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  • Transparency and trust in superannuation – an approach and a must

    Presentation to Conference of Major Superannuation Funds (CMSF)

    Australian Institute of Superannuation Trustees (AIST)

    Wednesday 13 March 2019 – Concurrent Forum #1

    Gold Coast Convention & Exhibition Centre

    Panel member James O’Halloran, Deputy Commissioner, Superannuation, ATO

    (Check against delivery)

    Introduction

    Thank you for the opportunity to speak with you today.

    The work of the ATO continues to expand across the superannuation system in a range of ways. In our role as an administrator, service provider, regulator, and through our compliance and enforcement roles we remain committed to working with you on a variety of fronts.

    Naturally, many things influence how the super system is seen to operate and its level of fairness. I’m sure we all want to ensure it’s well regarded, easy to participate in and, importantly, operates in the best interests of members. For us, it also needs to operate within policy and legal settings.

    In any event I think we can agree that fund members increasingly need access to more timely information so they can take an active role in their financial future. And we want to help people to make the many important decisions required in life as they move from accumulation to pension phase.

    During the past 12 months, we’ve been pleased with the level of support and engagement from AIST members. This has been reflected through the many design and consultation discussions and workshops we’ve been involved in together. These sessions gave us invaluable insight into important considerations for moving ahead and we’ve been able to achieve some successful outcomes.

    About the time of last year’s conference we were focused on many emerging policy debates, including views on the treatment of insurance, governance and expectations of the super system. Of course, the ongoing policy focus on super has required us all to continue to work together to ensure we implement change as smoothly as possible.

    There’s also been some important debate on changes to the concessionary nature of super and the incidence and reasons for non-payment of super guarantee (SG) by employers. While some of these debates are perhaps settled to some degree, others are still the subject of process and review.

    Regardless of these matters, I suspect even last year we were all well aware that there were likely to be more policy and administrative practices that would change our thinking and practices going forward.

    More recently, the super industry has been under further examination post the release, in January 2019, of the Productivity Commission's inquiry report Superannuation: Assessing Efficiency and Effectiveness External Link and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry External Link handed down by Commissioner Kenneth Hayne on 1 February.

    Both these reports have made wide-ranging recommendations which are currently with government. We will respond, when requested, to play our part in implementing change as appropriate. As usual, we will consult with industry.

    Priorities in 2018-19

    In the past financial year we’ve also worked with you to effect and implement new responsibilities now with the ATO. These include the transfer from Services Australia of responsibility for the Small Business Superannuation Clearing House, administration of the Compassionate early release of super, and the commencement of the First Home Super Saver Scheme and the Downsizer contribution measures. Pleasingly, on balance, these are all now business as usual and, with your strong support, operating as planned.

    We’ve also considered how we can improve the level of insight into the super system. Our view is that increased transparency and timely reporting of transactional data is in the interests of fund members and the super system.

    Providing more reliable and valued information supports people’s ability to participate willingly in the super system. As an administrator, we’ve participated in parliamentary hearings on a range of super topics and have responded to changes to law and administrative settings across super.

    We do recognise that the active participation and engagement of members with their super is driven by many things – level of interest, knowledge, financial literacy, and plans for their super. We also accept the nature of any engagement or relationship is often influenced by previous experiences, perceptions of organisations and community or individual expectations. And we appreciate this applies to the ATO and our relationship with you and your members.

    In responding to the current environment, we’ve worked to provide even more seamless and efficient transactional services and reporting mechanisms. We knew we needed to find ways to gain better insight into the super system at a member and transactional level; to find ways to automate information sharing with funds so it’s efficient and effective for all.

    Finally, we also wanted to position ourselves so we could prevent breaches or take action where necessary, before the consequences are became too great or even unable to be remedied.

    Drive for transparency

    As a tax and super administrator, we have for many years focused on improving transparency across the tax and super system. We’ve often spoken about improving the level of justified trust we can have in a taxpayer’s compliance, while also promoting a positive client experience. For these reasons, it’s important for taxpayers to have access to the best information available about their personal circumstances.

