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  • Cross-agency process for innovative retirement income stream products

    Since 1 July 2017, new pension and annuity standards in the Superannuation Industry (Supervision) Regulations 1994 set out required features and terms of innovative retirement income stream products.

    Products that meet these standards will meet the definition of a superannuation income stream for the purposes of the Income Tax Assessment Act 1997. They will qualify for earnings tax exemptions when they are in the retirement phase.

    These pension and annuity standards remove regulatory barriers to the creation of innovative retirement income streams described in Treasury’s 2016 Review of Retirement Income streams.

    The review also recommended developing a coordinated administrative process to streamline the way product providers interact with multiple government agencies. This cross-agency process is the government’s response to that recommendation.

    The government intends these changes to facilitate:

    • product providers bringing new innovative income streams to market
    • greater choice and flexibility for retirees to
      • manage the risk of outliving their retirement savings
      • enhance their standard of living in retirement.
       

    An innovative retirement income stream product is a product designed to meet regulation 1.06A of the Superannuation Industry (Supervision) Regulations 1994.

    The cross-agency process can also be used to consider products that don’t satisfy the requirements of an innovative retirement income product in regulation 1.06A, as long as they:

    • satisfy the pension and annuity standards in regulation 1.05 or 1.06 of the Superannuation Industry (Supervision) Regulations 1994, and
    • are innovative in nature.

    Process and requirements for providers of new retirement income stream products

    Intention of the cross-agency process

    The cross-agency process is a streamlined way for product providers to raise topics or issues arising from certain innovative retirement income stream products with the government agencies responsible for regulating these products and the entities that provide them.

    The aims of the cross-agency process are to:

    • facilitate engagement by providing a single-entry point to initiate contact with the relevant government agencies
    • allow product providers to
      • test concepts
      • seek information and high-level guidance on topics or issues
      • provide their view on how the product meets the requirements of the relevant legislation
       
    • complement existing processes within the individual agencies.

    Note: Review of the cross-agency process will occur regularly. It may be refined and enhanced as it receives requests and is presented with new products.

    Agency roles within the cross-agency process

    The cross-agency process involves the following government agencies:

    The following section outlines their roles and responsibilities within superannuation (super) and life insurance.

    How we can help

    We administer a range of tax and reporting obligations that can apply to:

    • product providers
    • super funds and their members
    • life insurance companies and their policy holders.

    A number of these obligations may be relevant to consider when developing innovative income stream products.

    We can help with:

    • general information about those obligations to be considered
    • identifying options for obtaining certainty on how the tax law applies to specific products and their features, for example, a private ruling or a product ruling.

    An application for a private or product ruling will need to be made outside the cross-agency process. The ATO advice products – rulings provides information on what you need to do to apply for a ruling, and how to apply for a ruling.

    We will take lead responsibility as the coordinator for the cross-agency process.

    Australian Prudential Regulation Authority

    Australian Prudential Regulation AuthorityExternal Link (APRA) does not approve or authorise retirement income stream products. APRA’s approach recognises that the board and management of registerable superannuation entity (RSE) licensees and life companies are primarily responsible for the sound and prudent management of their operations.

    APRA seeks to promote sound prudential practice by helping product providers interpret, understand and comply with relevant prudential requirements and guidelines. It ensures they have appropriate frameworks in place to manage risks arising from their retirement income stream products.

    APRA’s engagement with product providers will form part of its ongoing supervision of regulated entities. Product providers should benefit from the focused nature of the engagement and the simultaneous engagement with other relevant agencies.

    Australian Securities & Investments Commission

    Australian Securities & Investments CommissionExternal Link (ASIC) does not formally approve super or other products or provide legal advice. However, as with APRA, it can provide input to regulated entities on issues of concern.

    ASIC can provide information and guidance to product providers on:

    • consumer disclosure documents – helping them to deliver high quality information about the product and comply with the specific disclosure requirements of the Corporations Act 2001
    • licensing requirements – Australian Financial Services (AFS) licensing authorisations, including to provide financial product advice
    • conduct requirements – what is expected from participants in the financial services sector, including design and distribution obligations under the Corporations Act 2001 as well as other aspects of their relationship with consumers.

    In some instances, ASIC can exercise its discretionary powers to provide relief from certain provisions of the Corporations Act 2001 or Superannuation Industry (Supervision) Act 1993 as they apply to a person, where they may result in atypical or unforeseen circumstances or unintended consequences. This might be of relevance to new and innovative product providers.

    See also:

    Department of Social Services

    Department of Social ServicesExternal Link (DSS) can give information and guidance on how to assess retirement income product and the related income and assets under the social security means test.

    Role of product providers in the cross-agency process

    Product providers using the cross-agency process must:

    • consider any issues on how the law or regulatory framework might apply to the product and provide a preliminary view or position on these issues
    • provide all information needed as part of the request form to all agencies
    • respond to requests for further information within the requested timeframe
    • advise of any changes to the names or contact details of representatives
    • actively engage with all agencies throughout the process
    • be open and transparent and engage with full and accurate disclosure.

    It is the responsibility of the product provider to ensure that all requests are complete and considered. This includes identifying:

    • relevant legislative or other regulatory requirements
    • how they apply to the proposed retirement income product
    • any issues that need to be clarified by any of the agencies.

