Tax & Accounting Blog

Superannuation industry braces for Royal Commission blowtorch

Blog, Checkpoint, Superannuation, Tax August 3, 2018

With the Banking Royal Commission set to kick off its public hearings on superannuation from 6-17 August 2018, there has never been a more important time to have a working knowledge of the superannuation system.

Commissioner Hayne, and Counsel Assisting, Ms Rowena Orr QC, are expected to apply a blowtorch to the superannuation industry to reveal evidence of misconduct and practices that fall below community expectations. Specifically, this 5th round of hearings will investigate how superannuation trustees fulfill their duties to members of large regulated funds.

The hearings will also consider selling practices, the relationship between trustees and financial advisers, the current legal regime and the effectiveness of APRA and ASIC as regulators. While SMSFs were excluded from the Royal Commission’s terms of reference, SMSFs were dragged into the inquiry during earlier hearings which focused on financial advice and identified cases of inappropriate advice to establish SMSFs.

The Royal Commission’s interim report is not due until September 2018, but the Government has already moved to get on the front foot with further reforms in the pipeline, including:

  • Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 (measures to prevent the erosion of super balances from excessive fees and inappropriate insurance); and
  • Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2017 (enhanced APRA powers and an “outcomes test” for MySuper trustees).

The superannuation industry will be hoping that the Government does not overreact to the eventual findings by the Royal Commission and throw the baby out with the bath water. For example, the problems identified around borrowings by SMSFs have largely revolved around inappropriate financial advice, rather than the actual rules that allow SMSFs to borrow under strict conditions. Treasury has also warned that structural separation of vertically integrated financial firms would be “complex and disruptive, and could have unintended consequences”.

The Productivity Commission also released a draft report in May 2018 recommending a package of reforms to address multiple accounts and default superannuation funds that underperform. That draft report has largely been overshadowed by the ongoing work of the Royal Commission but both inquiries complement each other. The Productivity Commission has provided an in-depth analysis of the superannuation system, while the Royal Commission is focused on the conduct of those operating in the financial services industry.

This has also been the first full year of implementation for the major superannuation reforms, revealing enhanced strategies to help navigate an already complex system. Reduced contribution caps and other restrictions mean that accountants and other professional advisers need a working knowledge of the latest changes to guide their clients through the maze of provisions and avoid any nasty surprises.

Navigate the complexities of the superannuation system with Thomson Reuters Australian Superannuation Handbook 2018-19 – current to 1 July 2018 – order your copy here or on Thomson Reuters Checkpoint tax research platform. Not a subscriber? You can request a Checkpoint demonstration here.

And follow the progress of the Royal Commission’s investigation of the superannuation industry in our Weekly Tax Bulletin.