Friday 23 October 2015
Government’s response to FSI recommendations
Friday 23 October 2015
The Federal Government has released its response to recommendations made in the 2014 Financial System Inquiry (FSI).
The FSI, commissioned by the Government in 2013, was tasked with examining how the financial system could be positioned to best meet Australia's evolving needs and support economic growth. In its Final Report, the FSI made 44 recommendations covering five strategic areas; resilience, superannuation and retirement incomes, innovation, consumer outcomes and the regulatory system.
The Government has accepted the majority of the FSI’s recommendations
The Government has accepted the majority of the FSI’s recommendations, including all but one of the superannuation-related measures. A summary of the Government’s response to the FSI’s recommendations relating to superannuation, retirement income and financial advice is provided below. For further information on the Government’s response to other FSI recommendations please refer to Improving Australia’s Financial System, the Government’s response to the Financial System Inquiry.
Superannuation and retirement incomes
In response to the FSI’s recommendations relating to superannuation and retirement incomes, the Government has indicated it will take the following action:
- Set clear objectives for the superannuation system
- The Government aims to develop and introduce legislation to enshrine the objectives of the superannuation system within the superannuation law by the end of 2016. The objectives will serve as a guide to policymakers, regulators and other industry stakeholders for evaluating superannuation policy proposals.
- Improve efficiency during accumulation
- By the end of 2015, the Government intends to task the Productivity Commission with developing criteria to assess the efficiency and effectiveness of the superannuation system and a formal competitive process for allocating new workforce members to MySuper products.
- Expand choice of fund provisions
- The Government agrees to extend the choice of fund arrangements to more employees, including those who, because of certain enterprise agreements or workplace determinations, cannot choose the superannuation fund that receives their Superannuation Guarantee contributions.
- Governance of superannuation funds
- The Government recognises the need to improve the governance of superannuation funds and has already introduced legislation into Parliament requiring superannuation fund to have a minimum of one-third independent directors on their trustee boards and an independent chair.
- Retirement income streams
- To better meet the needs of retirees, the Government will progress a review of retirement income streams by the end of 2015 and support the development of comprehensive income products for retirement (CIPR). It will also facilitate superannuation fund trustees pre-selecting these products for members to receive their superannuation benefits in retirement.
- Member engagement
- To improve member engagement with their retirement savings, the Government agrees that where practicable and cost effective, superannuation funds should publish retirement income projections on member statements. Consultation on this measure is not expected to commence until after 2016.
Of the FSI’s 44 recommendations, there was only one superannuation-related measure not supported by the Government. The FSI had recommended removing section 67A of the Superannuation Industry Supervision Act 1993, which allows superannuation funds to borrow using limited recourse borrowing arrangements. However, the Government does not consider there is sufficient evidence to justify a policy intervention in relation to superannuation borrowing at this time. The Council of Financial Regulators and the Australian Taxation Office will be commissioned to review leverage and risk in the superannuation system and report back after three years.
In response to the FSI’s recommendations relating to financial advice, the Government has indicated it will take the following action:
- Aligning the interests of financial firms and consumers
- The Government intends to take a different approach to that recommended by the FSI for retail life insurance. The Government supports the reforms proposed by the retail life insurance industry earlier this year and will consider whether legislation and/or regulator action is required to implement these reforms.
- The Government also supports the Australian Securities and Investments Commission (ASIC) reviewing remuneration structures in the stockbroking and mortgage broking sectors. It will also develop legislation to enhance ASIC’s powers to ban individuals from managing financial firms.
- Raise the professionalism of advisers
- The Government will develop legislation by mid-2016 to raise the professional standards of financial advisers by requiring them to hold tertiary qualifications, pass an exam, undertake ongoing professional development, subscribe to a code of ethics and undertake a professional year. These new standards will be set by an independent body and be subject to review in 2019.
- Provision of financial advice and mortgage broking
- The Government agrees to rename ‘general advice’ to alleviate consumer misunderstanding and a new term will be developed in consultation with relevant stakeholders.
- Legislation will also be developed to ensure financial advisers and mortgage brokers disclose their relationships with other entities to make ownership and alignment more transparent for consumers.
While the Government has indicated it accepts the majority of the recommendations outlined in the FSI’s Final Report, these measures will most likely be implemented in stages over a number of years. Where legislative amendments are required, these will also be subject to the successful passage of legislation through Parliament.
..these measures will most likely be implemented in stages over a number of years
The Australian Government, Improving Australia’s Financial System, Government response to the Financial System Inquiry, 20 October 2015
The Hon Malcolm Turnbull MP, Government response to the Financial System Inquiry (Media Release), 20 October 2015
MAStech article, Financial System Inquiry Final Report, 10 December 2014
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