    This transparency enables us to focus on prevention rather than detection and to avoid the potential over reliance on ‘after-the-event’ sanctions, tax adjustments or audit activities.

    Super environment since 1 July 2018

    From 1 July 2018, many of the super reform measures came into practical effect. These brought to the fore new considerations for those making investment and income stream decisions. In particular, it’s evident that changes in the law now affect people during both accumulation and pension phase.

    We also needed to be able to better monitor the pattern of overall transactions and be comfortable that the super reforms are operating as intended.

    There has been an obvious overlap of the multiple needs and expectations of data sharing across the super system. The reality of the data and reporting overlay and linkages for employers, employees and funds – which started with SuperStream – have become more obvious recently through the implementation of Single Touch Payroll (STP) and community concern about better tracking of SG.

    The required employer pay day reporting arising from STP and the associated payment of super into an employee’s funds added to the strong case for efficiencies and automation. We needed new approaches to meet the future environment

    From our perspective, it’s not just from the super industry that we seek more transparency. Beyond the super system, we’ve long focused on shared transparency of data as a means to assist and change behaviour. Underlying this drive is also the fact that people are entitled to see their own information to assist them to make informed decisions. We’ve found that, used sensibly, improved transparency does make a positive difference to behaviour and risk taking.

    One longstanding example relates to how we use information and data collected from third parties as part of an individual’s income tax return process. Our pre-fill service has been in place for over 20 years and giving people pre-filled data about their circumstances is now considered an essential service.

    More recently, corporate entities have also had reporting initiatives introduced, built on the principle of shared transparency. These include mandatory reporting by corporate entities of their tax positon and other public disclosures.

    Such initiatives have sought to provide both the community and the ATO a level of justified trust, highlighting how information sharing not only influences behaviour but can improve community confidence in our tax system.

    By contrast, super reporting has been through static data points reported annually to the ATO. Specifically, the super industry has been framed around annual post- event reporting to the ATO through the Member Contribution Statement (MCS).

    This approach has built in major lag effects which make it difficult for us to prevent potential problems and indeed could lead to excess taxes being paid or regulatory beaches to occur.

    In my view, regulatory reporting is not just an activity or for the sake of it. For us, improved reporting will assure us that things are operating as required and support ongoing analysis of emerging patterns.

    The broader range of reporting information now reported to us by funds, relating to super accounts and contributions will move us dramatically and quickly into a sustainable framework for the future.

    So I want to confirm that from 1 April 2019, fund reporting will fully move to ‘event-based’ progressive reporting, with the completion of a major onboarding of data from funds. I want to thank your operational teams for their active partnership in this effort.

    The pre work required by your teams and their technical expertise was significant to onboard the data into the ATO.

    As a result, from next month we’re confident that all APRA super funds will have provided us with all foundation data on fund members’ account and transaction data from 1 July 2018.

    Going forward, this detailed information will be sent to us automatically within five to 10 days of an account change or contribution event. From this we will no longer rely on annual ‘point-in-time’ reporting.

    What is different for the ATO is that we now have an increasing and unprecedented level of transactional or member data at an individual account level. This new operating model allows for an almost real-time ability to share our information with funds and members. This will help you reunite people with their super.

    As the law takes into account an individual’s total super portfolio across an individual’s funds, the changes are particularly important for the nearly 40% of people with multiple APRA fund accounts.

    In using this new information our approach will be to:

    • analyse this information to understand how to reunite people with their super by sharing information; identify emerging risks and aid risk assessment
    • identify patterns and characteristics of account changes and contributions – no doubt some information will confirm what we know, but it will also provide an increased level of confidence given its timely nature
    • as we gain confidence in this information, we can use it to prevent breaches or unintended tax consequences and enforce the law with an emphasis on SG.