    Product providers who have an incomplete request won't be able to continue with the cross-agency process until they provide the relevant information.

    Constraints and limitations of the process

    This cross-agency process streamlines the request process and discussions but does not replace existing processes within each agency.

    The type of information and guidance provided by each agency will differ depending on their regulatory responsibilities and powers, and:

    • should not be seen as providing formal endorsement or a recommendation for a given product
    • must not be used in any marketing or promotional material, unless explicitly provided for that purpose by the agency within the course of its regulatory or administrative authority.

    Participation by a product provider in the cross-agency process does not substitute for the provider getting its own legal and other technical advice. Providers need to understand and manage the key risks arising in their particular circumstances during the development of an innovative retirement income stream product.

    Through the cross-agency process we will aim, where relevant, to provide a consistent position on topics or issues raised.

    Note: Maintaining the confidence and confidentiality of product providers is important. This may mean that at times an individual agency may be limited in the information it can share with other agencies.

    Using the cross-agency process

    What to expect

    Participation in the cross-agency process and the information and guidance provided by each government agency may assist product providers in deciding whether to:

    • proceed with the development of the product
    • alter the characteristics of the product to better comply with the law, or
    • discontinue development of the proposed product.

    Submitting a request

    A product provider can submit a 'concept exploration' or 'product review' request. Submit the cross-agency process request form (PDF, 1.3MB)This link will download a file at any time during the product development process.

    We will give priority to products that satisfy the requirements of an innovative retirement income product in regulation 1.06A of the Superannuation Industry (Supervision) Regulations 1994 when considering requests.

    If you are unable to open and use this form, download it by right clicking on the link and selecting Save target as. Send your completed form via a single email including ALL the following email addresses:

    If you need further help to complete the form, email us at retirementincomestreams@ato.gov.au

    When to use the cross-agency process

    The cross-agency process is voluntary. It can be used by product providers at any time during the development of their innovative retirement income stream product.

    There are two key engagement types to assist product providers in determining the most relevant point to use the cross-agency process.

    • Concept exploration – this provides the opportunity to test the concepts of the proposed product to seek information and guidance on the relevant legislation, and the preliminary view provided in the request.
    • Product review – this provides the opportunity to present a product at a more mature development stage to seek information and guidance on the relevant legislation and the preliminary view provided in the request.

    Concept exploration process

    Step 1 – Initial contact

    Product providers should complete the cross-agency process request form (PDF, 1.3MB)This link will download a file. Select Concept exploration and providing the requested information including:

    • type of product
    • high-level overview of the product
    • design details of the product
    • worked examples showing how the product operates
    • any legal, actuarial or accounting advice obtained by the applicant
    • statement demonstrating an understanding of how the product meets the regulatory requirements for innovative retirement income stream products
    • any technical advice obtained of relevance to the request
    • list of topics or issues you want the agencies to consider, including your preliminary view and reasoning for this view.
    Step 2 – Receive confirmation of request

    The cross-agency co-ordinator will contact you by email within two business days acknowledging receipt of the request and will provide you with a reference number.

    This reference number must be used in any future correspondence.

    Step 3 – Outcome

    Each agency will consider the information provided in the cross-agency request form, along with any additional supporting information and documents.

    You will be provided with a non-binding written summary from the agencies with:

    • responses to the topics raised in the request
    • next steps or external referral processes you may need to consider and the details of any relevant contacts to help in this process.

    Product review process

    Step 1 – Initial contact

    To raise issues at a more mature development stage should complete the cross-agency process request form (PDF, 1.3MB)This link will download a file. Select Product review and provide the following details:

    • type of product
    • statement demonstrating an understanding of how the product meets the regulatory requirements
    • draft term sheet or product specification that specifies the
      • product features
      • intended income tax treatment
      • Superannuation Industry (Supervision) Act 1993 treatment/compliance
      • accounting treatment
       
    • for products with a guarantee of any type, a schedule of payments covering the guaranteed periods  
      • for any indexed payments, provide the estimated rate of indexation (for example, lifetime annuity indexed by CPI where CPI is assumed to be 2.5% per annum)
       
    • worked examples showing how the product operates
    • any legal, actuarial or accounting advice obtained by the applicant
    • list of topics or issues you want the agencies to consider, including your preliminary view and reasoning for this view
    • intended target market, distribution or advice model for the product and information on how this satisfies the Corporations Act 2001.

    Optional supporting information:

    • draft product disclosure statement
    • draft trust deed amendments for super fund offering the product
    • draft information brochures or guides that are given to people taking out the products
    • any life insurance policy where
      • a life insurance company offers the product
      • the super fund offering the policy has taken out a life insurance policy in relation to the product.
       

    Step 2 – Receive confirmation of request

    The cross-agency coordinator will contact you by email within two business days to provide a reference number for the request.

    This reference number must be used in any future correspondence.

    Note: We will consider applications that do not meet the minimum standards outlined above for a concept exploration only.

    Step 3 – Outcome

    Each agency will consider the information provided in the cross-agency process request form, along with any additional supporting information and documents.

    You will be provided with a non-binding written summary from the agencies with:

    • responses to the topics raised in the request and during the meeting
    • next steps or external referral processes you may need to consider including details of any relevant contacts to help in this process.
      Last modified: 15 Jun 2020QC 52696