Coronavirus (COVID-19) updates from the Australian Government

11. Other Issues

Date

This Chapter highlights issues that were raised in consultations, but were not canvassed in the Issues Paper.

11.1 Education of trustees and members

During focus group sessions, participants indicated that the Government and industry needed to work together to provide sufficient training to trustees and education of members.

Many of the issues regarding trustee training will be addressed under the ASIC and proposed APRA licensing regimes.

In relation to education of members, the SWG encourages the regulators to make full use of the opportunities to remind members of the importance of understanding their superannuation arrangements.

11.2 Contributions

The Industry Funds Forum requested in its written submission that 'arrears' procedures in superannuation be considered to ensure the timely collection and allocation of compulsory employer-sponsored superannuation contributions. They put the view that an Approved Trustee that collects compulsory employer contributions should also be required to satisfy APRA that it has an established arrears procedure in place, to ensure that reasonable endeavours are made to recover unpaid contributions and that contributions are made on a regular basis.

The issue of outstanding contributions is important when considering measures to improve the safety of superannuation.

In relation to timing of remittance of contributions, the SWG notes that member contributions deducted from payroll are subject to remittance requirements set out in section 64 of the SIS Act, and that superannuation guarantee contributions are subject to timing requirements set out in the Superannuation Guarantee Administration Act 1992.

The SWG notes that with respect to superannuation guarantee contributions, the Government announced during the 2001 election campaign that from 1 July 2003, it would require employers to make at least quarterly superannuation guarantee contributions on behalf of employees, rather than yearly. It is understood that the proposed quarterly arrangements would not apply to non-mandated employer contributions or employee contributions.

With respect to employee contributions, the SWG notes that the SIS Act was amended in January 2001 to provide that it is a strict liability offence for the employer to fail to pay the amount deducted from the employee's salary or wages to the trustee of the fund within 28 days of the end of the month in which the deduction is made.15

The SWG believes that consideration should be given to the need for timeframes for remittance of salary sacrifice contributions that are not regarded as compulsory employer contributions to satisfy superannuation guarantee obligations. For such contributions, the time for payment is dependent on the agreement between the employer and the employee.

Recommendation 28

The SWG recommends that the Government consider examining the need to specify a timeframe within which salary sacrifice superannuation contributions should be paid to a superannuation fund on behalf of an employee.

Appendix 1: SWG Consultations

This Appendix lists the organisations and individuals that sent submissions into the SWG and attended SWG consultation meetings.

List of submissions received16

AMP Limited

Association of Superannuation Funds of Australia Ltd

Attorney-General's Department, Criminal Justice Division

Australian Bankers' Association

Australian Council of Trade Unions

Australian Custodial Services Association

Australian Industry Group

Australian Institute of Superannuation Trustees

Australian Retirement Income Streams Association Limited

Australian Taxation Office

Australian Venture Capital Association Limited

Coles Myer Superannuation Fund Pty Ltd

Commonwealth Bank of Australia

Corporate Superannuation Association Inc

CPA Australia

Financial Planning Association

Graham Swanston

HortSuper

Industry Funds Forum Inc

Institute of Actuaries of Australia

Institute of Chartered Accountants in Australia

Investment & Financial Services Association Ltd

Jacques Martin Industry Funds Administration Pty Ltd

Jan F Sharples

John D Malone

Joint submission (prepared by Independent Fund Administrators & Advisers Pty Ltd) from Allied Unions Superannuation Trust (Queensland); Austsafe Super; Club Super; Queensland Independent Education and Care Superannuation Trust; Sisters of Mercy Staff Superannuation Scheme; Superannuation Plan for Electrical contractors (Qld)

