The Institute fully supports Government’s steps to address the financial advice gap in Australia, where many consumers cannot access or afford full personal advice. Overall, and subject to a few qualifications around superannuation trustee certainty, advice through superannuation limitations and targeted superannuation prompts, the Institute believes these reforms represents positive developments which should increase access to and affordability of financial advice and guidance.

The Institute broadly supports the ‘payday super’ exposure draft legislation to require employers to pay their employees’ super at the same time as their salary and wages and to help ensure individuals receive the Superannuation Guarantee (SG) contributions to which they are entitled. Focusing on appropriate treatment of individuals with defined benefit (DB) interests, we recommend that the SG compliance test for accumulation members in DB arrangements be based on the employer contributions actually paid (or credited from reserves).

The Institute supports the Government’s decision to ban adverse genetic test results in life insurance underwriting. This will give the Australian community certainty and assurance on the way forward and support medical advances that can benefit society in many potentially profound ways. As genetics research is a rapidly advancing field, we recommend policy that can adapt to the advances in genetics so that life insurance balances accessibility of insurance and equity to the insured population as a whole.

Reinsurance is a critical element of risk management for general insurance. The Institute welcomes the opportunity to provide feedback on reinsurance settings to assist in maintaining access for Australian insurers to global reinsurance arrangements and high-quality alternative protection markets.

In Superannuation Tax Reform: Sensible Changes for a Fairer System, actuaries Richard Dunn, Michael Rice, Jennifer Shaw and Alun Stevens set out their vision for meaningful tax reform that aims to make super simpler to invest, easier to spend and fairer with bequests.

The Institute supports the proposal to remove obstacles to winding up legacy retirement income products and to create a more flexible avenue for allocations from superannuation reserves. Introducing this flexibility would enable members with legacy products to rationalise their superannuation without compromising the integrity of the superannuation system.

The Institute suggests that priority be given to improving the YourSuper Comparison Tool to better help members make informed investment decisions by including an investment risk metric. We submit that incorporating an appropriate investment risk metric offers clear net benefit to informing better risk-adjusted decisions.

The Institute supports ASIC’s proposal to update the rate of nominal wage inflation in ASIC (Superannuation Calculators and Retirement Estimates) Instrument 2022\603 and Regulatory Guide 276 in view of Treasury’s revision of long-term wage growth forecasts from 4.0% to 3.7% p.a. to align with the 2023 Intergenerational Report. We also support the proposed period of transition to 31 December 2024 where providers can adopt either the existing default nominal wage inflation rate or the revised rate.

While more than 80% of people currently aged 65 to 74 live in their own home, many of these ‘asset rich cash poor’ retirees are living more frugally than they need to. In <i>More Than Just a Roof: Changing the Narrative on the Role of the Home<\i>, Andrew Boal argues that we should reconsider the role of the home as a fourth pillar of our retirement income system.

The Institute seeks a legislative remedy to address regulatory constraints which inappropriately restrict the provision of superannuation actuarial advice on certain matters. The constraints result in a growing risk that superannuation fund trustees and employer sponsors will be unable to obtain this advice from an actuary, and which are necessary to help superannuation fund trustees and employer sponsors support fund members’ interests.

The Institute supports the expected outcomes of the proposed amendments to SPS 114 and SPG 114, that is to better position RSE licensees to use the Operational Risk Financial Requirement actively for its intended purpose, while also simplifying its implementation. The Institute recommends further guidance in SPG 114 to support RSE Licensees to take an evolutionary approach to bringing the sophistication of integrated risk, capital and reserve management in the superannuation fund industry closer in line with the other APRA-regulated sectors (i.e., insurance and banking) over time.

The Institute broadly supports the position of the Australian Government Actuary that scheme-specific family law valuation methods and factors be based on more up-to-date actuarial assumptions. To support orderly implementation of the new family law valuation factors by 1 April 2025 and the Division 296 Tax, we urge that the revised default valuation factors, underlying assumptions and calculation methods are released on a targeted basis no later than 30 June 2024 and consider the need for transitional relief.

