SR4 2017

VOLUME 31 - ISSUE 4

AUGUST 2017

S:

W NE AUSTRALIA’S LEADING SUPERANNUATION MAGAZINE WWW.SUPERREVIEW.COM.AU

+ Necessary or just regulation?

P4

+ Insurance in super should be redesigned P6

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Editorial: When push comes to shove with APRA | p11

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Insurance code needs teeth | p20

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CONTENTS 19

22 24 IN THIS ISSUE News | p3-10 Editorial | p11 Platforms and wraps | p12-14 Super Fund of the Year | p16-17 Fees | p18 Insurance | p19 Insurance code | p20-21 Fraud | p22-23 Regulation | p24-26 Appointments | p27 Rollover | p28 2 | SuperReview | AUGUST 2017 | www.superreview.com.au

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NEWS

Fund returns make flat start to 2017/18

BY MIKE TAYLOR

Industry funds and retail funds returns started the new financial year neck and neck, according to the latest data released by Chant West.

The data revealed that super fund returns were fl at over July with the median growth fund providing a zero return.

This meant that retail and industry funds fi nished equal, but Chant West noted that industry funds continued to hold the advantage over the medium and longer term, ahead by between 0.9 per cent and 1.6 per cent a year.

Looking at July, the Chant West analysis said listed shares, which were the main drivers of growth fund performance, produced mixed results over the month with Australian shares and international

equities up 1.5 per cent on a hedged basis but undermined by the appreciation of the Australian.

It said listed property was also mixed, with Australian real estate investment trusts (REITs) down 0.2 per cent and global REITs up 0.9 per cent.

Commenting on the results, Chant West director, Warren Chant said the fl at return in July had come as no surprise.

“While the economic outlook is looking much better than it did this time last year, investment markets have had a surprisingly good run and were set for a pause,” he said.

“We said a year ago that many asset sectors were close to being fully valued, and after a further run-up in prices it’s even harder now to identify undervalued assets that will deliver solid real returns. That’s going to be a serious challenge for super funds.”

Employers should report SG in more detail, more often Employers, including small businesses, should be made to report more detailed superannuation guarantee (SG) information to the Australian Taxation Office (ATO) more frequently, according to the Australian Institute of Superannuation Trustees (AIST).

The industry funds organisation has argued that such an upgrading in the process will help defeat problems with the black economy and overcome SG non-payment issues.

In a submission to the Federal Government’s black economy taskforce, the AIST pointed to a range of measures already recommended by the Superannuation Guarantee CrossAgency Working Group and said such measures would have its backing.

It noted that the working group considered that Single Touch Payroll (STP) should be extended to businesses with 19 or fewer employees as soon as practicable on the basis that this would ensure that the ATO received regular and accurate information on superannuation guarantee obligations from all employers.

The AIST also noted that the working group considered that superannuation funds should report more information more frequently to the ATO on the superannuation guarantee contributions received from employers – something that was capable of implementation by 1 July, next year.

“AIST strongly supports these recommendations from the working group, and recommends that they be endorsed and promoted by the taskforce,” the AIST submission said.

The submission said that while the AIST saw merits in a New Payment Platform (NPP) and its potential to allow users to verify ABN details and reduce the scope for fraud, it believed the ongoing development of SuperStream, the Superannuation Transaction Network, STP and the new reporting arrangements would be the most effective way of increasing superannuation compliance by employers.

“SuperStream has resulted in the significantly faster and more visible processing and allocation of transactions to members accounts, with the new arrangements for reporting superannuation contributions to the ATO meaning that these will be reported to the ATO in ‘near real time’ from next year,” it said.

Tax office dismisses false assertions on STP The Australian Taxation Office (ATO) has sought to hit back at Industry Super Australia (ISA) claims alleging that employees will be denied appropriate choice as a result of the implementation of Single Touch Payroll (STP) arrangements.

Less than 24 hours after a statement issued by ISA chief executive, David Whiteley, the ATO acknowledged the commentary and issued a point by point denial of his and other assertions regarding the new system.

“As the government agency leading the implementation and administration of the Single Touch Payroll, the ATO would like to clarify some misleading assertions made in this commentary,” the ATO said before outlining each assertion and then responding: Assertion: New employees may be ‘pressed’ to use the online employee commencement form to choose a super fund.

Incorrect. The online service is optional. Employees can choose to use existing paper processes to provide their Tax File Number declaration and choice of super fund. This is confirmed in the Explanatory Memorandum to the Budget Savings (Omnibus) Bill 2016.

Assertion: The changes to employee commencement processes have come without Parliamentary scrutiny.

Incorrect. The ATO implements government policy and develops implementation arrangements based on the law. The Budget Savings (Omnibus) Act 2016 was passed by Parliament on 16 September 2016. The Explanatory Memorandum states there would be no

change to an employee’s ability to make a choice of super fund and no change to an employer’s responsibility to provide information as required about super choice.

Assertion: New employees could be pushed into nominating a super fund without enough information, and without the reassurance of a default safety net.

Incorrect. current safeguards still apply regarding default super funds.

Where no choice is made, entitlements are paid to the employer’s default fund.

New employees starting their first job can choose the employer’s default fund through the online form. Other super accounts are not displayed until the member has separately opened a new account with a fund.

Assertion: Employee commencement forms fail to allow for account consolidation.

Incorrect. Once an employee has successfully entered the information to be sent to their new employer, they are prompted to view and consolidate any existing accounts.

Assertion: Single Touch Payroll will be mandatory for businesses with 20 or more employees from 1 July 2018.

Correct. However, the online employee commencement forms are optional for both the employer and the employee.

Assertion: The streamlined employee commencement process is designed to register and track business hiring new employees.

Incorrect. The ATO is seeking to provide a more streamlined experience for employers and employees. It is not about ‘tracking’ businesses.

www.superreview.com.au | AUGUST 2017 | SuperReview | 3

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17/08/2017 2:53 PM

NEWS

Necessary or just more regulation?

BY MIKE TAYLOR

The Federal Government needs to produce a regulatory impact statement on its latest round of legislative changes including the annual outcomes test because it risks imposing a fresh layer of compliance, according to the Association of Superannuation Funds Australia (ASFA).

Not only has ASFA complained about the regulatory impacts of the legislative changes but the short timeframe the industry has been given to respond.

“The superannuation system requires a strong regulatory framework and regulators should have appropriate powers and instruments to ensure that the

Net returns vital to outcomes says AIST Another key superannuation body has raised serious questions about the Government’s proposed ‘outcomes’ test, warning that it risks diluting the vital role of net investment returns in delivering optimal retirement outcomes for superannuation consumers.

The Australian Institute of Superannuation Trustees (AIST) has used a submission to the Treasury responding to the Government’s draft legislation to claim that it did not give sufficient weight to net returns.

AIST chief executive, Eva Scheerlinck noted that the outcomes test would require trustees of regulated superannuation funds to consider the appropriateness and quality of their MySuper product offering on an annual basis.

“Trustees will be required to assess whether the outcomes being delivered by their MySuper products are promoting the fi nancial interests of their MySuper members,” she said.

“What really matters to members is the amount of super they receive when they

retire,” Scheerlinck said. “Net returns must be the number one consideration for any outcomes assessment.”

The AIST chief executive said that rather than the Government’s proposed outcomes test which gives equal weighting to a range of criteria, AIST had recommended a two-tiered process that gave net returns precedence over other criteria, such as services provided and facilities offered.

The AIST submission had also called for the assessment – that is currently limited to MySuper options – to apply across all sectors of the industry.

“Choice investment options have more money invested in them than MySuper, yet on average they underperform and cost more,” Scheerlinck said.

“In a compulsory super system, best practice and standards should be delivered for all super consumers.”

Similarly, AIST argues that proposed enhancements to the Australian Prudential Regulation Authority’s (APRA’s) direction powers and its penalty regime should apply to the Choice sector as well.

system is stable, efficient and delivers on its objectives,” the ASFA submission said. “However, the system is already subject to significant regulatory obligations and oversight and there must be a clear justification for extensions such as those proposed in the bill.”

The submission said that such justifications should include an assessment of the impacts and costs of additional obligations on superannuation fund operations and member outcomes.

“Given the bill will have a major regulatory impact on both industry and consumers if legislated, a regulation impact statement is essential to demonstrate due consideration of these elements,” it said.

The submission said ASFA was particularly concerned about the impact of a number of the proposals on the regulatory and reporting burden for superannuation funds and, in particular, the operation of the annual outcomes test and its potential to add a fresh layer of compliance and reporting for trustees.

