ISSUE 21– 21 MAY 2012
AON HEWITT LEGAL NEWS In this issue:
SUPERANNUATION
FEDERAL BUDGET
The Federal Budget 2012 - 2013
Ì The Federal Budget 2012 - 2013
The Federal Budget for 2012 – 2013 was announced on 8 May 2012 with two of the key initiatives being to improve the standard of living for Australians in
SUPERANNUATION
retirement and to introduce tax reforms aimed at increasing the fairness of
Ì Prudential Practice Guides re payment standards and contribution and benefit accrual standards released
personal tax and superannuation systems. Some relevant points set out in the
Ì Release of draft Prudential Standards Ì APRA releases discussion paper on MySuper authorisation requirements Ì Enhancements to SuperSeeker Ì Changes to QROPS reporting requirements enacted Ì Intra-fund consolidation of accounts Ì PJC report on Stronger Super legislation Ì ASIC Class Order re inuse notices
Budget are as follows:
1.
Contributions tax
The tax on pre-tax (concessional) contributions to superannuation will be doubled from 15% to 30% for people earning $300,000 a year or more. The definition of income for this measure will include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment losses, target foreign income, tax-free pensions and benefits, less child support.
If an individual does not exceed the threshold except for their concessional superannuation contributions the higher rate will only apply to the part of the concessional contribution that is above the $300,000 threshold. For those few employees who are in a defined benefit plan the employer’s notional contribution is categorised as a concessional contribution.
2.
Concessional contribution limits
In last year’s budget, the government announced that from 1 July 2012 the limit on pre-tax (concessional) contributions for the over 50s would be cut from
BUZZ – Issue 21 – 21MAY 2012 In this issue:
$50,000 to $25,000. There was an exception for individuals over 50 with a superannuation balance of less than $500,000 who would still be able to
FINANCIAL PLANNING
contribute up to $50,000 pre tax. This year’s budget deferred this change until 1
Ì FOFA update
July 2014 meaning that until this date the pre-tax contribution limit for all
Ì ASIC shadow shopping Ì Draft AML/CTF rules Ì Financial Planning Association - new training regime Ì ASIC Class Order re time critical FSGs
individuals, regardless of age and account balance, will be $25,000.
3.
Tax regime – financial advisers
The proposal to require financial advisers to comply with the Tax Agent Services Act 2009, from 1 July 2012 has now been deferred until 30 June 2013.
In addition to the two new superannuation measures listed in points 1 and 2, the INSURANCE Ì APRA releases general insurance statistical publication
Government confirmed in the Budget, the following measures that had previously been announced:
4. SEMINARS Ì June – August 2012
CGT and loss relief
The Government has confirmed that from 1 June 2012 to 1 July 2017, optional loss relief will be available for mergers of complying superannuation funds to ensure that income tax considerations do not prevent mergers of superannuation funds in the transition to Stronger Super and MySuper.
Further, from 1 July 2013 to 1 July 2017 an optional rollover and loss relief will be available for capital gains and losses on the mandatory transfers of existing default members, balances and relevant assets to a MySuper product in another complying fund.
5.
Recovery of Stronger Super implementation costs
The Government has confirmed they will provide more than $467 million towards implementation of the SuperStream reforms particularly in relation to information technology systems for key agencies such as the ATO and will also provide funding to ASIC to assist in establishment of an online registration system for auditors of SMSFs.
The additional SuperStream costs will be recovered through a temporary levy on APRA-regulated funds from 2012-2013.
Source: Australian Government, ‘Budget Overview’, 8 May 2012 Aon Hewitt Federal Budget 2012 report – highlights and analysis ASFA Home, ‘Budget 2012 Special Edition’, Issue 460, 8 May 2012
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BUZZ – Issue 21 – 21MAY 2012 SUPERANNUATION
Prudential Practice Guides re payment standards and contribution and benefit accrual standards released
In early April the Australian Prudential Regulation Authority released two revised prudential practice guides, on the following topics: •
Contribution and benefit accrual standards for regulated superannuation funds (SPG 270)
•
Payment standards for regulated superannuation funds and approved deposit funds (SPG 280)
The purpose of the two guides is to assist RSE licensees in understanding what APRA regards as sound practice in relation to the above processes, while satisfying their legislative obligations pursuant to Parts 6 and 7 of the Superannuation Industry (Supervision) Act 1993 and related regulations.
The guides were released in draft in August 2011 and have been revised following industry feedback. Importantly, the guides do not contain any new requirements for RSE licensees.
