A busy 2023 for the super industry

Coming to the end of 2023, Super Review has noted a busy year for the super industry, including a number of noteworthy consultations and legislation. 

Perhaps the most talked about development was opening the advice arena to super funds with the Quality of Advice Review that has been broadly supported by major funds including AustralianSuper, Australian Retirement Trust, and UniSuper. 

This year also saw the government attempt to narrow down an objective of superannuation and a renewed focus on retirement, including the development of retirement products. 

Here’s a round-up of the major developments:

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January

Kicking off the new year, the government sought views into two draft proposals to allow victims and survivors of child sexual abuse to access the superannuation of their offender. These proposals sought to support victims and survivors to access redress by preventing offenders from shielding their assets in the super system.

Another notable development was the expansion of the eligibility age to make downsizer contributions into super to allow more Australians to boost their retirement savings if they sell their home. Starting 1 January, Australians aged 55 and over would be able to contribute up to $300,000 from the proceeds of the sale (or part sale) of their home into their superannuation fund. A couple aged 55 and above could make a total contribution of up to $600,000.

February

This month saw the release of Michelle Levy’s much-anticipated Quality of Advice Review (QAR) report to the government. The report, which was 267 pages, contained 22 specific recommendations for the industry. Among this, recommendation 6 called on the government to enable super fund trustees to “provide personal advice to their members about their interests in the fund”, including when supporting a member’s transition to retirement.  

Shortly after, the government released its first consultation for the definition of superannuation.

It also announced its proposal to double the concessional tax rate for superannuation balances exceeding $3 million, doubling the concessional tax rate from 15 per cent to 30 per cent.

February also marked the first time the corporate regulator has taken an Australian entity to court regarding alleged greenwashing conduct, with ASIC commencing civil penalty proceedings in the Federal Court against Mercer Super for allegedly making misleading statements regarding the sustainable nature of its investment options.

Over the course of the year, a number of other funds also came under the greenwashing spotlight, such as Future Super after it self-reported a Facebook post that ASIC believed may have been false or misleading by overstating the positive environmental impact of the Fund; and Active Super for allegedly misleading conduct and misrepresentations to the market relating to claims it was an ethical and responsible superannuation fund.

March

This month, legislation was introduced to Parliament to enshrine a right to superannuation payments in the National Employment Standards. It was intended to protect more workers from super underpayment and under the changes, workers would be able to take direct legal action for recovery of unpaid super. 

April

The government released the outcome of its review into Your Future, Your Super (YFYS) with key updates including prospectively increasing the testing period from eight to 10 years to encourage longer-term investment decisions; adjustments to the notification letter that trustees of failed products send to members; minor changes to improve accuracy and reduce administrative burden for APRA; and ensuring the test is fit for purpose when it is extended to trustee directed products this year.

May

On 9 May, Treasurer Jim Chalmers handed down his second budget, which forecast a $4.2 billion surplus in 2022–23. Measures aimed to address inflationary pressures, rising energy cost, and increasing mortgages were announced. Super funds and organisations gave a thumbs up to Chalmers’ federal budget, but highlighted opportunities to improve the gender super gap were missed. This included omitting any updates to paying super on paid parental leave, the extension of the low-income super tax offset (LISTO) to those earning up to $45,000, or bringing the LISTO in line with the superannuation guarantee.

This month also saw the release of a consultation on amending the Corporations Act to allow the Australian Financial Complaints Authority (AFCA) to hear complaints regarding superannuation. 

June

Months after Michelle Levy submitted her report to the government, it was announced the government would accept some 14 of the 22 recommendations in the Quality of Advice Review (QAR), allowing superannuation funds to provide more retirement advice and information to their members.

Minister for Financial Services Stephen Jones confirmed the government would work with industry to consider adopting, and tailoring as needed, QAR recommendations 1–4 (around personal advice, general advice, relevant providers, and good advice duty), the remaining parts of recommendation 5 (statutory best interests duty), and recommendations 12.1 and 12.2 (on design and distribution obligations) to allow super funds to provide advice. 

Additionally, superannuation trustees would be provided with legal clarity around current practices for the payment of adviser service fees, accept in principle recommendation 7 around deduction of adviser fees from super.

July

Following a two-year process of consultation and reform, the prudential regulator released guidance to help super trustees with the formulation, implementation, and oversight of an investment strategy, including unlisted assets.

The updated guidance was designed to assist trustees in meeting their obligations under the strengthened Prudential Standard SPS 530 Investment Governance (SPS 530), which came into force on 1 January 2023. 

This included an RSE licensee’s approach to unlisted assets and associated valuation practices, which have received heightened scrutiny this year. Earlier in the month, APRA was pulled up by the Financial Regulator Assessment Authority (FRAA) for falling short on its unlisted assets oversight. 

August

In August, a national industry association called for changes to the superannuation system, proposing a portion of these retirement savings be directed towards funding the individual’s aged care.

The government also released its 2023 Intergenerational Report, which found that, as balances increase, super will become the primary source of retirement income for many future retirees. Drawdowns are estimated to rise from around 2.4 per cent of GDP in 2022–23 to 5.6 per cent of GDP in 2062–63. Meanwhile, the proportion of people with accounts in the retirement phase, from which they are drawing a superannuation pension, will increase from 8 per cent in 2022–23 to 19 per cent in 2062–63. 

Wrapping up the month, APRA announced 96 trustee directed products and one MySuper product failed to meet the benchmark of its 2023 superannuation performance test. This year’s test had been expanded to include the performance of 805 trustee directed products, a subset of the choice sector. 

Some 96 trustee directed products failed to meet the test benchmarks, which included 20 of 500 non-platform products and 76 of 305 platform products.

September

The government opened a second consultation on the proposed objective of superannuation, following its initial consultation in March that received over 150 submissions.

Parliament also passed the Financial Accountability Regime (FAR), a recommendation from the Hayne royal commission. This replaced the Banking Executive Accountability Regime (BEAR) and impose stricter accountability obligations on superannuation funds as well as banks and insurers.

It also passed its housing bills, with the $10 billion Housing Australia Future Fund (HAFF) expected to support a pipeline of some 30,000 social and affordable dwellings over the next five years, including 4,000 homes for women and children impacted by family and domestic violence and older women at risk of homelessness. Industry Super Australia (ISA) and the Association of Superannuation Funds of Australia (ASFA) welcomed the news as an important step towards increasing the supply of affordable housing while providing new investment avenues for institutions. 

October

APRA and ASIC commenced joint administration of a new FAR and published an information package about the FAR towards improving the operating culture, transparency, and accountability of the banking, insurance, and superannuation industries, along with their directors and senior executives. 

Additionally, the government announced it is taking steps to amend the transfer balance cap (TBC) to prevent members from being adversely impacted by super fund mergers. This will affect the TBC of individuals who have a capped defined benefit income stream to ensure they are not adversely impacted in the event of a merger or successor fund transfer (SFT).

December

In another major announcement on retirement since the Retirement Income Covenant, Treasury released a discussion paper on how the super system can provide the needed security and income in retirement. It looked to examine supporting members to navigate the retirement income system, supporting funds to deliver better retirement income products and services, and making lifetime income products more accessible.