Superannuation monthly update – April 2020
Regulator updates
ASIC COVID-19 Information for superannuation trustees (1 to 16 April 2020)
Over April, ASIC issued and/or updated the following frequently asked questions about current superannuation regulatory issues that have arisen from the COVID-19 pandemic1:
Early access to superannuation scheme
1. What is ASIC doing to allow greater access to advice through superannuation as a result of COVID-19?
A package of measures has been announced by ASIC, including a temporary no-action position allowing the provision of certain expanded intra-fund advice relating to early access to superannuation. As outlined in the no-action position, trustees must notify ASIC if they rely on this no-action position.
This FAQ was last updated on 14 April 2020.
2. How should trustees communicate the potential long-term impacts of the COVID-19 early release of superannuation scheme on retirement balances?
All communications by trustees about the COVID-19 early release of superannuation scheme should be clear, accurate, balanced and must not mislead or deceive. Where communications use projections or estimates of the impact on future retirement balances, ASIC considers trustees can minimise the risk of making misleading statements by:
- presenting estimated impacts adjusted for inflation (that is, estimates are expressed in today's dollars)
- adopting standards and assumptions that are consistent with:
- the default settings of the existing generic calculator provided by the trustee relying on ASIC Corporations (Generic Calculators) Instrument 2016/207 (in circumstances where the trustee makes available such a calculator); or
- ASIC Class Order [CO 11/1227], in all other circumstances. (For instance, estimates consistent with CO 11/1227 would assume:
- that wages will increase at the same rate as inflation
- investment earnings of 3% per year after inflation and investment fees
- annual administration fees and costs of an average member in a relevant investment option selected for modelling purposes
- a constant rate of super contributions until retirement
- retirement at age 67
- annual insurance premiums of an average member in the selected investment option
- that current tax and superannuation laws remain unchanged.)
- clearly disclosing the assumptions and variables used in the modelling and that the figures disclosed are merely estimates.
ASIC notes that this FAQ is not intended to expand the scope of the licensing relief provided by ASIC Class Order [CO 11/1227].
Where trustees suggest members access a generic calculator to calculate the impact of accessing the COVID-19 early release of superannuation scheme on the member's own retirement balance, then the calculator should operate consistently with ASIC Corporations (Generic Calculators) Instrument 2016/2017.
This FAQ was last updated on 16 April.
Recalibration of regulatory priorities due to COVID-19
1. Will ASIC be amending ASIC Class Order [CO 14/443] to extend relief from portfolio holdings disclosure obligations?
Yes. In November 2019, ASIC amended [CO 14/443] to defer the first reporting date to identify the holdings of a superannuation fund to 31 December 2020 because the regulations setting out the required disclosures had not yet been made.
As at 16 April 2020, the regulations have not yet been made.
ASIC recognises that the current conditions may make it difficult for trustees to prioritise the development of appropriate disclosures even if the regulations were made soon. As such, ASIC will defer the first reporting date for portfolio holdings disclosure from 31 December 2020. Further details about this deferral will be announced on ASIC's website.
This FAQ was last updated on 16 April 2020.
2. Will ASIC be providing any relief from the requirement to hold an annual members' meeting under section 29P of the Superannuation Industry (Supervision) Act 1993 (SIS Act)?
Not at this stage. We will closely monitor conditions and revisit this issue if appropriate.
Most trustees have until 31 December 2020 to provide members with notice of the annual members' meeting. For these trustees, the meetings can be held as late as March 2021. By this time, the current challenges with holding a physical meeting may not persist.
Furthermore, electronic or virtual annual members' meetings are expressly contemplated in section 29P and the Explanatory Memorandum to the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2019, which introduced section 29P.
The objective of the annual members' meeting requirement is to increase accountability and transparency by giving members an opportunity to discuss key aspects of the fund and provide a forum for questions about the fund's performance and operations. Consistent with this objective and section 29P(5), ASIC expects trustees to hold annual members' meetings in a manner that enables member participation and discussion.
ASIC notes that section 29P provides for regulations prescribing further requirements and such regulations have not yet been made. ASIC considers that trustees can still hold an annual member's meeting in the absence of these regulations.
This FAQ was last updated on 1 April 2020.
3. Will the publication of the industry level findings from the joint work on trustee's oversight of fees and other charges be deferred?
