The Government seeks views on the separation of the prudential and retirement income provisions of the SIS Act.
Views from the consultation process
With a limited number of exceptions, submissions did not support the separation of prudential and retirement income provisions. A number of concerns were raised including:
- APRA needing more time and resources to apply the existing law effectively (Industry Funds Forum); and
- a preference for the current SIS regime, which encompasses internal governance requirements and has the advantage of being specialised and focused.
A number of submissions (the Trustee Corporations Association of Australia, the Australian Bankers' Association, the Australian Retirement Income Streams Association Limited, the Institute of Actuaries of Australia) favoured a separation of prudential and retirement income provisions as a longer-term objective, but indicated that this would be a very large task and did not consider it to be a high priority.
However, most submissions did not support such separation, even as a longer-term goal, and suggested that it would result in added complexity and costs, and that it would be confusing for trustees and members not to have a sole regulator responsible for superannuation.
The ATO noted that the proposal would have significant implications for it and require the resolution of a number of difficult practical issues, especially as many requirements of the SIS Act currently have both a prudential and a retirement income focus.
Participants at the focus group sessions queried the length of time such amendments would take to be finalised. Participants also expressed concerns that a revised legislative structure consisting of three separate Acts might reduce the likelihood of the three regulators operating within a consistent policy framework.
Consideration of the proposal
The SIS Act comprises provisions covering prudential regulation, retirement income policy and investor/consumer protection. A substantial body of subordinate legislative instruments exist to give effect to these provisions and are developed in consultation with APRA, ASIC, the ATO and the Treasury.
The Issues Paper put the view that the triple targeting of the SIS Act at prudential, investor/consumer and retirement income regulation aims has contributed to legislation that is both poorly designed to achieve desired outcomes and unnecessarily complex. The joint administration of some provisions may also impede transparency and accountability for the achievement of regulatory outcomes. Accordingly, it was proposed to clearly target the arrangements by placing them in separate legislation. It was argued that this could reduce complexity, and promote clear accountability for the different limbs of the regulatory framework.
Separation of prudential and retirement income provisions may improve transparency and accountability under the SIS Act. It may also enable simplification of the regulatory framework. However, some have argued that separation, rather than simplifying, could increase the complexity of the regulatory framework - while it would leave APRA with a clear piece of superannuation prudential legislation to administer, it would mean that superannuation trustees would need to look to at least an additional piece of legislation. Industry submissions particularly highlighted this point, with ASFA commenting that the 'main benefits [of the proposal] are for the regulators, which gain their own definable patch, rather than for superannuation fund trustees, who will find it more difficult to determine and monitor their responsibilities'. The Productivity Commission also noted in its draft report that:
'while this option has some apparent advantages, it is not clear to the Commission whether it would reduce the overall complexity and prescription of the legislation or compliance costs. It is also not clear whether the option would increase the effectiveness of the legislation in meeting its objectives, or whether this benefit would outweigh the costs involved with the exercise of greater regulatory discretion and additional uncertainty.'9
The SWG supports reforms to simplify the legislative framework, including the separation of the retirement incomes and prudential elements of the SIS Act. However, it acknowledges that implementing this proposal would involve significant resources, and that care would need to be taken to ensure that the compliance burden was not increased. The SWG also considers that the Government would need to focus on simplification as the primary reason for undertaking this task, and that it should be a longer-term reform.
The SWG acknowledges that the SIS legislation is complex, and recommends separation of the prudential and retirement income provisions of the legislation to assist in simplifying the legislation. However, the SWG notes that there are a number of practical implementation issues that will need to be addressed and consulted on in relation to such a proposal.