Super Alert – 25 February 2019

This week’s edition of the Super Alert considers the numerous superannuation Bills which have been considered by Parliament in the past week as well as ASIC’s update to its Royal Commission actions.

New Bill introduced to make minor changes to FHSSS and SIS Act

On 13 February 2019, the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019 was introduced to the House of Representatives and received its first reading. According to the Explanatory Memorandum, the Bill makes a number of changes to superannuation laws such as:

• “Bringing forward the time that an individual can enter into a contract to purchase or construct their first home under the [First Home Super Saver Scheme]”, by allowing individuals to “enter into a contract to purchase or construct their home as long as they have applied for and received a First Home Super Saver determination, and have applied for a valid request for release under that determination within 14 days of entering into the contract”. This will remove the requirement to have to wait for the release of the amount from their superannuation before entering into a contract; and
• Removing or amending “a number of transitional provisions that were included in the SIS Act when it was enacted” given that “the transition to the SIS Act occurred 25 years ago”.

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Supporting Retirement Incomes Bill

On 14 February 2019, the Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Bill 2018 was passed by Parliament and now awaits Royal Assent. The Bill amends social services legislation to implement changes proposed by the Government in its May 2018 Budget, including the introduction of means testing rules to encourage the development and take-up of lifetime retirement income stream products.

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Improving Accountability and Member Outcomes in Superannuation Bill passed by Senate with amendments

On 14 February 2019, the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 was passed by the Senate with amendments and is currently before the House of Representatives to consider the changes.

The major amendments to the Bill (from the second reading on 4 December 2017) are as follows:

• Inserting new covenants in sections 52(9) to (13) of the SIS Act to require a trustee to “determine, in writing, on an annual basis, for each MySuper product and choice product offered by the entity, whether the financial interests of the beneficiaries of the entity who hold the product are being promoted by the trustee” using benchmarks set under prudential standards or specified by regulations;
• Inserting a new section 54B in the SIS Act to make contraventions of the covenants in sections 52 and 52A to be civil and criminal penalty provisions (in response to recommendation 3.7 of the Royal Commission’s Final Report);
• The commencement date for the portfolio holdings disclosure rule will be 31 December 2019 for all MySuper and choice products; and
• Giving effect to recommendation 3.6 of the Royal Commission’s Final Report by preventing trustees from influencing “the choice of the fund into which the person pays superannuation contributions for employees of the person who have no chosen fund” or influencing “the person to encourage one or more of the person’s employees to remain, or apply or agree to be, a member of the fund” by making amendments to section 68A of the Superannuation Industry (Supervision) Act 1993, which will be a civil penalty provision.

According to a related media release issued by the Treasurer, the amendments relating to the recommendations from the Royal Commission will “enhance accountability of superannuation funds and strengthen protections for consumers”.

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Bill to increase penalties for corporate crime passed by both houses

On 18 February 2019, the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 was passed by both houses and now awaits Royal Assent.

Last week on 14 February 2019, the Bill had been passed by the Senate with 35 amendments. These amendments were all accepted by the House of Representatives. According to the Schedule of Amendments, these predominantly related to increasing the term of imprisonment for certain corporate crimes to 15 years (the first version of the Bill had proposed 10 years) and increasing civil penalties for companies to 2.5 million penalty units ($525 million dollars).

In an associated media release issued on 15 February 2019, ASIC welcomed that the Bill implemented the recommendations of the ASIC Enforcement Review Taskforce and outlined that in its view, “notable features” of the Bill were:

• “Maximum prison penalties for the most serious offences will increase to 15 years. These include breaches of director’s duties, false or misleading disclosure and dishonest conduct”;
• “Civil penalties for companies will significantly increase, now to be capped at $525 million”;
• “Maximum civil penalties for individuals will increase to $1.05 million and can also take in to account profits made”; and
• “Civil penalties will apply to a greater range of misconduct, including licensee’s failure to act efficiently, honestly and fairly, failure to report breaches and defective disclosure”.

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Protecting Your Superannuation Package Bill

On 18 February 2019, the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 was passed by Parliament, with 22 amendments having been made by the Senate and then agreed to by the House of Representatives. It now awaits Royal Assent.