It also pointed to the impact of the logistics of the annual members’ meeting on superannuation fund costs and resources and whether the proposed director penalties had adequate protections together with the breadth of the proposed APRA directions powers and whether they could be more precise.

CBA to pay at least $32m in remediation actions

BY JASSMYN GOH

The Commonwealth Bank (CBA) is looking to pay at least $32,286,000 for customer and employee review and remediation actions.

In an update on its reviews on products and processes, CBA said while these actions were key milestones, it was not an exhaustive list of all regulatory matters.

CBA reviewed superannuation payments to its part-time employees working additional hours at single-time rates, and all employees and all types of payments going back eight years.

“The first tranche, which will commence shortly, is estimated to be $16.7 million plus interest, equating to an average amount per employee of approximately $463 plus interest. The expected total payments and program costs have been conservatively provided for in previous financial years,” CBA said.

In terms of the sale of Essential Super, the bank said it was in discussions with the corporate regulator after it expressed concern that some customers might have been given personal advice rather than general advice during the sale.

On deceased estates, the Australian Securities and investments Commission (ASIC) was notified on 14 August 2017 about an issue affecting some insurance products, where for a number of accounts, a confirmation of the cancellation of an existing insurance policy may not have been sent to the deceased estate.

CBA said it expected that the number of customers to be affected would be below 1,000.

The bank is also looking to refund approximately $10 million, including interest, for around 65,000 customers who purchased Credit Card Plus insurance who may not have met the employment criteria, meaning if the need arose they may not have been able to receive certain benefits under the policy. The average refund would be approximately $154 including interest.

“These customers remain eligible for various benefits of Credit Card Plus insurance such as death and terminal illness, but may not have been eligible to receive benefits for involuntary unemployment, temporary and permanent disability. It was not intentionally sold to customers who were not eligible,” CBA said.

Another $586,000 will be refunded to approximately 9,600 customers, with an average refund of $61 including interest, for those who purchased home loan protection insurance and had been charged an incorrect premium amount or had incurred premium charges before the home loan was drawn down.

CBA also said it would be refunding approximately $5 million including interest, for around 355,000 customers for charges on disputed card transactions. Each customer will receive an average refund of approximately $14 including interest.

“In July 2017, we proactively notified ASIC that when refunding disputed transactions on customers’ cards, while the transaction itself was correctly reversed, certain charges associated with the disputed transactions were not always correctly adjusted,” CBA said.

4 | SuperReview | AUGUST 2017 | www.superreview.com.au

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14/08/2017 9:26 AM

NEWS

Insurance in super should be redesigned

BY JASSMYN GOH

Superannuation funds could address potential affordability concerns by designing insurance products that are closer to the financial needs of members, Rice Warner believes.

The research house’s latest analysis said life insurance should remain an integral part of the super system and could be redesigned to fi t more around member characteristics such as age and family type. “…we could shift the default sum insured to one based on needs – all without changing the premium or getting any additional information from members.

Generally, insurance needs grow with the number of dependants in a family.” the analysis said.

“We would simply assess the amount of the claim based on the dependants at the time of death.”

Rice Warner made these suggestions in response to criticisms surrounding life insurance and claims, members having too much insurance, over-insurance of young members, and expensive cover at older ages that eroded retirement balances.

It noted that while the key industry bodies formed the Insurance in Superannuation Working Group (ISWG) that set out to address those issues and had set out the objective of insurance in super, outside the life insurance and super industries there was not the same support.

“The Financial System Inquiry recommended that there be an overall objective for the superannuation system, and it also listed some ancillary objectives. Everything made sense – but there was nothing about insurance!” the analysis said.

While Rice Warner said the industry had begun to respond to the questions that were being raised with funds looking at developing practical solutions to the problems, it said progress was unlikely to be quick as typical insurance contracts were for three years.

“Funds will likely have to wait until they can renegotiate. By then, we expect that any further pressure applied either via government or the media will already have prompted change without the need for further legislation,” it said.

Proposed death cover amounts by age and family type ($) Age

20

30

40

50

Average Default death cover

120 000

218 000

179 000

84 000

Proposed default Single

42 000

39 000

25 000

15 000

Married

316 000

252 000

132 000

71 000

Married +1 child

633 000

501 000

268 000

116 000

Married +2 child

681 000

544 000

292 000

124 000

Source: Rice Warner

Broad agreement that FHSSS breaches sole purpose test

BY MIKE TAYLOR

The Federal Government has been confronted by a broad cross-section of the financial services industry which believes its First Home Super Saver Scheme (FHSSS) is not compliant with the sole purpose test and therefore breaches the Superannuation Industry (Supervision) Act. Submissions to the Treasury dealing with the FHSSS initiative announced in the Federal Budget revealed that not only the industry funds believe the Budget initiative is a breach, but also groups such as the Financial Planning Association (FPA).

Industry Super Australia (ISA) used its submission to state the scheme was “inadequate in addressing the issue of affordability amongst fi rst-home buyers” and was “likely to be counterproductive in that it could make housing less affordable”. “[The scheme] certainly sets a dangerous precedent of drawing upon superannuation savings for purposes other than retirement income,” the ISA submission said. “The scheme is inconsistent with the Sole Purpose Test (Section 62 of the SIS Act 1993) and with the Government’s own Superannuation (Objective) Bill 2016.”

“The scheme would deliver lower savings compared with a post-tax contribution towards a deposit account, partly due to the super contributions tax,” the submission said. “The salary sacrifice contribution would be further reduced by the tax paid on withdrawal (despite the 30 per cent offset). “ It also noted that the scheme sought to “guarantee” returns through the use of the shortfall interest charge to calculate earnings rather than actual returns and warned that this mechanism would require superannuation trustees to pay withdrawals from using superannuation guarantee assets if returns are low.

“Based on historical analysis more than half of savers would have their superannuation guarantee [SG] assets eroded due to scheme design,” it said.

Dealing with the home-owner downsizing proposals in the Budget, the ISA submission said it would only benefi t wealth self-funded retirees.

“This does nothing to reduce other downsizing costs like stamp duty. Retirees relying on the age pension may see their entitlements decline as any gains from downsizing will not be exempt from pension asset test,” it said.

Don’t blame super funds for downsizer breaches says ASFA Superannuation funds should not be held accountable for member breaches resulting from the Government’s home downsizer Budget measure, according to the Association of Superannuation Funds of Australia (ASFA).

ASFA has used its submission to the Treasury responding to the legislative proposals intended to underpin the Budget measures to state that its members had “expressed a strong concern” about elements of the legislation which would see super funds held responsible for breaches by members utilising the downsizing regime.

The draft legislation states that it is “expected that if an [Australian Prudential Regulation Authority] APRA-regulated superannuation provider is aware that a downsizer contribution that it received does not meet the definition of a downsizer contribution in section 292-102, it must report this as a serious breach on its breach register”.

The ASFA submission stated: “Superannuation providers feel strongly that – as this would not represent a breach on the part of the fund itself, but instead would represent a breach of the regulatory requirements by the member – funds should not be liable to record this as a breach”.

The submission pointed out that a superannuation fund did not have access to the necessary information to determine the eligibility of the contribution and, accordingly, was only in a position to accept a contribution on the basis of a member’s self-assessment/declaration.

“Provided the member has used the approved form the fund should not be held accountable/responsible for any error, omission or deception on the part of the member and it should not be considered to be a breach by the fund,” the ASFA submission said.

6 | SuperReview | AUGUST 2017 | www.superreview.com.au

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16/08/2017 5:02 PM

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www.superreview.com.au | AUGUST 2017 | SuperReview | 7

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14/08/2017 9:39 AM

NEWS

ISWG must give code teeth says lawyer

BY MIKE TAYLOR

The Insurance in Superannuation Working Group (ISWG) is unlikely to go far enough in implementing the strong code of conduct badly needed by the superannuation industry, according to Maurice Blackburn Lawyers principal, Kim Shaw.

In a column published in this edition of Super Review (page 20), Shaw welcomed the Government’s examination of opt-out life insurance in superannuation but said addressing the erosion of retirement funds was only one part of the challenge.

She has urged that any code of conduct around insurance in superannuation should be approved by the Australian Securities and Investments Commission (ASIC).

