House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Ralph Willis, MP)

SUPERANNUATION INDUSTRY (SUPERVISION) AMENDMENT BILL 1995

GENERAL OUTLINE AND MAIN PURPOSE OF THE BILL

The Bill will amend the Superannuation Industry (Supervision) Act 1993 (the 'SIS Act'), the

Superannuation (Resolution of Complaints) Act 1993 (the 'SRC Act'), the Superannuation Entities (Taxation) Act 1987 (the 'SET Act'), the Insurance Act 1973 and the Life Insurance Act 1995 .

The Bill has four main purposes:

•

expanding the jurisdiction and improving the effectiveness of the Superannuation Complaints Tribunal;

•

transferring various modification orders made by the Insurance and Superannuation Commissioner (the Commissioner) into the body of the SIS Act;

•

requiring audits of superannuation entities to cover compliance with certain provisions of the SIS Act and the Regulations;

•

making other miscellaneous amendments to the SIS Act, the SRC Act and the SET Act, primarily aimed at improving the effectiveness and efficiency of those Acts and the system of prudential supervision of the superannuation industry.

Summary of major SIS Act amendments

The Bill will make the following amendments to the SIS Act:

•

amend the definition of 'independent director' in the Act so that a director appointed to the board of a corporate trustee (where the corporate trustee is also an employer-sponsor of the fund) is not regarded as an associate of the employer-sponsor simply because of the director's appointment to the board [replaces Temporary Modification Declaration No. 9 issued by the Commissioner];

•

exempt certain funds (generally those funds where the members have a close association with each other or the trustee) with less than 5 members from being a public offer superannuation fund [replaces Temporary Modification Declaration No. 7 issued by the Commissioner];

•

allow the Commissioner to impose conditions when declaring a fund not to be a public offer fund;

•

allow the Commissioner to vary the requirements which apply to approved trustees of public offer entities [replaces Temporary Modification Declarations Nos. 4 and 17 issued the Commissioner];

•

amend section 36 so that copies of audit certificates, rather than originals, have to be provided to the Commissioner when an annual return is lodged [replaces Temporary Modification Declaration No. 15 issued by the Commissioner];

•

allow an approved deposit fund to become a regulated superannuation fund without losing its taxation concessions [replaces Temporary Modification Declaration No. 18 issued by the Commissioner];

•

amend section 62 (the 'sole purpose test') to make it clear that superannuation funds do not have to provide the same types of benefits to all members;

•

requiring persons other than trustees or insurers who have responsibility for determining the existence and extent of total and permanent disablement and are joined to a disability complaint by the Superannuation Complaints Tribunal (the Tribunal) to comply with the Tribunal determinations. This will enable the Commissioner to obtain injunctions from the Federal Court, or the Supreme Court of a State or Territory, in the event of non-compliance with such a determination;

•

amend Part 8 (in house asset rules) to allow the Commissioner to determine a person to be a standard employer-sponsor for the purposes of Part 8 (and thus restrict fund investments in that person);

•

amend the equal representation rules to provide for transitional rules when a fund changes in size from having less than 5 members to 5 or more members;

•

allow a trustee who is an employer-sponsor of a fund to be considered an independent trustee in certain circumstances [replaces Modification Declaration No. 1 issued by the Commissioner];

•

amend section 101 of the SIS Act so that those persons who can complain to the Tribunal under section 14 of the SRC Act have the right to complain to the trustee under section 101 of the SIS Act;

•

require that all investments by superannuation entities are maintained on an arms length basis;

•

provide that a statement of cash flows must be prepared for superannuation entities and allow auditor's reports to relate to more than the 'accounts and statements' currently referred to in Part 13 [replaces Temporary Modification Declaration No. 13 issued by the Commissioner];

•

require the auditor's report to include the auditor's opinion on the compliance of the entity with specified provisions of the SIS Act and the Regulations;

•

amend section 117 so that the restrictions on payments from funds to standard employer- sponsors also apply to former standard employer-sponsor funds and in respect of former standard employer-sponsors;

•

amend section 117 so that the requirements for actuarial certification and trustee satisfaction that a payment to a standard employer-sponsor is reasonable apply irrespective of the fund's trustee structure;

•

prohibit 'disqualified persons' from being 'responsible officers' of bodies corporate which are trustees, investment managers or custodians of superannuation entities;

