31 October 2018

Address to the Financial Services Council Breakfast, Sydney


Thank you for that introduction and thank you to the Financial Services Council for inviting me.

As you know, there's a huge amount of activity occurring in Australia's financial services sector; the Royal Commission, drought support for our farmers, Open Banking, FinTech, Hammond reforms, credit reporting, a new external dispute resolution structure, the list goes on.

Given the scale of this activity, today I would like to focus my remarks on four key areas.

First, I would also like to update you on our Government's reforms in protecting the superannuation savings of millions of Australians. I will also announce three new measures to address some minor but important technical changes around superannuation and taxation.

Secondly, all of us here today have been studying the Interim Report from the Royal Commission to understand where the Commissioner is heading in his recommendations - I intend to say a few words about the Government's approach.

Thirdly and somewhat related, I will brief you on the direction the Government is taking in strengthening our regulators - the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

And finally, I want to update you on the Asia Region Funds Passport and our continued efforts in bringing about expanded opportunities for trade in financial services.

The common thread for all these issues is that they form part of the Government's plan for a stronger economy. And as part of that plan, we are working towards a stronger financial sector - one that delivers optimal outcomes for consumers.

More jobs, guaranteeing the essential services and a Government that lives within our means - that's our Government's economic plan.

We believe that a strong and accountable financial sector is a vital part of our plan for a stronger economy.

Some of you in small business will benefit from the Government delivering our tax relief five years earlier than planned,

Those changes will benefit 3.3 million businesses, who employ nearly seven million Australians.

Alternatively, Labor want to tax you more, so they can spend more. Bill Shorten's five point plan couldn't be clearer, more tax, more tax, more tax, more tax and more tax.

There is a clear choice between the Gov't and Oppn when it comes to fiscal disciplines and the road ahead.


Superannuation is a case in point.

Announced as part of the Budget earlier this year, the Protecting Your Super reforms are a significant step in delivering millions of Australians higher superannuation savings at retirement.

We are improving the superannuation regulatory system to protect Australians from the excessive fees, inappropriate insurance premiums and other inefficiencies which result from inadvertently holding multiple accounts.

For example, as some of you know, at June 2017, there were 28.6 million superannuation accounts in Australia.

According to the ATO, at June this year, 15.6 million people had accounts, meaning that around 39 per cent of people have more than one account.

And around 14 per cent of people had three or more accounts.

With such figures in mind, the Government introduced legislation that will:

  • empower the ATO to proactively reunite people's unclaimed, or low and inactive accounts with their active superannuation accounts where possible
  • cap certain fees for low balance accounts
  • ban exit fees on all accounts, and
  • require insurance be provided on an opt-in basis only for members with low balances or inactive accounts (without a contribution for 13 months or longer) and for new members who are under 25.

Let me give you a practical example; take someone like Liam.

Like many of us, he starts out his working life with a part-time job and ends up working four jobs over his career accruing four superannuation accounts.

Liam pays fees and insurance premiums on each account, eroding his inactive accounts, ending up with a balance at retirement of $397,000. 

The good news is that with lower fees, fewer insurance premiums and auto-consolidation through the ATO, Liam would have a retirement balance of $454,000 - a difference of $57,000.1

Based on the most recent data, our reforms are estimated to:

  • save around 7 million people more than half a billion dollars in fees
  • provide around 5 million individuals with the opportunity to save an estimated $3 billion in insurance premiums by choosing to opt-in to this cover, rather than paying for it by default..
  • reunite approximately $6 billion of unclaimed or inactive, low-balance superannuation with the active accounts of around 3 million individuals, in the first year of the package.

Technical changes

As you will recall, a couple of years ago, the Government passed reforms to improve the fairness, sustainability, flexibility and integrity of the superannuation system.

We continue our commitment to the smooth implementation of the superannuation taxation package to make sure that it remains fair and effective.

And today, I would like to announce three new measures to address some minor but important issues that affect retirees.

First, we are fixing the definition of life-expectancy period for innovative income streams to account for days in a leap year.

Second, we are providing transfer balance cap credits and debits for innovative income stream products that are paid-off in instalments.

And third, we are fixing the valuation of defined benefit pensions under the transfer balance cap to reflect when pensions are permanently reduced.