J P McAuley

KPMG

Law Council of Australia

Law Institute of Victoria

MAP Funds Management Ltd

Meat Industry Employees Superannuation Fund

NSP Buck Pty Ltd

Perpetual Trustees Australia Limited

Plan B Financial Services Ltd

PricewaterhouseCoopers

Property Investment Research

Queensland Coal and Oil Shale Mining Industry Superannuation Fund

R J Eagle

Remuneration Concepts Pty Ltd

R J Watson

Securities Institute of Australia

Small Independent Superannuation Funds Association

Sunsuper

Superannuation Complaints Tribunal

Telstra Super Pty Ltd

Towers Perrin

Trustee Corporations Association of Australia

Westscheme

William M Mercer Pty Ltd

List of organisations or individuals represented at SWG consultation meetings

Roundtable meeting in Canberra: 13 December 2001

AMP Limited

Association of Superannuation Funds of Australia Ltd

Australian Chamber of Commerce and Industry

Australian Council of Trade Unions

Australian Industry Group

Australian Institute of Superannuation Trustees

Australian Retirement Income Streams Association Limited

Australian Taxation Office

AXA Asia Pacific

Corporate Superannuation Association Inc

CPA Australia

Deloittes Touche Tohmatsu

Ernst & Young

Financial Planning Association

Industry Funds Forum Inc

Institute of Actuaries of Australia

Institute of Chartered Accountants in Australia

Investment & Financial Services Association

Jacques Martin Industry Funds Administration Pty Ltd

KPMG

Law Council of Australia

Meat Industry Employees Superannuation Fund

PricewaterhouseCoopers

Professional Financial Solutions

Queensland Coal and Oil Shale Mining Industry Superannuation Fund

Small Independent Superannuation Funds Association

Superannuation Complaints Tribunal

Telstra Super Pty Ltd

Towers Perrin

Trustee Corporations Association of Australia

Wealth Management Division of National Australia Group

Westscheme

William M Mercer Pty Ltd

Focus Group Meeting 1 in Sydney: 6 March 2002

AMP Limited

Association of Superannuation Funds of Australia Ltd

Australian Industry Group

Australian Institute of Superannuation Trustees

Australian Retirement Income Streams Association Limited

Australian Taxation Office

Australian Consumers Association

CNAL Support Group

Corporate Superannuation Association

CPA Australia

Financial Planning Association

HortSuper

Investment & Financial Services Association Ltd

Institute of Actuaries of Australia

KPMG

NSP Buck Pty Ltd

Perpetual Trustees Australia Limited

Queensland Coal and Oil Shale Mining Industry Superannuation Fund

Securities Institute of Australia

Small Independent S
uperannuation Funds Association

Trustee Corporations Association of Australia

University of Sydney

William M Mercer Pty Ltd

Focus Group Meeting 2 in Melbourne: 7 March 2002

Australian Custodial Services Australia

Australian Bankers' Association

CNAL Support Group

Council of Small Business Organisations of Australia

Ernst & Young

Jacques Martin Industry Funds Administration Pty Ltd

Industry Funds Forum Inc

Law Institute of Victoria

MAP Funds Management Ltd

Meat Industry Employees Superannuation Fund

NSP Buck Pty Ltd

PricewaterhouseCoopers

Property Investment Research

Telstra Super Pty Ltd

Watson Wyatt Worldwide

Westscheme

William M Mercer Pty Ltd

Appendix 2: Other developments in the regulation of superannuation

This Appendix lists other developments in the superannuation industry that will have an impact on supervisory arrangements for superannuation funds.

