Regulatory Horizon Superannuation
The road ahead for trustees of superannuation funds is dominated by a series of major regulatory reforms. While there are some minor and technical changes in the coming months, the 2025 and 2026 horizons will see major changes which require forethought and planning.
21 October 2024
Commencing 21 October 2024, the 2024 Reporting Rules repeal and replace the current ASIC Derivative Transaction Rules (Reporting) 2022 to align with international reporting standards, consolidate transitional provisions and exemptions within the rules and ensure that the reporting requirements are fit for purpose.
Exemptions may apply to AFS Licensees not licensed to deal in derivatives, so trustees should be careful to understand their obligations before taking steps to comply.
1 January 2025
ASIC has adopted a transition period, with providers of superannuation forecasts able to adopt either the existing default nominal wage inflation rate or the revised rate when converting future dollars to today’s dollars until 31 December 2024. From 1 January 2025 the revised default nominal wage inflation rate of 3.7 per cent p.a. will apply.
1 January 2025
• Developing, testing, and resourcing a Recovery & Exit Plan;
• Inclusion of credible action plans to restore financial resilience; and
• Integration with the trustee’s Business Performance Review and RMF.
Early 2025
The Minister has indicated the Government is aiming to have legislation in Parliament to implement the ban in this term.
Various dates before the end of 2024
The Bill made several changes:
• restating trustee obligations in relation to oversight of advice fee deductions;
• simplifying fee renewal and consent requirements
• providing flexibility on how Financial Services Guide requirements are met
There was some debate concerning whether the amendments of section 99FA of the SIS Act would infer a requirement on trustees to check each Statement of Advice, and amendments were made removing any ambiguity.
On the same topic, ASIC issued a media release which details significant shortcomings identified in current advice fee deduction oversight practices.
Consultation on Tranche 2 isn’t far away!
1 July 2025
The tax will be calculated on any balance in excess of $3 million, and payable by the individual, not the superannuation fund. Individuals will be able to have the DIV 296 tax liability paid from their superannuation fund on request.
The legislation and related regulations would make changes to the way in which the amount of any defined benefit interest is to be reported by trustees to the ATO (via MAAS), which would commence the quarter after the bill is passed.
Would commence on assent, likely to be in 2025.
The framework is an economy wide reform to protect the Australian community from scams. It includes tough penalties for non-compliance and dispute resolution pathways for consumers to seek redress.
The Minister for Financial Services can designate sectors under the framework. Participants in these sectors must have measures to prevent, detect, report, disrupt and respond to scams.
While superannuation is not within the first tranche of industries to which the framework will apply, it is likely to be designated sometime after the framework enters effect.
Commences upon royal assent.
The law would not directly affect superannuation trustees but would require Parliament to report on the alignment of any future superannuation related legislation with the purpose.
15 March 2025
The FAR will require that core obligations are met in relation to:
• Accountability statements and mapping
• Key personnel obligations
• Deferred remuneration
• Notification and reporting obligations
The changes are significant and will require close attention of the Board and senior management.
In mid-July, APRA and ASIC released its final guidance material for trustees of superannuation funds.
1 July 2025
The new CPS 230 will replace the existing Outsourcing (SPS231) and Business Continuity Management (SPS232), but the Information Security (CPS234) and Data Risk Management Guidance (CPG 235) will remain in place.
The new standard will require robust operational risk management practices as part of an entity’s risk management framework, require continuity of critical operations and apply via contractual arrangements to service providers involved in providing critical operations.
1 July 2025
• ensure expenditure requirements are clearly aligned with the best financial interests duty;
• support the implementation of the retirement income covenant;
• reflect supervisory observations on areas where the industry needs to lift their approach, with a particular focus on management of financial resources; and
• improve the management of risks to members being transferred across funds.
Likely to be 2025
Draft SPS 114 seeks to better integrate SPS 114 with CPS 230 and clarify the appropriate use of the ORFR, walks-back the plan to introduce the Baseline+ model, retain the 25bp ORFR target level and scale back the notification requirements to APRA.
1 July 2026 (Group 2).
The regime would require Australian businesses to include with their financial statements a sustainability report in accordance with sustainability standards.
The report will include a climate statement and detail on scope 1, 2, and 3 emissions, and will be subject to audit requirements.
31 March 2026 to 1 July 2026.
The Bill codifies several existing regulations which exempt service providers such as superannuation funds from Customer Due Diligence obligations in the context of low-risk payments – such as the cashing out of low value superannuation interests.
On royal assent to 24 months after
This includes a requirement to include information in privacy policies about automated decisions which significantly affect individual rights, and clarification that taking ‘reasonable steps’ to protect information includes technical and organisational measures.