Yes. Publication of the findings of this work will be deferred for six months.
During 2019, APRA and ASIC required all trustees to review the robustness of their existing governance and assurance arrangements for fees charged to members' superannuation accounts. APRA and ASIC have since engaged with individual trustees on the outcomes of their reviews, ensuring that trustees have credible plans for addressing identified weaknesses in a timely manner. Given the refocus of both agencies, APRA and ASIC will defer publication of the industry-level findings that was originally scheduled for the first half of 2020 for six months.
This FAQ was last updated on 1 April 2020.
4. How can I find out about how COVID-19 has affected other ASIC activities?
ASIC has announced details of changes to ASIC regulatory work and priorities in light of COVID-19. This includes details on superannuation, financial advice, managed fund and insurance activities of interest to superannuation trustees. For more details, please visit ASIC's website.
This FAQ was last updated on 16 April 2020.
Other issues
ASIC may grant exemptions from or modifications to the law in certain situations. You can apply to ASIC for relief from the requirements in the Corporations Act 2001 (Corporations Act) or SIS Act, where ASIC has the relevant exemption and modification powers.
To apply for relief, you need to provide a detailed application addressing the requirements in Regulatory Guide 51 Applications for relief (RG 51). Note paragraphs RG 51.58 to RG 51.60 in particular when applying for relief.
To the extent that an issue may be industry wide, trustees may want to engage with their industry association and consider applying for class relief.
Further details on how to apply are set out in Information Sheet 82. This includes information on fees for applications. Please send an electronic copy of your application letter to ASIC at applications@asic.gov.au.
This FAQ was last updated on 14 April 2020.
APRA Frequently Asked Questions – Superannuation trustee's response to COVID-19 (1 to 16 April 2020)
Over April, APRA issued and/or updated the following frequently asked questions about current superannuation regulatory issues that have arisen from COVID-192:
1. In light of the additional pressures on the administration of superannuation funds, what action should trustees be taking?
Trustees should be working closely with their administrator to identify critical business activities, and the extent to which those functions can continue where the administrator experiences material disruption. In APRA's view, critical activities include the day-to-day payment of benefits, processing rollover requests, investment switches and early release payments. Trustees must ensure their administrator has in place contingency plans for those activities. This is particularly critical for aspects of the administration function that are conducted offshore.
2. Will APRA continue with the Super Data Transformation project?
The Superannuation Data Transformation project will continue, however there will be a one year deferral for data collections from funds until September 2021.
Enhancing the superannuation data collection to collect accurate and comparable data on the superannuation industry is essential to enable appropriate regulatory oversight and transparency and accountability for trustees. Access to comparable and consistent data is essential for maintaining the stability of the superannuation industry and assessing the potential long term impacts of the COVID-19 pandemic on the superannuation system.
APRA will continue its internal work on the project to assess the pilot data received and finalise the remaining topic papers for Phase 1. Where trustees have capacity to engage on the project, APRA will look for new, and flexible ways to work with funds so that once the environment stabilises we are well placed to finalise the consultation process.
3. Is APRA providing trustees relief from complying with SPS515 Strategic Planning and Member Outcomes, in particular the requirement to undertake a business performance review (BPR) by 31 December 2020?
No. APRA considers that the current conditions make it even more critical for trustees to be undertaking an assessment of the performance of their business operations, including an analysis of how their operations are impacting on member outcomes. APRA expects trustees to be undertaking most of the analysis needed to comply with the requirements of the BPR. APRA will continue its work on addressing underperformance and holding entities to account.
4. APRA has some data queries underway with certain trustees – are these continuing?
Yes. APRA supervisors will continue discussions with these trustees to ensure that outstanding queries are resolved. APRA considers it critical that the next iteration of the MySuper Product Heatmap, planned for December 2020, is based on data which has been validated by APRA.
However, noting the current operational challenges faced by trustees, APRA is open to providing extensions to requests for outstanding information requests, where needed.
Trustees are encouraged to discuss timeframes with their responsible supervisor.
5. Should trustees continue to undertake a trial outcomes assessment?
APRA has been encouraging trustees to undertake a trial outcomes assessment in 2020, covering all or a subset of its MySuper and choice products. A trial outcomes assessment would be expected to provide RSE licensees with insights into the methodology, data and publication issues that may arise in respect of the outcomes assessment. Where trustees have the capacity to undertake this trial, they are encouraged (but not required) to do so, and to engage with APRA supervisors on the trial process and outcomes.