“A critical component in this fi x must be the implementation of an enforceable and rigorous code of conduct,” she said. “The industry believes it has ticked the box on the development of a code, after the Financial Services Council [FSC] released a life insurance code of

Delivering to members key to superannuation scale The ability of superannuation funds to continuing investing in and developing new products and services for members should remain a key determinant of scale, according to major consulting group, KPMG. In a column published in this edition of Super Review (page 24), KPMG Superannuation Advisory partner, Adam Gee has pointed to the significant new powers being handed to the Australian Prudential Regulation Authority (APRA) and the changes to the ‘scale test’ to an ‘outcomes test’.

He said the changes would mean that some funds which were relatively ‘creative’ in justifying scale would “fi nd the specificity of the new outcomes test a challenge, to say the least, with the regulator looking on”.

“Whilst more detail is still required in terms of measurement periods and benchmarking approaches, the new guidance should serve as a wake-up call for some potentially sub-scale funds to consider their ongoing sustainability, particularly in light of clarifi ed obligations to act in the best interests of

their members,” Gee said.

He said KPMG would have liked to see a greater focus on operating cost metrics for superannuation funds as a key tenet of the new outcomes test.

“We continue to believe that a fund’s capacity to continue to invest in, and develop, new products and services for their members remains a key determinant of a fund’s scale and the outcomes a fund can deliver to its members,” Gee said.

“We also note that the proposed legislation provides material additional powers to APRA to intervene at any earlier stage where it has prudential concerns surrounding the actions of a trustee,” he said. “This is substantially different to the powers APRA has in relation to the superannuation industry and in line with their powers in relation to the banking and insurance industry.”

“Either way, this should once again put trustees on notice and suggests that APRA will be far more intrusive in overseeing superannuation fund operations going forward.”

practice last year. That same code is now under consideration to be extended to superannuation funds, as part of the Insurance in Super Working Group [ISWG] process.”

“While this may sound like progress, the truth is that the industry is still nowhere near close to the implementation of the strong code of conduct that is so badly needed if the industry is to be properly reformed as a whole.”

Shaw said a rigorous and enforceable code of conduct should have teeth, with its focus being to put the genuine interests of consumers first.

“It must cover the entirety of the industry and be inclusive of third parties acting on behalf of fund members, including lawyers, financial counsellors and advisers.” she said.

“The FSC code however has all the bite of a month-old lettuce – a narrow restatement of the current law that is voluntary, has not been approved by ASIC, has had little buy-in across other stakeholders, has no formal oversight and crucially, would do little to prevent the many scandals that continue to be exposed within the industry. “

Shaw said that with the formation of the ISWG came the hope that the FSC code would be given a rigorous overhaul, with the ISWG noting that a code for super funds was a ‘key deliverable’.

“To date however it seems that all the ISWG is prepared to implement is an extension of the existing FSC code, focussed largely on claims handling without addressing the pressing need for any code to also ensure consistency in definitions and process, including real remedies and sanctions for those who fall short,” she said.

“Indeed, the Association of Superannuation Funds of Australia (ASFA), a major player in the ISWG process, has argued only recently in a submission that it is concerned about any role for ASIC with respect to approval and monitoring of codes – ludicrously seeking to state that such enforcement will add to the regulatory burden and not lead to better consumer outcomes.”

“In short, they all appear to be heading towards the FSC tool kit, opting only for a weak extension of an already weak regime,” Shaw said.

ASIC disqualifies SMSF auditor

BY JASSMYN GOH

The corporate regulator has disqualified Ross Russo from being an approved self-managed superannuation fund (SMSF) auditor after he was found to have breached fundamental independence and audit requirements.

The Australian Securities and Investments Commission (ASIC) was referred to Russo from the Australian Taxation Office (ATO) under section 128P of the Superannuation Industry (Supervision) Act 1993 (the SIS Act).

ASIC found that Russo had breached: • Auditor independence requirements of APES 110 Code of Ethics for Professional Accountants, where he audited the fund of a close family member; and • Audit evidence requirements of Australian auditing standards.

ASIC commissioner John Price said: “SMSF auditors play a fundamental role in promoting confidence in the SMSF sector so it is crucial that they adhere to ethical and professional standards”.

“ASIC will continue to take action where the conduct of SMSF auditors is inadequate,” he said.

8 | SuperReview | AUGUST 2017 | www.superreview.com.au

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16/08/2017 4:38 PM

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16/08/2017 8:55 AM

NEWS

Delay online choice form: AIST

BY HOPE WILLIAM-SMITH

The Australian Institute of Superannuation Trustees (AIST) is calling for crucial consumer protection issues to be addressed before the implementation of the proposed Australian Taxation Office (ATO) online choice form in a submission to the tax body.

AIST senior policy manager David Haynes said there was no conclusive evidence to suggest consumer protection would protect members, despite the benefi ts of the ATO’s proposed implementation of a digitalmodel form.

In a call for near real-time information on balances, contributions, insurance and government MySuper status, Haynes said the implementation ran the risk of misleading members.

“If implemented under the proposed model, the form will remove important

Super funds ignoring climate change risk legal action

BY JASSMYN GOH

Most (82 per cent) of the country’s largest superannuation funds have provided inadequate or no tangible evidence they have considered climate risk in their investment portfolios, according to Market Forces.

Market Forces analyst, Daniel Gocher, said Australian regulators had made it clear that super funds needed to assess climate risk.

“Since this has largely fallen on deaf ears, it’s no surprise that trustees now find themselves open to legal action for a dereliction of basic fiduciary duty,” he said. “…It is extraordinary that more than 80 per cent of Australia’s super funds have still failed to disclose how they are managing an issue that APRA [Australian Prudential Regulation Authority] has singled out as an immediate, material, fi nancial risk.”

The fi rm commissioned a memorandum of opinion from Noel Hutley SC and James Mack seeing the breadth of super fund trustees duties and climate risk. The memorandum said the failure by super funds put trustee directors “at risk of breaching their duty to members, and as such, vulnerable to legal action”.

“Billions of dollars of Australian retirement savings are at stake from the physical and transition risks of climate change. The funds that are considering

climate risk would be doing right by their members to disclose it,” Gocher said.

“As for the funds that are ignoring climate risk – if the warning signs from regulators haven’t jolted trustees into action, perhaps the realisation of legal liability will.”

Market Forces’ latest analysis also found that: • 60 funds disclosed no tangible evidence they had considered the impact of climate risk on their investment portfolios; these funds were responsible for over $393 billion or 29.2 per cent of all large superannuation fund assets and 8.8 million member accounts; • 22 funds disclosed inadequate evidence they had considered climate risk ($306 billion or 22.8 per cent of large superannuation fund assets and 5.2 million member accounts); • 18 funds disclosed adequate evidence that they had considered climate risk ($646 billion or 48 per cent of large superannuation fund assets and 12.4 million member accounts); and • Just eight funds provided regular updates or research to members on climate risk; even those funds that provided ‘adequate’ disclosure published limited regular updates or company/investment specific information.

existing consumer protections and potentially display incomplete, out-ofdate and misleading information to members,” he said.

To combat concern, Haynes called for a July 2019 push-back release of the digital form with higher frequency of reporting on superannuation contributions, and at the discretion of stakeholders after the commencement of more transparent discussions on appropriate plans for the release.

Additional concern was also expressed by AIST over the removal of the need to list employers’ default fund by name on the digital form.

“The name of the default fund is pre-populated on the existing paper-based choice form. Removing this function is a step backward for disclosure,” Haynes said.

“Many super fund members do not actively choose their super fund.”

First Home Super Saver Scheme breaches sole purpose test: AIST

BY MIKE TAYLOR

The Federal Government’s First Home Super Saver Scheme (FHSSS) is not consistent with the Superannuation Industry (Supervision) Act (SIS Act) sole purpose test, according to the Australian Institute of Superannuation Trustees (AIST).

In its submission to the Treasury dealing with the FHSSS Budget measure, the AIST said it had a number of “significant reservations” about the measure, not least of which being breaching the sole purpose test.

“The sole purpose test generally requires that superannuation funds be required to maintain benefits for members’ retirement, or for insurance related purposes,” it said. “The FHSSS is not consistent with this objective, nor is it consistent with the bill (currently before Parliament) which proposes to enshrine an objective of superannuation. The objective will see super’s purpose explicitly stated to provide income in retirement.”

“The use of a superannuation fund for a deposit on a first home does not satisfy either of these. The FHSSS will see superannuation funds needing to change their operations to accommodate money that is not intended to be used in retirement,” the submission said.