    Subject to gaining increasing confidence in data sets we will:

    • provide access to fund members and their tax agents of an ever increasing range of super account information, in particular how they’re tracking as they approach super caps
    • support super funds to reunite people with their lost super
    • connect fund members with their ATO-held lost super
    • place the ATO in a position to monitor at an individual account level the incidence of account changes, and the amount, number and frequency of contributions (including SG) paid into member accounts.

    Progress in the display of information for individuals

    Starting in 2017-18, with the aim of supporting the introduction of the 2016 Superannuation Budget Reforms, we made available and displayed for individuals, their account information, their total super balance, transfer balance cap and any carry forward amounts. We made this available through ATO online services (also accessible through myGov).

    Visibility of contribution payments

    I can now confirm that, starting in April 2019, even more super information will be shared with fund members via ATO online services and myGov.

    We’ll also be releasing further ATO online functionality for individuals, enabling them to see changes to their account and transaction level activity within days of being reported to us by APRA funds.

    People with APRA funds will also be able to see SG payments made into their fund, from their employer or multiple employers, for the period from 1 July 2018 and each quarter for 2018-19 and beyond.

    Under the law, funds will report to the ATO within five days or 10 days of a reportable event for a member’s account including:

    • details of any new open and closed accounts
    • details of any of their APRA funds which have moved from accumulation to pension phase
    • details of certain retirement phase events that make up a member’s transfer balance cap position
    • confirmation of the payment period and the amount paid into a member’s account by their employer including:
      • SG amounts
      • salary sacrifice amounts
      • voluntary employer contributions
      • award contributions.
       

    More recently, this same super information has been made progressively available for tax agents for their individual clients. So it is important for individual fund members to now be aware their tax agent can view a complete set of super information. This access will be completed by April.

    This is unprecedented timeliness and transparency of the super system in operation at the member level.

    Insights from new reporting

    From May to October 2018 we’ve been working to onboard the foundation data at an individual fund member account level from all APRA funds.

    Since October 2018 to now, we’ve been collecting specified transactional information for all fund members from 1 July 2018.

    This program will be complete by 1 April and by the end will have collected some 30 million individual account records and about another 120 million transactional records for fund members.

    It’s important to remember this new reporting of account and contribution information is both a more timely collection of previously reported information which was provided annually to us through the fund MCS supplemented by new information categories.

    Some things we’ve seen to date may be of interest with respect to information we’ve received on member account changes:

    • between May and 31 December 2018 we identified 3.2 million individual changes had been made to member accounts; these were predominately account phase changes
    • in February 2018 we received 294,000 account change updates which are probably more representative of the monthly changes rate going forward.

    While noting that 50% of APRA funds are still to complete their transaction reporting, based on the information received between 1 July 2018 and 28 February 2019:

    • about 450,000 employers have made contributions for about 7.1 million into employees’ fund accounts
    • for the same period, $23.65 billion was paid in employer contributions
    • for the same period, about 372,000 members made $4.45 billion in personal contributions.

    Improvements for future reporting

    As we transition to a process which is now increasingly ‘business as usual’, I ask that funds assist us to ensure ongoing accuracy in reporting to the ATO.

    Therefore, as we move to these new reporting arrangements, we’ve reviewed the usage of ATO SuperTick service. This is because the new arrangements no longer require open and closed accounts to be reported through SuperTick.

    In January, there were still over 79,000 open and closed account transactions and in February just over 76,000 transactions being reported via SuperTick. This duplicate reporting creates unnecessary reporting to the ATO. I therefore remind industry that reporting for open and closed accounts should no longer be through SuperTick.

    I also remind industry that the transitional relief from reporting full transaction details, including employer details, ends on 31 March. As we have for many months now, we’ll be working with your teams and monitoring that we move forward confident that the transitional relief is no longer applied. While we don’t expect any great difficulty in this area, we’d appreciate your attention to this matter.

    Therefore, from 1 April funds are required to report all specified data fields (details are set out in the Member Account Transaction Service business implementation guide. The Information can be from any source, whether a Contribution Transaction Request (CTR) or something else. This information, and other required employer details, is essential for us to identify non-payment of SG.

