The passing of the Minerals Resource Rent Tax (MRRT) has paved the way for an increase in the superannuation guarantee.
1. Superannuation guarantee/mining tax
The passing of the Minerals Resource Rent Tax (MRRT) has paved the way for an increase in the superannuation guarantee (SG) from 9 per cent to 12 per cent.
The SG will be increased in small increments, beginning with 0.25 percentage point increases on 1 July 2013 and 1 July 2014. This will be followed by five 0.5 per cent increases each year until 1 July 2019.
The Coalition has traditionally opposed increases to the SG, preferring to encourage Australians to increase their contributions through tax incentives.
However, Shadow Minister for Financial Services and Superannuation Mathias Cormann recently announced that while the Opposition opposes the increase to the SG in principle, it will not vote against it.
But Opposition leader Tony Abbott’s vow to repeal the MRRT will put the Coalition in an awkward position if it wins Government, since it won’t have funds from the MRRT to pay for the superannuation increase.
2. Opt-in
The financial planning industry has fought tooth and nail against the imposition of an annual ‘opt-in’ requirement.
But despite the best lobbying efforts of the industry, the requirement for financial planners to get in contact with their clients and ask them if they would like to continue the relationship remains in the legislation – although it will be a two-year (rather than annual) obligation, and it will only apply to new clients.
For Association of Financial Advisers (AFA) chief executive Richard Klipin, the industry needs to accept that opt-in is here to stay, and focus on ensuring that the transition to the new regulatory regime is as smooth as possible.
The amount that contacting each client will cost financial planners has been the subject of much debate, but planners have roundly rejected the Rice Warner Actuaries $11-per-client figure cited by the Government.
3. Risk commissions
On 28 April 2011 the Government announced a ban on up-front and trailing commissions on individual and group risk products within superannuation, which provoked strong criticism from the industry.
The subsequent back-down by the Government on individual commissions for choice funds and self-managed superannuation funds represented one of the few lobbying victories for the industry this year.
However, the ban on commissions from 1 July 2013 will remain in place for all group risk within superannuation.
Association of Superannuation Funds of Australia chief executive Pauline Vamos was happy to see commissions allowed on individual policies in super, since a ban on them could lead to what she refers to as “regulatory arbitrage”.
“With commission only being paid on non-superannuation individual policies, there was a risk that the superannuation industry would be selected against. [Financial advisers could] put their unhealthy clients in super, and their healthy clients outside of super,” Vamos says.
4. Annual fee disclosure
When the first tranche of the Future of Financial Advice bill was finally tabled in Parliament on 13 October 2011, the big surprise was the inclusion of an annual fee disclosure requirement for new and existing clients.
For Klipin, the new obligation is a good example of the way FOFA has chopped and changed since its inception.
“Minister Bill Shorten was very clear that [the annual fee disclosure requirement] would not be retrospective; that uncertainty puts practices in a lot more stress as they think about what kind of markets they want to focus on and what kind of business they want to have,” Klipin says.
Financial Planning Association (FPA) chief executive Mark Rantall says that retrospective fee disclosure “flies in the face of grandfathering, and adds significant cost and administration to financial planning practices for little consumer benefit”.
But there are signs that Assistant Treasurer and Minister for Financial Services and Superannuation Bill Shorten is paying attention to the negative industry reaction to retrospective fee disclosure. Speaking at the FPA conference at the end of November, he signalled that the Government may back down on the issue.
5. Stronger Super
Alongside the FOFA reforms have been the Government’s Stronger Super reforms to the superannuation sector, which were announced on 21 September.
From 1 July 2013, superannuation funds must offer a low-cost MySuper product if they want to be named in a Modern Award. MySuper products must be commission-free, and have a clearly defined rate of return over a rolling 10-year period.
By 1 July 2017, superannuation funds must transfer all default account balances to a MySuper product.
Employers with over 500 employees will be able to offer a tailored MySuper product to their members.
Stronger Super will also address the administrative side of the superannuation system with SuperStream, which will tidy up the heavily paper-based back office of the industry.
As part of SuperStream, lost and inactive accounts with balances below $1,000 will be automatically consolidated unless members choose to opt out. Tax file numbers will also be used for identification purposes to aid account consolidation.
New powers granted to the Australian Prudential Regulation Authority will also create stricter governance requirements for superannuation boards.