The guides can be accessed in full at: http://www.apra.gov.au/Super/PrudentialFramework/Pages/superannuationppgs.aspx
Source: Australian Prudential Regulation Authority, Prudential Practice Guide ‘SPG 270 – Contribution and benefit accrual standards for regulated superannuation funds’, April 2012 Australian Prudential Regulation Authority, Prudential Practice Guide ‘SPG 280 – Payment standards for regulated superannuation funds and approved deposit funds’, April 2012
Release of draft Prudential Standards
The Australian Prudential Regulation Authority has released draft superannuation prudential standards and a response to the submissions received from the public on the topic of implementation of such standards.
The eleven standards comprise a combination of standards which cover matters common to other APRA-regulated industries as well as superannuation industry specific matters.
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BUZZ – Issue 21 – 21MAY 2012 The six standards covering all APRA-regulated industries are: •
Prudential Standard SPS 220 Risk Management
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Prudential Standard SPS 231 Outsourcing
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Prudential Standard SPS 232 Business Continuity Management
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Prudential Standard SPS 310 Audit and Related Matters
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Prudential Standard SPS 510 Governance
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Prudential Standard SPS 520 Fit and Proper
The five standards specific to superannuation are as follows: •
Prudential Standard SPS 114 Operational Risk Financial Requirement
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Prudential Standard SPS 160 Defined Benefit Matters
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Prudential Standard SPS 250 Insurance in Superannuation
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Prudential Standard SPS 521 Conflicts of Interest
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Prudential Standard SPS 530 Investment Governance
The draft standards and APRA’s response paper can be accessed in full at: http://www.apra.gov.au/Super/Pages/Prudential-Standards-for-SuperannuationApril-2012.aspx
APRA is accepting submissions on the drafts until 20 July 2012.
Source: APRA media release 12.13 ‘APRA releases response to submissions and draft prudential standards for superannuation’, 27 Apr 2012 APRA website
APRA releases discussion paper on MySuper authorisation requirements
The Australian Prudential Regulation Authority has released for consultation a draft discussion paper regarding proposed arrangements for the authorisation of MySuper products.
In conjunction with this, APRA has released a draft authorisation application form and instructions, as well as draft Prudential Standard SPS 410 MySuper Transition (SPS 410) which details the requirements for trustees moving member balances into a MySuper product.
APRA has indicated that they encourage RSE licensees who are considering offering a MySuper product to use the draft application form and instructions in their discussions with the Board on their plans.
The authorisation process for RSE licensees wishing to offer MySuper products will commence from 1 January 2013. Once authorised, RSE licensees can offer these products from 1 July 2013 onwards. 4
BUZZ – Issue 21 – 21MAY 2012 Draft SPS 410 outlines requirements for all RSE licensees during the transition period from 1 July 2013 to 1 July 2017, by which date all accrued default amounts must be in a MySuper product except in limited circumstances.
APRA is receiving submissions on the discussion paper until 29 June 2012.
The consultation package is available in full at: http://www.apra.gov.au/Super/Pages/MySuper-Authorisation-and-TransitionMay-2012.aspx
Source: APRA media release 12.14 ‘APRA releases proposed MySuper authorisation requirements’, 3 May 2012 APRA website
Enhancements to SuperSeeker
The ATO has recently released enhancements to the SuperSeeker functionality which comprises one of the ATO’s first deliverables under the SuperStream reforms.
SuperSeeker is a service whereby people can keep track of and manage their superannuation.
Trustees and administrators need to be aware that individuals will now be able to access the enhanced program that displays the most recent active superannuation accounts to which they have made a contribution, as well as a broader range of ATO-held super money.
Members will continue to be able to check for lost super accounts reported to the ATO and to initiate a transfer of funds to consolidate their accounts.
The ATO is accepting feedback regarding the enhancements.
More information is available on the ATO’s SuperSeeker website: http://www.ato.gov.au/individuals/content.aspx?doc=/content/33301.htm
Source: ASFA Action, ‘ATO releases enhancements to SuperSeeker’, Issue 459, 4 May 2012
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BUZZ – Issue 21 – 21MAY 2012 Changes to QROPS reporting requirements enacted
By way of background, from 6 April 2006 in order to avoid significant taxation of transfers from UK pension schemes to other jurisdictions, receiving superannuation funds had to be certified by HM Revenue and Customs (HMRC) as a Qualifying Recognised Overseas Pension Scheme (QROPS).
