House Of Representatives

Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007

Explanatory Memorandum

(Circulated by the authority of the Minister for Revenue and Assistant Treasurer, the Hon Peter Dutton MP)

Chapter 2 Financial assistance

Outline of chapter

2.1 Schedule 2 to this Bill amends the SIS Act and the Financial Institutions Supervisory Levies Collection Act 1998 so that where a superannuation fund has suffered loss as a result of fraudulent conduct or theft that financial assistance is available on a more equitable basis. The amendments also abolish the Special Protection Account.

Context of amendments

2.2 Part 23 of the SIS Act provides a grant of financial assistance for certain superannuation entities that suffer loss as a result of fraudulent conduct or theft, subject to certain conditions.

2.3 In 2003, the Government announced a review of Part 23 and released a consultation paper seeking written submissions on the operation of Part 23 and the associated levy process under the Superannuation (Financial Assistance Funding) Levy Act 1993 . The Government released the outcomes of the review in 2004.

2.4 Following the review, the Government agreed to expand eligibility for financial assistance under Part 23 to ensure treatment is more equitable.

Summary of new law

2.5 These amendments will:

·
expand eligibility for financial assistance under Part 23 which will ensure that treatment is more equitable;
·
streamline the Part 23 application process to ensure that applications for financial assistance will be processed in a more efficient way; and
·
abolish the Special Protection Account as it is not used for the payment of financial assistance under Part 23.

Comparison of key features of new law and current law

New law Current law
A superannuation fund that is eligible for financial assistance under Part 23 at the time an eligible loss is suffered is not prevented from making a Part 23 application despite subsequently restructuring to a SMSF. In order to make an application for financial assistance under Part 23, a superannuation entity must meet the definition of 'fund' at three separate points in time.
A trustee of a superannuation fund may make an application for financial assistance on behalf of all beneficiaries of the fund at the time the loss was suffered (that is, both current and former beneficiaries of the fund). Former beneficiaries of a fund, who were beneficiaries at the time of the eligible loss, may not be entitled to financial assistance if they have transferred their savings to another fund or exited the superannuation system subsequent to the loss being suffered but before the application for assistance is made.
There will be equitable access to financial assistance under Part 23 irrespective of whether the fund is a defined benefit fund or an accumulation fund. The definition of eligible loss for a defined benefit fund and an accumulation fund differs so that a defined benefit fund must meet stricter criteria in order to obtain financial assistance.
Clarifies that any deficit in the fund arising from the failure to pay contributions is not covered under Part 23. The definition of eligible loss as it currently stands may include losses in the fund arising from the failure the pay contributions into the fund.
The Minister will be able to delegate certain administrative functions under sections 230 and 230A of the SIS Act to reduce the length of time taken to consider an application. Currently, the Minister does not have the ability to delegate administrative functions under sections 230 and 230A of the SIS Act.
The Special Protection Account will be abolished as it is not used for the payment of financial assistance under Part 23. There is Special Protection Account for the payment of financial assistance under Part 23.

Detailed explanation of new law

2.6 Part 23 of the SIS Act enables the trustee of a superannuation fund to apply to the Minister for a grant of financial assistance where the fund has suffered loss as a result of fraudulent conduct or theft.

2.7 These amendments commence from the date of Royal Assent.

2.8 Following on from a review into the operations of Part 23 a number of amendments are being made so that financial assistance is available under Part 23 on an more equitable basis. The amendments include:

·
removing the differences between the treatment of accumulation funds and Defined Benefit Funds (DBFs);
·
allowing former beneficiaries to obtain financial assistance under Part 23;
·
allowing funds which were eligible for Part 23 assistance at the time the loss was suffered but which subsequently restructured into SMSFs to obtain financial assistance; and
·
streamlining the Part 23 application process.

Abolishing the Special Protection Account (Items 1, 2 and 20)

2.9 The Superannuation Protection Account is a special account for the purposes of the Financial Management and Accountability Act 1997 . It was established to pay grants of financial assistance to superannuation funds which suffer losses due to theft or fraud, and to hold funds collected from the superannuation industry through the Financial Assistance Levy (FAL). In practice, the account has never been used as all grant payments and recoveries to date have been channelled through consolidated revenue. As there is no intention to change the current approach for the foreseeable future, the Superannuation Protection Account serves no practical purpose.

2.10 Item 1 removes a definition of Account in section 16 of the Financial Institutions Supervisory Levies Collection Act which refers to the Special Protection Account established by section 234 of the SIS Act. The Special Protection Account is being abolished with all payments of financial assistance under Part 23 of the SIS Act coming out of the Consolidated Revenue Fund, so the definition of Account is no longer required.

