Superannuation reform - the year ahead in 2018

By Geoff Sanders
Financial Services Superannuation

In brief

Written by Partner Geoff Sanders and Senior Associates Jo Ottaway and Stephanie Malon

As seems to be the norm, 2017 was a busy year in superannuation, with trustees having to grapple with a range of expanded (and, in some cases, entirely new) regulatory burdens and proposed reforms, including the material administration system changes coming out of successive Federal Budgets, and the dreaded RG 97 fee and cost disclosure reforms.

As 2018 gets underway (is it really February already?!), the Allens superannuation team takes stock of the various legislative and regulatory reform proposals that have been mooted for the superannuation industry in 2018, and does a bit of crystal-ball gazing as to what might be ahead of us this year.

Key reforms

Royal Commission-related activity aside, you might be forgiven for thinking that things have gone a little quiet on the superannuation reform front in the past few months. And, to some extent, you would be right, given there has been little concrete progress on most reforms in the opening weeks of 2018.

However, as you can see from the below list of current legislative and regulatory reforms*, there is still much out there that we think will occupy the industry's time and attention in 2018.


What is it?

What's the status and what's next?

'Improving accountability and member outcomes' amendments to SIS Act

The Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 proposes amendments to the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) to introduce a loosely connected range of new measures aimed at improving trustee accountability, including:

  • the replacement of the MySuper scale test with a more holistic 'member outcomes' test;
  • creation of civil penalties for breaches of trustee directors' covenants;
  • new requirements to seek APRA approval to acquire a controlling stake (15% or more) of an RSE licensee (and the introduction of an APRA power to direct those holding controlling stakes to divest control in certain circumstances);
  • the introduction of a potentially very broad-ranging power for APRA to direct trustees to take a range of actions;
  • amendments to the portfolio holdings disclosure rules (see below); and
  • a new requirement for each APRA-regulated fund to hold an AGM.

(See our earlier articles here and here.)

Current status: Bill currently before Parliament (last debated in the Senate in December 2017).

What's next: While there is undoubtedly a risk that the Bill's progress will get caught in the crossfire of the political debate over the independent director rules, our best guess is that the Bill will be passed with relatively little material revision in the coming months (perhaps even as early as the end of the first sitting of the Senate in March).

Independent director minimum requirements

The Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017 proposes amendments the equal representation rules, including to mandate that all trustees have a minimum of one-third independent directors and an independent Chair.

Current status: The Bill was tabled for debate in the Senate before Christmas but not passed (and is yet to progress to the House).

Next steps: Given the heated political debate on the Bill, it has not yet been re-tabled for debate in 2018, and it is difficult to see it being re-introduced (let alone passed) in the current Parliament.

New and revised Prudential Standards and Prudential Guides

In December 2017, APRA announced a number of proposed changes to the prudential framework for superannuation, including:

  • proposed amendments to SPS 220 – Risk Management, principally designed to introduce increased obligations on trustees around business planning and fund expenditure processes (along with the accompanying new SPG 221 and amended SPG 220);
  • the introduction of a new SPS 225 – Outcomes Assessment, which will introduce a new annual 'outcomes assessment' obligation for all members (ie not just MySuper members, although the requirement under SPS 225 will work hand in hand with the MySuper outcomes test flagged above) (along with the accompanying SPG 225);
  • possible revisions to Superannuation Reporting Standards; and
  • a possible 'comprehensive post-implementation review' of all other Prudential Standards.

(See our earlier article here)

Current status: Revisions to SPS 220 and new SPS 225 are currently open for consultation (closing 29 March 2018).

Next steps: Depending on the outcome of those consultations (and also subject to any changes to the MySuper outcomes test as part of the legislative process), APRA has indicated it anticipates releasing the final Prudential Standards and Guidance in 'mid-2018', with the revised SPS 220 and 225 due to commence 1 January 2019.

Any amendments to Reporting Standards and the comprehensive post-implementation review of other Prudential Standards are expected to follow later in 2018 and into 2019.