The Registered Pensions Schemes and Overseas Pensions Schemes (Miscellaneous Amendments) Regulations 2012 came into effect on 6 April 2012. The Regulations contain considerable changes to the QROPS system which make obligations much more onerous for superannuation funds. The changes apply to all existing QROPS and to funds applying to be a QROPS from 6 April 2012. Transfers and payments made prior to that date are to be processed and reported under the current existing arrangements.
The key changes relevant to Australian superannuation funds are as follows: •
The QROPS reporting period, within which the fund trustees are required to report to HMRC any payments to members, will be increased to 10 years after the member transfers out of a UK pension scheme (currently it is a period of five years from when the member became UK non-resident)
•
Any distribution from a QROPS, within 10 years of the member becoming non-UK resident, must be reported to HMRC within 60 days of the payment or transfer (currently it is an annual requirement for payments made in a UK financial year)
•
Updated forms are to be used which expand the information to be provided to HMRC
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Introduction of a new obligation to report material changes to previously reported information
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Introduction of a new reporting requirement where a fund ceases to be, or qualifies to be, a QROPS
More information regarding the changes is available at: http://www.hmrc.gov.uk/pensionschemes/transfers-qrops.htm
Source: ASFA Home, ‘QROPS changes now law’, Issue 456, 2 April 2012
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BUZZ – Issue 21 – 21MAY 2012 Intra-fund consolidation of accounts
The Government recently released, and sought consultation on, an exposure draft of legislation relating to the intra-fund consolidation of superannuation interests.
The exposure draft expands the duties of superannuation trustees in the SIS Act to establish a procedure to consolidate inactive member interests within a fund where members have multiple interests within the fund.
If enacted, superannuation trustees will have a duty to establish rules setting out a procedure for consolidating a member’s inactive interests on an annual basis. Additionally, such rules must be published so that a fund’s members become aware of the consolidation procedure.
An inactive interest will exist where an account has a withdrawal benefit of under $1,000 and no contributions, rollovers or transfers have been made to the account for 2 years or more, or the account is a lost account (as defined in the SIS Regulations). An inactive interest will also include a member’s interest within an eligible rollover fund.
The draft sets out that, as a minimum, the rules established by the trustee must enable consolidation of inactive accounts within a fund where a member’s superannuation interests have the same rights and benefits. This consolidation will occur without the requirement for member consent. If enacted, this measure will commence on 1 July 2012.
The exposure draft and explanatory memorandum can be accessed in full at: http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/Intrafund-consolidation-of-superannuation-interests
Source: Superannuation Legislation Amendment 2 (Stronger Super and Other Measures) 3 Bill 2012: Intra-fund consolidation of 4 superannuation interests and explanatory memorandum
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BUZZ – Issue 21 – 21MAY 2012 PJC report on Stronger Super legislation
The Parliamentary Joint Committee has released its report on the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 relating to the MySuper reforms.
In their report, the Committee made three recommendations: •
That proposed section 29TB of the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 be redrafted to clarify that the large employer requirement of 500 or more members of the fund needs to be satisfied upon authorisation of the MySuper product and at the end of each annual reporting period
•
That a clause be inserted into proposed subsection 29U(2) of the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 allowing APRA to grant a grace period of up to six months for large employers whose member fund numbers have fallen below the 500 member threshold as part of the annual check. In exercising this judgment, APRA should be satisfied that the employer is likely to comply with the threshold in the near future
•
That the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 be passed
The report and related information can be accessed in full at: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committee s?url=corporations_ctte/MySuper/report/index.htm
Source: ASFA Home, ‘Superannuation Legislation Update’, Issue 454, 23 March 2012 Parliamentary Joint Committee on Corporations and Financial Services Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012, March 2012
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BUZZ – Issue 21 – 21MAY 2012 ASIC Class Order re in-use notices
ASIC has released Class Order 12/415 regarding in-use notices for employersponsored superannuation. The Class Order provides flexibility in relation to how in-use notice information is provided to ASIC for employer-sponsored superannuation products due to the unique nature of those products.
The Class Order introduces a new section of the Corporations Act, Section 1015DA which provides an alternative notice facility for PDS’ for superannuation products that meet the following criteria: •
An accumulation product and
•
An interest in a public offer superannuation fund that is a standard employer-sponsored fund
•
The PDS is made up of a common part and a variable choice part and
•
A Supplementary PDS that supplements a PDS meeting the above criteria and for which a notice has not been lodged with ASIC
In the situation specified above, the Section requires two notices to be lodged with ASIC, as follows: •
The primary notice – this must be lodged with ASIC either within 5 business days after the common part of the PDS is first given to someone or the Supplementary PDS is first given to someone in a recommendation, issue or sale situation
•
The secondary notice – this must be lodged with ASIC within 5 business days of the end of each month until such time as no PDS that includes the common part is available to be given to someone in a recommendation, issue or sale situation.
