specified percentage of super (above the minimum) – the employer may need to update the employment contract to reflect the new minimum SG rate, which is included in the total super percentage. As the employer is already paying above the minimum contribution rate, there is no impact to the employer.
  • Total salary including super – known as Total Employee Cost (TEC) salary or Total Remuneration Package (TRP), this contract includes both salary and superannuation contributions. This means the employer can decrease the employee’s take home pay as a portion of the overall package, effectively making the employee absorb the increase in the SG rate through lower take home pay. If your employees are employed under this form of contract, it’s important to notify them of the impact to their take home pay before 1 July 2022 to avoid any confusion or distress.