In a joint submission, both CPA Australia and Chartered Accountants Australia and New Zealand criticised reforms to the government’s Your Future, Your Super scheme for offering consultation on the bill on late notice, failing to address issues with its underperformance test, and neglecting to offer a grace period to businesses that will need to transition to new processes.
CPA Australia’s general manager of external affairs, Jane Rennie, said that, with little under a month before the reforms take effect on 30 June, businesses may not be ready to adapt to the changes.
“With a little under a month until these reforms are implemented, we’re concerned that the ATO and some employers may not be ready,” Dr Rennie said. “Manual processes may be required for new employees for stapled fund arrangements and could throw up errors.
“Employers who make good-faith attempts to comply will be penalised if they don’t get it right as a result of an ATO error. We think there should be a longer transition period if a fully automated solution is not ready to be used from day one.”
The sweeping reforms include a “stapling mechanism”, which will assign an employee’s default fund when switching jobs, as opposed to forcing them to opt in to their chosen fund, or have their employer choose a default fund for them.
Others include annual performance tests for super funds, along with a requirement for funds to ensure all investments are made within the best financial interests of members. Under the reforms, the Treasurer will also wield new power that will allow him to veto investments incongruent with the national interest.
Dr Rennie said she was disappointed with the proposed best financial interests duty and the lack of detail included in the draft regulations about how it will work. She also took issue with the underperformance test and its design, in that the draft regulations fail to resolve previous issues.
“Although we support the underperformance test, the way it’s designed is flawed and the issues aren’t fixed by the draft regulations,” Dr Rennie said. “Some products aren’t included, such as single-sector and retirement phase products. Others are covered inadequately, such as lifecycle products.”
The joint submission urged the Treasury to make amendments to ensure single-sector and income stream investment options are performance tested, and that it consider a future performance testing system for defined benefit products, especially those which include an accumulation portion of their fund.
Both CPA Australia and CA ANZ also found the weighted average method for performance testing lifecycle products to be inappropriate. Their submission suggested it be changed to a system which reflects the actual experience at a member’s age, rather than generalising.
The joint submission also took aim at the single default account provision included in the draft regulation, or the “stapling” mechanism, which could prove damaging for businesses which otherwise act in good faith.
The submission suggests the commencement date for the measure be reasonably deferred if a fully automated solution isn’t ready for employees assuming new roles after 30 June.
Dr Rennie said the draft regulations should have been open for consultation far earlier.
“Given the significance and volume of the provisions covered in the regulations, an earlier consultation should have been conducted,” Dr Rennie said.
Announcing the draft regulations ahead of the budget, Treasurer Josh Frydenberg said the reforms outline a strengthened methodology for the annual performance test as well as requirements for notifications to members.
“The government has made several amendments to strengthen the performance test,” Mr Frydenberg said.
“Administration fees will be included in the performance test, ensuring that the test focuses on the final member outcome and is consistent with information presented to consumers on the online YourSuper comparison tool.
“The government has also added Australian unlisted infrastructure and unlisted property as specific asset classes covered by the performance test.
“This will improve the accuracy of the performance test, strengthen the focus of the test on investment outcomes delivered to members, and ensure that Australian superannuation funds can invest with confidence in these domestic assets.”
