Legislative Update – September 2016
Welcome to the September issue of Bravura Solutions’ Australian Legislative Update. In this issue, we consider the impact of the recent Federal Election on proposed changes to superannuation, take a look at the recently released Productivity Commission Report on the competitiveness and efficiency of the superannuation system and provide an update on the latest developments within the SuperStream initiative.
Post federal election analysis
The recent Federal Election returned the Coalition Government with the narrowest of margins. The absence of a decisive mandate, coupled with the addition of further small parties and independents to the Senate, puts in doubt a number of proposed changes to Australia’s tax and superannuation systems outlined in the 2016/17 Federal Budget.
Many of the Budget measures specifically target generous tax concessions to higher income earners with an eye to budget repair. The proposed reforms seek to stop concessions beyond an upper level that is deemed fair and reasonable to achieve an acceptable retirement nest egg. The proposed changes have been met with a mixed response from the superannuation industry, as well as some of the Coalition’s own supporters and MPs. In particular, the proposals to lower from $35,000 to $25,000 the annual limit on contributions that are taxed at concessional rates, introduce a $500,000 lifetime cap on non-concessional contributions (backdated to 2007) and limit the amount of tax free pensions to $1.6M, have been the subject of ongoing debate.
Given the lack of consensus within the Coalition’s own ranks, growing industry pressure and the fact that the small parties and independents once again hold the balance of power in the Senate, it’s highly unlikely that the budget measures relating to the tax and super system will be legislated in their current form. Since the election, the Prime Minister himself has conceded the changes could be subject to ‘fine tuning’ and comments by Scott Morrison seem to re-enforce this.
The ATO and Treasury held a workshop with industry on 10 August 2016, to discuss the implementation of current budget super reforms. The workshop discussions were preliminary in nature, so it remains difficult to predict at this stage what potential amendments to the proposed super reforms might look like.
Impact: Although some of the proposed budget changes to the tax and super systems would require adjustments to several Bravura systems, the reforms are still subject to amendment by the Federal Government. Bravura will watch this space closely and will engage with clients and pass on relevant details around budget details as they become available. At this stage Bravura does not intend to commence work on its systems until the reforms have been finalised and successfully legislated.
Consultation on proposed legislation and regulations
ATO Budget Workshop
The ATO and Treasury held a workshop with industry on 10 August 2016 to discuss the implementation of current budget super reforms outlined in the 2016/17 Federal Budget.
The workshop covered the following items:
- personal contributions deduction
- pension transfer balance cap
- non-concessional cap
- low income superannuation tax offset
- contribution cap carry forward
- transition to retirement income stream
- release authorities
- reducing the incidence of individuals exceeding their super contribution caps
Industry was provided with the opportunity to express views on each item and discuss with the ATO and Treasury possible solutions to associated challenges and impacts. Responses and suggestions were noted and will inform further work by the ATO and Treasury on the proposed changes.
Notably, one of the most contentious reforms – the ‘1.6 million pension balance cap’ – was not covered in the workshop, however, the ATO and Treasury have indicated that this issue will be addressed in a similar industry forum in the near future.
Due to the preliminary nature of the workshop discussions, it remains difficult to predict at this stage what potential amendments to the proposed super reforms might look like. Once the new Parliament meets for the first time at the end of August, a clearer picture of the items to legislate – and in what form – will begin to emerge.
Impact: Bravura will continue to closely monitor the proposed budget changes to the tax and super systems – including amendments – with a view to making any necessary changes to our systems once the reforms are finalised and successfully legislated.
Current government initiatives
Productivity Commission Report
On 2 August 2016, the Productivity Commission released its draft report “How to assess the competitiveness and efficiency of the superannuation system.”
The study stems from Recommendation 10 of the 2014 Financial Services Inquiry (FSI), which suggested the Productivity Commission examine the efficiency and competitiveness of the Australian superannuation system by 2020.
In February 2016, the Federal Government tasked the Productivity Commission to conduct a study and develop criteria to assess the competitiveness and efficiency of the superannuation system. The criteria proposed in the draft report are:
- Investment returns
- Asset allocation
- Costs and fees
- Market share
- Governance and regulation
- Fund behaviour
- Member behaviour and attitudes
The draft report has been prepared for public consultation and input. The Productivity Commission will be consulting with stakeholders via industry roundtables and also welcomes written submissions from interested parties by 9 September 2016. The draft report is available here.