It said the issues around accommodating such monies were many, and appeared to provide a far more complex solution for first home savers than methods employed previously, most notably the First Home Saver Accounts scheme.

“AIST has supported a version of the objective which ensures adequacy in relation to the retirement income. We believe that given the possibility that in periods of low returns, amounts from mandated contributions will be available as First Home Super Saver amounts, this could also reduce retirement incomes for Australians,” the submission said.

“We also note that there appears to be little discussion of equity issues related to this measure. In particular, we note that members drawing money out for a home loan are taxed far more leniently than an equivalent member taking a financial hardship amount.”

“Finally, we consider that that the impact on housing affordability or administration issues associated with this measure does not appear to have been subject to a cost-benefit analysis,” the submission said.

10 | SuperReview | AUGUST 2017 | www.superreview.com.au

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EDITORIAL

When push comes to shove with APRA

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The Australian Prudential Regulation Authority needs to be careful that its handling of the so-called ‘outcomes test’ does not escalate from a push to a shove.

here is much to be said for the Australian Prudential Regulation Authority’s (APRA’s) proposed changes to the superannuation prudential framework to lift operational governance practices of APRA-regulated superannuation trustees, specifically the changes to the so-called ‘outcomes test’.

However, APRA would be going much too far if it sought to use those changes as a mechanism via which to drive further consolidation of the superannuation industry; effectively forcing mid-scale funds into merger discussions with larger entities.

APRA deputy chair, Helen Rowell should be well aware of the widely differing views in the superannuation industry about whether scale actually drives better outcomes for fund members, with plenty of examples of mid-scale funds which consistently outperform their larger peers in terms of both investment returns and services. She would also be well aware of mid-size funds which serve particular industries and callings which require highly specific insurance needs.

It is in these circumstances that APRA will need to ensure it does not seek to over-reach itself in making assessments of superannuation funds, particularly those which fall on the cusp in terms of scale, service and returns.

Rowell’s August letter to superannuation funds outlining the regulator’s approach needs to be read in the context of comments she made to July’s Financial Services Council (FSC) Leader’s Forum where she seemed to make clear that APRA believed that some superannuation fund trustees and executives were not

FE Money Management Pty Ltd ACN 618 558 295 Level 11 4 Martin Place, Sydney, 2000 www.financialexpress.net PUBLISHING EXECUTIVE Managing Director: Mika-John Southworth M: 0455 553 775 E: mika-john.southworth@moneymanagement.com.au

“It is in these circumstances that APRA will need to ensure it does not seek to over-reach itself in making assessments of superannuation funds, particularly those which fall on the cusp in terms of scale, service and returns.” being objective enough in assessing the outcomes they were delivering to members.

She said APRA had long recommended that registrable superannuation entity (RSE) licensees adopt a broad ‘member outcomes’ perspective in assessing the outcomes of their business operations for all beneficiaries, noting that “beneficiaries of all products provided by an RSE licensee, not just MySuper products, are entitled to have confidence that the RSE licensee is continuing to deliver quality, value for money outcomes in their best interests”. “…to this end, APRA intends to consult on a proposal to require all RSE licensees to regularly assess whether the RSE licensee has provided, and is likely to continue to provide, quality, value for money outcomes for beneficiaries in all of its RSEs and products. The proposed assessment would include consideration of net investment returns, expenses and costs, insurance,

and other benefits and services provided.”

In other words, superannuation funds are going to be assessed across a range of metrics and are going to be asked some difficult questions if, in APRA’s assessment, they are not living up to their members’ expectations.

The question is, of course, whether those within APRA are suitably qualified to make those objective assessments and whether such assessments can be uniformly applied across the diversity of funds which inhabit the APRA-regulated universe.

Indeed, it is arguable that a mega-fund such as AustralianSuper is just as capable of failing on one or two metrics as a mid-size fund such as LegalSuper and this begs the question of whether the regulator would then treat them equally.

While APRA should quite rightly nudge superannuation funds in the right direction, that nudge should not be allowed to become a compelling push.

EDITORIAL

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www.superreview.com.au | AUGUST 2017 | SuperReview | 11

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PLATFORMS AND WRAPS

Technology, platforms are key to post-retirement product delivery

As the consultation process around the delivery of comprehensive income products in retirement continues, Mike Taylor writes that a number of superannuation funds have already started to leverage technology and platforms to deliver options to their members.

S

uperannuation funds identified the value of delivering post-retirement solutions to members more than a decade ago and product design combined with improved technology and changes to the regulatory settings are making this more possible.

The commercial reality of the emerging post-retirement opportunities for superannuation funds was driven home in early August when Challenger Limited revealed in its full-year results the degree to which its annuities

products were being distributed to superannuation fund members.

Those results revealed that at least three industry superannuation funds are currently delivering annuities-based post-retirement products to members via their administrator in what is being seen as just the start of a major trend as the Government removes many of the legislative and regulatory barriers which have inhibited the delivery of retirement products.

Challenger’s full-year results announcement to the Australian Securities Exchange (ASX) confi rmed

that it had grown its annuities sales for the 2017 fi nancial year by 20 per cent to a record $4 billion and that this had been achieved not only via its astute use of distribution channels including platforms such as AMP, BT, and Colonial First State (CFS) but also the delivery mechanism provided by dominant superannuation administrator, Link.

The importance of the delivery of annuities via Link is that it represents proof that such products can be delivered via an administration platform in similar fashion to the manner

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PLATFORMS AND WRAPS

in which the AMP, Colonial First State, and BT platforms have provided delivery to fi nancial planners.

While the delivery of managed accounts was seen as a driver for platform growth over the past five years, the delivery of post-retirement solutions is seen as the next growth driver, something which has been acknowledged by AMP Limited’s director, superannuation, retirement and investments, Vicki Doyle.

Doyle has pointed to the development work undertaken on AMP’s North platform as evidence of its recognition of the need to deliver to clients entering the post-retirement phase.

“We’re continuing to invest in developing post-retirement solutions to help our customers receive income streams that take into account longevity risk,” she said. “Critically, we’re also working hard to engage more Australians with their superannuation during their working lives so they are better placed to live the quality of life in retirement they aspire to.”

Doyle said AMP was utilising a goalsbased approach to do this given the powerful emotional and practical connection they created for customers with their finances.

“The products, platforms and solutions we’re developing are designed to help customers achieve their goals,” she said.

CFS’ head of product solutions, Sue Wallace reinforced the fact that the company’s platforms had been amongst the first to focus on the post-retirement space, offering access to annuities in 2015.

“CFS is the largest payer of pensions outside of the federal government and has paid pensions in excess of $2.5 billion to retirees in the last fi nancial year,” she said, noting that in 2015, actuarial research house, Rice Warner had reported the Commonwealth Bank was the largest provider of retirement income products.

“The blending of a range of retirement income solutions can be valuable to meet the ongoing and changing needs of retirees throughout their retirement,” she said.

Wallace noted that with current life expectancy rates, retirees could expect to be in the retirement phase for 25 to 30 years so their income needs were likely to evolve and change and be impacted

by health, lifestyle and family.

She said this meant CFS would be looking to update its platform offering to meet the changing fi nancial and personal needs of the retiree segment.

Looking at comprehensive income in retirement products (CIPRs), Wallace said the company’s focus to date had been on a retirement solution for default members.

“The building blocks, such as managed funds and annuities, are already available on platforms today,” she said.

“When a member is transitioning to retirement CFS strongly supports fi nancial advice for a member’s individual retirement needs and to establish the right retirement income solution or adapt to changing needs during the retirement phase,” Wallace said.

“Platforms will be well placed to provide both a pre-package (CIPR style) or more individualised solution that will be more suitable to the large percentage of retirees who currently seek financial advice.”

AMP Limited’s Doyle said she believed platforms were integral to the delivery of pre and post retirement solutions and noted the manner in which the company had sought to place new products on its North platform.

“Earlier this year we launched a new offer specifically designed for retirees. It combines a pension payment calculator, with a retiree-specific investment fund, available through MyNorth’s allocated pension,” she said.

“Its aim is to provide retirees greater confidence with spending by calculating the amount they can withdraw each year to ensure their savings last. The drawdown amount is adjusted on an annual basis. The retirement savings are invested in MyNorth Retirement Fund, an actively managed diversified fund managed by AMP Capital, aiming to give them a stable income that will grow above inflation.”

Doyle said the solution included a working cash account with between nine to 12 months’ worth of pension so people could be confident their day-to-day spending wouldn’t be impacted by shorter-term market fluctuations.

