Super news for February 2022

And SMSF trustees will be able to use their preferred method of calculating exempt current pension income where the fund is fully in the retirement phase for part of the income year.

Retirement income covenant introduced

The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 has also been passed. This Bill allows for the Retirement Income Covenant, which will require superannuation trustees to have a retirement income strategy formulated in writing (and a summary publicly available), from 1 July 2022.

“The Retirement Income Covenant will help a growing proportion of Australians plan with certainty as they move into their retirement,” Financial Services Council acting chief executive officer Blake Briggs said.

SMSFs will not be included in the covenant but all other trustees will be required to develop appropriate retirement income strategies for members. Even so, it’s still advisable for SMSF trustees to consider their retirement income strategy.

The Corporate Collective Investment Vehicle (CCIV) regime also allows fund managers to offer an investment vehicle with a corporate structure and appropriate flow-through tax treatment. This structure is expected to be more familiar to international investors and should open up export opportunities for the Australian funds management industry.

“Only five percent of the funds managed in Australia comes from offshore ($145 billion out of $2.6 trillion), showing the significant scope for Australia to build on our existing strengths to export this to the globe,” Briggs said.

Aware Financial Services Australia fined $20 million by ASIC

Aware Financial Services Australia Limited (Aware FS), formerly State Super Financial Services Australia Limited (StatePlus), has been ordered by the Federal Court to pay a $20 million penalty for charging over 25,000 customers fees for financial services it did not provide, in contravention of the ASIC Act.

ASIC Deputy Chair Sarah Court said, ‘Aware FS charged fees to tens of thousands of customers for financial services it had grounds to believe it would not be able to provide. As a result, over $50 million in fees was charged to customers who have nothing to show for it.’

Aware Financial Services Australia provides financial planning services to Aware Super, Australia’s 2nd largest super fund in terms of assets, and 4th largest super fund in terms of members.

Between 21 August 2014 and 30 June 2018, Aware FS charged approximately 25,300 customers a total of $50 million in fees for advice services included as part of the superannuation product offered by Aware FS, which at that time was also a superannuation trustee. The firm provided at least 17,500 customers with written disclosure documents advising them that they would receive an annual financial planning review called an Annual Review Service. Another 7,800 customers entered into ongoing advice service arrangements that included provision of an Annual Review Service. However, Aware FS did not provide the promised services.

Aware FS’s conduct was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Inflation hits retirees

Increases in the cost of fuel and healthcare hit retirees’ bottom lines in 2021 as they experienced the largest annual price rises since 2010.

The Association of Superannuation Funds of Australia (ASFA) Retirement Standard for December 2021 revealed that couples aged around 65 living a comfortable retirement need to spend $64,771 annually, while singles need to spend $45,962. That’s an increase of 1.5% and 1.6% respectively over the quarter, and higher than the general increase in the December CPI of 1.3%.

 Over 2021, comfortable budgets rose by 3.5% for couples and 3.9% for singles.  

“It’s so important that future retirees are able to build sufficient savings over their working lives to ensure they can face retirement with financial confidence,” ASFA deputy chief executive officer Glen McCrea said.

“It is crucial that the government addresses the repair of people’s retirement budgets as we start to see the other side of the COVID-19 crisis.”

APRA to focus on sub-standard practices in super

In its policy and supervision priorities for the next 12 to 18 months, the Australian Prudential and Regulation Authority (APRA) has put super – specifically sub-standard industry practices and eradicating unacceptable product performance – at the top of its list of supervision priorities for 2022.

Other supervision priorities include cyber risk preparedness and responsiveness, and a continuing focus on risk culture.

“While the financial system has demonstrated its resilience throughout the pandemic, COVID-19 has underlined the potential for unexpected shocks to emerge at any time. With that in mind, a substantial emphasis of our policy and supervision agenda this year is bolstering entities’ ability to withstand shocks, whether it be financial or operational,” APRA chair Wayne Byres said.

“We will also continue to force persistent underperformers in the superannuation industry to quickly lift their standards or exit the industry,” he added.

Australian super funds lead decarbonisation

Institutional and super funds are a “powerful constituency in Australia” when it comes to environmental, social and governance (ESG) issues, according to global research house Cerulli Associates.

“Superannuation funds in particular, a powerful constituency in Australia with $3.3 trillion (US$2.4 trillion) under management, have pushed for stronger ESG behaviour among investees, which has had a galvanizing effect across the entire Australian corporate landscape. This has been the defining theme of 2021,” Cerulli said in its first The Cerulli Edge – Asia Pacific Edition report for the year.

Australian super funds say change is being driven by members who are more engaged with their super on these issues.

“Whatever you read about the government position on climate in Australia, the presence of the fund management industry on a decarbonisation course makes it self-fulfilling. That is the power of institutional money, and everyone who serves these funds will need to be on board,” the Cerulli report said.

SMSF Association calls for simplification of transfer balance cap

The SMSF Association has proposed the removal of transfer balance cap (TBC) proportional indexation in its 2022–23 Budget Submission to Treasury.

The transfer balance cap was raised to $1.7 million from $1.6 million on 1 July 2021, however a member’s individual transfer balance cap may differ from the general TBC depending on when they retired.

“This is an overly complex situation which, over time, will result in most individuals with a retirement phase income stream having a personal TBC that is different to the general TBC maximum. This distortion will continue to grow in complexity as future indexation of the TBC is applied,” the SMSF Association said in its submission.

The Association said the costs of allowing a broad application of TBC indexation, along with the loss of tax revenue, would not be significant, especially so in light of the administration costs of proportional indexation which are incurred each time the general cap is indexed.

Proxy advice regulations overturned in Senate

The proxy advice regulation introduced late last year, and criticised by many in the industry, lasted just three days before being overturned in the Senate on 9 February.

Independent senator Rex Patrick succeeded with a move to disallow the regulations by 29 votes to 25. The regulations, which required proxy advisers to have an Australian Financial Services Licence among other requirements, had come into effect on 7 February 2022.