Following the consultation period, the Productivity Commission is expected to finalise its report and hand it to the Federal Government in November 2016. The Commission will then use the criteria to inform a review of the system following the full implementation of the MySuper reforms by mid-2017.
The Productivity Commission also has been tasked with examining alternative models for a formal competitive process for allocating default fund members to products and will begin work on this in late September 2016.
Impact: No changes are expected to Bravura systems.
In recent months, there have been a number of developments within the Federal Government’s SuperStream initiative.
Extended deadline for small business
The Australian Tax Office (ATO) has extended the deadline for small businesses to achieve SuperStream compliance until 28 October 2016. This means the ATO won’t take compliance action against small businesses that missed the original 30 June deadline.
The extension also means that super funds must continue to accept super guarantee contributions from employers in all payment and data formats, including cheques, until 28 Oct 2016. Further extensions beyond this date may be possible.
Rollover Message Implementation Guide (MIG) 2.0
Implementation of the Rollover MIG 2.0 is underway and the ATO has begun weekly Rollover Implementation Working Group meetings (RIWG) to facilitate this process.
Funds are required to undergo two streams of ‘peer to peer’ testing of their solutions as part of the implementation. The first stream of ‘peer to peer’ testing – fund to fund (B2B) rollovers – will occur in August and September 2016 before going live in October or November 2016. ‘Peer to peer’ testing involves two funds sending and responding to various ‘Rollover MIG 2.0’ messages. The details of the expected test cases are defined in ‘Rollover V2 Conformance Testing Guide’. It is expected that clients will undergo ‘peer to peer’ testing in a UAT style environment.
The second stream of ‘peer to peer’ testing will be to funds from the ATO (G2B). Funds have recently received ATO correspondence to confirm dates they will be testing G2B Rollover MIG 2.
Once ‘peer to peer’ testing is passed, funds will be ready to accept MIG 2 rollovers in production.
Contribution Message Implementation Guide (MIG) 2.0
The ATO has just finalised the Contribution MIG 2.0 specification. Finalising this took the ATO longer than they originally expected. We are now analysing these to document requirements of Contribution MIG 2.0, these will be sent to Sonata clients for review and feedback before being finalised.
Bravura system specifications will then be created and also, in the case of Sonata, be sent to clients for review before being finalised. At this stage the industry compliance dates remain a ‘cutover period’ from May to August 2017.
Member Information eXchange (MiX)
The ATO has recently updated the requirements for the MiX.
The eXchange will use ‘SuperTICK V3’ and unclaimed superannuation monies (USM) Rollovers (MIG 2.0) as a foundation to establish real-time, event-based member reporting from funds to the ATO. Funds will use MiX SuperTICK to notify ATO of lost or unclaimed members in real time, while the ATO will respond with details such as addresses to assist funds to find the members. MCS will remain an annual obligation of funds to report annual member contribution data but will soon be via the MiX standard (the Superstream data standard).
The MiX service is due for release in November 2017. Until then, current lost member reporting (LMR) and MCS obligations will continue. Further rollout details will be provided as they become available.
Impact: Significant changes to Bravura systems are required. Bravura is currently working on the following SuperStream deliverables for the 2016/17 financial year: Response Messaging Framework, Rollover MIG 2.0 and SuperTICK V3. Plans are also underway to make the necessary changes for the Contribution MIG 2.0 and the MiX.
Extended AFSL exemption
Following a decision by ASIC, super funds will continue to be exempt from the requirement to hold an Australian Financial Services licence (AFSL) to issue certain statements or documents. Documents or statements issued by super funds are considered to be an “exempt statement or document” so long as they:
- do not contain personal advice
- do contain information that is required by law
- have been specifically prescribed by ASIC
For superannuation funds, “exempt statements or documents” include a range of materials prepared in accordance with The Corporations Act and The Superannuation Industry (Supervision) Act 1993.
Impact: No changes are expected to Bravura systems.
9 September 2016 – Deadline for submissions in response to Productivity Commission draft report.
28 Oct 2016 – Extended deadline for small businesses to be using SuperStream.
November 2017 – The MiX service is due for release.