    More broadly, we’re seeing instances of account transactions being submitted without an associated member account form on our system. When this happens, we can’t allocate the transaction to the member account and your members could be disadvantaged. They won’t be able to see these contributions on ATO online and the transactions won’t count towards contribution caps and balances.

    However, please be assured that in no way do my observations detract from the effort by you and your teams to get this far so quickly in bringing these new arrangements into place.

    Foundations and building blocks

    As you’d expect, we’re now reviewing and seeking to progressively better understand the new data sets, looking for patterns and trends that could highlight areas of concern or risk or areas of opportunity to improve members’ super experience. Of course, this will take time as we want to ensure we don’t over simplify any initial observations.

    Importantly, we’re also keen to get the foundation metrics right. A basic metric is to ensure the timeliness of reporting of account attribute changes from funds. Generally speaking, these should be reported within five business days of the change occurring. Pleasingly, I can advise that some 95.7% of funds are reporting account attribute changes within this timeframe.

    I can also advise that 82.5% of employer contributions contain an employer’s ABN and 88% contain the start and end date for the contribution period.

    This will be important as we further analyse and match employers who do make payments and those who don’t report having made required super contribution payments to their employees over the coming months.

    As we become progressively more confident in the data sets we will actively start using them as part of our engagement and compliance activities.

    ATO employee commencement service

    Another aspect of the super system is the current discussions on employee commencement and default fund selection. Of course these are live matters under active consideration by government and through the Productivity Commission. It is not for the ATO to comment on future policy settings.

    However, I do advise that as part of the Single Touch Payroll program, in December 2018 we successfully released functionality in ATO online which supports new employees completing pre-filled tax and super forms for their employers. This is a voluntary service for employers and employees.

    This new functionality delivers on the 2015 government commitment to support pre-filled super choice of fund forms for employees. Importantly the new forms have been designed to help an individual starting a new job consider choice of fund using information provided by their employer about default options, and the information held by us on their existing accounts.

    For super, the employee will be presented with existing accounts available for choice, reusing the improved data provided by trustees through the Member Account Attribute Service (MAAS) and Member Account Transaction Service (MATS) to improve transparency of existing accounts.

    Information on the screen includes whether insurance is present, last reported balance and the date of the last contribution to the account. This information is supported with links to ato.gov.au and ASIC’s MoneySmart site, assisting the member consider their options for choice.

    Since our December release, over 4000 people have used ATO online to complete their tax or super forms.

    Employers and employees using the new screens are expected to receive immediate benefits. As data is pre-filled by us it will improve the quality of data received and the likelihood the employee will have the right amount of tax withheld on their income.

    Employers with appropriate software will be able to connect to the new screens, allowing for a digital experience for their employee and digital collection by the employer. The screens are also accessible directly for employees wishing to complete the forms independently from the employer’s software.

    We’ve taken a conservative approach to communicating about the new service with employers. Initially we’re inviting a small number of employers to use the service, giving us time to get feedback on the information we’re making available. As this service continues to be rolled out and taken up we’ll keep you informed.

    Focus on SG

    Of course, we haven’t been idle in our audit program to detect and seek to collect outstanding SG payments.

    This commitment is not new, and from 1 July 2010 to 30 June 2018 we transferred over $2.6 billion to employees’ super funds on behalf of more than 1.8 million employees as a result of our compliance activities.

    During 2017–18:

    • we issued 5,453 director penalty notices for 3,976 companies to the value of $356 million
    • compared with 2016-17, we’ve completed 76% more SG cases (about 31,900 compared with 18,199) with 40.8% of cases coming from our own risk assessments
    • we issued an SG assessment in seven out of 10 Employee Notification cases investigated
    • we were able to pay over $400 million into individual employees’ super funds, with many of these employees not even aware that they hadn’t been paid their SG.

    Since then, our year-to-date progress has seen the completion of 19,462 SG cases raising liabilities of $513 million.

