Testmonials

Budget 2014 – Superannuation Changes

Infrastructure Investment:

The Federal Government will remove impediments to assist State Governments privatise assets, which may help support superannuation investment in brownfield assets. Superannuation is considered to be an ideal match for the risk-return profile offered by infrastructure as the industry matures from one of accumulation to income streams with long term income producing assets.

Industry Super Australia has suggested this might lead to an extra $15 billion of investment invested by industry super funds. ASFA estimated the initiative would raise investment from all APRA regulated superannuation funds from $70 billion currently to $200 billion by 2025.

ASFA noted that the Federal Government failed to announce any additional changes to infrastructure financing, particularly in respect of a long term infrastructure project bond market to help stimulate further investment.

Access to Age Pension Increased to Age 70:

The 2014 Budget calls for the raising of eligibility for the Age Pension to age 70 by 2035, impacting all those born after 1965.  This is almost 20 years earlier than recommended by the Government’s Commission of Audit which had recommended raising the eligibility age to 70 by 2053.  The Actuaries Institute has calculated that the cost of the Age Pension would rise from the 7.6 per cent of GDP (2010 figures) to 13.3 per cent of GDP in 2050 unless this change is made.

While the Government has announced its decision, the superannuation industry is debating the merits and consequences further.  There is particular concern where current preservation age limits commence at an earlier age, recognising that if superannuation is available at an earlier date, superannuation becomes an interim funding measure before the Age Pension will be accessed.

Research by the AIST points to the cold hard facts that around 40% of all Australians retire due to ill-health, suggesting many will simply move to the Disability Support Pension.  ASFA has suggested the health status of older workers would need to be taken into account, with initial estimates suggesting up to 50% of those aged 67-69 likely to be accessing the Disability Support Pension, or Newstart Allowance potentially negating any savings from increasing the Age Pension eligibility age.

Delay in further increases to Superannuation Guarantee (SG) Limits:

The previously legislated increases to SG payments will be frozen from 1 July 2014, at the new level of 9.5%.  It will remain at this level until 30 June 2018, before increasing in 0.5% increments up until 2022/23 when it will reach 12%.

Changes to Pension Asset and Income Tests & Pension Increases:

The government has announced that all pension asset test and income test thresholds will be fixed for three years from 1 July 2017. From 1 July 2017, the government will link pension increases only to inflation rather than 25% of  AWOTE (average weekly ordinary time earnings.)  Untaxed superannuation will also now be included in the income test for new recipients of the Commonwealth Seniors Health Card.

Budget measures will require a series of negotiations before bills can pass the Senate into law, and it is anticipated that some of this year’s Budget  announcements will be subject to amendment, or delay given community and industry concern.

 

 

 

 

 

Financial Service Inquiry – Submission Deadline 31 March 2014

The Financial Services Inquiry is charged with examining how the financial system could be positioned to best meet Australia’s evolving needs and support Australia’s economic growth. Following the Terms of Reference released by Treasurer, Joe Hockey on 20 December 2013, the deadline for first submissions was 31 March 2014.  Over 200 submissions have been received.

ASFA used its submission, to assert that the  superannuation system must operate under frameworks that drive good retirement outcomes and prudent investment strategies.  ASFA cautioned against using mandates for investment allocation, preferring market forces to determined the flow of capital but pointed to impediments to investing in  certain asset classes which, if removed, would help match the risk and return superannuation funds require.   ASFA also highlighted the impact of the rise of individual decision making and  the high duty of care that needs to be applied to superannuation, recognising systemic risks which exist over the 3 areas of pooled funds, SMSF’s and retirement assets.  ASFA also asked the Inquiry to consider the linkages between superannuation and the social security and tax systems, and called for additional focus on the needs of developing electronic payment systems and online connectivity.

The Financial Services Council (FSC) echoed the technology focus, saying in its submission, that consumers now have a preference for digital engagement.  John Brodgen, CEO of FSC stated, “Developments in technology have outpaced developments in regulation.” The FSC asked the Inquiry to ensure regulation is technology neutral so that it can evolve as technology changes, and called for a new disclosure regime, which recognises that consumers prefer digital engagement and the ability to access piece by piece information.

The Australian Institute of Superannuation Trustees (AIST) asked for improved coordination in the regulatory framework, between APRA, ASIC and the ATO to improve efficiency and reduce red tape. The AIST also put forward consideration for APRA and the ATO to be given powers to supervise systemic risks (including technology risk) accross the pooled superannuation and SMSF sectors, for ASIC to be given stronger consumer protection powers, and for support to be granted for a diverse range of governance structures within superannuation.

 

 

 

Financial Services Inquiry – APRA Submission

APRA has issued its submission to the David Murray led, Financial Services Inquiry which will establish the direction of the future of Australia’s financial system.   The initial submission deadline was 31 March 2014, and the Inquiry has stated it has received over 200 submissions.