6. Will APRA's superannuation publications be released as planned?
APRA's regular statistical publications will continue, and trustees must therefore endeavour to meet their data reporting requirements as normal. As always, trustees should contact APRA at DataAnalytics@apra.gov.au and their responsible supervisor where they experience difficulty in satisfying their reporting obligations within the required timeframes.
7. Will APRA publish the updated MySuper Product Heatmap with updated fee data in June 2020?
Yes. As announced on 19 March 2020, APRA is committed to publishing the updated MySuper Product Heatmap with updated fees and costs data in June 2020.
8. Will APRA proceed with thematic activity relating to outsourcing and conflicts management, which had been planned for 2020?
APRA will postpone the commencement of this important piece of work until Q4 2020. Impacted RSE licensees have been contacted directly.
9. Will APRA take action against trustees for breaching the three-day portability rule?
Whilst RSE licensees must comply with RSE licensing law at all times, APRA's view is that the prospect of action against an RSE licensee due to failure to meet the three-day rule during exceptional circumstances (administration peak periods or material ATO superannuation service disruptions) would be remote where the RSE licensee could demonstrate that despite taking every reasonable action non-compliance was unavoidable.
10. Will the publication of the industry level findings from the joint work on trustees' oversight of fees and other charges be deferred?
Yes. Publication of the findings of this work will be deferred for six months.
During 2019, APRA and ASIC required all trustees to review the robustness of their existing governance and assurance arrangements for fees charged to members' superannuation accounts. APRA and ASIC have since engaged with individual trustees on the outcomes of their reviews, ensuring that trustees have credible plans for addressing identified weaknesses in a timely manner. Given the refocus of both agencies, APRA and ASIC will defer for six months publication of the industry-level findings that was originally scheduled for the first half of 2020.
11. In dealing with payments to members under the release of benefits on compassionate grounds (COVID-19), what are APRA's expectations of RSE licensees in terms of processing the payments?
SIS Reg 6.17D(3) requires an RSE licensee to pay the benefit to the member as soon as practicable, after having received a copy of a determination from the ATO.
In complying with this requirement, APRA expects that:
- where the RSE licensee's automated checking has not identified a red flag, payments will generally be made within five business days of receipt of a determination from the ATO
- in exceptional circumstances – such as where the RSE licensee's automated checking has identified a red flag and additional fraud or other verification steps are required, or where the payment is being made from interests held in defined benefit funds – APRA acknowledges that the process for making a payment may take longer. Nonetheless, APRA expects the RSE licensee to make payments as expeditiously as possible in these cases.
APRA acknowledges that these timeframes may extend slightly where an RSE licensee experiences a high volume of applications at any particular time.
APRA notes that such a process differs from the usual process for making payments under existing early release grounds, as the application process has additional security controls, and RSE licensees are exempt from undertaking upfront customer verification in accordance with their anti-money laundering and counter-terrorism financing (AML/CTF) obligations.
APRA announces new commencement dates for prudential and reporting standards (16 April 2020)
APRA announced that it has revised the following commencement dates to the following cross-industry prudential standards:
- CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives (phase-in of initial margin requirements) from 1 September 2020 (qualifying level $75 billion) and 1 September 2021 (qualifying level $12 billion) to 1 September 2021 and 1 September 2022, respectively
- CPS 234 Information Security (CPS 234) (third-party arrangements transition provision) from 1 July 2020 to 1 January 2021, but on a case-by-case basis. APRA will consider requests for a six-month extension by regulated entities on a case-by-case basis. Entities seeking an extension must advise APRA of the nature of their third-party arrangements, and how they are monitoring the risks associated with these arrangements.
Our thoughts
Trustees seeking to take advantage of the CPS 234 deferral need to consider whether third- or related parties "manage" information assets before seeking approval from APRA to defer CPS 234's start date in respect of those arrangements. Further, trustees need to remember that the CPS 234 deferral is not absolute – trustees seeking to rely upon the deferral should speak to their APRA supervisor.
APRA temporary suspension of the issue of new superannuation licences (7 April 2020)
APRA announced that it is temporarily suspending the issuance of new APRA licences, including RSE Licences, as a result of COVID-19, except in rare cases where the granting of a licence is necessary for APRA to carry out its mandate.