According to the Bill’s original Explanatory Memorandum, the Bill seeks to ensure that superannuation savings are not “unnecessarily eroded by fees or inappropriate insurance arrangements”. This is sought to be achieved by making various amendments to the Superannuation Industry (Supervision) Act 1993 and Superannuation (Unclaimed Money and Lost Members) Act 1999 (and consequential amendments to relevant tax legislation).

As amended and passed, the Bill amends the law to:

• Prevent trustees of superannuation funds from charging administration and investment fees, and associated costs, which exceed 3 per cent of a member’s account balance where the balance of the account is below $6,000 on the last day in the income year that the member holds the account;
• Prevent trustees of superannuation funds from charging exit fees;
• Prevent trustees from providing “opt out” insurance cover to members with inactive MySuper or choice accounts, unless a member has directed otherwise (an account will be considered inactive if no contributions or rollovers have been received for a continuous period of 16 months);
• Require the transfer of all superannuation savings with balances below $6,000 to the ATO if an account has been inactive for a continuous period of 16 months (unless in that period the member made an investment option switch, changed insurance cover, amended or made a binding beneficiary nomination, declared to the ATO that he or she was not a member of an inactive low-account balance, or if the member owes an amount to the trustee, in which case the account will not be considered inactive); and
• Require the ATO in certain circumstances to pay amounts held by the ATO into a member’s active superannuation account, where the reunited account balance would be greater than $6,000.

The changes commence on 1 July 2019.

On 22 February 2019, Tresuary released exposure draft Regulations (Tresuary Laws Amendment (Protecting Your Superannuation Package) Regulations 2019) to support the measures in the Bill. Submissions on the exposure draft Regulations are open until 1 March 2019.

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Whistleblower reforms

On 19 February 2019, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 was passed by the House of Representatives and now awaits Royal Assent.

The Bill has had a long gestation, as described in the Explanatory Memorandum. Essentially, an earlier version of the Bill was introduced to Parliament in late 2017, but has now been significantly amended to address feedback that the relevant whistleblower protections required further reform.

According to a media release of the Assistant Treasurer, the passage of the Bill in its final form “has strengthened corporate and tax whistleblower protections establishing a single, strengthened whistleblower protection regime for the corporate, financial and credit sectors and creating a new protection regime for reporting tax misconduct.”

The Bill will require, among other things, trustees of superannuation funds to have whistleblower policies and make the policies available to officers and employees.

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ASIC update on implementation of Royal Commission recommendations

On 19 February 2019, ASIC issued a media release in relation to an update to its implementation of the Royal Commission’s recommendations. The original statement from ASIC was released on 4 February 2019 and related to the Royal Commission’s recommendations which were directed at ASIC that do not have a “need for legislative change”.

According to ASIC, it is committed to fully implementing each of the recommendations, which are listed in a table at the end of the update document and outline ASIC’s response to each.

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Bill to make insurance in superannuation opt-in only for under 25’s and low account balance members

On 20 February 2019, the Treasurer announced that the Government will introduce to Parliament the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, which will require insurance in superannuation for under 25 year olds and members with low balance accounts to only be offered on an opt-in basis from 1 October 2019. This Bill effectively re-introduces those parts of the Government’s proposals in relation to insurance in superannuation which could not be included in the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 due to the negotiations required to get that Bill passed. The Bill was introduced to the House of Representatives later that day.

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AFCA Rules – extended to hear complaints from 2008

On 20 February 2019, the Government announced that it ‘has extended the Australian Financial Complaints Authority’s (AFCA) remit to consider financial complaints dating back to 1 January 2008, providing expanded access to redress for consumers and small businesses harmed by financial misconduct.’ This is to ensure that AFCA is able to review eligible complaints over the same time period as the Royal Commission did, which considered cases of financial misconduct dating back to 1 January 2008. The media release indicates that ‘AFCA will consider [these] eligible complaints between 1 July 2019 and 30 June 2020.’

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Exposure draft Regulations – ban on grandfathering of conflicted remuneration

On 22 February 2019, Treasury released exposure draft legislation Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 which, if passed, would ban grandfathering of conflicted remuneration paid to financial advisers. This has been done by the Government to respond to recommendation 2.4 of the Royal Commission’s Final Report. The intended date of effect is 1 January 2021, and submissions on the exposure draft legislation are open until 22 March 2019.

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