“Next month we will also be providing AMP advisers and customers

with access to Challenger annuities – available across our leading platforms including Flexible Super, North and Signature Super,” she said.

Doyle acknowledges that North is very much an AMP vehicle but believes that it can work for other Australian Prudential Regulation Authority-regulated funds.

“One of the great benefits of North for advisers and customers is the comprehensive product choice it offers.

This will continue to be one our primary objectives for the platform and we’re confident it could support APRA-regulated super funds in the future,” she said.

CIPRs – a work still in progress The Government may have used its 2016 Budget to signal legislative and regulatory changes to reduce the barriers to post-retirement products, but it has proved to be a slow work in progress.

It was only in March that the minister for Revenue and Financial Services, Kelly O’Dwyer released the draft superannuation income stream regulations and an explanatory statement for public consultation and the Treasury is continuing to receive submissions.

The minister said the draft regulations were intended to cover a range of innovative income stream products including deferred products, investment-linked pensions and annuities and group self-annuitised products, noting that superannuation funds and life insurers would receive a tax exemption on income from assets supporting the new income stream products provided they were currently payable or, in the case of deferred products, held for an individual that had reached retirement.

“These new rules will remove taxation barriers to the development of new products that will provide greater flexibility in the design of income stream products to give more choice to consumers, while ensuring income is provided throughout retirement,” O’Dwyer said. “The development of these

“Platforms will be well placed to provide both a pre-package (CIPR style) or more individualised solution that will be more suitable to the large percentage of retirees who currently seek financial advice.”

– Sue Wallace

Continued on page 14 www.superreview.com.au | AUGUST 2017 | SuperReview | 13

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PLATFORMS AND WRAPS

Continued from page 13 new products is a precursor to the development of comprehensive income stream products for retirement, or CIPRs.” However, O’Dwyer may be disappointed with the reaction of the superannuation industry to the Government’s draft proposals, with a broad cross-section of submissions pointing to shortcomings in Treasury’s approach.

The industry misgivings were epitomised by the Association of Superannuation Funds of Australia (ASFA) submission which warned that the “proposed CIPR framework – as currently designed – is neither necessary nor sufficient to achieve its stated objectives”.

“There is the risk that a CIPRs framework will be designed that, rather than maximising member benefit, will see little take-up and fail to achieve the necessary scale or desired consumer outcomes,” the ASFA submission said.

The major area of concern for ASFA was that it believed the Treasury discussion paper appeared to be taking an approach “whereby the CIPRs framework effectively will ‘mirror’ (in

reverse) the MySuper framework”.

It warned that there were three material differences which would render this premise questionable and lead to some anomalous outcomes: 1. The accumulation phase is materially different to the retirement phase.

• In the accumulation phase there is a common objective of maximising savings for a reasonable/ appropriate level of risk.

• In retirement: - The circumstances, needs and objectives of individuals, which determine drawdown needs, will vary greatly; - The effect of drawdowns is substantially different from that of contributions; and - There is a greater range, and uncertainty, regarding the likely time periods over which drawdowns will occur.

2. Unlike MySuper – where the consequences of being in an unsuitable product are reduced net returns, which can be remediated by rollingover to another product – the consequence of being in an unsuitable

CIPR can include the loss of access to capital/reduced death benefits and may be difficult, or impossible, to remediate.

3. Unlike MySuper, CIPR products will be an ‘opt-in’ regime, where members apply for a product, as opposed to a ‘default’ regime.

The Australian Institute of Superannuation Trustees (AIST) was similarly critical of the Government’s approach, also arguing against a MySuper approach.

“AIST does not support the mandating of CIPRs as preferred retirement income products for funds and recommends that trustees formulate their own preferred strategy as part of the construction of a retirement incomes framework,” the AIST submission said.

Also like ASFA, the AIST argued that a ‘safe harbour’ would be necessary in the event that trustees were forced to implement specific products for their members as preferred retirement income products.

“In this event, safeguards must be implemented to minimise moral hazard,” it said.

“AIST does not support the mandating of CIPRs as preferred retirement income products for funds and recommends that trustees formulate their own preferred strategy as part of the construction of a retirement incomes framework.”

– AIST

14 | SuperReview | AUGUST 2017 | www.superreview.com.au

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FP Ad test.indd 15

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SFOTY

Sunsuper named Super Fund of the Year Super Review and The Heron Partnership have named Sunsuper’s Sunsuper for Life offering as the Super Fund of the Year for 2017.

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unsuper has taken out the Super Review/The Heron Parntership Superannuation Fund of the Year Award.

In a closely-run race with AustralianSuper, the Queenslandbased fund was named the winner based on its rapid rate of growth and enhancements it had made to its product offering over the past two years.

The Heron Partnership attributed the win to Sunsuper having “delivered an excellent total package”.

Super Review, named the long-time head of Insight Investment, Margaret Waller, as its fi rst-ever female recipient of the Lifetime Achievement Award for her contribution to funds management, particularly institutional funds management, over 30 years.

Waller is regarded as the driving force and founder of the UK-based investment management partnership, Pareto Partners which became Insight Investment.

NSW-based fund, First State Super was named Best Public Sector Fund, while AIA Australia was named Best Insurer with universities-based fund, UniSuper being named as the Best Industry Fund.

Australia’s largest industry fund, AustralianSuper received the award for Best Pension Product recognising its Australian Super Choice Income offering – the second successive year it had won the laurels in the category.

In the Best Corporate Solution category, Sunsuper was named the winner for its Sunsuper for Life Corporate product, with the Best Commercial Product category being taken out by Asgard Infi nity eWrap Super.

The Best MySuper Product was awarded to AustralianSuper.

Visit our Facebook page for all the photos of the night.

Debra Mika, First State Super

Stephanie Phillips, AIA Australia

Chris Butler, The Heron Partnership

16 | SuperReview | AUGUST 2017 | www.superreview.com.au

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SFOTY

Kevin O’Sullivan, UniSuper Teifi Whatley, Sunsuper

Pauline Vamos, Decimal David Braga, BNP Paribas

Paul Schroder, AustralianSuper

Teifi Whatley, Sunsuper & David Braga, BNP Paribas www.superreview.com.au | AUGUST 2017 | SuperReview | 17

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FEES

Will RG 97 lift the veil on fees?

Blake Briggs writes that some superannuation funds may be challenged as a result of the implementation of the Australian Securities and Investments Commission’s Regulatory Guide 97 on fees and costs disclosure.

T

he third, and final, stage of the Productivity Commission’s (PC’s) review of the competitiveness and efficiency of the superannuation industry has commenced.

Inevitably the PC will have a focus on the fees charged by superannuation funds, and the investment returns achieved for consumers on the fees paid.

It is timely then that the Australian Securities and Investments Commission’s (ASIC’s) implementation of Regulatory Guide (RG) 97 on fees and cost disclosure will have operated from 1 October. For the first time superannuation legislation will require broadly consistent disclosure of superannuation fees across the sector.

The expected commencement of RG 97 will coincide with a renewed push by the Government to legislate higher levels of transparency in the superannuation industry, and to make funds more accountable to consumers. As a result, it is unlikely that the RG 97 ‘can’ will be kicked down the road once again – and nor should it.

An enormous amount of work has gone into achieving industry consistency in fees reporting, and credit for this achievement to date should be jointly shared by ASIC, along with industry organisations Australian Institute of Superannuation Trustees (AIST), the Association of Superannuation Funds of Australia (ASFA), and the Financial Services Council (FSC). The three major industry bodies have been working together from the start, and, with expert support from Chant West, will deliver a more transparent superannuation system.

Certain issues remain to be resolved, including the time and cost it will take to change IT systems and issue new product disclosure statements (PDSs) and periodic statements with the updated information. ASIC is continuing to consult with the industry around implementation, but these, we believe, do not disturb the core objective of the policy.

The FSC, for its part, has released a guidance note to assist our superannuation and funds management member companies comply with the new requirements.

We have also made this guidance note publicly available for the industry to use. We are confident our members are prepared for RG 97 and that consumers will benefit from having accurate information as they choose

between superannuation products.

Media commentary on RG 97 has correctly identified that some funds will be required to materially adjust their disclosed fees as a result of the reforms. Consumers will not be charged higher fees than is currently the case, however for some funds the cost of managing their investments has not been explicitly disclosed, and all funds will now be required to make their total fees more transparent.