2.11 Item 2 repeals section 24 of the Financial Institutions Supervisory Levies Collection Act as it refers to the Special Protection Account in relation to how payments of levy, any late payment penalty and repayments of financial assistance are to be applied. The Special Protection Account is being abolished.

2.12 Item 2 substitutes the current requirements with one that states that if a levy is imposed as a result of a determination by the Minister to make a grant of financial assistance then amounts of the levy and late payment penalty in respect of the levy received by the Minister and repayments of the financial assistance must be paid to the Commonwealth.

2.13 Item 20 repeals sections 234, 235, 236 and 237 of the SIS Act as they make reference to the Superannuation Protection Account which is being abolished so that any future payments of financial assistance under Part 23 will come out of the Consolidated Revenue Fund.

Differences between defined benefit and accumulation funds (Items 3-5)

2.14 Items 3, 4 and 5 remove definitions relating to aspects of DBFs so that there will be greater equity in how accumulation funds and DBFs are treated for the purposes of claiming financial assistance under Part 23. These amendments are required to reduce the inequity currently present in the operation of Part 23. Under current arrangements, an accumulation fund must have suffered loss as a result of fraudulent conduct or theft in order to be eligible for financial assistance under Part 23. However, DBFs must meet a higher threshold in order to successfully claim financial assistance under Part 23.

2.15 For a DBF, an eligible loss is a loss resulting from fraudulent conduct or theft that an employer sponsor is required to pay to the fund, but would be unable to pay without becoming insolvent. This distinction in treatment between accumulation funds and DBFs creates inequity. The inequity between accumulation funds and DBFs is pronounced when considered in light of the funding arrangements in place for Part 23. All monies granted under Part 23 are recouped through a levy on industry. This levy does not remove, reduce or adjust the liability of DBFs in recognition of the limited availability of financial assistance for this type of fund.

Definition of eligible loss (Item 6)

2.16 Item 6 repeals the current definition of eligible loss in section 228 of the SIS Act and substitutes a new definition which clarifies that any deficit in the fund arising from the failure to pay contributions is not covered under Part 23.

2.17 It is appropriate that the SIS Act only provide financial assistance in circumstances where the fund trustee has assumed responsibility for the money. Therefore, the proposed amendment clarifies the intended scope of the framework under Part 23 by explicitly preventing losses being claimed that arise as a result of the failure to pay contributions. This ensures that, for both DBFs and accumulation funds, financial assistance should not be available to recompense loss arising from a failure of the employer-sponsor to meet its existing obligations to pay contributions to the fund.

Self managed superannuation funds (Items 7-9)

2.18 Item 7 repeals the definition of fund from section 228 of the SIS Act as it currently defines fund as not including SMSFs. Under these amendments, a fund which was a regulated superannuation fund at the time the loss was suffered but subsequently restructured to an SMSF will be eligible for financial assistance under Part 23. Therefore, the current definition of fund in section 228 is no longer required as a definition reflecting this change is inserted in section 229 of the SIS Act.

2.19 Item 8 inserts a new paragraph in section 229 of the SIS Act so that a fund that is a regulated superannuation fund (other than a SMSF) or an approved deposit fund (ADF) at the time of the loss is eligible for financial assistance under Part 23. This item clarifies that the superannuation entity must only meet the definition of fund at the time the loss is suffered.

2.20 Item 9 adds a subsection to section 229 of the SIS Act to clarify that as long as a SMSF met the requirements in subsection (1) at the time the loss was suffered, they will be eligible for financial assistance under Part 23.

Streamlining the Part 23 application process (Items 11 and 12)

2.21 Items 11 and 12 amend sections 230 and 230A of the SIS Act to enable the Minister to appoint a delegate and for that delegate to exercise certain administrative functions such as requesting additional information from the trustee submitting an application for financial assistance and requesting written advice from APRA in relation to an application for financial assistance.

2.22 In order to streamline the processing of applications, it will be beneficial if the Minister has the power to delegate certain administrative functions contained in Part 23, to address these concerns.

2.23 Specifically, the Minister or a delegate of the Minister will be permitted to make a written request for advice to APRA under section 230A(1) and make any requests for further information from the trustee under section 230.

Former beneficiaries (items 13, 16, 17, 18)

2.24 Item 13 amends section 231 of the SIS Act to ensure that the Minister may take into account the interests of former beneficiaries when determining the amount of financial assistance to be granted.

2.25 Under current section 231, if the Minister is satisfied that a fund has suffered an eligible loss, he or she must then determine whether the public interest requires that a grant of financial assistance should be made to the trustee for the purposes of the fund, and if so, the amount of the assistance. A risk exists that section 231, as it is currently formulated, may be construed as not allowing a grant which extends to former beneficiaries as 'the fund' is no longer maintained for their benefit.

