Monthly technical roundup - February 2022

DVA Disability Pension Improved

On 13 December 2021, the Veterans’ Affairs Legislation Amendment (Exempting Disability Payments from Income Testing and Other Measures) Act 2021(Cth) received Royal Assent.

The Act simplifies payments and improves access to rent assistance for the DVA Disability Pension by:

• renaming the Disability Compensation Payment to DVA Disability Pension, which better reflects the purpose of the payment and will prevent confusion with the Disability Support Pension paid by Services Australia;
• the newly named DVA Disability Pension and the Permanent Impairment Payments and Special Rate Disability Pension will be exempt from the Social Security Income Test; and
• removing the Disability Income Rent Test as the Rent Test results in severely disabled veterans and their families receiving less rental assistance than those with lesser disabilities.

For more information, please refer to the DVA media release.

Changes to Pension Loan Scheme

On 2 December 2021, the Social Services and Other Legislation Amendment (Pension Loans Scheme Enhancements) Bill 2021 (Cth) was introduced to Parliament.

The Bill amends the Social Security Act 1991 (Cth) and the Veterans’ Entitlements Act 1985 (Cth) to implement the 2021-22 Budget proposal measure to increase the flexibility of the Pension Loans Scheme (PLS).  The key proposed changes include:

No negative equity guarantee

The introduction of a no negative equity guarantee to the PLS. This ensures that from 1 July 2022, PLS participants will not be required to repay more than their actual equity in the property used to secure the loan.

Lump sum advance payments

Currently, PLS participants do not have access to lump sum advances.

From 1 July 2022, participants will be able to access an advance lump sum payment of no more than 50% of the maximum rate of pension.  Participants can also access up to two advances over a 26 fortnight period, where the second advance is reduced by the value of the first.

Financial adviser education standards

On 16 December 2021, the Government announced the release of a Policy Paper seeking feedback on the education standards for financial advisers, with the view of better recognising on-the-job experience.

The proposed amendments to the education standards include:

• experience pathway – advisers who (on 1 January 2026) have more than 10 years of full time experience in the last 12 years and have a clean record will only need to complete a tertiary unit in Code of Ethics by 1 January 2026 to provide advice;
• qualification pathway – advisers must complete a bachelor’s degree or higher with at least 8 units in a related field of study.

The feedback period closed on 1 February 2022.

Wealth transfer and their economic effects

On 7 December 2021, the Government released a research paper titled “Wealth transfers and their economic effects”.

The paper provides information about the amount of wealth transferred in Australia, and an in depth analysis of the impacts of inheritance and gifts on the distribution of wealth.

Below are some of the interesting points highlighted in the paper:

• slightly less than $1.5 trillion was transferred between 2002 and 2018, where approximately 90% of this was in the form of inheritances;
• the average inheritance recipient was around age 50 (close to peak of earning capacity) and the average inheritance amount was approximately $125,000. In contrast, the average gift recipient was around age 20 (beginning of career) and received approximately $8,000; and
• the commission could not find strong evidence of large transfers from parents to their children to help purchase a home, despite popular belief.

Extension to SME Recovery Loan Scheme

On 13 December 2021, the Government announced the extension of the SME Recovery Loan Scheme by a further six months to 30 June 2022.  

Under the existing scheme, SMEs which are impacted by the pandemic and have a turnover of less than $250 million may be able to access loans of up to $5 million over a term of 10 years.  Other features of the SME Recovery Loan Scheme include:

• lenders can offer borrowers a repayment holiday of up to 24 months;
• loans can be used for a broad range of business purposes, including to support investment;
• loans may be used to refinance any pre-existing debt of an eligible borrower; and
• loans can be either unsecured or secured (excluding residential property).

In the media release, Government also stated that it will reduce its loan guarantee from 80% to 50%.

Terms of reference for Quality of Advice Review

On 16 December 2021, the Government released a draft Terms of Reference for the upcoming Quality of Advice Review.

The Review will consider how the regulatory framework could be improved to make financial advice more accessible and affordable for retail clients. 

