While the turmoil in Federal Parliament and the Financial Services Royal Commission were getting all the headlines, other low-key but very important changes had the biggest impact on super funds in 2018 and will again in 2019.
No Progress on Super in Parliament
There’s not going to be much progress on changes to superannuation legislation before, what is now, an inevitable Federal Election in May 2019. 2018 ended in a political stalemate with the current Government not always able to control either house of Parliament.
In the last week, the Government lost another vote on which it can rely in the Senate, making it less likely they will be able to pass their Protecting Your Super reform package. Even before this, the Government didn’t seem to have the numbers in the Senate to pass the legislation. The PYS legislation would impose changes to insurance in super and require the automatic consolidation of small, inactive accounts, that would be first transferred to the Australian Taxation Office (ATO).
Productivity Commission Report Not the Main Game
Opinion polls have been pointing to the ALP as the favourite to win the next election. Either way, the priority of the Government after the election is going to be on implementing the recommendations made by the Financial Services Royal Commission. The recommendations made by last week’s Productivity Commission’s report on superannuation are going to have a lower priority, although they will continue to influence the policy debate.
Many of the Productivity Commission’s recommendations echo the draft recommendations they made last year, many of which have already been picked up by the Government or incorporated into the Insurance in Super Code. Their signature recommendation of allocating new entrants to the workforce one of ten “best in show” funds (unless they choose an alternative) is a political hot potato that probably won’t be implemented.
Royal Commission Report Set to Dominate the Policy Debate
The Financial Services Royal Commission will issue its final report right on time on Friday, 1st of February 2019, and the Government will make it public immediately. Whatever recommendations are made by the Royal Commission, it is highly likely that both the Government and Opposition will commit to implement all of them after the election.
My prediction is that the Royal Commission will recommend:
- a ban on “grandfathered” trailing commissions;
- more litigation and less negotiation with companies that break the law;
- a new superannuation regulator;
- a new or increased focus on conduct regulation;
- a large number of prosecutions arising out of their case studies.
All of this is going to take a while to put in place. Legislation is not likely until the end of 2019 and implementation will take place from 2020.
In the meantime, the larger industry funds are experiencing higher than forecast member and contribution flows as they are perceived to have fared much better than their retail competitors at the Royal Commission.
While the superannuation world waits for changes arising from these high-profile commissions of inquiry, the APRA Outcomes Assessment Test, the Insurance in Super Code and re-engineered super fund reporting to the ATO are requiring major investments from funds and are already driving major changes.
New APRA Test, ATO Reporting and Insurance Code the Real Drivers of Change
APRA Outcomes Assessment:
APRA released a package of new requirements for APRA-regulated super funds in December 2018 intended to strengthen the delivery of quality outcomes for fund members. The key change is an annual outcomes assessment, requiring funds to annually benchmark and evaluate their performance in delivering these outcomes as part of their business planning cycles. Not only will this lift standards in super, it will also facilitate the merger of poor performing funds into better performing funds.
New ATO reporting:
New systems for super fund reporting (known as the MATS and MAAS projects) to the ATO will require funds to report on a near real-time basis, thus helping to identify employers not meeting their obligations. This will massively increase the volume of information being sent to the ATO and will mean that myGov and new online commencement forms will have much more comprehensive and up to date information.
Insurance in Super Code of Practice:
Most super funds are in the process of implementing higher standards and quicker claims processing for their members as part of implementing the Insurance Code. Many of the changes in the PYS legislation and recommendations made by the Productivity Commission were already incorporated in similar requirements of the Insurance Code. This includes the cessation of insurance cover for low account balance members and opt-in insurance for many younger members.
IQ Group is Here to Help
The IQ Group is keeping abreast of all these changes and is both mapping their impacts for many of our clients and designing and implementing solutions that improve the member experiences.
If you have questions or would like to find out how IQ Group can assist, contact us at firstname.lastname@example.org.
Written by David Haynes