•

allow the Commissioner to waive, where it is appropriate to do so, the disqualified persons provisions applying to trustees, responsible officers of trustees, investment managers and custodians [replaces Temporary Modification Declaration No. 14];

•

clarify the circumstances in which an auditor may be disqualified and in which an auditor or actuary must tell the trustee if they believe that there is a contravention of the Act or that the financial position of the entity is, or may become, unsatisfactory;

•

allow the Commissioner to refer an actuary or auditor to a professional body for disciplinary action;

•

expand the ability of an inspector to require assistance/information from persons so they can seek assistance from former 'relevant persons' (such as the former trustee or former auditor) as well as current relevant persons, and other persons who may be able to assist an inspector in any investigation of an entity;

•

make the SIS Act consistent with terminology relating to official management used in Part 5.3A of the Corporations Law ;

•

amend section 313 to allow the Commissioner to make an application to the Court for an order to be made against a trustee for the protection of beneficiaries, without the need for an investigation, prosecution or civil proceeding to have begun;

•

amend the definition of superannuation standards officer and section 346, regarding the role of the Australian Bureau of Statistics in collecting survey information;

•

provide that a trustee that pays certain benefits to a bankruptcy trustee in the event of the member's bankruptcy will not breach the Act.

Summary of major SRC Act amendments

The Bill will make the following amendments to the SRC Act:

•

enable the Tribunal to review and make determinations in respect of insurer decisions relating to death and disability benefits provided through regulated superannuation funds;

•

enable the Tribunal to provide appropriate remedies (eg, cancellation or variation of the policy or repayment of moneys with interest) where it determines that the decision of the trustee to admit a person as a member of the fund (after the date of Royal Assent) where that member is covered by a life policy maintained by the trustee for the purposes of the fund was unfair or unreasonable (conduct by an insurer or representative of the insurer will be relevant for the Tribunal in making its determination in this regard);

•

enable the Tribunal to review life office conduct and decisions in relation to the sale and management of superannuation related-annuity products acquired after Royal Assent;

•

allow the Tribunal to review decisions as to whether and to what extent a person is totally and permanently disabled that are made by certain persons other than a trustee or insurer;

•

exclude disability complaints where more than one year has elapsed since the decision to which the complaint relates, or where the trustee decision was taken before 1 November 1994, or where a person fails to lodge a claim for a disability benefit with the trustees within one year of permanently ceasing employment due to disability;

•

amend section 22 of the SRC Act to remove the requirement for the Tribunal to establish that a complaint has been dealt with 'adequately' by the other complaint handling body;

•

amend section 23 of the SRC Act so that a person with a disability can only be represented by an agent where the disability is of a kind that makes it necessary for the person to be represented by an agent and so that bodies corporate (like complainants) cannot as a matter of course have agent representation at the Tribunal;

•

clarify that certain provisions relating to complaints about benefit payments, only apply to complaints about death benefit payments;

•

where a complaint has been made in relation to a death benefit payment, require other persons who have an interest in the outcome of a complaint to be notified and given the opportunity to become a party to the complaint;

•

allow the appointment of a Deputy Chairperson and two additional part time members to assist the Tribunal in dealing with the increased volume and complexity of complaints that is expected to occur following these amendments.

Amendment to the SET Act

The Bill will make a minor technical change to this Act to correct a drafting error.

Amendments to the Insurance Act 1973

The Bill will make amendments to the Insurance Act 1973 requiring general insurance companies to comply with determinations of the Tribunal and enabling the Commissioner to apply to the Federal Court for an injunction in the event of non-compliance with such a determination.

Amendments to the Life Insurance Act 1995

The Bill will make an amendment to the Life Insurance Act 1995 requiring life offices to comply with determinations of the Tribunal. The Commissioner will be able to apply to the Federal Court for an injunction under section 235 of the Life Insurance Act 1995 , in the event of non-compliance with such a determination.

FINANCIAL IMPACT STATEMENT

The proposed amendments provide for the creation of a deputy chairperson and two part time

members of the Superannuation Complaints Tribunal. In a full year, the cost of these positions is estimated to be about $270,000, of which about $223,000 is salary or salary related costs.

In addition , a resource bid will be brought forward for consultation as required with the Department of Finance, in the additional estimates process. The full year cost of the bid is expected to be of the order of $500,000, of which $340,000 would be for salary or salary related costs.

Further 'one-off' costs, including a new case management system, would be a further $210,000.