Assistant Treasurer Stuart Robert says he is determined the government’s controversial superannuation overhaul will be finalised by “the end of November” but has given the sector some reprieve by deciding not to force trustees to offer a retirement income product to their members until 2022.
On Wednesday morning, Robert said the “entire super package”, which ensures a reduction in some fees for super members and a restructure of key group insurance arrangements, would enter the Senate as early as next week.
“My intent, hope, and indeed prayer, is this will all be finalised by the end of November,” he told a Financial Services Council event in Sydney. “Things are still moving and changing. I am reasonably confident it will be fine. This is pretty important and most people in the Senate understand that. My confidence level is above 50 per cent, but the Senate’s capacity to throw a curveball should never be underestimated.”
Negotiations with Katter’s Australian Party have been under way this week. Robert said he needed “eight or nine” independent votes to ensure the bill would get through the Senate.
The assistant treasurer’s determination won’t be music to the ears of a large portion of the super industry that includes funds and insurers alike. Various groups have been pressing hard for amendments to the Protecting Your Superannuation Package, which was introduced in this year’s Federal Budget.
The package of reforms, if enacted, would cap certain fees for low-balance accounts, ban exit fees on all accounts and require insurance be provided on an opt-in basis only for members with low balances (below $6000), inactive accounts (without a contribution for 13 months or longer) and for new members who are under 25.
It was the life insurance reforms, in particular, that troubled AustralianSuper, consumer group Choice, life insurance giants AIA and TAL, and others. Some of the groups requested a carve-out from the bill, which was referred to the Senate Economics Legislation Committee for review at the end of June.
A key concern was the July 1, 2019, start date for implementation, because of the need for funds to renegotiate contracts with insurers. An attempt to lobby for changes fell on deaf ears when the committee recommended that the set of budget proposals be passed with no amendments in August.
Robert also gave little hope for any time extension but did acknowledge there could be some “wiggle room” on coverage for those working in high-risk industries such as construction.
“You’d have to think I can’t nail it this year, that there would need to be an extension of time. But if I can get it through this year, then no,” he said. “There might be wiggle room [in higher-risk occupations]. I think there is an argument that is worth considering, particularly for people who go in very young in terms of apprenticeships.”
On the government’s Retirement Income Framework and the accompanying “retirement income covenant”, which would, for the first time, require super trustees to help members reach their retirement income objectives. The proposal to legislate the covenant by July 1 2019, for commencement from July 1, 2020 will remain; however, Robert said funds would not have to offer a comprehensive income product for retirement (CIPR) until July 1, 2022.
This was an extension of two years that was outlined in a government position paper issued for discussion in May. Also, the requirement to offer a CIPR to those with balances over $50,000 has been changed to those with balances over $100,000.
“Raising the threshold account balance will mean CIPRs will be required to be offered to those who benefit most,” Robert said. “By extending the transition period, the industry will gain more time to adjust to new requirements under the retirement income covenant and produce higher-quality retirement products. This will lead to better outcomes for superannuation fund members.”
A key recommendation of the David Murray-led Financial System Inquiry was that all funds must offer a CIPR. But some super sector members, including Rice Warner, raised concerns about the government’s relatively short lead-in period for having to offer a CIPR.
FSC chief executive Sally Loane commented on Wednesday that an extension of the time to introduce a CIPR was “welcome news” but urged the sector to not be “complacent when you get extended timelines from the government. Keep innovating and making the best possible products for consumers.”
On Friday, Challenger’s outgoing chief executive Brian Benari, an annuities specialist, said more and more industry participants were recommending an allocation of 20-25 per cent of clients’ assets into longevity products during the retirement phase.
“The Retirement Income Framework being developed by the government is regulatory recognition that it’s time to enhance the super system to meet the needs of retirees for secure and stable income that lasts for life,” Benari asserted.