FoFA changes bill divides Senate committee

FoFA Senate Parliament CommitteeThe Senate Standing Committees on Economics has made its report on the changes to the FoFA reforms, and it appears that the bill will return to the House of Reps with only very minor changes.

The Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 was referred to committee in order to “‘provide a forensic and detailed examination of the legislation and the effects this and previous reforms would and have had on the financial services and investment decisions”. The committee was concerned to “strike the right balance” between consumer protections and the regulator burden on industry. The report includes a report by the majority of the committee and two minority reports.

Majority Report

Best Interest Duty

The majority of the committee was of the opinion that, with small amendments to the bill, “there would be no dilution of the best interests duty, but a greater deal of certainty for both client and adviser”.

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ATOs SMSF compliance focus

SMSF & Superannuation NewsIn the recently published speech to the SPAA national conference Alison Lendon, Acting Second ATO Commissioner, explained the ATOs SMSF compliance focus.

While acknowledging one of the roles of the ATO is to “ensure the health and security of this sector”, which Lendon thought was “in good shape”, the ATO does sometimes need to take “firmer actions”, such as those taken in 2012/13:

  • 150 SMSFs were made non-complying
  • 440 people were disqualified from being an SMSF trustee
  • 513 enforceable undertakings were entered
  • 70 funds were wound-up following audits
  • 438 funds were removed from the Super Fund Lookup database pending investigation for illegal early release schemes

However the ATO “usually prefer[s] to work with trustees and their advisers to rectify contraventions wherever appropriate”.

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ATOs new response to Auditor Contravention Reports

The ATO has announced a new system for responding to Auditor Contravention Reports and new penalties for SMSFs behind on lodgements of the Annual Return.

New ATO response to auditor contravention reports

The ATO has announced a change to the treatment of contraventions reported through the Auditor Contravention Report. Previously when a contravention report was received the ATO would send a letter confirming receipt of the report, but there could then be a significant amount of time, in some cases years, before an ATO audit commenced.

Under the new system the ATO uses ‘risk models’, which process information including “regulatory and income tax matters, … the SMSF annual return, ACRs and other data including trustee and members’ records”, to triage the auditor contravention reports into three risk categories, high, medium and low risk.

High risk reports will result in comprehensive ATO audits which will “scrutinise all regulatory and income tax risks displayed by the fund”.

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Current State of Superannuation Changes 2014: May

Superannuation Legislation & UpdatesAn update of superannuation changes 2014 for the month of May, including the current state of superannuation changes passed, working their way through parliament, or un-legislated.

Treasurer Joe Hockey caused some speculation that there will be further changes to superannuation in his appearance on Q&A, but quickly returned to the line of  no “adverse changes in superannuation in this term of government” in a press conference the next day. However he did leave the option open of future changes, saying “if there’s any changes they will be, obviously, on the horizon”.

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SuperStream for contributions delayed ‘up to’ 1 July 2015

SMSF & Superannuation NewsThe government announced  yesterday (the 26th of May)  that superannuation funds would have up-to 1 July 2015 to comply with the new SuperStream standards for sending and receiving electronic contributions data.

In a media release the Acting Assistant Treasurer Mathias Cormann said the change “increased flexibility for the superannuation industry as it continues to make the necessary changes to implement the SuperStream contributions data standards” and that “superannuation funds will have up to 1 July 2015 to meet the new standards”.

However the media release appears to be an over-simplification of the changes to the SuperStream standards. While the change may provide “increased flexibility” it will also likely result in confusion for SMSF trustees, with just over one month until the previous implementation date.

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Proposed FoFA changes divide industry

SMSF & Superannuation NewsThe governments proposed FoFA changes have split opinion amongst industry participants, based on submissions received by the Senate committee tasked with considering the changes. The Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 which “implements the Government’s election commitment to reduce compliance costs imposed on the financial services industry” was referred to the Senate Economics Legislation Committee for consideration. The committee has now published the submissions received, ahead of reporting on the 16th of June 2014.

There are several aspects of the amendments to the FoFA reforms which are controversial, including:

  • Conflicted Remuneration
  • Removing the ‘catch-all’ provision from the best-interest duty
  • Removing the two year client ‘opt-in’

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SMSF real estate investment advice needs regulation

SMSF & Superannuation NewsThe Bank of Queensland, in its submission to the Senate committee investigating proposed changes to the FoFA reforms, has raised the issue of increased regulation to protect consumers, including SMSF real estate investors, from property promoters. Calling the different regulatory approaches between real estate and other investments an “anomaly” BOQ recommends that “advice on the purchase of real estate, other than for owner occupiers, be included in the definition of financial advice”. This would provide a “consistent framework” and there is no “valid reason for the financial services licensing system not to apply to advice with respect to real estate investments”. Part of this concern comes from BOQ seeing unregulated real estate investment advice driving consumers into SMSFs which are inappropriate for them, including because the “fund too small to be economic” or the “consumer is not equipped to be a trustee”.

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Budget 2014: Industry “disappointed” with super changes

SMSF & Superannuation NewsIndustry response to the 2014 Budget has been mixed, with support for changes allowing withdrawal of excess non-concessional contributions and providing certainty for the increase of the Superannuation Guarantee to 9.5% from 1 July 2014. However the response has been broadly negative to the slowing of the SG rate beyond that which was contained in the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013.

Industry Super Australia says the changes in the budget will “result in a 25 percent reduction in total retirement incomes for someone aged 45 today on average earnings”, and instead proposes revisiting the recommendations of the Henry Tax Review.

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Budget 2014: Superannuation promise broken

The Abbott government promised that there would be no “adverse unexpected changes to superannuation during our first term”, and now that Joe Hockey has presented his first budget it seems this promise has been broken. While they didn’t all make the budget speech there are important changes to superannuation buried in the budget papers, the most wide-reaching of which is a slowing in the increase to the Superannuation Guarantee.

Superannuation Guarantee increase to slow

The current legislation has the Superannuation Guarantee increasing to 9.5% from 1 July 2014. The government had intended to delay this to 1 July 2016 under the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013. However after this bill failed to pass the senate the government has decided to not change the currently scheduled increase in order to “give certainty to employers and employees”. However the increase in the SG rate will be further slowed – with the 9.5% rate to stay in place until 30 June 2018 and then increase at 0.5% per year until it reaches 12% in 2023/24. This is an even slower increase than that proposed in the Repeal bill, as shown in the following graph:

Slower increase in Superannuation Guarantee from 9% to 12%

 Source: Budget Measures Budget Paper No. 2 2014-15, ATO Website and APH website.

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Paul Keating proposes Longevity Levy to supplement Super Guarantee

The former Prime Minister Paul Keating has made an argument for both increasing the Superannuation Guarantee and creating a safety net for after super runs out, noting “You can’t save under super for 30 years or 35 years and then live another 30 years off from it”.

In an interview with Lateline Paul Keating proposed a ‘longevity levy’ of 2-3% of wages to fund an insurance scheme for the provision of “income support, aged care and aged accommodation”. An alternative also proposed would involve changes to the preservation rules so money remained in super for longer, or as Mr Keating put it “to quarantine, say, 25 per cent of it where preservation rules would apply where they can’t touch it till 80”.

Recent comments in a speech by the treasurer Joe Hockey have also drew attention to the adequacy of superannuation: “despite spending billions of dollars in taxation benefits for superannuation, by 2050 the ratio of Australians receiving a full or part pension will still be around four out of five”.

However when the Superannuation Guarantee was introduced by the Keating government in 1992 it was at 3%, and only reached 9% in 2002/03:

Historical rates for Superannuation Guarantee

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