This is as it should be. Enhanced disclosure will enable consumers to make more meaningful comparisons. To be clear, most trustees funds have acted within the rules, and genuine attempts at compliance has not been helped by complex and unclear laws on exactly what should be counted as a cost and whether it should be disclosed in fee statements.

Of greatest concern, however, may be isolated examples of trustees who have not fully disclosed the true cost of their investment strategies in an attempt to make themselves look cheaper relative to their competitors, or more efficient. This should not be allowed to continue because consumers need to be fully informed.

ASIC recently made its concerns with current practice clear in a recent interview with the Australian Financial Review.

Ged Fitzpatrick, senior executive leader for investment managers and superannuation, advised that “unfortunately ASIC has found that all too often fees and costs were not being disclosed accurately and in a way that helps investors compare products”.

“For example, the fund trustee or manager’s disclosure does not always include the costs of investing investors’ money indirectly, so the cost amounts ‘disclosed’ upfront are lower than what the investors are actually charged,” he added Poor disclosure provides some market participants an unfair advantage as we move towards a more competitive and efficient superannuation system.

Consumers may be attracted to a fund that initially appears to charge low fees and generate strong net returns, but later learn that those fees are higher than advertised and, as markets turn, those fees remain high as investment returns fall – squeezing returns at both ends.

Consumers should expect the biggest movement of fees amongst a small selection of funds.

Blake Briggs The Australian Financial Review reported that ASIC analysis has shown that in some cases there will be increases in advertised fees of more than 100 basis points, or more than $500 per year per $50,000 invested. This is an enormous increase when you consider that the average MySuper only charges around 110 basis points in total, for both investment and administration purposes.

Across the industry, the updated requirements have increased reported fees and costs by an average of 24 basis points, or $120 per year per $50,000 balance – a glaring inconsistency with the apparent 100 basis point change that that it has said will be incurred by some funds.

The inconsistency demonstrates the timely nature of these changes. In addition to the scrutiny that high-cost funds will inevitably receive from the PC, the FSC also expects that the variance will form part of the Australian Prudential Regulation Authority’s assessment when it uses its new member outcomes powers to deal with chronically underperforming funds.

This should not be cause for alarm. Trustees who have a clear understanding of their investment costs, and offer consumers transparent products, will already know where their fund sits relative to other market participants.

The challenge will be for higher cost funds, who will have to continue justifying their value proposition to consumers and the regulators.

Blake Briggs is the senior policy manager at the Financial Services Council.

18 | SuperReview | AUGUST 2017 | www.superreview.com.au

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INSURANCE

Valid approach to insurance in super Specialist lawyer, John Berrill begs to differ with critics of the Insurance in Superannuation Working Group process, arguing it has the capacity to deliver genuine improvements.

I

t was disappointing to read the Super Review article (page 8) quoting a fellow plaintiff lawyer being critical of the work of the Insurance in Superannuation Working Group (ISWG) and the superannuation and insurance codes of practice.

Ms Kim Shaw was critical of the life insurance code of practice alleging it was a tick box exercise by the life insurance industry developed with little consultation from stakeholders and with no formal oversight.

She also asserted that the ISWG was only prepared to implement a similar weak code which concentrated on claims handling without any attention to consistency in defi nitions, processes or sanctions for breaches.

With respect, neither is correct.

The life insurance code was developed with substantial input from the consumer movement after a somewhat shaky start. It includes time limits on processing insurance applications, claims and complaints which do not otherwise exist in law. It also includes limits on surveillance and the industry

has committed to some standard medical defi nitions.

Contrary to the assertion, the code has oversight by a code compliance committee which has the power to impose sanctions on defaulting insurers. The committee includes a consumer representative, Ms Alex Kelly, a senior lawyer from the Financial Rights Legal Centre.

The life code commenced on 1 July 2017. It is too early to tell how effective it will be but the code is a good fi rst step with an important review in 2018.

For its part, the superannuation code is currently under active development as part of a suite of work being undertaken by the ISWG, including product design, governance and education.

Contrary to Ms Shaw’s assertion, the ISWG is addressing standard defi nitions and processes such as suitability of cover for young members, ease of opting out of cover and information sharing.

The ISWG’s work is a very different piece to the life code, although it will include a code compliance committee with powers to investigate and correct breaches.

It is baffl ing that commentary is being made about alleged shortcomings of a code that is still under development, including whether it will seek Australian Securities and Investments Commission (ASIC) approval.

Insurance in superannuation is a very important part of the retirement incomes system in Australia.

Billions of dollars have been saved for the Australian taxpayer in social security payments and it has provided retirement incomes for thousands of people whose working lives have been cut short because of disability or death.

However, group insurance in superannuation has had its problems over the past five years and they need fixing.

The superannuation and life insurance industries have recognised this and have put substantial resources into the ISWG to make insurance in superannuation more efficient and value for money for consumers.

It is incumbent on consumer advocates to help achieve this.

John Berrill

John Berrill is the principal of Berrill & Watson Superannuation and Insurance Lawyers. www.superreview.com.au | AUGUST 2017 | SuperReview | 19

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INSURANCE

Insurance code needs teeth Superannuation reforms announced by the Federal Government to improve the default insurance opt-out process are a sensible step, but a code of conduct that genuinely holds the industry to account is still urgently needed, Kim Shaw writes.

I

n reforming the process on opt-out default life insurance, Financial Services Minister Kelly O’Dwyer has taken a practical approach that will help to provide greater choice when it comes to super and insurance offerings, whilst also protecting a vital safety net.

Default insurance through superannuation plays a key role in helping to close the insurance gap for thousands of Australians, providing cover to workers who otherwise may have no life or disability insurance at all, for roughly the cost of a cup of coffee per week.

These latest reforms recognise that a simpler process is needed for when people wish to make changes to their default insurance cover to minimise the risk of erosion of retirement savings – something we support, as long as it is coupled with education around the necessity for default life insurance in super in helping to guide people to make informed choices, including young people who may be seeking to consolidate their super.

This change is an important downpayment for a fairer, more transparent system of insurance in superannuation.

However, addressing the erosion of retirement funds is only one part of the challenge, with much work still to be done within the industry to ensure a better, long-term standard that puts an end to continuing scandals and mistreatment of consumers by insurers.

A critical component in this fi x must be the implementation of an enforceable and rigorous code of conduct.

The industry believes it has ticked the box on the development of a code, after the Financial Services Council (FSC) released a life insurance code of practice last year. That same code is now under consideration to be extended to superannuation funds, as part of the Insurance in Super Working Group (ISWG) process.

While this may sound like progress, the truth is that the industry is still nowhere near close to the implementation of the strong code of conduct that is so badly needed if the industry is to be properly reformed as a whole.

A rigorous and enforceable code of conduct should have teeth, with its focus being to put the genuine interests of consumers first. It must

cover the entirety of the industry and be inclusive of third parties acting on behalf of fund members, including lawyers, financial counsellors and advisers.

The FSC code however has all the bite of a month-old lettuce – a narrow restatement of the current law that is voluntary, has not been approved by ASIC, has had little buy-in across other stakeholders, has no formal oversight and crucially, would do little to prevent the many scandals that continue to be exposed within the industry.

With the formation of the ISWG came the hope that the FSC code would be given a rigorous overhaul, with the ISWG noting that a code for super funds is a ‘key deliverable’.

To date however it seems that all the ISWG is prepared to implement is an extension of the existing FSC code, focussed largely on claims handling without addressing the pressing need for any code to also ensure consistency in defi nitions and process, including real remedies and sanctions for those who fall short.

Indeed, the Association of Superannuation Funds of Australia

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INSURANCE

(ASFA), a major player in the ISWG process, has argued only recently in a submission that it is concerned about any role for ASIC with respect to approval and monitoring of codes – ludicrously seeking to state that such enforcement will add to the regulatory burden and not lead to better consumer outcomes.

In short, they all appear to be heading towards the FSC tool kit, opting only for a weak extension of an already weak regime. We remain optimistic that

the fi nal code coming out of the ISWG however will be sufficiently vigorous, for the sake of consumers.

A strong code of conduct is not a new concept, indeed organisations like Maurice Blackburn and the Australian Lawyers Alliance have advocated for such a code for a number of years – including seeking actively to be a part of the broader solution for the industry.

To date however, those efforts have disappointingly fallen on deaf ears.

It is long past time that claimants were put fi rst with a real and enforceable code of conduct, a code that must have ASIC approval and that gets the job right at last in properly canvassing the full extent of the problems facing claimants, and not just skirting around the issues.

