IN THIS EDITION - April 2018
A word from Cath
Welcome to the April edition of IFS Update. This is the second edition of our quarterly newsletter that aims to keep you informed of key events, news and insights from IFS.
This month, I'm especially excited to offer an update on the success of our initial cross fund matching program through AUSfund. There's also news of our new Advice Solutions portal, which will help our clients manage their financial planning services.
We discuss super funds' obligations in relation to the Insurance in Superannuation Voluntary Code of Practice, and we look at options for trustees that can enhance the effectiveness of recovering unpaid super.
I hope you enjoy this edition and, as usual, I welcome your feedback on any of the issues covered.
IFS Chief Executive
Addressing multiple super accounts - an update on cross fund matching
Forty per cent of Australians have more than one super account, while APRA data suggests a quarter of all industry super accounts are inactive.
While policy-makers debate options for auto-consolidation, IFS has developed and implemented a new cross fund matching program. It allows AUSfund to auto-consolidate money held in an inactive account into the member's active account. Cross fund matching through AUSfund puts industry funds on the front foot in addressing multiple accounts, with a program that is designed, owned and operated by not for profit super funds, not imposed by regulators.
Nine funds took part in our initial program, matching about 108,000 AUSfund accounts to MySuper accounts in participating funds. Of these, 54,000 were immediately eligible for auto-consolidation.
Importantly, the number of accounts matched out to participating funds was in broad proportion to the size of the fund.
The more accounts that are transferred into AUSfund, the more that can be matched and transferred back to funds, and therefore back to members.
These results show AUSfund can be an effective way for industry super funds to substantially reduce the numbers of multiple accounts.
Key benefits of cross fund matching with AUSfund:
- Funds gain accounts in return for those transferred out
If these accounts are transferred to the ATO, rather than AUSfund, the likelihood of getting any inactive accounts back is very low.
- Actively addressing multiple accounts puts industry funds on the front foot
There has been an increasing focus on the impact of multiple accounts on members’ retirement outcomes. Actively working to resolve this issue demonstrates that industry super funds are acting in members’ best interests, and designing solutions tailored to our sector.
- A more secure retirement for members
Members receive a superior return in AUSfund compared to what they get from the ATO, which pays CPI rates of return. AUSfund’s three and five-year crediting rates to June 30, 2017, were 7.09 per cent and 9.02 per cent respectively. Our strong returns mean members will benefit from higher balances when they retire.
- It’s simple and at no cost to trustees
AUSfund will build member super balances and offset the need for major changes to the existing default system.
Unpaid Super: enforcement, law reform, or both?
The Australian Tax Office estimates $2.85 billion in superannuation guarantee obligations went unpaid in 2014-15. The problem was highlighted in a recent ABC Four Corners program.
Unpaid super is as much an enforcement problem as a law reform issue. While the ATO has increased its activity, trustees have a role in chasing unpaid super.
Last year IFS collected $187 million in unpaid super, from more than 36,000 employers on behalf of 226,000 working Australians.
In IFS's experience, the issue of unpaid super is not confined to employers that routinely avoid taxation, or are on the brink of insolvency. Nor is non-payment confined to casual or contract labour working short engagements for multiple employers. Rather, it is predominantly a device used by small business to manage cash flow.
IFS has established a working group to look at best practice in arrears collection. The group will consider single-touch payroll and real-time member contribution reports, as well as other opportunities to increase how effective trustees can be in recovering unpaid super. If you would like to participate, contact Pauline Olson at email@example.com.
New Advice Solutions client portal – a one-stop shop to manage financial planning services
IFS has launched a new Advice Solutions website for all planning resources. It gives planners and leaders quick and easy access to the documents and information they need.
The website is user-friendly, intuitive and helps streamline regulatory compliance.
It will also help your fund’s financial advice business run more efficiently, freeing up time to see more clients.
- It offers information, forms, policies, guidance and tools all in one place – linked to each step in the advice process - both comprehensive and scaled;
- a simple search facility to help planners and leaders easily find what they need;
- removes the need to deal with multiple staff for different information;
- offers greater self-service by planners while providing easy access to IFS expertise when needed;
- access by leaders to entire planner files;
- centralised news, calendar and event information;
- an opportunity to join online discussions for information sharing.
Client feedback on the new portal has been positive. Many of our clients have told us that the new website and improved communication through IFS Express and Advice Solutions Quarterly Update are extremely helpful.
For more information, contact Advice Solutions executive manager Chris Joiner on (03) 9657 4305.
Understanding your obligations: Insurance in Superannuation Voluntary Code of Practice
The new Insurance in Superannuation Voluntary Code of Practice comes into effect on July 1, 2018. Super funds were required to state their intention to adopt the code by the end of March.
The code aims to ensure that insurance provided to super fund members is appropriate and affordable and does not inappropriately erode retirement income; that all related communication to members is clear, timely and in plain language; and that claims’ handling processes are improved.
Funds need to consider a range of impacts to assess the full implications of adopting and complying with the code.
- Administration system and process changes;
- increased communication requirements;
- whether additional data needs to be collected to support compliance;
- the fund’s insurance management framework and insurance strategy;
- changes to insurance benefit design, terms and conditions.
Funds also need to consider the resulting additional costs to their business, and ultimately to members.
Response to the code
There has been a mixed response to the code since its release at the end of 2017. Criticisms include:
- it’s voluntary. Trustees cannot be forced to adopt it;
- there is no oversight by an external administrator. Trustees cannot be forced to comply and compliance is based on self-reporting;
- it falls short of ASIC’s standards for financial services sector codes of conduct.
APRA has welcomed the new code, because it establishes minimum expectations, practices, benchmarks and service standards, while also encouraging funds to exceed these minimums.
IFS Insurance Solutions can help funds that need to make a detailed assessment of the implications of complying with the code, developing a transition plan and implementing the required changes.
To discuss any aspects of the code in more detail, contact Shane Fielding, head of group life consulting services at IFS Insurance Solutions on (03) 9657 4274.
IFS Insurance Solutions is the specialist insurance broking and consulting arm of the Industry Fund Services Group. It is a leading provider of insurance services to the industry and “run only to benefit members” superannuation funds. Visit ifsinsurance.com.au
Do you have a question for IFS? Or a burning issue you'd like to see covered in the next edition of our newsletter?
We welcome your feedback too, so drop us a line, we'd love to hear from you.