Areas to be reviewed include:

• simplifying and streamlining regulatory compliance to reduce cost and remove duplication;
• whether principles-based regulations could replace current rules-based regulations;
• improve clarity and availability of documents;
• whether parts of regulatory framework which led to undesirable or unintended consequences can be mitigated or reduced;
• key concepts, such as financial product advice, general advice and personal advice;
• whether to retain/remove safe harbour provisions;
• recent annual renewal, ongoing fee arrangements and life insurance reforms; and
• remaining exemptions on banned conflict remuneration for life and general insurance.

Treasury accepted feedback until 4 February 2022.

Remake super co-contribution

On 20 December 2021, the Government announced the release of  draft regulations and explanatory material on the remake of the existing Superannuation (Government Co-contribution for Low Income Earners) Regulations 2004, which are due to sunset on 1 April 2022.

The Government has also included some changes to the draft legislation. These include:

• omitting redundant provisions, simplifying the language and restructuring provisions for ease of navigation;
• amending the definitions of an eligible account to receive super co-contribution payments to exclude accounts which only provide terminal medical condition benefits in addition to the existing exclusion on accounts which provide only death or incapacity benefits. This ensures the super co-contribution payment will not be paid to insurance only accounts, where the contribution would subsidise the payment of insurance premiums rather than contribute to increase a person’s retirement savings; and
• provide clarity over the operation of section 7 relating to where a Government co-contribution is to be directed in certain circumstances.

The consultation period closed on 14 January 2022.

Changes to Pandemic Leave Disaster Payment

On 8 January 2022, the Government announced changes to the Pandemic Leave Disaster Payment, which came into effect on 18 January 2022.

Individuals who need to isolate or care for someone who needs to isolate, and have lost at least one day of work, may be eligible for the Disaster Payment. The payment will be scaled based on the number of work hours lost over the isolation period.

Below is a summary of the payment amounts:

Additionally, a financial hardship test was introduced where individuals who have available funds of $10,000 or more will be ineligible for the payments.

Limited advice guidance

On 1 December 2021, ASIC released Information Sheet 267: Tips for giving limited advice (INFO267). The information sheet provides tips to assist advice providers with meeting their legal obligations (including the best interest duty and related obligations in Division 2 of Part 7.7A of the Corporations Act 2001) and the Financial Planner and Advisers Code of Ethics when providing limited advice.

The information sheet is broken down into two sections. The first provides an overview of giving limited advice and the second provides tips for limited advice.

New financial advice webpage

On 7 December 2021, ASIC announced that it had launched the Financial Advice Hub for advice licensees and advisers.

The webpage was developed in response to Consultation Paper 332: Promoting access to affordable advice for consumers (CP332) and is a centralised access point for information impacting the financial advice industry (e.g. regulatory content).

First adviser exam sitting dates for 2022

On 20 December 2021, ASIC announced that it will take over the administration of the financial adviser exam from FASEA from 1 January 2022, following the commencement of the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth).

The first exam sitting in 2022 will be held from 17 February 2022 until 21 February 2022 and enrolments for the sitting closed on 28 January 2022.

In the media release, ASIC also noted that there will be three more financial adviser exam sittings which will take place before 30 September 2022.

Financial Services and Credit Panel (FSCP) update

On 22 December 2021, ASIC published some information on the operations and functions of the FSCP, which commenced on 1 January 2022.

The FSCP has the power under the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth) (assented on 28 October 2021) to:

• direct financial advisers to undertake specific training, counselling, or supervision, and report certain matters to ASIC;
• suspend or cancel financial adviser’s registration;
• issue infringement notices in specific circumstances;
• recommend ASIC commence civil penalty proceedings; and
• enter into enforceable undertakings with financial advisers.

ASIC will also consult on guidance regarding the operations of the FSCP in early 2022.

Information for tax financial advisers under Better Advice Act

On 23 December 2021, ASIC released an information sheet (INFO268) which provides guidance on the changes which took effect on 1 January 2022 for providers of tax (financial) advice services following the introduction of the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth).

