Fund Regulatory Update

APRA: new super standards, member outcomes update, and new publications launched

The Australian Prudential Regulation Authority (APRA) has proposed a new set of minimum standards for superannuation funds in managing operational risk with feedback being sought. APRA has released the minimum standards it is proposing (CPS 230) for operational risk with requirements for business continuity and service provider management.

Regulated entities must maintain effective internal controls for operational risk, according to size, business type and how complex their activities are while being prepared and ready for continued operations during times of disruption. Risks must be effectively managed regarding service providers.

The new standard is set to replace the existing five standards, CPS 231, CPS 232, SPS 231, SPS 232 and HPS 231. The new standards are to be finalised in early 2023, coming into effect in January 2024. Consultation is open until October 21.

APRA is also updating its strategic planning and member outcomes standards, SPS 515, requiring trustees to evaluate their own performance when delivering outcomes to members. An annual Business Performance Review will be undertaken by each entity to identify areas that need improvement. A discussion paper has been released with proposals for more efficient and simpler guidelines.

APRA is considering submissions to the discussion paper and will release draft enhancements in early 2023 for further consultation.

APRA has launched a series of new superannuation data publications as of September 2022 for industry stakeholders. The publications are part of APRA’s Superannuation Data Transformation (SDT), a quest for better member outcomes and industry practices via greater transparency.

The new publications include aggregate quarterly data on industry structure and profile, member demographics and investments, with a publication covering product-level data in Q4 2022, and annual publications on the industry, funds and products released in 2023.

Military super benefits tax amendments on the table

The government is introducing legislation to correct the outcomes of a Federal Court decision on Commissioner of Taxation V Douglas, also known as the Douglas decision. The Douglas decision found that some veterans’ invalidity pension payments in the Defence Force Retirement and Death Benefits (DFRDB) and Military Superannuation Benefits (MSB) schemes are superannuation lump sums for income tax purposes, and not superannuation income stream benefits.

Some of these pension payments are superannuation lump sums for income tax purposes, and not super income stream benefits, which with the new draft legislation, is not the original policy intent. The Douglas decision identified a discrepancy in the statutory definition of a superannuation income stream that resulted in these pensions not meeting the definition of a superannuation income stream, and ended up being taxed as superannuation lump sums - an adverse income tax outcome for some veterans.

A non-refundable tax offset has been introduced to prevent adverse income tax outcomes for affected veterans in the DFRDB and MSB schemes.