Superannuation Industry Stewardship Group key messages 13 March 2024

Welcome and introductions

Co-chair David Knox, Mercer, opened the meeting with an Acknowledgement of Country.

The Superannuation Industry Stewardship Group (SISG) has recently undergone a membership refresh. The group welcomed incoming members Mike Cornwell, Gideon Holland, and Sarah Nicholson, Australian Prudential Regulation Authority (APRA), Suzanne Mackenzie, Law Council of Australia, and Tim Jenkins, Actuaries Institute. The co-chairs thanked outgoing members Katrina Ellis and Carolyn Morris, APR, Glen McCrea, Association of Superannuation Funds of Australia (ASFA) and Maged Girgis, Law Council of Australia for their valuable contributions to the SISG.

ATO co-chair Emma Rosenzweig noted feedback received from Super Consumers Australia on ensuring First Nations superannuation issues are addressed in the SISG future work program, including representation from the First Nations Foundation, and confirmed this will be covered later in 2024.

Superannuation regulators

Treasury

Consultation has commenced on the Annual Superannuation Performance Test. The test was introduced to protect Australians’ retirement savings by holding trustees to account for the investment performance they deliver and the fees they charge to members. Consultation closes on 19 April 2024.

Work on the Quality of Advice Review is continuing. The second tranche of reforms was announced on 7 December 2023 and roundtables were held in February to work through draft legislation.

Consultation on the superannuation in retirement discussion paper has closed and responses are being reviewed. Submissions contain a common theme, that individuals’ needs in retirement are unique and the retirement system needs to be flexible.

Australian Prudential Regulation Authority

APRA is engaging with trustees on the implementation of the retirement income covenant. Trustees are generally improving their offerings of assistance and support to members in retirement; however, there is variability in the quality of approach taken.

APRA is working towards a performance transparency package which includes numerical results of the performance test, additional product performance metrics and products sets.

Prudential Standard CPS 230 Operational Risk Management (CPS 230) was released in July 2023 and commences on 1 July 2025. The new standard represents an increased focus on trustee accountability for operational risk. APRA is working on draft guidance to accompany the standard.

Following consultation in 2023, APRA plans to finalise updates to Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and associated guidance in the first half of 2024.

APRA released draft amendments to Prudential Standard SPS 114 Operational Risk Financial Requirement (ORFR) and Prudential Practice Guide SPG 114 Operational Risk Financial Requirement (SPG 114) in February 2024. The amendments clarify the purpose of the ORFR, introduce a clear and direct relationship to CPS 230, widen the range of uses for the ORFR, and amend the notification requirements to facilitate use of the ORFR. Feedback closes on 13 May 2024.

Australian Securities and Investments Commission

Focus areas for Australian Securities and Investment Commission (ASIC) included:

Member services, with a focus on death benefits – ASIC is looking at what trustees can learn from complaints data, trustees' ability to act on systemic issues, and whether there is effective communication with members.
Scam disruption work involving investment scams – ASIC is looking at the practices of super funds in relation to scams and reviewing of the practices of the broader banking environment.
The implementation of super fund financial reporting and audit requirements.

ASIC has extended relief from disclosure and reporting consistency obligations for super trustees until 1 January 2026.

ASIC has released its enforcement priorities for 2024. These include member services, misconduct resulting in the systemic erosion of super balances, greenwashing, and compliance with the reportable situations regime.

Australian Financial Complaints Authority

Australian Financial Complaints Authority (AFCA) continues to receive a high level of super complaints. On 31 January 2024, 4,564 complaints had been received. It is expected the total number of complaints will exceed those received in the last financial year.

Almost half of the complaints received were resolved quickly by AFCA and referred back to the super fund. Whilst this is a good result, it may indicate super funds do not have adequate internal dispute resolution practices in place.

Current complaint themes show:

one in 4 complaints relates to delays in claims handling
one in 3 complaints relates to service quality issues; this can include account administration errors, failure to follow instructions or agreements, or service quality
death benefits remain a significant source of complaints, with issues around allocation of the benefit.

While complaints about scams and fraud affecting super accounts remain low, AFCA is writing to funds where it identifies potential systemic issues around scam activity.

ATO

SMSF Illegal Early Release Estimate

The self-managed super fund (SMSF) Illegal Early Release Estimate was released at the SMSF Association National Conference in February 2024. The estimate allows the ATO to measure the size, scale, and trajectory of the risk of super money illegally withdrawn by trustees. The estimate includes the following findings:

In 2020, it is estimated $381 million of super has been illegally withdrawn by trustees of SMSFs. In that year it is estimated that over $125 million was protected from leaving the system as part of the ATO's work on new SMSF registrant reviews.
In 2021, it is estimated $256 million of super has been illegally withdrawn, with $170 million additional protected at registration.