Productivity Commission review of super system and default allocation models

Third and final part of the Productivity Commission's review into assessing the competitiveness and efficiency of the superannuation system, and models for allocating default members to products. This review arose out of the Government's response to the Financial System Inquiry.

(See our earlier articles here, here and here.)

Current status: Issues paper released on 7 July 2017, and consultation conducted.

What's next: Draft report delayed until late May 2018, due to delays in data collection and consultation. Timing for final report to be confirmed.

Any major shakeup of the super system coming out of the report almost certainly some time away.


The Government is seeking to develop a framework for more efficient retirement income products, based on recommendations from the Financial System Inquiry.

These 'Comprehensive Income Products for Retirement' (or 'MyRetirement products') are intended to be high-standard, mass-customised products that provide a balance of income, risk management and flexibility.

(See our earlier articles here and here.)

Current status: Discussion paper released and public consultation conducted in 2016–2017.

What's next: Updated paper expected 'soon'.

Transition to AFCA

The Australian Financial Complaints Authority will be the new 'one stop shop' for financial complaints, and will replace the Superannuation Complaints Tribunal, the Financial Ombudsman Service and the Credit Investments Ombudsman.

Current status: Bill establishing and governing the operation of AFCA passed through Parliament on 14 February 2018.

What's next: AFCA to be established and begin accepting complaints no later than 1 November 2018.

Superannuation Complaints Tribunal will continue to operate for a period to clear the backlog of cases (but cannot accept new cases once AFCA is operational).

RG 97

New fees and costs disclosure regime was due to come into full effect in 2017, but in the face of significant industry uncertainty (and last-minute changes to the class order and guidance), ASIC has extended its 'facilitative compliance' approach and appointed an expert to review the regime.

Current status: While the full regime is technically now in force, ASIC is continuing to apply a 'facilitative approach' to compliance while the regime is under expert review, given the ongoing uncertainty over certain aspects of the regime (and its future).

Next steps: Expert report due in first half of 2018 and it seems quite possible that further changes to the regime will be made following the report.

Portfolio holdings disclosure

The portfolio holdings rules (already contained in the Corporations Act 2001 (Cth)), which require detailed disclosure of all holdings of superannuation funds, have never come into effect, due to significant industry concerns over the practicality (among other concerns) of implementing the original regime, which required disclosure of all holdings on a 'look-through' basis.

The Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation) Bill 2017 (see above) contains some important amendments to the regime, including:

  • a limiting of the disclosure required to the first 'non-associated' entity level of investments of a fund; and
  • the ability for trustees to select any 5% of their holdings to be exempt for disclosure where those holdings are 'commercially sensitive' and disclosure would be detrimental to members.

Current status: Commencement of the existing (ie legislated) regime has already been deferred by ASIC instrument until a first reporting date of 31 December 2019. The proposed amendments to the regime are dependent on the passage of the Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 (see above for details).

Next steps: Assuming the Bill is passed in its current form, a new commencement date for the regime of 31 December 2018 is proposed (ie while it's not entirely clear to us that ASIC and Treasury are aligned on this, it might be that the final year of the current ASIC relief will be cancelled, bringing forward the application of the regime by one year from the current 31 December 2019 start date).

As you can see, it seems that 2018 will be another busy year for all of us, even without taking into account what new and unexpected reforms might currently be being cooked up in the hallways of Parliament, the Treasury, APRA and ASIC.

It will, however, be interesting to see whether the inevitable political and media focus on the Royal Commission, particularly in the second half of 2018, distracts Parliament and the industry from the reform processes contemplated above. Our best guess is that may well be the case, with all sides using the need to allow the Royal Commission process to play out as justification for pushing back major reforms this year.

Only time will tell (but please don't judge us too harshly if you're reading this in 2019!).

A caveat before we get accused of missing key reforms: given how much superannuation-specific reform is out there, we've deliberately not included a number of legislative or regulatory reform processes that are not superannuation-specific, even where those reforms may nonetheless impact on the super industry (such as the Banking Executive Accountability Regime; the Royal Commission; product suitability and distribution rules; AML reforms; corporate collective investment vehicles; and mandatory data breach reporting requirements, just to name a few).