Super funds may not be ready to implement the Protecting Your Super package of measures by the deadlines, industry bodies have warned the Government.
Last month the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 passed the Parliament. It caps some fees, bans exit fees, and stops insurance for Choice and MySuper products for accounts that have been inactive for at least 16 months unless the member makes an election.
Treasury has been consulting on regulations around the Protecting Your Super Bill, which has yet to receive Assent. Treasury only allowed a week for submissions on the regulations around the measures. The Association of Superannuation Funds of Australia (ASFA) noted in its submission to Treasury that this is “very little time given to respond to the draft regulations and to digest the amendments made to the PYS [Protecting Your Super] Bill”.
“A longer consultation period would have permitted a more thorough and considered response however we acknowledge the urgent need to provide clarity to the industry so that the PYS changes can be implemented as quickly as possible and in a way that allows members to be informed about how the changes affect them in a timely fashion,” said ASFA, in its submission.
ASFA supports the measures in general, but has a “number of concerns” about the Bill and in particular the regulations.
“The PYS package places a significant operational burden on funds as they work to implement its various elements, and does so with very tight deadlines. There will need to be system changes, member communications, disclosure updates not to mention the longer-term impact on the terms and pricing of insurance contracts, all of which will have to be done in a very short space of time.”
ASFA also said there remains a “considerable degree of uncertainty about the impact and application” of the Protecting Your Super measures.
The Financial Services Council (FSC) is also “concerned that a lack of clarity” in parts of the regulations. When combined with the “extremely short timeframe for implementation” the FSC, in its submission, said is “likely to lead to poor outcomes and sub-optimal experiences for some clients”.
“While superannuation funds and insurers are working to comply with PYS requirements by the dates required, there is a real risk some funds may not be able to fully comply by the implementation date,” said the FSC.
“In particular, it is extremely difficult to reprice insurance, and in some cases renegotiate commercial arrangements, within the timeframes required to provide appropriate disclosure to customers.”
The FSC said meeting the deadlines will mean devoting significant resources, including manual processing – which, combined with little time for testing, could result in more errors. The industry body is seeking “flexibility from regulators in relation to compliance with PYS requirements to ensure that consumers are not adversely impacted by the transition”. It has also “suggested several amendments to the Regulations which would allow superannuation funds to comply with the intent of PYS, and deliver equivalent or improved outcomes to members”.
“This should not be interpreted as industry seeking to avoid or delay compliance, but as part of a good-faith effort from superannuation funds and insurers to comply with the law,” said the FSC.
Of particular concern for both the FSC and ASFA is the short time allowed for some members who will be contacted by 1 May 2019 and told their insurance will be cancelled on 1 July 2019.
“The requirement to provide initial communication to members by 1 May 2019 will be difficult for funds to meet given the short lead time available, the number of different communications required on this day, and ongoing lack of clarity regarding requirements of the Bill and Regulations,” said the FSC.
“We also have significant concerns about the short time period available for individuals to act on making initial elections to maintain their insurance. The current timetable provides only two months for funds to contact members, and receive confirmation where required that a Member wishes to retain their insurance benefits before ‘inactive’ accounts are required to have insurance removed on 1 July 2019.”
“This leaves very little margin for error, such as a member not receiving a single communication or acting in time. This approach is not in members best interests given they may not realise their insurance will be cancelled until it is too late to act.”
ASFA has similar concerns, noting that “the retrospective nature of the inactivity test for insurance will mean that members who are classed as inactive as of 1 April 2019 will receive only one notice about their option to maintain insurance whereas in the future members with inactive accounts will receive three notices before their insurance lapses”.
“It is easy to imagine a number of scenarios where a member with insurance they wish to maintain his or her insurance but fails to take notice of the single insurance inactivity notice, for example due to foreign travel or extended holidays, or caring duties,” said ASFA.
The FSC said that the Protecting Your Super measures “represents a significant change to the status quo and should be communicated to members clearly and effectively. Unfortunately this is unlikely to be possible in the time available”.
The Australian Institute of Superannuation Trustees (AIST) said, in its submission, that some super funds may have difficulty being ready by 1 July 2019, but is raising these matters “separately with the Government and its agencies” rather than in its submission.