The information sheet addresses frequently asked questions about the changes to the regulatory landscape, new training and education requirements, and registration requirements.

Warning – SMSF and crypto investments

On 17 January 2022, ASIC issued a warning in relation to self-managed superannuation funds (SMSF) and crypto investments. In the media release, ASIC noted that:

• it had noticed an increase in marketing recommending Australians to switch from retail and industry superfunds to SMSFs so that they can invest in ‘high return’ portfolios;
• SMSF trustees are targeted to invest in crypto-assets (or cryptocurrencies);
• superannuation is an attractive target for scammers;
• crypto-assets are high risk and speculative investments; and
• ASIC is reminding superannuation fund members it is best practice to seek advice from a licensed financial adviser before agreeing to transfer superannuation out of a regulated fund into an SMSF.

Guidance on temporary full expensing

In December 2021, the ATO published Law Companion Ruling LCR 2021/3 Temporary full expensing.

The temporary full expensing (TFE) measure allows certain businesses to temporarily deduct the full cost of eligible depreciating assets in the first year the asset was acquired, first used, or installed.

Additionally, the ruling:

• outlines the operation of TFE;
• provides views on interpretive issues;
• explains the interaction of TFE with the instant asset write-off and backing business investment rules; and
• explains and illustrates how TFE applies to small business entities.

The current TFE measure which was introduced in the 2020/21 Federal Budget is due to come to an end on 30 June 2022 and the Government has introduced a Bill to extend this measure by another 12 months. 

Insurance reporting framework

On 13 December 2021, APRA proposed new updates to the capital and reporting framework for insurance In response to the introduction of the Australian Accounting Standards Board 17 Insurance Contracts (AASB 17).

The draft prudential and reporting standards aims to integrate AASB 17 into the insurance capital and reporting framework, and is based on the following principles:

• maintain the resilience of APRA’s capital and reporting frameworks;
• not seek to generally increase or reduce capital levels;
• minimise the regulatory impact for industries; and
• align the frameworks to AASB 17 where appropriate.

The consultation period for the draft standards will close on 31 March 2022 and APRA intends to release the final standards in the second half of 2022.

MySuper and Choice Heatmaps

On 16 December 2021, APRA announced the release of its first Choice Superannuation Heatmap, alongside its annual MySuper Heatmap.  The Choice heatmap captures products and options in which members have made an active decision to invest their superannuation benefits.  

Some key points from APRA’s Choice Heatmap include:

• 60% of investments in the Choice Heatmap delivered returns below APRA’s benchmark over the 7-year period, with 25% of options delivering significantly poor returns;
• performance of choice products varies considerably more than MySuper products;
• fees on choice products are considerably higher than MySuper products, without obvious benefits for its members.

APRA also highlighted the following key points from APRA’s most recent MySuper Heatmap (as at 31 December 2021):

• 45% of MySuper products delivered returns below APRA’s benchmark;
• 22 MySuper products have closed since the release of its first MySuper Heatmap. Of those 22 products, 3 failed the Your Future, Your Super performance test in 2021;
• Investment returns are the primary driver of underperformance; and
• Fees for MySuper products are declining, but there remains considerable scope for further reductions.

Occupational exclusions prohibited for default cover

On 14 December 2021, the Financial Services Council (FSC) announced the release of an enforceable standard which prohibits the use of exclusions and restrictive disability definitions in all default group life insurance for members employed in higher-risk occupations. This standard will apply to all default group life insurance in superannuation amongst FSC members.

The standard is scheduled to commence on 1 January 2023, following a one-year transition period.

No indexation for transfer balance cap (2022/23)

The general transfer balance cap (currently $1.7 million) is indexed annually with CPI and rounded down to the nearest $100,000.

On 25 January 2021. the Australian Bureau of Statistics (ABS) released the consumer price index (CPI) figures for the December 2021 quarter and the results are as follows:

• CPI rose 1.3% for the quarter; and
• CPI rose 3.5% for the year.

Based on the results, the increase was not enough to trigger an indexation of the transfer balance cap for the 2022/23 financial year and as such, the transfer balance cap will remain at $1.7 million.