1 July 2026
From 1 July 2026, an employer will be required to make Super Guarantee (SG) contributions on ‘payday’. Payday is the date that an employer makes an Ordinary Time Earnings (OTE) payment to an employee.
An employer will be liable for the new SG charge unless SG contributions are received by their employees’ superannuation fund within 7 calendar days of payday.
The SG charge is being updated for the payday super environment and will continue to reflect the seriousness of underpayment or late payment of SG. The SG charge will ensure that employees are fully compensated for any delay in receiving their superannuation contributions.
The policy initiative had previously been announced to include introducing a new unified database which matches employer single-touch payroll (STP) data with superannuation fund’s Member Account Attribution Service (MATS) data to enable the ATO to better identify instances and patterns of late payment or underpayment of SG.
Legislative design will progress through the second half of 2024.
Towards 2025
The road ahead for trustees of superannuation funds is dominated by a series of major regulatory reforms. While there are some minor and technical changes in the coming months, the 2025 and 2026 horizons will see major changes which require forethought and planning.
DIV 296 Tax
The government’s policy of legislating a reduction in the tax concession received by individuals with a total superannuation balance of $3 million (DIV 296 tax) is facing a contentious path through Parliament if it is to make it into law.
The Senate Economics committee couldn’t agree on the Bills, with the government Senators supporting the Bill without amendments, opposition Senators opposing the Bills completely, and the Greens proposing several amendments (including reducing the threshold from $3 million to $2 million) which may be important given cross bench support will be necessary if the laws are to pass.
There are undoubtedly some amendments which are likely to occur if the legislation is passed. Whenever I attempt to predict what Parliament may do on a Bill, I’m reliably wrong. However, I do think that it’s likely that some judicial pensions might be carved out of the regime (even if only to avoid the spectacle of a High Court challenge on the constitutionality of the laws). Some kind of stepped indexation of the threshold is likely, and we could see measures that benefit lower income earners as part of a deal to gain support from the Senate cross bench.
If the Bills are passed, trustees of superannuation funds that provide defined benefits will need to be ready to start making technical changes soon after. Regular reporting to the ATO vis the MAAS and MATS services includes reporting of defined benefit amounts. The way that the defined benefit component would be calculated will change from the quarter following the passage of the legislation. This won’t give trustees and key service providers much time to implement changes which are reasonably complex.
Having some high-level plans in place should the bill pass would make a lot of sense for these trustees.
Recovery and exit planning
APRA’s new prudential standard CPS 190 comes into force on 1 January 2025. It will require that regulated entities (including trustees of superannuation funds) to have in place credible plans for managing stress that may threaten the entity’s viability, rebuilding financial resilience and effecting an orderly exit from the regulated activity.
The plans need to be integrated within the organisation’s risk, liquidity, and business performance review frameworks. This is no simple task, and there isn’t a great deal of time left to make the changes necessary to comply by 1 January.
Financial resilience is an importance aspect of a well-prepared recovery and exit plan. This is particularly so, after several trustees of profit-for-member superannuation funds amended their deeds to allow for the accumulation of trustee risk capital (outside the fund) in response to broader prohibitions on indemnification from fund assets where penalties are imposed.
However, one of the most important elements of CPS 190 is the requirement to have in place a trigger framework which provides the trustee with leading indicators of stress. The most effective monitoring of these leading indicators of stress should be timely and rely on data and systems in close to real time.
Stopping the scammers
The government’s announcement of the Scams Prevention Framework and release of draft legislation illuminates the growing risks that trustees and members of superannuation funds are faced with from scammers.
Alarm bells have been ringing, with AFCA recently cautioning that the increasing sophistication of scam activity and high value of superannuation as a target for scammers are likely to make the sector vulnerable in the future.
The proposed legislation would impose economy wide obligations which aren’t dissimilar to the regulatory expectations in relation to superannuation. Organisations will need to take reasonable steps to implement measures to prevent, detect, report, disrupt and respond to scams. Trustees are already required to manage risks associated with fraud (see APRA SPG 223 Fraud Risk Management).
A recent Federal Court decision involving the trustee of a superannuation fund suggested a shift in the standard required of trustees to ensure that members are not victims of fraudulent rollouts even where processes are followed. Trustees should be looking at ways to continuously improve and future proof controls on fraud risk.
One way that trustees can do this is by looking at the adoption of more modern digital identification technology that utilises the access that DigitalID providers must validate a smart phone capture of a face with the records held by the Australian Passport Office and driver licence databases in the states.
Key Contributors:
This article was produced as part of The Quarterly – Q1 FY25 by Jonathan Steffanoni, Managing Partner of Legal & Prudential Advisors.
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