Kim Shaw is a principal in superannuation and insurance at Maurice Blackburn Lawyers. www.superreview.com.au | AUGUST 2017 | SuperReview | 21

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SUPERANNUATION

Superannuation ripped-off beyond reasonable doubt

Lawyers Peter Bobbin and Christina Wolfsbauer argue that if someone defrauds you of your super you may still be ripped off even after you find the perpetrator and have it restored.

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as your superannuation pension been ripped-off, defrauded, dishonestly attended to or stolen from?

From 1 July 2017 as long as your perpetrator is convicted you can apply to have your super transfer balance cap restored; to the extent of the proven fraud.

This assurance is beyond reasonable doubt, provided you act quickly.

In an extraordinary piece of double speak reminiscent of George Orwell’s 1984, if the perpetrator of your super

fraud has their super taken from them because they put your super into their super fund so as to defeat their creditors, which of course includes you, their ability to regain their tax free super pension is restored, on a balance of probabilities standard.

If all of this sounds extraordinary and incredible, it is. The standards are wrong.

From 1 July 2017 the new super pension regime allows a person to have up to and no more than $1.6 million in a tax free super pension. There are some lucky Australians who have this and much more.

There are very many more who worked hard and sacrificed much to enable their $1.6 million super to fund their 25 or 30 year plus retirement. In just a few months’ time, from 1 July 2017, when a husband, wife or partner has died and dedicated their super to yours, you may join the many other Australians who on 1 July 2017, will have used up their $1.6 million super pension transfer balance cap.

Sadly some of you will, in the mere months and years to come, have your super ripped off, defrauded, dishonestly attended to or stolen from. Those who are lucky and

discover the fraud before 1 July 2017 will find that their $1.6 million transfer balance cap will not be affected. However, where the fraud is later discovered, the pension cap opportunity will be lost unless the perpetrator is convicted. This is where beyond reasonable doubt comes in.

Your restoration of your super tax-free pension cap depends on your perpetrator being convicted to a criminal standard of proof that is beyond reasonable doubt. As long as your perpetrator is convicted, your pension cap entitlement can be restored, perhaps up to $1.6 million.

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SUPERANNUATION

If this doesn’t sound quite right let me quote the Australian Taxation Office. But before I do, please remember don’t shoot the piano player who is playing the tune of the new $1.6 million pension cap rules.

Where the super interest that supports an individual’s super income stream is reduced because of a loss suffered by the super income stream provider as a result of fraud or dishonesty, and the offender is convicted, the individual is able to notify us and receive a debit in their transfer balance account to the value of the reduction.

The offender must be convicted!

Any police officer in the country will tell you that white collar embezzlement fraud is the hardest criminal to convict.

The simple truth is that not only will the super pensioner have been defrauded and their money gone, the probability of a lack of conviction of the perpetrator will be matched by an inability to restore personal super pension rights.

Shame on you to have been ripped-off!

There is a magnificent irony in this, the former super pensioner may be forced to sell their home if the perpetrator does not get temporary free accommodation in a Government facility!

Let’s be clear about this. To gain the benefit of free accommodation in a small room with weekend visitation rights, the perpetrator of the fraud must be convicted beyond reasonable doubt.

A jury of our peers must be convinced beyond any element of reasonable doubt that he or she perpetuated the criminal fraud on your super.

If the perpetrator goes to jail, the super pensioner gets a debit against their transfer balance cap that might enable them to reinstate the value of their former super pension.

Now let’s look at the other side. What if the perpetrator took your super and put it into their super?

The Australian Taxation Office goes on to say that: Where the super interest that supports an individual’s super income stream is reduced because of payments required to comply with the Bankruptcy Act 1966, the individual is able to notify us and receive a debit in their transfer balance account to the value of the reductio...Generally, this is only where out-of-character contributions were made to super with the intent to defeat creditors...

A person who acted with intent to defeat their creditors and who has been caught out is able to get their super

transfer balance cap reinstated.

Let’s also put this into context: The perpetrator steals your super.

They put your super into their super.

They get caught. If they are convicted of stealing your super you get back your rights to a tax free super pension.

If they are not convicted, you do not.

Your super future life is subject to their beyond-reasonable-doubt defence.

But if the perpetrator’s bankruptcy trustee is unable to prove that they had out-of-character contributions… made to super with the intent to defeat creditors the bankrupt perpetrator gets to keep their super.

If the perpetrator fails to prove this and the bankruptcy trustee claws this back, though not necessarily back for you, the perpetrator regains their super entitlement!

The standards of legal proof differ. The perpetrator needs to be convicted beyond reasonable doubt before you get your tax free super entitlements back. Their super and their transfer balance cap is protected as long as they can claim on a balance of probabilities that their super contributions were not out-of-character or made with the intent to defeat creditors.

In summary: Your super is gone; the perpetrator’s super might be protected.

Your super is gone; if the perpetrator is convicted, your pension cap is restored but their super might still be protected.

Your super is gone; if the perpetrator escapes conviction, your pension cap is lost but their super might still be protected.

Your super is gone; if they are convicted and bankrupted by the theft of your super, both your and the perpetrators tax free super pension transfer balance caps can be restored.

And therein lies the farcical irony.

Peter Bobbin and Christina Wofsbauer are the principal partner senior associate of Argyle Lawyers. www.superreview.com.au | AUGUST 2017 | SuperReview | 23

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REGULATION

The regulators are stirring Adam Gee writes that the superannuation sector may be facing further consolidation in the wake of the further empowering of the Australian Prudential Regulation Authority.

I

t seems clear that superannuation funds are now entering a new era of regulatory oversight.

On 30 June, the Australian Securities and Investments Commission (ASIC) released a significant report, ‘REP 529 Member experience of superannuation’, which requires trustees to place greater focus on the manner in which they disclose critical fund information to their members.

This was followed late last month

by Minister for Revenue and Financial Services, Kelly O’Dwyer’s announcement

of draft legislation aimed at improving member outcomes, which will incorporate significant new powers for the Australian Prudential Regulation Authority (APRA).

The intended move from the existing ‘scale test’ to demonstrate a fund’s ongoing viability to an ‘outcomes test’ will place far greater onus on superannuation trustees to demonstrate that they continue to act in the best interests of their members.

Specifically, the outcomes test requires trustees to assess their performance against a range of metrics outlined within the draft bill, whereas in the past, there was

little guidance as to how trustees could determine their ongoing achievement of scale, which was supposed to be used as evidence of a fund’s financial viability.

Some funds which were relatively ‘creative’ in justifying scale will find the specificity of the new outcomes test a challenge, to say the least, with the regulator looking on.

Whilst more detail is still required in terms of measurement periods and benchmarking approaches, the new guidance Continued on page 26

Adam Gee

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NOMINATIONS NOW OPEN! 5TH

ANNUAL

For the past half-decade Money Management and Super Review have led the way in recognising the outstanding women in the Australian financial services industry.

Women of the Year such as Frontier Investment Consulting’s Fiona Trafford-Walker, SMSF Association founder, Andrea Slattery, PWC’s Anne Loveridge and Association of Financial Advisers’ national president, Deborah Kent. The awards, encompassing the wealth management, banking and superannuation sectors, have cemented themselves as providing clear recognition of not only the most senior women in these industries but the rising stars, mentors and advocates.

THIS YEAR’S AWARD CATEGORIES: Employer of the Year

IT Innovator

Pro Bono

Female BDM of the Year

Life Insurance

Rising Star of the Year

Financial Planner of the Year – Sponsored by PIMCO

Marketing and Communications Manager

Superannuation Executive of the Year – Sponsored by PIMCO

Industry Advocacy

Mentor of the Year

Woman of the Year – Sponsored by MetLife

Investment Manager of the Year

To enter your nomination visit: http://www.moneymanagement.com.au/events

Nominations close 21 August Lead sponsor

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The Westin Hotel, Sydney | 26 October 2017 5157_WIFS_FP2017_SR_Nomination.indd 23 FP Ad test.indd 25

6/07/2017 12:59 PM 14/08/2017 9:43 AM

REGULATION

Continued from page 24 should serve as a wake-up call for some potentially sub-scale funds to consider their ongoing sustainability, particularly in light of clarified obligations to act in the best interests of their members.