Section 1015DA provides more detail on what the notices should contain and what constitutes a ‘common part’ for the purposes of this Section.
Source: ASIC Class Order [CO 12/415] ‘In-use notices for employer-sponsored superannuation’, issued 26/04/2012 The Corporations Act 2001
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BUZZ – Issue 21 – 21MAY 2012 FINANCIAL PLANNING
FOFA update
The two pieces of legislation introducing the Future of Financial Advice Reforms are currently with the Senate, having passed through the House of Representatives in March.
The reforms will commence on 1 July 2012 however implementation of the majority of them will be voluntary until 1 July 2013 to enable the industry to be better prepared for their introduction.
There have been some amendments to the Bills by the House of Representatives as they were being passed. The most notable changes are as follows: •
Tranche 1 -
Enable ASIC to provide Class Order relief from the opt-in requirements to licensees and representatives who sign-up to an ASIC-approved code of conduct by 2015
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Some technical changes including relating to the minimum period of ongoing fee arrangements, the period to which a fee disclosure statement relates and anti-avoidance provisions
•
Tranche 2 -
The timing of the judgment as to the reasonable steps which an adviser must take to act in the client's best interests
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That the inquiries which an adviser must make can be tailored or narrowed to reflect the scale or subject matter of the advice sought by the client
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The exemption with respect to execution-only services
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Provisions with respect to grandfathering
Copies of the amended legislation can be found at: http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_ Results/Result?bId=r4689 and http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_ Results/Result?bId=r4739.
Source: ASFA Home, ‘FOFA commencement amendments’, Issue 457, 11 April 2012 Corporations Amendment (Future of Financial Advice Measures) Bill 2012 Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 10
BUZZ – Issue 21 – 21MAY 2012 ASIC shadow shopping
ASIC has released their full report containing the results of their recent shadow shopping exercise.
ASIC’s project looked at 64 examples of personal financial advice given to real consumers across 36 different Australian Financial Services licensees.
ASIC’s key findings were that 58% of the advice examples reviewed were adequate, 39% of the advice examples were poor, and 3% (two examples) constituted good quality advice.
Among the advice they considered to be poor or adequate, ASIC has identified the following themes: •
Inaccurate or incomplete investigation of the client’s personal circumstances
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Recommended strategies did not address the client’s needs or objectives
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Examples of conflicted remuneration structures, such as product commissions and percentage asset-based fees, impacting on the advice and recommendations, and on the quality of advice
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Poor scoping of advice
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Failing to provide appropriate justification for switching recommendations
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Poor communication in the Statement of Advice
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While in some cases there were valid reasons, approximately one third of advice did not provide cash flow projections to show how the recommended strategy would meet the client's income and expenditure objectives
Advice rated as adequate also had good elements, but fell short due to significant weaknesses in the recommended strategy or products. Poor quality financial advice failed to meet the Corporations Act requirement that the adviser has a reasonable basis for their advice.
The report includes real examples of both good and poor advice and sets out initiatives that ASIC are involved in to assist in improving the quality of advice, including: •
The Future of Financial Advice Reforms will play a key role in lifting standards in the industry and putting greater focus on the client
•
ASIC are working with the financial planning industry associations and individual firms to provide more information on the findings in the report to help them focus on areas that will improve advice quality
•
ASIC are reviewing the Getting Advice booklet and refining the MoneySmart website content to ensure that consumers are well equipped 11
BUZZ – Issue 21 – 21MAY 2012 to find the right financial adviser
Source: ASIC, Report 279 ‘Shadow shopping study of financial advice’, March 2012 ASIC, media release ‘ASIC releases full report on retirement advice shadow shopping research’, 27 March 2012
Draft AML/CTF rules
Draft amendments have been made to Chapter 29 of the AML/CTF Rules relating to record keeping obligations.
Section 107 of the AML/CTF Act requires reporting entities that make a record of a designated service provided to a client to keep a copy of such record for a period of 7 years, unless there is an applicable exemption under the AML/CTF Rules.
In these current amendments, it is proposed that Chapter 29 of the Rules contain an exemption from the requirement in Section 107 where the record is an electronic file created solely for the purpose of submitting electronic reports to AUSTRAC in a manner and form approved by the AUSTRAC CEO relating to the movement of physical currency or bearer negotiable instruments into or out of Australia.