These are in addition to the three changes I announced yesterday.

First, I said we are moving to fix an error in the way that market-linked pensions are valued under the transfer balance cap when they are commuted or rolled over, resulting in a nil debit.

This nil debit is an issue because it doesn't accurately reflect the individual's transfer balance cap position, and may lead to an individual breaching their cap. The ATO has issued guidance to SMSFs on their approach to compliance on this issue, but the

Government is committed to finding a more permanent legislative solution to ensure that the value of a commuted market-linked pension is correct.

Second, we are amending the law to maintain the treatment of market‑linked pensions under the transfer balance cap where they have been rolled over as a result of a successor fund transfer.

Market-linked pensions rolled over or commenced after 1 July 2017 are not treated as capped defined benefit income streams under the transfer balance cap.

Because of this, market-linked pensions that are rolled over as a result of a successor fund transfer could lead to individuals inadvertently breaching their transfer balance cap. The measure I announced yesterday will ensure the new market-linked pensions that commence as the result of a successor fund transfer will continue to be treated as a capped defined benefit under the transfer balance cap.

And third, we will be changing the law to make sure that death benefits that include life insurance proceeds are not subject to tax when they are rolled over to a new superannuation fund.

The Government recognises this is anomalous with the tax treatment of death benefits taken out of superannuation and out of line with the policy that death benefits are tax free for dependants. This measure ensures that death benefit lump sums remain tax-free for dependants, even if rolled over within the superannuation system. 

The changes are technical in nature, yet they are sign that the Government is committed to improving integrity and fairness of the superannuation system.


Today I'm pleased to announce the Government is working with industry to develop a retirement income framework (RIF) that increases retirement income product choice for retirees.

The RIF will aim to facilitate the development and take-up of comprehensive innovative retirement income products, or CIPRs, that better manage longevity risk through risk pooling. These products would generally allow individuals to draw a higher income while retaining flexibility and reducing the risk of outliving their retirement savings.

The development of the first stage of the RIF, the retirement income covenant, was announced in the 2018‑19 Budget. A position paper outlining the proposed principles for the covenant was released in May.

The position paper indicated the Government proposed to legislate the covenant by 1 July 2019 to commence from 1 July 2020. It also indicated that CIPRs would be required to be offered to members will account balances over $50,000.

Based on feedback from consultation, the Government will make two changes to the retirement income framework. The Government will raise the threshold account balance from $50,000 to $100,000 and extend the timeframe for implementation so that trustees must have a retirement income strategy in place from 1 July 2020 but are not required to offer CIPRs until 1 July 2022.

By raising the threshold account balance, CIPRs will be required to be offered to those who will benefit most. By extending the transition period, the industry will gain more time to adjust to new requirements under the retirement income covenant and produce higher quality retirement products. This will lead to better outcomes for superannuation fund members.

Royal Commission

As I mentioned earlier, the Royal Commission has reached an important juncture in publishing its interim report.

Commissioner Hayne identified a number of key over-arching issues that emerged during the Commission's hearings, for example:

  • Some financial institutions putting their short-term pursuit of profits over the duties they owe customers and basic standards of honesty and fair dealing.
  • A sales culture, rather than a culture focused on good customer outcomes, which is driven by remuneration and incentive structures at all levels in some firms and for intermediaries.
  • That when misconduct was revealed, it either went unpunished or the consequences didn't reflect the seriousness. 
  • That more law is not the only answer: more often than not the misconduct was contrary to existing law.
  • Complexity of the law may be part of the problem, and simplification may be part of the solution.

The interim report has not made any recommendations - therefore, it is too early to start speculating on what the Government's response to the Royal Commission may look like.

Yet, there is an opportunity for the industry to use the Royal Commission as a catalyst for change and take into consideration what needs to occur so that such misconduct is not repeated.

I know many of you are well down that path. The Commission is required to provide a final report to the Government by 1 February 2019.

As you would expect, the Government will carefully consider the recommendations made by the Commission.


For example, we have made a number of changes to enhance our financial system regulators - ASIC and APRA.

Our regulators are well-regarded by their peers in other countries and by international standard-setting bodies and organisations That being said, we have been looking at ways to improve the regulatory framework, the capability and the powers of the regulators to ensure they can play a key role in rebuilding the community's trust in the financial system relating to conduct.


