Super Alert – 15 February 2019

This edition of the Super Alert notes responses from APRA and the Treasurer following the Royal Commission’s Final Report, the passage of the Treasury Laws Amendment Bill which contains the government’s ‘SG integrity package’ and other updates.

APRA capability review – panel appointed

On 11 February 2019, the Treasurer announced that the Federal Government has appointed an ‘expert panel that will lead a capability review of [APRA]’. This appointment is in response to recommendation 6.13 of the Royal Commission’s Final Report which recommended that ‘[a] capability review should be undertaken for APRA as soon as is reasonably practicable’.

The panel will include Graeme Samuel (Chair), Diane Smith-Gander and Grant Spencer. According to the Treasurer, ‘[the] panel’s work will commence in March 2019 and will report to government by 30 June 2019’. In particular, the panel will review ‘APRA’s capability to regulate superannuation entities for the benefit of members, the role of enforcement activities and coercive powers and the supervision of culture, governance and remuneration in regulated institutions’.

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APRA’s updated Royal Commission plans

On 11 February 2019, APRA provided an update on its plans in relation to specific recommendations contained in the Royal Commission’s Final Report.

It noted that the Royal Commission ‘recommended a strengthening of APRA’s prudential and supervisory framework in a number of areas. APRA is committed to implementing the recommendations expeditiously. There are 10 recommendations requiring APRA’s direct attention’. It also noted that it is ‘examining each of the 12 matters in relation to individual entities that have been referred to it by the Royal Commission’.

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Treasury Laws Amendment Bill passed

On 12 February 2019, the Treasury Laws Amendment (2018 Measures No 4) Bill 2018 passed all stages of Parliament. It contains a range of measures. In relation to superannuation it includes the Government’s ‘SG integrity package’, which according to the Explanatory Memorandum comprises the following measures to:

• ‘allow the Commissioner in cases where employers fail to comply with their superannuation guarantee obligations, to issue directions to pay unpaid superannuation guarantee and undertake superannuation guarantee education courses;
• allow the Commissioner to disclose more information about superannuation guarantee non-compliance to affected employees;
  extend Single Touch Payroll reporting to all employers;
• facilitate more regular reporting by superannuation funds;
• improve the operation of the Commissioner’s collection and compliance measures; and
• streamline employee commencement processes’.

It also contains a technical (but important) change in relation to provisions concerning revisionary transition to retirement income streams. The amendments modify ‘the rules that determine when a TRIS is in the retirement phase. The changes ensure that reversionary TRISs can always be paid to a reversionary beneficiary, irrespective of whether they have satisfied a condition of release’.

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Case – TPD benefit clause construction

On 13 February 2019, the decision of Qantas Superannuation Limited v McAulay [2019] FCA 109 was handed down. It was an appeal from the Superannuation Complaints Tribunal (SCT), which was allowed by the Federal Court.

It turned on the construction of a quite particular rule in the trust deed regarding a member’s total and permanent disablement (TPD).The trustee had offset social security benefits received (and to be received by the member to the age of 67) against the TPD benefit payable from the Fund. While the member did not dispute the deduction of social security benefits already received ($11,994), he did dispute the deduction of social security benefits estimated to be received in the future ($296,993).

The SCT agreed with the member, but on appeal the Federal Court decided to set aside the decision of the SCT. The parties agreed that the matter did not need to be remitted to the SCT. Accordingly, the trustee’s original decision to offset both amounts stood.

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Improving Accountability and Member Outcomes Bill – amendments proposed

The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 is presently before Parliament, and on 14 February 2019 a range of amendments were proposed to it in response to recommendations of the Royal Commission.

According to the Treasurer’s media release, the amendments tabled act on two recommendations to enhance accountability of superannuation funds and strengthen protections for consumers:

• ‘In his Final Report, Commissioner Hayne recommended (Recommendation 3.7) that breach of the trustee’s covenants or the director’s covenant or obligations should be enforceable by action for civil penalty. … The Government has already introduced legislation that would see directors subject to civil penalties for breaches of their best interests obligations and now we are immediately acting on Commissioner Hayne’s recommendation that these penalties extend to trustees’.
• ‘The Commissioner also recommended (Recommendation 3.6) that trustees be prohibited from “treating” employers in return for “having the recipient nominate the fund as a default fund or having one or more employees of the recipient apply or agree to become members of the fund”. … The Government is also immediately acting on this recommendation”.’

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This alert was written by Natalie Cambrell, Partner, Damian Tarulli, Special Counsel and Sanela Osmanovic, Associate.