    As part of the work completed to date, it’s pleasing to state that the specially funded SG taskforce, which has been operating since 1 July 2018, has completed 1733 cases and raised liabilities of $77.1 million including $9.4 million in penalties. Some 66% of these cases originated in NSW and Victoria. The taskforce plans to complete over 2,600 cases by June.

    We further anticipate raising an additional $130 million in addition to our ongoing SG compliance program

    Returning to the topic of transparency, while we have continued our commitment to our casework, as it currently stands, the annual lodgment of the Member Contribution Statement (MCS) to the ATO has been the main assured data source of what SG was actually paid to an employee by an employer.

    For some time now our position has been that more visibility of SG payments would greatly assist as enhanced enforcement tools.

    As I’ve outlined, in the coming months we’ll be able to see when SG is paid into a member’s account.

    Pleasingly, many of these matters have led to policy and administrative changes providing some new tools for us to better follow up non-payment of SG.

    New ATO SG enforcement tools

    The Treasury Laws Amendment (2018 Measures No. 4) Bill 2019 received Royal Assent on the 1 March 2019. The SG Integrity Act will bring into effect new enforcement measures and tools for the ATO with a start date of 1 April. The new law introduced provisions to assist in the enforcement of unpaid SG:

    • Commissioner’s ability to issue a direction to educate
    • Commissioner’s ability to issue a direction to pay
    • changed the disclosure provisions to employees
    • changed the director penalty notices regime
    • court enforcement of a security deposit demand.

    Direction to educate

    From 1 April 2019, where the Commissioner reasonably believes an employer has failed to comply with their super obligations, the Commissioner may issue a written direction to the employer requiring them to undertake a specified approved course of education. The purpose is to address knowledge gaps and reduce future cases of non-compliance through employers improved understanding about their super obligations.

    Education directions will be issued as part of our compliance program. Typically a direction will be issued where the employer’s lack of knowledge or understanding of their obligations has contributed to a failure to comply.

    To support this direction, we’ve developed a free online SG Employer Obligations course which will be released in the coming month.

    There are plans for a cash-flow management course to be made available as a specified course of education which can be approved by the Commissioner as a course that can be selected to be used with a direction to educate.

    Other providers may also create courses which they may charge for. In due course we will have material on our website that will provide guidance for interested providers how to seek the Commissioner’s approval for SG programs.

    In addition to directing some employers to undertake a course of education, we will be encouraging all employers who are subject to an SG audit to voluntarily undertake a course to improve their knowledge and reduce the chance of future non-compliance.

    Direction to pay

    In appropriate circumstances, from 1 April 2019 the Commissioner will be able to issue a direction to pay in relation to SG charge debts that first become payable on or after 1 July 2018.

    Where an employer is liable to pay an amount of SG charge, or an estimate of SG charge, the Commissioner may direct the employer to pay the amount by a specified date. Where the employer fails to comply with the direction without reasonable cause, the employer commits an offence punishable by a fine of up to 50 penalty units ($10,500) and 12 months imprisonment.

    Employers who will be affected by this measure are those who haven’t complied with their SG obligations and have a history of poor compliance. This is an additional tool that will be used by the ATO’s Debt area for recovery purposes.

    Disclosure of information about non-compliance

    Current provisions of the Taxation Administration Act 1953 (TAA) restrict the disclosure of information to employees about their unpaid SG to those who have complained to the Commissioner.

    The Bill amends the TAA to provide the Commissioner with the ability to disclose information that relates to a failure or a suspected failure by an individual’s employer or former employer to comply with their obligations under the Superannuation Guarantee (Administration) Act or related obligations under the TAA.

    This will allow the Commissioner to inform all affected employees or former employees of SG shortfalls identified by the Commissioner and the action the Commissioner is taking to recover the shortfall.

    The information or disclosure cannot relate to the general financial affairs of the employer.

    Director penalty notice

    Changes to the Taxation Administration Act 1953 will see the removal of the three month period before director penalties are ‘locked down’ in respect of unpaid SG charge liabilities. The measure modifies the current director penalty notices (DPN) for greater effect regarding unpaid SG charge by bringing forward by three months the current lockdown DPN.