KPMG would have liked to see a greater focus on operating cost metrics for superannuation funds as a key tenet of the new outcomes test. We continue to believe that a fund’s capacity to continue to invest in, and develop, new products and services for their members remains a key determinant of a fund’s scale and the outcomes a fund can deliver to its members.

We also note that the proposed legislation provides material additional powers to APRA to intervene at any earlier stage where it has prudential concerns surrounding the actions of a trustee. This is substantially different to the powers APRA has in relation to the superannuation industry and in line with their powers in relation to the banking and insurance industry. Either way, this should once again put trustees on notice and suggests that APRA will be far more intrusive in overseeing superannuation fund operations going forward.

Furthermore, KPMG remains uncertain as to the value of the annual member meetings proposed by the government for superannuation funds. Whilst we recognise that a very small minority of funds already offer something akin to these to members, we remain concerned as to whether the costs may outweigh the benefits of these for the majority of funds.

With regard to ASIC Report 529, the regulator is placing greater focus on ensuring that funds’ disclosure within product disclosure statements, regular communications and fund websites

are comprehensive and align with underlying fund policies and procedures.

Additional detailed disclosure may provide further challenges for funds, particularly when, in many cases, it is difficult to get members to even read the existing raft of disclosure material already available.

The ASIC report also places focus squarely on insurance within superannuation, with a number of findings validating their concerns in relation to the manner in which superannuation funds default members into occupational categories. KPMG also notes a greater emphasis by various industry groups in relation to the erosion of retirement savings as a result of default insurance. We believe this will only continue to gather pace and will require funds who aren’t already reviewing their default insurance arrangements to do so to ensure these remain appropriate for their membership base.

While we believe that the additional powers for the regulators may improve overall member outcomes, the measures proposed, such as annual member meetings, will require material additional work for funds to comply. This will potentially increase costs further in what is already a competitive marketplace, which operates in a cost constrained environment, where fees continue to remain in the in the sights of regulators and ongoing government reviews.

But ultimately super funds will have to comply with the increased regulation while not letting higher costs worsen member experience. That is the new paradigm.

“Some funds which were relatively ‘creative’ in justifying scale will find the specificity of the new outcomes test a challenge, to say the least, with the regulator looking on.”

Adam Gee is the superannuation advisory partner at KPMG.

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APPOINTMENTS APPOINTMENTS

MOVE OF THE MONTH

Wendy Tse Director KPMG

KPMG has announced that Wendy Tse, previously the general manager of SuperRatings consultancy practice, would be joining former SuperRatings chief executive, Adam Gee, at KPMG. KPMG said it had also employed Adam Balsamo as an association director of the firm’s

Superannuation Advisory Practice.

Tse will be a director of the KPMG practice and will be responsible for the provision of a range of superannuation and wealth advisory engagements, including strategy development and implementation, service provider tenders, compliance and risk management services,

corporate super reviews and benchmarking exercises.

It said Balsamo had been recruited from Prudential Financial in the US, where he oversaw product strategy in the life insurance division. Prior to that, he worked at Perpetual in Australia, where he was head of product for their high net wealth focused private clients business.

OneVue appoints industry veteran to key role

ISA appoints ex-ASIC manager as senior adviser

Retirement Essentials appoints customer head

UBS AM appoints head of wholesale for Australasia

OneVue has made a key senior appointment, announcing Richard Linnegan as chief operating officer, fund services.

The company said the appointment reflected its continuing growth momentum, with Linnegan tasked with leading the fund services operations team, focusing on enhancing service delivery to existing clients and further expanding OneVue’s innovation and operational excellence in fund administration services.

It said Linnegan had joined OneVue after 18 years at Goldman Sachs, where he was head of funds operations.

The announcement said that Linnegan boasted 25 years’ experience in the asset management business and had developed a deep understanding of unit registry, fund administration and custody operations across the Australian, European, and Asian markets.

Confirming the appointment, OneVue executive general manager, fund services, Richard Harris Smith said Linnegan brought a wealth of operational and registry knowledge and a track record of supporting business growth.

Industry Super Australia (ISA) has appointed former Australian Securities and Investments Commission (ASIC) senior manager, Dr Nick Coates, as a senior adviser.

ISA chief executive, David Whiteley, said Coates would strengthen ISA’s capacity to define the interest of members against adverse policy change.

“Nick brings more than a decade of knowledge and expertise relating to financial services and regulatory policy, which will strengthen ISA’s capacity to defend the interests of members against adverse policy change,” he said.

At ASIC, Coates oversaw consumer protections in financial advice, and was most recently an Ernst and Young director in the area of financial risk management.

Coates has also worked at ISA as head of government relations and policy where he played a key role in policy work on regulation of financial services.

Retirement-focused advice firm, Retirement Essentials has appointed experienced consumer marketing executive, Antoinette Tyrrell as its chief customer officer.

Tyrell’s appointment was confirmed by Retirement Essentials founder, Paul Rogan who said she would lead a ‘direct to consumer’ marketing strategy, including building the brand, designing the member experience and being responsible for the customer growth plan.

“I’m excited to have Antoinette on board. Antoinette’s deep experience in consumer marketing will embed a truly consumer-centred approach into every aspect of our business,” Rogan said.

Prior to joining Retirement Essentials, Tyrrell held senior executive roles in consumer marketing and business strategy in the FMCG and telecommunications industries across Asia, Africa, and the South Pacific working for Coca-Cola and Vodafone.

UBS Asset Management Australia has appointed a new head of wholesale, Australasia.

The manager announced this week it had appointed Ben Williams to the role with responsibility for building, implementing and monitoring the firms’ strategic engagement with a broad range of investors, including consulting, research, platform, aligned and independent adviser channels.

Confirming the appointment, UBS Asset Management Australia and New Zealand chief executive, Bryce Doherty described Williams as a highly experienced, widely respected and well credentialed leader within the asset management industry.

“He adds considerable expertise to our already successful wholesale team and is a very welcome addition to UBS Asset Management,” Doherty said.

Williams has over 20 years of investment industry experience having worked in various marketing, sales and product development roles with Lazard Asset Management, BlackRock, and Merrill Lynch Investment Managers.

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ROLLOVER

The other side of superannuation

Shrewd Schroder works the room Rollover does enjoy a good knees-up and so he felt very much at home at Super Review's recent Super Fund of the Year awards in Melbourne.

The awards are presented in association with The Heron Partnership and, for the record, Sunsuper walked away with the major title of Super Fund of the Year, although Rollover is of the view that it must have been a particularly close tussle with AustralianSuper.

It mattered not, of course, because AustralianSuper’s Paul Schroder strode to the podium twice to pick up two gongs on behalf of the mega-fund – Best Pension Product for Australian Super Choice and Best MySuper Investment Option.

In doing so, Schroder took the opportunity to inject some political commentary into the evening by defending the governance structures underpinning profit to members superannuation funds such as AustralianSuper.

Rollover reckons Schroder picked his audience pretty accurately (well, Melbourne is the home of industry funds) because he got a hearty round of applause both for AustralianSuper winning and also for what he had to say.

Rollover offers his hearty congratulations to all the winners and finalists.

Look who is moving to KPMGEE

Finding the missing link

For those who don’t already know it, Super Review is now under new ownership – UK-based group, FE. Thus, Rollover knows how things work when you leave one corporate home and move to another, and he also understands the risks associated both for those departing and those remaining.

And it would seem that the guys at SuperRatings must also understand the dynamic in circumstances where barely a few months after its chief executive, Adam Gee, left to resume his career at KPMG he was followed by another former KPMGer, Wendy Tse. Tse had been making quite a mark at SuperRatings heading up its consulting business and Rollover thinks Jeff Bresnahan and the chaps down there at Sydney’s Bulletin Place will find it hard to find a replacement.

In the meantime, Rollover feels sure that Gee maintained a respectful and ethical distance from the KPMG recruiting process, albeit he stands to be a beneficiary.

On the subject of moves, grooves, and consultancy, Rollover notes that Deloitte’s Ben Facer has joined NGS Super together with former NESS Super chief executive, Angie Mastripollito.

Facer becomes chief risk and governance officer, while Mastrippolito will become chief operating officer.

Given the gravity of the announcement, Rollover was forced to put on his thinking

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cap to find the missing link. He found it. The answer is Mercer.

Both Facer and Mastrippolito spent a good deal of time in consultancy land at Mercer as did Facer’s somewhat more senior colleague at Deloitte, Russell Mason.

So far as Rollover knows, Mason intends continuing beavering away at Deloitte although there are rumours he may one day address some issues with his golf swing.

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