News

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.

ASFA argues in favour of superannuation funds as the natural holders of infrastructure assets

The Association of Superannuation Funds of Australia (ASFA) has issued media releases stating it is supportive of governments privatising assets and argues superannuation and pension funds are the natural future holders of mature assets including ports and energy assets.

On 5 February 2014 ASFA called for the Federal Government to remove impediments to superannuation investment in infrastructure when it released its pre-budget submission.   ASFA stated  “As the country’s infrastructure needs continue to grow, it’s crucial the Government addresses the impediments that hinder super fund investment in this asset class“.

Citing a lack of infrastructure projects for superannuation and pension funds to invest in,  Pauline Vamos, CEO of ASFA, stated that ASFA would be in favour of the recycled capital model which ensured proceeds from government asset sales are invested into new projects:

There is no shortage of superannuation and pension funds that are looking to invest in infrastructure. There is only a shortage of projects to invest in. The key to unlocking pension capital is the maintenance of a stable regulatory environment, removing any impediments to states privatising assets and minimising transaction costs for funds. Australia’s strong rule of law and stable regulatory environment make Australia an attractive destination for long-term investors globally”.

ASFA’s Pre-budget submission is available here:  http://www.superannuation.asn.au/ArticleDocuments/1228/ASFA_2014-15Pre-Budget_submission.pdf.aspx

 

 

 

 

 

ATO releases new Payment Standards for simplifying superannuation contributions

From 1 July 2014, employers with 20 or more employees will be required to make superannuation contributions electronically using the Superannuation Data & Payment Standard (the standard). From 1 July 2015, small employers (with 19 or fewer employees) will start making contributions using the standard.

Employers may choose to meet the standard – either using:

  • software that conforms to the standard; or
  • a service provider who can meet the standard on their behalf.

The ATO states this will provide a simpler, consistent method of preparing contributions, and in many cases, a single channel for interacting with multiple funds. The changes are  designed to reduce complexity, improve data quality, lower overall administration costs and minimise lost accounts with the aim of maximising total retirement savings.

From 1 July 2014, Self Managed Superannuation Fund trustees are required to receive electronic messaging and payments relating to superannuation contributions in accordance with the new standards.

The ATO is maintaining a list of service providers: the  ‘SuperStream messaging solution providers’ which can assist trustees with more information.  The ATO is not endorsing or recommending any specific service provider.  Details are available from the ATO at the following link:

http://www.ato.gov.au/Super/Data-standards/In-detail/Contributions/SMSF-messaging-service-providers/

 

Future of Financial Advice Reforms (FOFA) amendments released for public consultation

The Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, today announced that the Government has released for public consultation draft regulations and legislation to enact its announced reforms to FOFA.

Consistent with the Government’s announcement on 20 December 2013, key amendments include:

  • removing the opt-in requirement;
  • streamlining the annual fee disclosure requirements;
  • amending the best interests duty to allow for scaled advice;
  • exempting general advice from conflicted remuneration; and
  • amending grandfathering to allow for adviser movements.

Draft legislative amendments and draft regulations giving effect to the Government’s announced changes are available at the FOFA website.

The consultation process will be open for a period of three weeks, with submissions closing on 19 February 2014.

Following the consultation process, the Government anticipates that regulations will be made at the end of March 2014 and that a Bill will be introduced into Parliament in the 2014 autumn sitting period with passage scheduled for the winter sitting period.

ASIC issues further super reforms guidance

ASIC has issued further guidance to assist industry with superannuation reforms, as well as a consultation paper about keeping superannuation websites up to date.
The guidance relates to the new product dashboard requirements for MySuper products, and the new fees and costs disclosure requirements for product disclosure statements (PDSs) and periodic statements.

Product dashboard

From 31 December 2013 [Note: now subject to Relief] , trustees will be required to publish and keep up to date, a product dashboard for their new MySuper products. MySuper products are the new default products in superannuation, replacing over time existing default funds. The product dashboards will enable consumers to compare their super with other funds and products.

Information Sheet 170 MySuper product dashboard requirements for superannuation trustees (INFO 170) explains what information must be provided for each of the following measures:

  • The return target
  • The returns for previous financial years
  • A comparison between the return target and returns for previous financial years
  • The level of investment risk, and
  • A statement of fees and other costs.

INFO 170 also contains an example of what the product dashboard may look like, which incorporates some of the feedback from the independent consumer testing conducted by Latitude Insights.

Consultation

ASIC has also released Consultation Paper 219 Keeping superannuation websites up to date (CP 219), which considers what ‘up to date at all times’ means in the context of s29QB of the Superannuation Industry (Supervision) Act 1993 (SIS Act). These requirements relate to executive officer remuneration disclosure and other systemic transparency measures.

ASIC proposes giving trustees a ‘safe harbour’, so that they are taken to comply with the updating obligation in s29QB if they update the fund website within a specified time. That time is generally 14 days.

ASIC is seeking feedback by 3 February 2014.

FSC: Asia Pacific is Australia’s biggest source of investment fund flows

The Financial Services Council and The Trust Company have released the second annual “Australian Investment Managers Cross-Border Flows Report” revealing that ASIA Pacific continues to be the biggest source of investment into the Australian managed funds industry.

ASIA now accounts for 66% of all fund flows, followed by Europe (24%). Collectively Europe and ASIA account for 90% of all flows into Australian managed funds. Since 2010 investment flows have increased by 78% from $20.3 billion to $36.2 billion.

John Brogden CEO of FSC said “The report shows the massive potential export market for the Australian financial services sector…… The proportion of funds sourced from overseas has the potential to increase exponentially if the right policy settings are in place.”

CEO of The Trust Company, Shailendra Singh, said “Australian funds management expertise is widely recognised across the region.” He additionally stated that the stability of Australia’s economic and political environment has attracted a large proportion of fund flows from Asia in Australian fixed interest and cash. This asset class comprised 49% of all cross border investment.

“While interest rates in Australia are at an all time low, they are considered to be a good investment as they are comparatively higher than Asia” Mr Singh said.

Superannuation Discussion Paper Released for comment

Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, released a discussion paper entitled ‘Better regulation and governance, enhanced transparency and improved competition in superannuation’ for public consultation. This is to meet the Government’s election commitments to improve governance, increase transparency of information provided by super funds and boost competition and transparency in the selection process of default super funds in modern awards.

 

Good governance in superannuation is critical to securing trust and integrity.  This Government is committed to improving superannuation governance which may be aligned with the corporate governance principles applicable to, for example, ASX-listed companies or APRA-regulated entities, such as in the banking and finance industry,” said Senator Sinodinos.

 

Addressing outstanding aspects of the MySuper reforms, including improving the quality of information available to super fund members, is also key to ensuring both members and employers can make informed decisions about the relative performance of funds.  This is why the issue of transparency will be examined in this paper.

 

Australians in default superannuation funds should benefit from genuine choice and competition through ensuring any MySuper product can compete freely in the default superannuation market.

The paper also seeks views on a possible deferral of the commencement date of the MySuper transparency measures beyond 1 July 2014.

 

We are committed to a detailed consultation process to ensure the interests of consumers are protected, regulatory burden is minimised and confidence is increased in the system,” said Senator Sinodinos.

 

Consultation for this paper will be open from today until 12 February 2014.  The discussion paper can be viewed Treasury website.

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