Previous Financial System Inquiries have led to significant reform and this one is expected to provide a new blueprint for the financial system over the next decade.  Previous Inquiries include The Campbell Report, in 1981, which led to the floating of the Australian dollar, and deregulation of the financial sector.  The Wallis Report in 1997, streamlined financial services regulation, and led to the creation of the Australian Prudential Regulation Authority (APRA) and the current Australian Securities and Investment Commission (ASIC).

The Inquiry has recognised that the structure of financial regulators helped protect Australia during the global financial crisis, relative to peers, but it must recognise that the financial sector has been transformed by international and domestic crises, regulatory reform agendas, the huge growth in superannuation, and the impact of technology and innovation.

Click here for a link to the APRA Submission:http://www.apra.gov.au/Submissions/Documents/APRA-2014-FSI-Submission-FINAL.pdf

 

 

 

FoFA Regulations Paused by Acting Assistant Treasurer

Senator the Hon Mathias Cormann, the Minister for Finance and Acting Assistant Treasurer, announced on 24 March 2014, that the legislation has been paused, and referred to the Senate Economics Committee which will enable the Government to consult with all relevant stakeholders on the Future of Financial Advice Regulations.

Senator Cormann re-stated the Government’s position on a pre-election commitment to restore the balance between appropriate levels of consumer protection and access to affordable high quality financial advice.

The Financial Services Council (FSC) issued a media release stating the decision  was both “prudent and sensible” with John Brogden CEO commenting that this will allow “stakeholders to re-group and make submission to the Senate Committee” to counter what he described as “white noise and misinformation” leading up to the introduction on the proposed refinements to the FoFA legislation.

Industry Super Australia (ISA) welcomed the announcement referring to the “freeze” as a “timely circuit breaker” and a “victory for common sense” applauding a return to consensus and industry agreement.

APRA releases minor revisions to Reporting Standards

APRA, today released minor revisions to six Reporting Standards to simplify trustee obligations. The changes will impact upon the following:

  • Reporting Standard SRS 320.0 Statement of Financial Position;
  • Reporting Standard SRS 330.0 Statement of Financial Performance;
  • Reporting Standard SRS 520.0 Responsible Persons Information;
  • Reporting Standard SRS 530.1 Investments and Investment Flows;
  • Reporting Standard SRS 533.0 Asset Allocation (SRS 533.0); and
  • Reporting Standard SRS 702.0 Investment Performance (SRS 702.0)

In an Attachment to the letter to trustees it summarises the changes that have been made which will take effect from 01 April 2014 which will require compliance by RSE licensees for reporting periods from 1 July 2014.

APRA is also requesting, in its letter, that trustee’s report using the revised format for the March quarter “to the extent practicable“.

A copy of the letter from APRA, dated 25 March 2014, is available here:

http://www.apra.gov.au/Super/PrudentialFramework/Documents/APRA-Letter-Revised-Reporting-Standards-March-2014.pdf

 

 

APRA/ASIC Letter to RSE Trustees – Consistency for disclosure and reporting

On 21 March 2013 APRA and ASIC provided joint correspondence to all RSE Licensees to clarify how information must be consistently provided in respect of section 29QC of the SIS Act.  This means that the requirements under the relevant reporting standard and method of calculation must be the same as that disclosed to a member, particularly through a website.

APRA have emphasised this requirement is for comparability of information about superannuation products, and given the compulsory nature of superannuation ensures members are fully and reasonably informed.

In the Letter to Trustees, APRA, by way of example, point to Reporting Standard SRS 700.0 Product Dashboard which is also required to be included in an RSE licensee’s disclosure documents.  Similarly data required to be submitted to APRA under Reporting Standard SRS 533.0 Asset Allocation, and Reporting Standard SRS 702.0 Investment Performance and Reporting Standard 703.0 Fees Disclosed is related to information a licensee is required to disclose under the Corporations Act.

Where the information provided to a member is the “same” or “equivalent” as that given to APRA the method of calculation must be consistent and in accordance with the Reporting Standards.  So, for example from 1 July 2014, SRS 703.0 will require RSE licensees to report fees and costs information required to be disclosed in their PDS. Prior to this date, APRA intends to update SRS 703.0 to ensure that the calculation methodology for that information is fully aligned with the requirements in the regulations for PDSs and consistent with the Explanatory Statement for the regulations which provides that fees and costs must be disclosed gross of income tax.

 

A copy of the letter has been made available on the APRA Website and can be accessed here:

http://www.apra.gov.au/Super/Documents/ASIC-APRA-letter-s29QC-March-2014.pdf

 

 

 

 

 

 

Global Financial Centres Index (GFIC) – Sydney and Melbourne slip down the rankings

Sydney and Melbourne’s rankings as global financial centres has fallen significantly in 2014 as New York reclaims the number 1 spot from London.

