Federal Budget 2019: Key developments for superannuation and financial services

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By Chris Ketsakidis, Partner

1. Government Response to the Royal Commission – Ramping up the Regulators

The Government intends to fund a number of the measures arising from its commitment to the 76 recommendations made in the Royal Commission’s Final Report, including:

  • establishing an industry funded compensation scheme of last resort for consumers and small business for the 2020 income year;
  • providing AFCA with additional funding to help it consider eligible financial complaints dating back to 1 January 2008;
  • resourcing ASIC to undertake an accelerated enforcement strategy, implement an enhanced onsite supervisory capability for large institutions and deliver on its expanded role in relation to superannuation as recommended by the Royal Commission;
  • resourcing APRA to strengthen its supervisory and enforcement activities including in relation to governance, culture and remuneration, and to enhance the regulation of superannuation funds. The funding will also support the expansion of the Banking Executive Accountability Regime to include all APRA-regulated entities. The Government will also establish a new Financial Regulator Oversight Authority as recommended by the Royal Commission to assess ASIC and APRA’s effectiveness on an ongoing basis;
  • establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives – a regulator for the Regulators;
  • undertaking a capability review of APRA to examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission.

The Government will also fund the appointment of additional judges for the Federal Court to expand its jurisdiction with respect to corporate crime.  The measure was contained in the Government’s response to the Royal Commission.

The cost of these measures will be partially offset by revenue received through ASIC’s industry funding model and increases in the APRA Financial Institutions Supervisory Levies and from funding already provisioned in the Budget.

2. Protecting Your Super Package (PYSP) — insurance opt-in start date delayed

The PYSP rules introduced by the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 include new section 68AAA which prohibits RSE licensees from providing insured benefits to members whose accounts have been inactive for a continuous period of 16 months or more unless the member has expressly opted in.  The implementation of these rules has presented many a number of challenges to superannuation trustees and Regulators because of the short timeframes within which to implement a number of the measures (including transitional measures) with little opportunity for Regulatory guidance.

Complementary legislation in the form of Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 is intended to apply to new accounts for members under 25 and those with account balances of less than $6,000.  In the Budget Papers, the Government announced it would delay the start date for the Bill to 1 October 2019.

Combined, these PYSP measures are intended:

  • to protect the retirement savings of young people and those with low balances or inactive member’s accounts by ensuring their superannuation benefits are not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of; and
  • to reduce the incidence of duplicated cover so that members are not paying for multiple insurance policies, which they may not be able to claim on.

3. Superannuation — improving flexibility for older Australians

The Government repeated already introduced measures which, from 1 July 2020, will allow:

  • voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 without meeting the work test;
  • up to three years of non-concessional contributions using the bring-forward rules to be made by those aged 65 and 66;
  • spouse contributions to be made for spouses up to and including age 74, with those aged 65 and 66 no longer needing to meet a work test.

Currently, people aged 65 to 74 can only make voluntary superannuation contributions if they work a minimum of 40 hours over a 30 day period in the relevant financial year. Those aged 65 and over cannot access bring-forward arrangements and those aged 70 and over cannot receive spouse contributions.

4. Superannuation — permanent tax relief for merging superannuation funds

Since December 2008, temporary tax relief has been available for superannuation funds to transfer revenue and capital losses to a new merged or successor fund, and to defer taxation consequences on gains and losses from revenue and capital assets.  Although that relief had been extended several times most recently until 1 July, 2020 it had never been made permanent despite industry lobbying.

Given the renewed focus on fund mergers, especially following the Royal Commission and in light of APRA’s Members Outcomes package, this impediment is to be resolved by making the tax relief permanent from 1 July 2020.

Whilst the measure will remove tax as an impediment to mergers and facilitate industry consolidation, as recommended by the Productivity Commission’s final report, Superannuation: Assessing Efficiency and Competitiveness, the complexity of super funds having regard to their cultures, industrial demographics, investment strategies and stakeholder interests suggest that a greater nudge may be required notwithstanding the potential benefits of scale include cost efficiencies, efficient and better products and services, better retirement outcomes etc.

5. Superannuation — reducing red tape for superannuation funds

The Government will reduce costs and simplify reporting for superannuation funds by streamlining some administrative requirements for the calculation of exempt current pension income (ECPI).

From 1 July 2020, the Government will allow trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI.

A redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year, will also be removed.

6. Tax Integrity and Single Touch Payroll (STP) expansion — increasing engagement and on-time payment of tax and superannuation liabilities

The ATO will receive additional funding:

  • to increase activities to recover unpaid tax and superannuation liabilities from larger businesses and high wealth individuals (but not small businesses) to ensure on-time payment of their tax and superannuation liabilities;
  • to support the expansion of the data collected through STP by the ATO and the use of this data by Commonwealth agencies.  STP data will be expanded to include more information about gross pay amounts and other details and are intended to reduce the compliance burden for employers and individuals reporting information to multiple Government agencies.

The funding of increased ATO activities against larger businesses with regard to unpaid super contradicts the findings of the Superannuation Guarantee Cross-Agency Working Group which noted that (and as were reproduced in the EM to the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 (Cth)) that a significant proportion of superannuation guarantee non-compliance was attributable to small and micro businesses; being most prevalent amongst employers who run small businesses (four employees or less), constituting 97% of reports of unpaid superannuation guarantee made to the ATO.

For further information, please do not hesitate to contact us.

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