The predominant reason being for this appears to be that APRA aims to achieve an appropriate balance between financial safety and other important considerations to the community (being efficiency, competition, contestability and competitive neutrality) as part of its role in promoting financial system stability in Australia. Accordingly, APRA's experience has shown that it is challenging for new entrants to succeed even under normal economic conditions, which is why APRA does not consider it prudent to license APRA-regulated entities at this time.
Temporary no-action position for expanded intra-fund advice on early release of superannuation relating to COVID-19 (14 April 2020)
In response to the COVID-19 early release measures, ASIC has issued a temporary no-action position in relation to trustees from 14 April 2020 until 24 September 2020.
Temporary no-action position
From 14 April 2020 until 25 September 2020, ASIC does not intend to take regulatory action against trustees solely for failure to comply with section 99F of the SIS Act when providing intra-fund advice in respect of the COVID-19 early release scheme where all of the following apply:
- personal advice is provided by the trustee, or another person acting as an employee of, or under an arrangement with, the trustee
- the advice is directly focused on advising the member on whether the member should access the COVID-19 early release scheme and is not about other topics or subject matter
- the advice addresses the following as relevant for the member:
- the member's need for the early release of superannuation monies (e.g. cashflow and budgeting relevant for the member)
- government benefits available to the member (e.g. JobKeeper payment, income support payments, household support payments, etc.)
- the member's alternative sources of support or relief (e.g. loan or rent relief, existing financial resources and access to the COVID-19 early release scheme from another superannuation fund); and/or
- the impact on the member's retirement income by accessing the COVID-19 early release scheme, including making reference to household circumstances as needed to provide appropriate advice to the member.
Conditions of the temporary no-action position
The no-action position only applies where all of the following conditions are met in relation to the advice provided in reliance on the no-action position:
- the trustee must inform ASIC that it will rely on the no-action position either before first relying on the no-action position or within 30 days of first relying on it
- the member must have sought the advice rather than the trustee or other relevant provider initiating the advice
- before providing the advice, the advice provider must:
- determine that, in its opinion, the member is likely to be eligible for the COVID-19 early release scheme
- clearly describe the scope of the advice
- make the member aware of relevant public factual information and existing general advice of the fund concerning the COVID-19 early release scheme
- confirm that, notwithstanding this information and the advice, the member wishes to seek more advice.
- if a trustee engages an external provider to provide the advice, this must be done at a cost to the fund consistent with the trustee's best interest duty and in line with the expectation that the only advice to be given is directly related to whether to access the COVID-19 early release scheme.
Limitations of the temporary no-action position
The no-action position only relates to section 99F of the SIS Act. Personal intra-fund advice is still subject to the Corporations Act's personal advice requirements, except where other related ASIC measures have given relief.
This means that appropriate records must be kept and provided to members. However, the advice provider may be able to take advantage of other temporary COVID-19 related relief that allows a record of advice rather than a statement of advice to be given (for example, ASIC Corporations (COVID-19 – Advice-related Relief) Instrument 2020/355 – see below, under the heading "Legislation").
ASIC will continue to monitor the appropriateness of the no-action position, having regard to the ongoing impact of COVID-19. ASIC intends to undertake surveillance activity later this year to ensure that the advice provided in reliance on this no-action position is consistent with this no-action position and applicable legal obligations, including the duty to act in the best interests of members.
ASIC has confirmed that APRA has no objection to the approach outlined in this position having regard to the way in which APRA will administer the sole purpose test.
APRA commences new data collection to assess temporary early release of superannuation scheme (21 April 2020)
APRA is launching a new data collection to assess the progress and impact of the Government's temporary early release of superannuation scheme.
Trustees were asked to complete and submit APRA's new Early Release Initiative (ERI) data collection form weekly until further notice, with the first data collection due on 29 April 2020 (in respect of information as at 26 April 2020). The ERI reporting form will gather a range of information, including the number and value of early release benefits paid to superannuation members and the processing times of those payments. It will help the Government, APRA and other stakeholders monitor the take-up of the new scheme among superannuation members, and ensure licensees are processing eligible applications in a timely manner.
APRA intends to publish the data at both the industry and fund level. APRA states that ERI reporting is expected on a best endeavours basis, and that it will implement reporting through a legally binding reporting standard if the response from industry does not meet the objectives of the data collection.
