The developing COVID-19 scenario is stress testing the robustness of the governance structures, clarity of internal accountabilities and crisis management plans of all superannuation funds in a real time, rapidly changing, and highly unpredictable environment.

In response to the COVID-19 pandemic and the expected significant impact it will have on the economy, the Government announced a further stimulus package on 22 March 2020 to assist businesses and individuals.

The package includes two superannuation measures which have now been legislated: eligible members can get early release of superannuation of up to $20,000 tax-free; and retirees can reduce their pension or annuity drawdowns by up to 50 percent.

In addition, APRA and ASIC have largely suspended their regulatory agenda to ensure funds can prioritise operational excellence and members outcomes, and so that the regulators can focus on monitoring the impact of COVID-19 on the financial and operational capacity of funds. The notable exception is the remedial activities where ASIC’s focus is to accelerate remediation payments to customers.

The newly enacted measures, extreme market volatility and inevitable increase in unemployment (including in overseas operations), arising from COVID-19 will impact all areas of superannuation.

With a focus on operations, governance and risk, investment operations and insurance, KPMG’s Superannuation advisors are working with our clients to support them as they respond to COVID-19. We remain committed to helping out clients ensure their members’ best interests are protected in this challenging environment.

In considering the issues our clients are facing we believe the key implications and actions that should be considered by super funds in response to COVID-19 fall into three key areas – Administration and Operational Effectiveness, Investment Governance and Insurance.

Administration and operational effectiveness

Key implications

  • Implementation of recently enacted measures, including build of tax-free early access payments and changes to normal PAYG withholding arrangements.
  • Call centre support to manage the increase in call volumes and need for information whilst complying with financial advice limitations.
  • Operational support to manage increased member switching and early access payment processing (approximately 1.65 million Members may seek early access).
  • Responding to any impact on offshore operations including but not limited to staff being unable to work in safe / secure data facilities.
  • Balancing of BAU with the response to market and new enacted measures and the impact of staff challenges related to new ways of working.
  • Accelerate remediation activities.

Considerations to effectively respond in rapidly evolving environment

  • Increase resources to help review and manage the implementation of system and process changes needed to meet increased and more complex member demands.
  • Review and testing of Business Continuity Plans and Disaster Recovery Plans.
  • Review of how providers, particularly key outsource providers and offshore based services are impacted.
  • Review processes to accelerate remediation activities without compromising quality and member experience.
  • Review and re-prioritise fund programs / projects.
  • Provide additional training, support and scripting to the call-centre employees.
  • Uplift general advice outcomes for Members.
  • Implement additional controls for operations and call-centres to ensure continued delivery of core services without increasing risk.

Investment governance

Key implications

  • Ability to make efficient and quick investment decisions.
  • Impact on liquidity with further market volatility, increased withdrawals / switching and reduced SG contributions inflows.
  • Operationalisation of non-standard redemption process required to comply with liquidity.
  • Rebalancing challenges in light of illiquid investments and high sell spreads introduced by managers.
  • Need for out of cycle and more frequent unlisted asset valuations.
  • Impact of market losses on Deferred Tax Assets (DTA) and their treatment in unit pricing to achieve member equity (such as DTA capping).
  • Reporting and communication of investment performance.
  • Consideration of varying upcoming PAYG instalments.

Considerations to effectively respond in rapidly evolving environment

  • Review Investment Governance Framework and validate effective delegated decision making framework.
  • Review of current liquidity positions and further scenario testing to determine any response.
  • Undertake fund demographic and financial modelling and stress testing (including impact on cash flows, revenue, costs, membership and assets).
  • Implement changes to BAU rebalancing processes to manage the illiquid environment.
  • Review and enhance robust frozen fund governance and processes.
  • Review of Deferred Tax Assets Policy to ensure it remains appropriate and is effectively implemented.
  • Review of valuations frequency, processes and methodology including point estimates within the valuation range and macro-economic assumptions.

Insurance in superannuation

Key implications

  • Increase in insurance queries particularly where form of pandemic exclusions exist.
  • Application and implication (current and future) of pandemic exclusions.
  • Increase in insurance claims related directly to COVID-19.
  • Increase in unemployment resulting in an increase in disability claims (TPD and IP), in particular those associated with mental illness.
  • Unemployment may expose members to restrictive TPD definitions or reduced IP benefits.
  • Early access payment and increase in unemployment will cause upward pressure on insurance premiums, increasing account erosion.

Considerations to effectively respond in rapidly evolving environment

  • Review and update insurance product offering to take into consideration the changing environment, Member impacts and pricing implications.
  • Review claims management processes and resources to manage and respond to increase claims volumes without increasing risk.
  • Assess and model the erosion impact of default insurance arrangements given the early access payments and reduced contributions.
  • Develop and implement insurance data analytics to monitor emerging claims experience and changes to insured member demographics.
  • Review of insurance claims/complaints management processes to identify gaps or process improvements.

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