    This means a director penalty in respect of an SG charge liability can’t be remitted if a company is placed into voluntary administration or insolvency where the company has an obligation to pay an SG charge.

    This measure will impact directors of corporate entities that haven’t complied with their SG obligations.

    Enhancements to enforceability of security deposits

    The Commissioner will be able to seek a court order to compel an entity to comply with a requirement to provide a security deposit for an existing or future tax related liability. Although this is a significant strengthening of the Commissioner’s existing powers, we expect the number of employers affected by this change to be small.

    This measure will only affect employers at the top of the compliance pyramid. We don’t expect to use this power frequently and will apply it only to the most egregious of employers, including those who fail to engage with us.

    This measure provides another tool that our debt area can use for recovery purposes.

    Reuniting people with their super

    Over the past five financial years (1 July 2013 – 30 June 2018) about 2.21 million accounts worth $11.3 billion have been consolidated or transferred by fund members using the ATO online service accessed via myGov.

    Building on the introduction of event-based reporting from super funds we’re now regularly sharing new member information with funds to help them re-engage with their members or to reunite people with their super.

    A new way we’re continuing to more efficiently share member information with funds is that funds now have the option of building the ATO Provision of Details Service (PODS) function into their reporting platform. They can use this service to obtain contact details we hold for members.

    For instance, a fund with PODS who receives returned mail for a member can use the service to request contact details from us for that member. This is an automatic response service available to funds as soon as they initiate PODS.

    As at 28 February 2019, we’ve responded to about 311,000 PODS requests from 52 funds for updated contact details.

    For those funds that haven’t chosen to build PODS, we can still help them to reunite with their lost members through information that is shared under their MAAS reporting.

    Indeed as at 28 February 2019, we’ve issued 997,000 member account attribute reporting responses on fund member information which may assist to reunite a person with their super.

    Proactive reuniting of super by ATO

    The government announced the Protecting Your Superannuation Package in the 2018-19 Budget, with the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 recently passing both Houses of Parliament.

    Once royal assent has been received, accounts with a balance below $6,000 that have been inactive for 16 months will be transferred to the ATO as unclaimed super money (USM). This will enable us to reunite members with low balance and inactive accounts.

    In order to reunite a USM account with an active account, we will match the person’s USM account with their active fund account via our existing payment channel.

    Proactive consolidations only apply to eligible unclaimed super amounts, which include inactive low-balance accounts where the individual is not deceased and the active fund account meets the following conditions:

    • it must have received a contribution for the person in a specified timeframe
    • it is able to accept rollovers from the Commissioner
    • the combined reunited account balance is greater than $6,000.

    Helping Indigenous Australians reunite with their super

    I’d like to update you on what we’ve been doing to assist Indigenous people with their super. We continue to participate in ASIC’s Indigenous Outreach Program and the First Nations Foundation’s ‘Big Super Day Out’ events. At these events we provide assistance to Indigenous Australians to re-unite them with their lost super, assist them to consolidate multiple accounts, and provide education on their entitlements. Assistance provided through these programs and events can have live changing outcomes for people.

    In one of our remote community visits, we helped a woman approaching retirement discover she had over $120,000 in super of which she was unaware. In another case, a man discovered he had accumulated more than $170,000 in super; he used it to purchase his first home.

    We also acknowledge and appreciate that the process of finding and claiming super for deceased estates can be very difficult, particularly for people living in remote areas. To improve access to super accounts for relatives of Indigenous deceased estates we’ve changed our procedures to allow the release of information where the deceased member is listed on our Lost Members Register or the Unclaimed Super Money Register.

    Where a deceased member is not on those registers and there is a super account in existence that is held by funds, we work closely with industry to ensure relatives are informed of the existence of such accounts.

    Conclusion

    We look forward to working further with you to improve and mature transparency and trust in the super system for the benefit of all members. By working together, we have achieved much to prepare for the future.

    Thank you.

    Last modified: 14 Mar 2019QC 58239