The reason for the exemption is that AUSTRAC considers it to be an unnecessary financial and administrative burden to require reporting entities to keep electronic files which duplicate relevant information already held by a reporting entity, for a period of seven years.
These amendments were the subject of consultation for the period 27 March to 23 April 2012.
Source: Anti-Money Laundering and Counter-Terrorism Financing Rules 2007 AUSTRAC Draft AML/CTF Rules amending Chapter 29
Financial Planning Association - new training regime
The FPA, in conjunction with the Financial Planning Education Council, has announced the launch of a national consultation framework on the curriculum and accreditation requirements for financial planning education in Australia.
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BUZZ – Issue 21 – 21MAY 2012 The FPA hopes to obtain a viewpoint regarding a form of professional/academic relationship with the financial services community, as well as get a consensus view on the content and structure for a harmonised national curriculum in financial planning.
The consultation is open to all higher education providers and will run until 30 June. It has arisen as a response to recognition in recent years of the importance of quality, timely and professional financial advice for individual Australians.
Source: Financial Planning Association of Australia, media release ‘FPA establishes higher education program in financial services’, 23 April 2012
ASIC Class Order re time critical FSGs
ASIC has recently released Class Order 12/417 which provides that a FSG given after the provision of a financial service in a time-critical situation is the same as an FSG that would have been required to be given before the provision of a service in a non time critical case. This removes the need to provide additional information in the FSG that subsequently becomes available as a result of the written FSG being provided in time-critical cases up to 5 days after the provision of the financial service.
The Class Order can be accessed in full at: http://asic.gov.au/asic/pdflib.nsf/LookupByFileName/co12-417.pdf/$file/co12417.pdf
Source: ASIC, Class Order 12/417, ‘Information in a Financial Services Guide given in a time-critical situation’, issued 26/4/2012
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BUZZ – Issue 21 – 21MAY 2012 INSURANCE
APRA releases general insurance statistical publication
APRA has released their annual general insurance statistical publication for the year ending 30 June 2011, in a new format.
The publication contains details of State level premium and claims expenses for direct insurers, information about public insurers’ financial performance, position, and premiums and claims by class of business.
The publication is available in full at: http://www.apra.gov.au/GI/Publications/Pages/General-InsuranceSupplementary-Statistical-Tables.aspx
Source: APRA Statistics – ‘General Insurance Supplementary Statistical Tables’, June 2011 (issued 21 March 2012)
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BUZZ – Issue 21 – 21MAY 2012 SEMINARS
June – August 2012 Please find below a selection of upcoming industry seminars which may be of interest to you. If you have any queries about these, please do not hesitate to contact us.
June 20 AILA, NSW, Twilight Seminar “The Financial Ombudsman Service” Sydney Go to http://www.aila.com.au/
June 20 AILA, NSW, Twilight Seminar Series “Practice Aspects of Dispute Resolution” Sydney Go to http://www.aila.com.au/
July 3 ASFA NSW, Super Industry Issues Discussion Group Sydney Go to http://www.superannuation.asn.au/
July 12 ASFA NSW, 2012 ASFA Policy Roadshow Sydney Go to http://www.superannuation.asn.au/
July 13 ASFA QLD, 2012 ASFA Policy Roadshow Brisbane Go to http://www.superannuation.asn.au/
July 16 ASFA WA, 2012 ASFA Policy Roadshow Perth Go to http://www.superannuation.asn.au/
July 16 ASFA/ CSA NSW, National Defined Benefits Discussion Group Sydney Go to http://www.superannuation.asn.au/
July 16 ASFA/ CSA VIC, National Defined Benefits Discussion Group Melbourne Go to http://www.superannuation.asn.au/
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BUZZ – Issue 21 – 21MAY 2012 July 17 ASFA SA, 2012 ASFA Policy Roadshow Adelaide Go to http://www.superannuation.asn.au/
July 25 ASFA VIC, 2012 ASFA Policy Roadshow Melbourne Go to http://www.superannuation.asn.au/
August 7 ASFA NSW, Super Industry Issues Discussion Group Sydney Go to http://www.superannuation.asn.au/
Aon Hewitt Limited ABN 48 002 288 646 AFS Licence 236667 While care has been taken in the production of this document and the information contained in it, Aon Hewitt does not make any representation as to the accuracy of this report and accepts no liability for any loss incurred by any person who may rely on it. In all cases, any recipient shall be entirely responsible for their use of this document. © 2012 Aon Hewitt
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