Regulatory Update: Superannuation – Q3 FY25

Novigi is passionate about implementing data and information technology-led approaches to adapting to the evolving regulatory environment. In the next quarter, we’re looking to engage closely with clients on some key projects.

Payday Super Planning

We have a clearer picture of the shape that Pay Day Super reforms will take, after Treasury released exposure draft legislation for consultation. The fundamentals of the policy don’t appear to be politically contentious, and we anticipate that the new Parliament will legislate to give effect to the policy.

The draft legislation provides some clarity on how the changes will be implemented. The existing framework of relying on the SG Charge Amount as a tax on employers that reduces by the amount that the employer contributes to a superannuation fund for the benefit of the employee is retained. This framework creates an incentive for employers to contribute, rather than imposing a hard obligation.

As expected, employers will be required to make superannuation guarantee contributions within seven calendar days of the date the wages are paid to the employee (Payday). Employers are required to ensure that the contribution payment and data have been received by the fund in a form that is able to be allocated to the employee’s account within this timeframe.

Late superannuation contributions will incur additional costs for employers from the eighth day after the Payday. This means that employers will need to ensure that any such late contribution amounts are adjusted to include the additional penalty amounts. There are some important changes to how this SG Charge Shortfall Amount is calculated:

• First, there will be an uplift in the administrative component of the charge. Currently, it’s a flat $25 fee, but it will now be up to 60% of the shortfall. That’s to cover the ATO’s heightened administrative responsibilities.
• Secondly, there will be a choice loading of 25%. This is enlivened where a delay in payment arises because an employer has not made payment in accordance with the employee’s choice of fund. Currently, the choice loading is 25% to a cap of $500, but that cap will be removed.
• Finally, any SG Charge Amount paid to the ATO will be tax deductible, which isn’t presently the case. This incentivises and rewards employers for doing the right thing and getting on top of any contributions they may have missed – sometimes without meaning to do so.

The draft legislation would also impose a general prohibition on advertisements or the promotion of superannuation products during employee onboarding. However, MySuper products (that have passed the APRA performance test), default fund products, and products identified as a stapled account by the employer are the three exceptions to this prohibition.

The prohibition relates to targeted communication as part of the new employee onboarding process and would not apply to broadcast advertising and promotion. Interestingly, an employer who fails to comply with the restrictions may contest enforcement action on the basis that they were not aware the restrictions applied. This is interesting, because it is rare within financial services – and the law more broadly – that ignorance is accepted as an excuse for unlawful conduct.

The adoption of these changes will require planning and cooperation between trustees of superannuation funds, administration service and software providers, clearing house and gateways, and payroll software providers. There is an opportunity for industry leaders to get started on developing better integrated and more efficient contribution administration operations.

Fraud risk and information security

The spectre of a serious information security incident involving superannuation funds has loomed for several years. Risk and regulatory frameworks have been a consistent focus of fund and regulator attention over the past few years.

The day seems to have arrived, with news of a broad information security and privacy breach across several large superannuation funds. A small number of retirement phase members also appear to have been victims of fraud and theft of their savings.

It is apparent that serious crimes have been committed, and affected members and trustees are rightly to be considered victims of the unauthorised access, privacy infringements, fraud, and theft committed by the perpetrators. All the same, it is still appropriate to consider whether there are measures that trustees and members should consider to reduce the risk of being victims of similar crimes in the future.

All individuals should make every effort to exhibit good digital hygiene by ensuring that they are not reusing passwords and are utilising multi factor authentication or passkey technology when available. Trustees have an important role to play, too, ensuring that such facilities are available and promoted to members (if not mandated).

Recent fraud and information security related incidents involving trustees of superannuation funds will inevitably be the subject of regulatory scrutiny. There is precedent regulatory action by ASIC against AFS Licensees for failures to take appropriate steps to ensure that adequate cyber risk management systems are in place. It is also conceivable that APRA scrutinises whether affected trustees had satisfied their duty to conduct their affairs in relation to information security and fraud risk with the care, skill, and diligence of a prudent superannuation trustee. There is prudential regulation and guidance on both fraud risk and information security which will be relevant to inform such scrutiny.

The OAIC is also likely to look closely at whether personal information has been adequately protected and required data breach reports lodged. Similarly, the Australian Signals Directorate is also required to be notified of serious information security events affecting critical infrastructure (which includes superannuation). They are well placed to provide technical support and assistance.

The importance of continuing to monitor and prioritise risk management frameworks for fraud and information security is self-evident. Drawing the connection between the IT related controls and the legal risks is an important area for trustees to focus on.

Death benefit claims handling

ASIC released its report focused on what they have identified as being significant and widespread failures by trustees of superannuation funds in relation to death benefit claims handling. The report, REP 806 Taking ownership of death benefits: How trustees can deliver outcomes Australians deserve highlights the “Devastating impacts that poor industry practices can have on grieving Australians.”

The report follows high profile litigation in the Federal Court involving several trustees of superannuation funds, where ASIC has successfully sought civil penalty orders against trustees on the grounds that the trustees had contravened obligations to provide financial services efficiently, honestly, and fairly. This legal threshold is essentially a requirement on trustees to have appropriate systems and processes in place to provide the claims handing services appropriately.

The report makes 34 recommendations of actions that industry could take to improve death benefit claim handling practices. The recommendations include:

• Oversight and coordination with material service providers
• Clearer performance objectives and monitoring
• Better reporting of performance on claims handling to trustee board committees
• Balancing risk appetite with service efficiency (taking some acceptable risks?)
• Dealing with vulnerable groups.

The report also confronts the reality that all individuals engaged during the death claim process are likely to be in a position of vulnerability. This seems to hint towards the possibility of future regulatory attention in relation to obligations not to engage in unconscionable conduct in providing financial services; a legal test that requires the affected person be exploited when in a position of vulnerability. Ideally it doesn’t come to this, yet there is work to be done in ensuring that we are all treated with the dignity and respect we deserve when engaging with the superannuation system; especially when the loss of a loved one is exacerbated by a significant and immediate need for financial certainty and support.

Regulatory Update: Superannuation – Q3 FY25 is part of The Quarterly – Q3 FY25

The production of our quarterly report is led by Novigi’s Market Strategy and Propositions team: 

This article was produced in partnership with Legal & Prudential. 

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