  • In 2001, APRA received $2.1 million for 2001-02, and $3.1 million for 2002-03 and on-going, for increased prudential supervision of superannuation.
  • APRA has significantly increased supervisory activity of superannuation funds. Visits to individual funds are expected to increase from just under 600 in a year to June 2001 to around 1,000 in the current financial year. Around 80 consultations or visits will also be held with Approved Trustees or financial conglomerates which include superannuation entities.
  • The Financial Sector Legislation Amendment Act 2001 commenced in January 2001. The Act provided the regulators (APRA, ASIC and the ATO) with a range of new enforcement powers, including the power to disqualify persons considered not 'fit and proper' to be involved in administering superannuation, and the ability to accept voluntary undertakings from persons involved in superannuation administration, and to enforce such undertakings through a Court. The Act also converted certain offence provisions under the SIS Act from fault liability to strict liability, and converted certain fault liability offences to two-tier offences with both fault and strict liability limbs.
  • The licensing provisions of the FSRA commenced on 11 March 2002.
  • APRA is in the process of refining the annual returns and reporting requirements for superannuation funds to ensure that data reported by funds is comprehensive and accurate, with the ultimate aim of ensuring that information is timely and relevant, and assists APRA to identify and address areas of potential concern before they become significant.
  • Full implementation of the changes to reporting deadlines for non-public offer funds from nine or six months to four months came into effect in 2001.
  • In 2001, the Senate Select Committee on Superannuation and Financial Services, chaired by Senator Watson , released three reports dealing with prudential supervision and consumer protection of superannuation. The first report, released on 20 August 2001, recommended enhancing APRA's enforcement culture, improving communication between APRA, ASIC and the community, improving trustee training, more effective resourcing of the regulators and reviewing aspects of the SIS Act referred to in the report.17 The second report, released on 30 August 2001, examined a number of 'case studies',18 and the third report, released on 24 September 2001, examined the role of auditors.19 The Government is currently considering these reports and will release its response in due course.
  • The Productivity Commission released its draft report on the National Competition Policy review of certain superannuation Acts on 19 September 2001.20 The key recommendations of the report were to amend the SIS Act with a view to removing unnecessary restriction of competition; to reduce compliance costs; and to require that all superannuation entities be licensed by APRA subject to such matters as trustee capacity, operating capital and appropriate investment strategy. The Government is currently considering the final report and will release its response in due course.
  • On 4 October 2001, the Government welcomed a report by Professor Ian Ramsay on auditor independence in Australia.21 Key recommendations included preventing former audit partners from becoming directors of the companies they have audited within two years of them leaving the audit firm; preventing companies having directors who are also an immediate relative of someone auditing their company; requiring auditors to disclose the dollar value of non-audit work they do for the company; and changing the ASX Listing Rules to require all listed companies to have an audit committee.
  • The Government announced a range of commitments during the 2001 election campaign in its document 'Our Future Action Plan - A Better Superannuation System'.
  • On 3 December 2001, Mr Malcolm Turnbull submitted his written report to Government on the review of the effectiveness of the arrangements for the regulation of managed investments introduced by the Managed Investments Act 1998, contained in Chapter 5C of the Corporations Act 2001. 22

Appendix 3: Examples of recent issues for superannuation funds

This Appendix provides examples of recent issues faced by specific superannuation funds. The examples demonstrate that concerns have arisen in relation to a variety of funds: those with Approved Trustees and funds which do not have an Approved Trustee, as well as funds of varying sizes and structures. The following examples have been sourced from APRA media releases and the reports released by the Senate Select Committee on Superannuation and Financial Services in relation to its reference on prudential regulation and consumer protection of superannuation, banking and financial services.