Legislation
ASIC Corporations (COVID-19—Advice-related Relief) Instrument 2020/355 (14 April 2020)
The Instrument implements three temporary relief measures to facilitate retail clients receiving timely and affordable financial product advice because of the adverse economic effects of COVID-19:
- the "Urgent Advice" measure gives providing entities additional time to provide a Statement of Advice (SOA) to clients in relation to urgent, time-critical COVID-19 advice
- the "Early Release of Superannuation" measure grants
temporary relief by:
- providing a licensing exemption to registered tax agents when certain conditions are met so they can provide financial product advice to their existing clients about the early release of the client's superannuation product or retirement savings account product, without the need to hold an AFSL
- allowing providing entities to give financial product advice to clients about the early release of their superannuation, without the obligation to provide an SOA when certain conditions are met.
- the "ROA for an Existing Client" measure facilitates access to timely and affordable COVID-19 advice for existing clients of providing entities. It allows a Record of Advice to be provided, rather than an SOA, in relation to COVID-19 advice in certain circumstances.
Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 1) (registered 15 April 2020)
The Instrument introduces Chapter 77: "Exemption from the applicable customer identification procedure for the purposes of Schedule 13 to the Coronavirus Economic Response Package Omnibus Act 2020" to the Anti-Money and Counter-Terrorism Financing Rules Instrument 2007 (No. 1). The Instrument means that a reporting entity that provides a designated service described in item 43 or 45 of table 1 in section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (i.e. cashing the whole or a part of an interest held by a member of the fund) will be exempt from the requirement to carry out the applicable customer identification procedure on their customers before making payments under the early release of superannuation initiative, in the following circumstances:
- the designated service is provided in response to an application made to the ATO by a member or account holder (if a retirement savings account), during the period of 15 April 2020 to 24 September 2020
- the designated service is the early release of superannuation under the COVID-19 early release rules.
Reporting entities will still have suspicious matter reporting and ongoing customer due diligence obligations relating to the provision of the relevant designated service.
Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations 2020 (registered 16 April 2020)
The Regulations further amend the amendments made to the SIS Regulations, by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth), to allow temporary residents affected by the adverse economic effects of coronavirus to have up to $10,000 released from their superannuation or retirement savings account on compassionate grounds during the remainder of the 2020 financial year.
The SIS Regulations do not enable temporary residents to apply for another (or an initial) early release after 30 June 2020.
The ATO has stated that there is no change to the way trustees will be notified of these determinations or the treatment of the amounts released. It will be the same as the original coronavirus early release of super categories.
Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations (No. 2) 2020 (30 April 2020)x
The Regulations further amend the SIS Regulations in order to change the criteria for early release of superannuation that applies for holders of a Subclass 457 (Temporary Work (Skilled)) or Subclass 482 (Temporary Skill Shortage).
The Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations 2020 enabled these visa holders to apply for release if they have, on or after 1 January 2020, had their working hours reduced to zero but are still employed by their employer. The new Regulations replace this criterion with requirements for the visa holder to be employed and unable to meet their immediate living expenses. The revised criteria is expected to broaden access to the early release provisions for these visa holders.
Cases and other recent developments
CRT Alert 008/2020 Unclaimed super money reporting and payment deferral (3 April 2020)
The ATO confirmed that it is granting a deferral of the scheduled statement day and payment day for 31 December 2019 unclaimed money day accounts, meaning that there will be a deferral of the 30 April 2020 payment date to 31 October 2020.
The deferral extends the period within which unclaimed superannuation money (USM) accounts can be reported and paid. The ATO states that any fund wanting to continue with their USM reporting as planned can do so and trustees may want to consider continuing reporting and paying USM for certain categories (such as where members are aged 65 or older) where it would be in those members' interests.
The ATO will reconsider what support will be required for the next reporting period in October 2020 and will advise trustees accordingly.
AFCA extension of time to resolve complaints (16 April 2020)
AFCA announced it will give consumers and financial firms extra time to respond to complaints due to COVID-19, meaning that the current 21 day timeframe in which financial firms must provide an initial response, once the dispute reaches the case management stage, has been extended to 30 days.
This timeframe will be in place for six months, subject to review by AFCA.
2 https://www.apra.gov.au/frequently-asked-questions-superannuation-trustees-response-to-covid-19
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