For example, we are providing the Australian Securities and Investments Commission with an additional $70 million of funding, significant new powers and appointed a second Deputy Chair with a key focus on enforcement action.

The Government has appointed a new Chair [James Shipton], who brings extensive regulatory and financial market knowledge to the role, as well as a new Deputy Chair [Daniel Crennan], and two new Commissioners [Danielle Press and Sean Hughes].

In the past week, we introduced landmark legislation to strengthen criminal and civil penalties for corporate and financial misconduct in response to the ASIC Enforcement Review Taskforce recommendations.

Criminal penalties for corporate and financial sector misconduct will double in some cases and civil penalties will increase by more than tenfold for corporations and more than fivefold for individuals.

We will also expand the range of contraventions subject to civil penalties and give the courts the power to seek additional remedies to strip wrongdoers of profits illegally obtained or losses avoided.

We believe the new penalty regime will enable ASIC to more effectively deter, prosecute and punish those who do the wrong thing.

Further to that, last week, I also invited comment on draft regulations on the financial product Design and Distribution Obligations and ASIC Product Intervention Power reform package, following the introduction of the primary legislation into Parliament in September.

The product intervention power, in particular, will enable ASIC to proactively address the risks of significant consumer detriment.

This follows legislation to enhance ASIC capabilities, by providing it with greater operational flexibility and making an express provision for ASIC to consider competition in its decision-making processes

I note the Government has agreed, or agreed-in-principle, to al$57,000l 50 ASIC Enforcement Review Taskforce recommendations.


The Government is also making sure that the Australian Prudential Regulation Authority has the resources and powers it needs to support a resilient and efficient financial system.

The Government has legislated to provide new powers for APRA to hold banking senior executives to account in the form of the Banking Executive Accountability Regime and created a second deputy chair position for APRA [John Lonsdale].

Asia Region Funds Passport

It has been a long road to this point, but we are close to having the Asia Region Funds Passport (Passport) up and running.

The Passport Bill, Regulations and Passport Rules officially started on 13 September.

And we are in the final straight with the Corporate Collective Investment Vehicle (CCIV) consultation on both the regulatory and tax frameworks drawing to a close.

I would like to acknowledge the Financial Services Council for being there for long haul.

It is important we get it right - and that takes time.

We have consulted extensively and we have been coordinating with other member economies to create a harmonised framework and launch the Passport in a coordinated way.

And the changes we are making to create a new corporate investment vehicle involve significant amendments.

This includes around two hundred pages of legislation that balances the need for an internationally recognisable vehicle with strong investor protections.

I am sure it will be worth the wait in bringing expanded opportunities for trade in financial services.

Ultimately, it means fund managers can offer products into the region without having to jump through approval hoops in each member economy.

It means our fund managers can attract investment from Asia's growing middle class.

And it means Australian consumers will have greater choice to invest in Asian assets through offshore funds.

Along with you, the Government is committed to making this initiative a success.

We agree that tax certainty for foreign investors in Australian funds is important to the success of the Passport and we are carefully considering the industry's request before making a final decision.

Closing remarks

I thank FSC once again for inviting me - and to everyone here for the opportunity to update you.

Obviously, I join you at a pivotal time for Australia's financial sector.

As I said at the start, our Government's believe that a strong and accountable financial sector is a vital part of our plan for a stronger economy.

We are taking a long-term view to protect the superannuation savings of millions of Australians.

The Royal Commission has exposed for all Australian's to see  conduct in some part of our financial institutions that has been totally unacceptable and wehave introduced significant reforms to better protect consumers, increase accountability and  bolster the powers of our regulators.

And, as I just said, we are in the final stages of delivering the Asia Region Funds Passport.There's a lot of activity taking place at the moment and I look forward to meeting with you all to discuss your priorities.

Thank you.

1 - This assumes Liam works part-time with a starting salary of $24,000 in 2019-20. A new account is opened with every new job, with default insurance cover. Assumes 7.5% returns, 0.85% investment fees, $66 annual fixed fees and $190 annual insurance premiums. Under the package, Liam will have fewer default insurance policies and as a result an insurance payout may be lower if an insured event were to occur. Balances at retirement are in 2019-20 dollars.