Findings indicate newly established SMSFs were more likely to engage in this behaviour compared to established funds.

Further information on the estimate is available at Illegal early access of super estimate.

The ATO has a wide range of strategies to prevent illegal early access before it occurs and will apply sanctions when it is identified. In recent years, increased messaging and support have been provided to prospective trustees, and compliance actions have been scaled up. The ATO works closely with other law enforcement agencies such as ASIC, State and Federal Police and the Tax Practitioners Board to share intelligence and address inappropriate behaviours.

The ATO sees the superannuation industry and intermediaries as having a key role to play in addressing this problem. This may include education, myth-busting, and making sure clients' financial literacy is not over-estimated. To assist potential SMSF trustees to understand their obligations, the ATO has published an Illegal early super release fact sheet.

Input tax credits on adviser fees

In December 2023, the ATO published the document Eligibility of super funds and investor-directed portfolio services investment platforms to claim reduced input tax credits on adviser fees outlining whether funds can claim reduced input tax credits for external adviser fees in certain circumstances.

In instances where there is only a supply of financial advice from the adviser to the member, the fund is not eligible to claim reduced input tax credits. The fund may facilitate payment to the adviser, but that does not give rise to an entitlement to GST credits as the fees are not consideration for any supply to the fund.

Typically, a member would not be entitled to claim GST credits if they directly engaged and paid the financial adviser for personal financial advice. Therefore, there is consistent GST treatment for members who seek personal financial advice from an adviser irrespective of whether the payment is made through the superannuation system or directly by the member.

As set out in the published document, the ATO provided a compliance approach for funds until 1 April 2024 and in response to industry feedback extended that approach to 1 July 2024. The Financial Services Council (FSC) has written to the government and provided the SISG with a copy of its correspondence.

There was discussion amongst members about this topic, with the FSC noting they do not agree with the ATO not extending the compliance approach beyond 1 July 2024. The FSC circulated a letter to SISG members detailing their concerns.

Visibility of super information for family law proceedings

From 1 April 2022, individuals in current property settlement proceedings can request information from the ATO through the family law courts on their current or former spouse's super interests. The ATO will disclose this information to the court, which will then provide it to all parties.

For the period 1 April 2022 to 5 March 2024, there have been 3,637 requests received.

Environmental scan

The Super Members Council of Australia (SMCA) was established on 1 October 2023 following the merger of the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA). SMCA has a policy and advocacy focus.

Recent SMCA activities include:

response to the Treasury consultation on the retirement phase of superannuation
ongoing work to ensure the voices of working Australians are heard, including lower income earners, and First Nations communities.

The Actuaries Institute is increasingly working with super funds to effectively harness insights from data. The Actuaries Institute works with APRA regulated funds, public sector funds and SMSFs, with the role of actuaries becoming increasingly valuable in the superannuation eco-system.

Recent activities undertaken by the Actuaries Institute include:

submission to the Treasury consultation on the retirement phase of superannuation
a request that Treasury consider the complexity of Division 296 for defined benefit funds.

The Council of the Ageing (COTA) noted recent coverage of the final report of the Aged Care Taskforce, and the recommendations involving payment for aged care. The report recommends the government consider supporting people to use their super to help fund aged care needs.

Lost and unclaimed super

The ATO provided an overview of trends and results of reuniting super with members, following the introduction of the Protecting Your Super (PYS) legislation in 2019.

APRA regulated funds have an obligation to report and pay unclaimed super money (USM) to the ATO twice per year. The ATO can only consolidate USM to active eligible accounts or pay directly to an individual where a condition of release has been met.

The ATO cannot proactively reunite USM amounts for some categories of USM, including deceased estates, non-member spouse, and former temporary residents. The ATO is also unable to reunite USM accounts that have not been matched to an individual.

Lost super accounts are held by super funds. Some lost accounts may be paid to the ATO if they meet a USM category.

Individuals can see all their super, both fund and ATO held, using ATO online services. This allows individuals to claim or consolidate USM amounts that the ATO is unable to reunite due to legislative constraints. Individuals can also use ATO online services to consolidate accounts held solely by super funds.

On 30 June 2023, there was $16 billion in lost and ATO held super, with almost two thirds held by super funds.

The ATO has strategies in place to encourage individuals to engage with their super:

alerts in ATO online services for individuals with lost or ATO held unclaimed super amounts
marketing and communication campaigns, information published on ato.gov.au, and social media platform messaging
encouraging the use of the Super Health Check
regular participation in First Nations Foundation events to support Aboriginal and Torres Strait Islander people find any super they may have lost track of.

