The Australian superannuation sector was squarely in the regulatory crosshairs this week, marked by a direct and forceful intervention from ASIC Chair Joe Longo, who declared the regulator was "reading the riot act" to the industry. This intensified scrutiny over trustee conduct and expenditure ran parallel to a heated and ongoing political and industry debate over the controversial Division 296 tax on high-balance super accounts. Amid the regulatory pressure and policy uncertainty, superannuation funds pursued sophisticated investment strategies, deploying capital into global property, private markets, and AI-driven funds.
Regulators Target Trustee Conduct and Retirement Products
The standout development was ASIC's pronounced crackdown on super fund governance. In a keynote address, Chair Joe Longo warned that trustees have "board-level blind spots" and must do more to listen and act on member concerns. He stated that ASIC is now targeting funds with a "double-edged" scrutiny of their expenditure to ensure it directly benefits members, putting trustees on notice that poor practices will not be tolerated. This message was reinforced by a direct warning that customers are key and trustees must act now.
Concurrent to ASIC's warnings, APRA has put the retirement income space under the microscope, proposing to scrap the "one-size-fits-all" approach to annuity capital settings. The proposed changes aim to make the capital framework more flexible, which could encourage providers to develop a wider range of lifetime income products for retirees. This signals a coordinated regulatory push to improve outcomes in both the accumulation and decumulation phases of superannuation.
Division 296 Tax Creates Confusion and Controversy
The proposed Division 296 tax on super balances over $3 million continued to dominate policy discussions. Treasurer Jim Chalmers defended the tax as a "test case for real reform" to make the system more sustainable. However, the policy is facing growing criticism over its complexity and fairness. The Australian Shareholders' Association has urged the government to rethink the tax, citing concerns about its impact on investment and fairness.
For advisers and SMSF trustees, the policy is creating significant confusion, particularly around how specific contributions are treated, with add-backs creating complexity for those trying to manage their balances. The discussion has become so detailed that questions are being raised about when the tax should prompt clients to consider withdrawing funds, highlighting the profound strategic implications for high-net-worth individuals.
Funds Forge Ahead with Global and Alternative Investments
Despite the challenging regulatory environment, super funds are actively pursuing growth and innovation. The appetite for unlisted assets continues to grow, with research showing super funds are intensifying their exposure to private assets. This trend was exemplified by HESTA backing a Heitman-led European property expansion, demonstrating a continued push into global real estate.
Innovation in public markets is also evident, with UniSuper seeding a new AI-driven long-short strategy that will invest in the ASX 300. In technology, Rest is piloting "payday super" tech to streamline contributions for members. On the insurance front, TAL has secured a new mandate with a major super fund, indicating ongoing activity in the group insurance market.
Looking Ahead & Takeaways
This week's direct warnings from ASIC represent a significant escalation in regulatory tone, building on months of scrutiny around member outcomes, DDO, and cyber resilience. While previous summaries noted a pattern of increasing oversight, this week marks a shift from guidance to public admonishment, particularly regarding trustee expenditure and board accountability. The ongoing political struggle over the Division 296 tax continues the government's budget agenda and is unlikely to be resolved swiftly, creating prolonged uncertainty for retirement planning.
Key Actionable Takeaways:
- For Superannuation Trustees (0-3 months): Urgently review and document all fund expenditures to ensure a clear line can be drawn to the member's financial benefit, directly addressing ASIC Chair Joe Longo's pointed warnings. A review of board composition and governance processes is now critical.
- For Financial Advisers (0-3 months): Continue to model the various scenarios for the Division 296 tax for clients with balances approaching or exceeding the $3 million threshold. Document all advice regarding potential strategies, acknowledging the current legislative uncertainty.
- For Retirement Product Providers (3-12 months): Closely monitor the outcomes of APRA's proposal on annuity capital settings. This regulatory shift could unlock significant opportunities to design and launch a new generation of more flexible and appealing lifetime income products.