  • The Corrections Corporation Staff Superannuation Fund, a medium sized corporate-sponsored fund, liquidated most of its assets to pay out staff leaving the fund following the loss by the corporation of contracts to provide services to prisons. This resulted in one of the assets of the fund, a 'near CBD' commercial property (representing a large proportion of the value of the fund's assets) being sold at a substantial discount to its book value. The fund's investment strategy had been disclosed to members, and there was no evidence of fraud or malpractice.23
  • The Media Labs Superannuation Fund, a corporate fund with 58 members and $72,000 in assets, invested in specialised recording equipment that was leased to the fund's employer-sponsor on less than commercial terms. In this example, APRA used its enforceable undertaking power for the first time to resolve the issue.24
  • The Hairdressers Association Superannuation Fund, an industry fund, with about 4,000 members and $3 million in assets at the relevant time, suffered financial difficulties in the pre-SIS Act environment in the early to mid 1990s, including significant negative returns to members during the 1994-95 financial year, resulting from two large investments by the former trustee. The difficulties can be attributed to a lack of a formal investment strategy resulting in the failure to adequately diversify investments; significant related party dealings; and a lack of appropriate disclosure to members.25
  • In relation to Commercial Nominees of Australia Limited, an Approved Trustee for three public offer superannuation entities and about 500 small superannuation funds with fewer than five members, both APRA and ASIC have identified many areas of concern, such as inapp
    ropriate investments, non-arm's length transactions, lack of appropriate disclosure of investments to members, and inappropriate management procedures. A large proportion of the losses experienced by the superannuation funds related to investments in unit trusts also under the trusteeship of Commercial Nominees.26
  • The former trustee of the Employee Productivity Award Superannuation fund, an industry fund with an Approved Trustee, with 26,000 members and with $27 million in assets in 1997, advised members in September 1998 of substantial asset write-downs and consequential negative returns for the 1997-98 year. ASIC has begun civil proceedings in the Queensland Supreme Court against the former trustee, its directors, and the 1995-96 auditors of the fund, seeking damages of more than $10 million. ASIC has alleged that from 1994 to 1998 the former trustee and its directors made various inappropriate investment decisions, including investments which were imprudent and speculative; loans made without adequate security; and loans made on a non-arm's length basis.27
  • The Law Employees Superannuation Fund, a fund with a corporate trustee comprising equal representation of employers and members, with 5,700 members, is an example of poor investment performance, arising from investments made during the mid-1990's; significant administration fees; ineffective disclosure to members, particularly in regards to the fund's performance; and concerns about the effectiveness of the equal representation structure in enabling members to voice their concerns to the trustee, particularly with respect to the fund's investment strategy.28
  • In 2001, APRA gained Federal Court orders against the trustee directors of the Wes Lofts (Aust) Superannuation Fund, a corporate-sponsored fund with about 50 members and assets of approximately $1.7 million, over the employer's improper use of members' funds. The trustee directors consented to orders declaring they had procured contraventions of the in-house asset rules by the fund. In addition, the Court declared that the trustee had entered into a scheme to artificially reduce the level of the fund's in-house assets.29

15 Section 64 of the SIS Act was amended by the Financial Sector Legislation Amendment Act (No. 1) 2000.

16 The SWG received 52 submissions, 50 of which are listed. Two submissions are not listed. The first submission is not listed on the basis that it contained 'personal' information. The second submission is not listed on the basis that the submitter requested that it not be made public as it contains commercial information of a confidential nature.

17 Senate Select Committee on Superannuation and Financial Services 2001a.

18 Senate Select Committee on Superannuation and Financial Services 2001b, Prudential Supervision and Consumer Protection for Superannuation, Banking and Financial Services Second Report - Some Case Studies, (Senator J. Watson, Chair), Canberra, August.

19 Senate Select Committee on Superannuation and Financial Services 2001c, Prudential Supervision and Consumer Protection for Superannuation, Banking and Financial Services Third Report - Auditing of Superannuation Funds, (Senator J. Watson, Chair), Canberra, September.

20 Productivity Commission 2001.

21 Prof. Ian Ramsay 2001, Independence of Australian Company Auditors Review of Current Australian Requirements and Proposals for Reform, Report to the Minister for Financial Services and Regulation, Canberra, October.

22 Malcolm Turnbull 2001, Review of the Managed Investments Act 1998, Report to the Minister for Financial Services and Regulation, Canberra, December.

23 APRA media release, APRA Receives Corrections Corp Staff Super Fund Draft Report, 22 August 2001.

24 APRA media release, APRA obtains first enforceable undertaking from trustees of superannuation fund, 6 December 2001.

25 Senate Select Committee on Superannuation and Financial Services 2001b, Chapter 2.

26 APRA media release, APRA revokes trustee approval, 14 February 2001.

27 Senate Select Committee on Superannuation and Financial Services 2001b, Chapter 1.

28 Senate Select Committee on Superannuation and Financial Services 2001b, Chapter 3.

29 APRA media release, APRA gains civil penalty orders against Wes Lofts Superannuation Pty Ltd, 30 October 2001.