Members queried if the ATO can determine whether there are accounts that will be unable to be consolidated, based on data. The ATO confirmed there has been higher quality data reported since the commencement of super stream reporting, which has led to improved outcomes matching accounts. Small and insoluble lost members make up the highest proportion of unmatched accounts.

Members also discussed:

consumer advice on reuniting super, and how individuals can engage with their super
the use of postcode data in previous ATO lost and unclaimed super campaigns, and whether this could be refined and used with outreach events to produce better results for particular groups, for example, First Nations people.

Further information on lost and unclaimed super data can be found at Lost and unclaimed super data.

Payday Super consultation

The ATO gave an update on the consultation and co-design process for Payday Super. Key points include:

Payday Super at its core is a simple change for an employer to pay super at the same time as salary and wages. The ATO understands that this presents complexity in business and administration processes across the superannuation eco-system.
The ATO has consulted and co-designed with stakeholder groups in relation to Payday Super on its administration, impacts on stakeholders and any changes that need to be made. This is in addition to Treasury’s consultation in relation to the policy.
There is currently a pause in co-design whilst awaiting proposed policy announcements by the government, and delivery of the May 2024 Budget. Once this occurs, the ATO will re-engage stakeholders for co-design and consultation.
A special purpose working group is expected to be created, with intent to focus on the overarching end-to-end processing required for Payday Super. There is likely to be smaller technical groups to result from this. The membership, timing and frequency of these meetings will be set once policy parameters are defined.

Review into choice products

ASIC provided an overview of Report 779 – Superannuation choice products: What focus is there on performance? The report was released in February 2024 and examines the conduct of trustees, advisers, and advice licensees to understand why some members continue to invest in persistently underperforming investment options under their choice super products.

The report includes a table of action points with recommendations for trustees, advisers, and licensees. ASIC identified both good and poor practices for each group.

Suggested improvements for trustees for prioritising performance of investment options include:

adequate investment in governance process, including ensuring sufficient priority is placed on investment performance throughout the product lifecycle
ensuring adequate systems are in place to detect and address non-performance
communication with members around performance of investment options, including specific and measurable return objectives and actual performance against those objectives
proactive review of investment options for choice products, not a ‘set and forget’.

The report focuses on how products are monitored for underperformance and the subsequent actions taken, noting options selected for the study had a minimum of 5 years of data. The review did not seek to identify options as underperforming and therefore had a different focus and methodology to the performance test.

Digital identity program

The Department of Finance and the ATO provided an update on the Digital ID program.

The vision is for a national, economy-wide Digital ID system, that provides a secure, convenient, voluntary, and inclusive way for people to verify their identity online. This is being supported by Digital ID legislation, which will embed enforceable protections and permanent regulatory oversight, and legislate the Australian Government Digital ID System.

Key points include:

a Digital ID is a way to safely and securely verify identity online
once set up, a Digital ID can be used to securely access services over and over
myGovID is the Digital ID developed for use with a range of government online services, with 138 services currently using the program.

Attendees

Attendees list
Organisation	Attendee
ATO	Emma Rosenzweig (Co-chair), Superannuation and Employer Obligations
ATO	Larissa Evans, Superannuation and Employer Obligations
ATO	Peta Lonergan, Superannuation and Employer Obligations
Actuaries Institute	Timothy Jenkins
Association of Super Funds Australia	Julian Cabarrus
Australian Financial Complaints Authority	Heather Gray
Australian Prudential Regulation Authority	Gideon Holland
Australian Prudential Regulation Authority	Mike Cornwell
Australian Securities and Investments Commission	Jane Eccleston
Business Council of Australia	Stephen Kirchner
Chartered Accounts Australia and New Zealand	Tony Negline
COTA Australia	Patricia Sparrow
Financial Services Council	Spiro Premetis
Law Council of Australia	Suzanne Mackenzie
Link Group	Deborah Schembri
Mercer	David Knox (Co-chair)
SMSF Association	Peter Burgess
Super Consumers Australia	Xavier O’Halloran
Super Members Council of Australia	Melissa Birks
The Tax Institute	Phil Broderick
Treasury	Lynn Kelly

Guest attendees

Guest attendees list
Organisation	Attendee
ATO	Elissa Walker, Enterprise Solutions and Technology
ATO	Cathryn Hummel, Superannuation and Employer Obligations
ATO	Naomi Westwood, Superannuation and Employer Obligations
ATO	Tanya Fletcher, Superannuation and Employer Obligations
Australian Prudential Regulation Authority	Chanum Torres
Australian Securities and Investments Commission	Rilyn Mosbey
Australian Securities and Investments Commission	Melissa Trees
Department of Finance	John Shepherd

Apologies

Apologies list
Organisation	Member
Australian Securities and Investments Commission	Jessica Spence
Australian Prudential Regulation Authority	Sarah Nicholson