The Institute reiterates its support for initiatives such as this measure that aim to reduce superannuation tax concessions so that the retirement income system is more sustainable and equitable, and accordingly, we support the intent of this Bill. We note our continued concern with certain design elements of the Bill introduced into Parliament, notably the precedent introduced by the taxation of unrealised capital gains. We recommend the Government consider incorporating a statutory post-implementation review clause in the broader legislation. We also provide further technical comments for consideration.

The Institute supports the proposed amendments, which will correct a potential disadvantage that may arise when the holder of a capped defined benefit income stream undergoes a successor fund transfer from the transferor superannuation fund to the successor superannuation fund. To support the practical application of the amendments, we encourage Treasury to liaise with the Commissioner of Taxation so that a successor superannuation fund should not be required to submit revised transfer balance credit data in situations where they do not hold the data.

The Institute supports a transition to a targeted two-metric Test, with one metric as the existing Test metric and the other metric a measure of the product’s performance on a risk-adjusted basis. This single adjustment would meaningfully align the Test with a trustee’s overarching duty to act in the best financial interests of their members.

The purpose of this paper is to understand mortality trends in Australia by capturing cohort effects using the Continuous Mortality Investigation (CMI) model developed by the British institute of actuaries. In particular, we look at what can be expected in terms of future mortality improvements over the next few years by extrapolating explainable cohort effects in the Australian population. We compare life expectancies at retirement age using the Australian Life Tables 2015-2017 (ALT15-17) and scenarios of mortality improvements consistent with historic cohort effects observed in the Australian population. We discuss whether excess mortality in Australia in 2023 is a glitch caused by COVID-19 or the early sign of a more deeply rooted pattern of mortality improvement slowdown, such that has been observed in other countries. The research shows some headwinds are already noticeable in the pre-COVID-19 data and suggests the 25-year mortality improvement factors of the ALT15-17 are likely to be optimistic for the general population.

Research over the last three decades has concluded that life annuities should play a greater role in defined contribution (DC) retirement funds. That their role remains limited presents an “annuity puzzle”, which is frequently, but unsatisfactorily, explained by limited demand due to financial illiteracy and behavioural biases. Suppliers and regulators are, however, also boundedly rational, not necessarily moved by members’ interests, and may be conflicted. This paper investigates the market structure – and its main underlying narrative – that underlies the limited use of lifetime annuities in Australia by analysing published views and interviews with knowledgeable insiders. The narrative is that of financialization, which contributes to a narrow focus on liquidity and accumulation, conflicts between financial incentives and fiduciary duties, and a naïve view of regulation. The regulatory framework setting market rules is found to be intimidating overly complex, sometimes intrusive and dysfunctional. Trustees are restricted in their ability to innovate by investing in new products or by engaging more closely with members. Suggestions are made as how to shift the investment mindset and on designing more effective market rules.

We model the relation between excess returns, fund size and industry size for active equity funds within four markets – global equities, emerging markets, Australia core and Australia small caps – and use the results to investigate the extent to which funds deviate from estimated capacity. We uncover a significantly negative relation between returns and both fund size and industry size across all markets. The estimated percentage of funds operating above versus below capacity varies both across markets and over time, and in the role played by fund size versus industry size. We find greater prevalence of funds operating significantly below than above capacity, in contrast to findings for US equity mutual funds. Significant deviations from estimated capacity persist for a median of between two and six quarters. Our main contribution is to show that the dynamics governing deviations from capacity for active equity funds vary across markets.

The Institute reiterates its support for targeted initiatives such as this measure that aim to reduce superannuation tax concessions on very large balances so that the retirement income system is more sustainable and equitable. To address orderly implementation, we recommend the Committee consider the need for timely and sufficient consultation on the draft regulations and the benefits of incorporating a statutory post implementation review clause in the legislation after an initial period following commencement (for example, after 2 years).

The Institute supports the proposed amendments to the SIS Act and SIS Regulations to clarify the obligations of actuaries and auditors to report to the Regulator when the financial position of a superannuation entity is unsatisfactory. We recommend a further clarifying change be made to the SIS Regulations so that an opinion required on whether the financial position of a defined benefit fund may be about to become unsatisfactory be more appropriately made under a continuous test any time in the 3-year period, rather than at the end of the 3-year period.