Sydney’s ‘Global Financial Centres Index’ ranking fell by eight places from 15th to 23rd  and Melbourne’s ranking dropped four places to 37th spot in the survey. The report also found that New York had now taken over from London to become the world’s top financial centre for the first time in seven years. Hong Kong and Singapore held third and fourth spots respectively.

Sydney is now categorised as an “established transactional centre” a downgrade from its previous “global leader” status.

Commenting on the survey’s findings, John Brogden, chief executive of the Financial Services Council, explained that he was not surprised in the result as he felt regulatory and legislative burdens had left Australia’s financial services industry “in the trenches battling the detail of an endless raft of legislation“.

A full copy of the Survey is available here: http://www.longfinance.net/images/GFCI15_15March2014.pdf

 

 

 

Productivity Commission releases draft report on public infrastructure

On 13 March 2014 the productivity Commission released a draft report on public infrastructure identifying a key role for superannuation in financing future Australian infrastructure projects.

The Productivity Commission stated how well the private sector (e.g. project finance and superannuation investment) is able to diversify risk among a large number of shareholders who in turn diversify their risks by owning a range of investments.  It drew a contrast with the government’s taxation revenue which is highly correlated to the domestic economy.

The Report has also highlighted that while Australia (together with Canada)  has one of the highest superannuation asset allocations to infrastructure in the world, at 5%,  it still remains a relatively minor component of their total portfolios.  An estimated total of just $63 billion in Australian superannuation (as at Dec 2013)  goes towards direct investment in infrastructure.

ASFA, which has urged the Government, in its pre-budget submission, to explore financial innovation to help stimulate the project finance market, has welcomed the draft report.

Click on the link to go to a copy of the Report: http://www.pc.gov.au/projects/inquiry/infrastructure/draft

 

 

FSC releases a Mercer Report on asset allocations of superannuation and pension funds from around the world

New research for the Financial Services Council by Mercer has benchmarked Australia’s asset allocation for superannuation against 11 other comparable private pension schemes around the world.

The countries included in the report include: Australia, Canada, Chile, China, Denmark, Hong Kong, Japan, South Korea, Netherlands, Switzerland, the UK and the USA. The FSC stated it is the first research of its type to make these comparisons.

The Report found that four of the five largest pension systems in the world − Canada, the USA, UK and Australia – have invested 35 to 50 per cent of their assets in equities. As the world’s fourth largest superannuation system, Australian funds had 50 per cent of assets invested in equities and the highest overall exposure to growth assets at 68%.

The FSC concluded from the Report that the Australian superannuation system remains exposed to a diverse range of asset classes.  The accepted reasons for the high exposure in Australia to equities includes:

  • Defined Benefit Schemes: The lower exposure in Australia to defined benefit schemes. Many of the other countries reviewed have a high number of guaranteed pensions or annuities which require matching assets. They are therefore more heavily weighted towards bonds or fixed income.
  • Demographics: Australia has a higher ratio of younger to older fund members than other countries so it is appropriate that a scheme with a younger demographic invests more heavily in growth assets.
  • Local Bond Market: Our small bond market combined with home country bias, manifests itself in higher allocation to equities.

A copy of the Mercer Report is available here: http://www.fsc.org.au/downloads/uploaded/2014_0226_Mercer%20Report%20for%20FSC_asset%20allocation%20Feb%2014_9374.pdf

 

Assistant Treasurer, announces stability measures for SuperStream gateway network

The Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, has announced arrangements to provide certainty and stability to the superannuation  industry by setting in place a governance structure for the SuperStream gateway network.

SuperStream is a project to introduce e-commerce to the ‘back office’ of the superannuation industry, reducing transaction costs and processing times. SuperStream reforms are estimated to deliver savings of $1b annually to industry.

While the network is bedded down, the Australian Taxation Office (ATO) will, for a period of two years only, have stewardship of the SuperStream gateway network.  It will convene a  governance group made up of industry participants, including gateway operators, superannuation funds and employer representatives. During this initial two year period, the ATO will be responsible for providing clarity and certainty to the gateway operators and other members of the superannuation industry regarding the network’s operation.

One of the key functions the ATO will undertake during this time will be to facilitate an industry agreement on the design of a self-regulated,  industry-funded governance body. The ATO will put in place the required  administrative framework to allow for a smooth transition to self-regulation,  which will occur in the second quarter of 2016.

It is the expectation of the Assistant Treasurer that the industry  will work together to ensure this outcome is achieved. After transition the ATO  will maintain only a participatory role as a member of the governance body.

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