2.26 Item 13 clarifies that the interests of former beneficiaries are relevant as the grant for financial assistance should be made to the trustee for the purposes of restoring the loss.

2.27 Items 16 and 17 amend section 233 to ensure that the trustee is able to make payments to former beneficiaries who were beneficiaries of the fund when the eligible loss was suffered.

2.28 Former beneficiaries, who were beneficiaries at the time of the eligible loss, may not receive entitlement to Part 23 assistance due to the time delay from when an eligible loss is suffered, the making of a Part 23 application and the grant of financial assistance. This may occur because the beneficiary has transferred their savings to another superannuation entity or they may have been forced to exit the system for reasons such as retirement, before a Part 23 application is made or subsequently granted.

2.29 It is inequitable to prevent former beneficiaries from receiving Part 23 financial assistance because they are no longer beneficiaries of the fund at the time the application or grant is made. 'Beneficiary' is defined in section 10(1) as 'a person ... who has a beneficial interest in the fund, scheme or trust'. Once a person has left a fund, in most circumstances, they will no longer have a beneficial interest in the fund and will therefore not be a 'beneficiary' for the purposes of the SIS Act. This amendment will ensure that former beneficiaries are included when payments of financial assistance are made under Part 23.

2.30 Item 18 adds a new subsection to section 233 so that trustees are able to determine and distribute payments to former beneficiaries without breaching their legal duties to current beneficiaries.

2.31 The conditions on Part 23 grants do not require the trustee to pay certain amounts to each beneficiary. Rather the trustee must pay the money into the corpus of the fund and it is then a matter for the trustee to determine how to distribute those funds between beneficiaries. But if trustees are required to make payments to former beneficiaries (subject to any condition the Minister may impose under paragraph (d) of section 233), this gives rise to potential conflicts with requirements imposed on trustees by the SIS Act, the general law and the governing rules to act for the benefit of beneficiaries.

Consequential amendments (items 10, 14, 15, 19, 21)

2.32 Item 10 makes an amendment to section 230 to accommodate the changes being made to the structure of the section by the introduction of new subsections.

2.33 Item 14 adds a new subsection to section 231 to state that the Minister may grant financial assistance to a SMSF if they satisfy the requirements in section 229. This item also includes a standing appropriation which is appropriate as the amount paid out for claims under Part 23 are wholly dependent on the number of applications. As this figure cannot be determined in advance, a standing appropriation is suitable.

2.34 This item also adds a subsection to clarify that the Consolidated Revenue Fund is to be used when making payments under Part 23 rather than the Special Account as it is being abolished.

2.35 Item 15 makes an amendment to section 233 to accommodate the changes being made to the structure of the section by the introduction of new subsections.

2.36 Item 19 repeals the current heading of Division 3 of Part 23 of the SIS Act and substitutes it with a new heading 'Repayment of financial assistance'.

2.37 Item 21 relates to the how claims made before and after the commencement of this Schedule are to be treated. If a loss is suffered by the fund before the commencement of this Schedule, but an application for financial assistance is made on or after the commencement of this Schedule, then the amendments will apply.

2.38 If an application for financial assistance in relation to an eligible loss was made before the commencement of this Schedule, the amendments being made by this Schedule do not apply.

2.39 This delineation between claims made before and after the commencement of this Schedule is required to create certainty for trustees submitting applications for financial assistance.

Regulation Impact Statement

Background

2.40 Superannuation is a key element of the Government's retirement incomes policy and its strategy to address the long-term consequences of an ageing population. The prudential regulatory framework for superannuation is set out in the Superannuation Industry (Supervision) Act 1993 (the SIS Act). This framework is designed to provide a high level of safety for the superannuation savings of all Australians and promote public confidence in the superannuation system.

2.41 The Government does not guarantee superannuation savings. However, in recognition of the compulsory nature of superannuation and its role in retirement income policy, the Government provides protection for superannuation fund beneficiaries that have suffered loss as a result of fraudulent conduct or theft. Part 23 of the SIS Act provides a clear framework for providing financial assistance to superannuation funds that suffer a loss as a result of fraudulent conduct subject to certain conditions being met.

2.42 Under Part 23, if a fund suffers an 'eligible loss' and the loss has caused a substantial diminution of the fund leading to difficulties in the payment of benefits, the trustee may apply to the Minister for Revenue and Assistant Treasurer for a grant of financial assistance. Eligible loss means losses resulting from fraudulent conduct or theft in superannuation funds regulated by the Australian Prudential Regulation Authority (APRA). Note that pooled superannuation trusts (PSTs) and self managed superannuation funds (SMSFs) are not eligible for Part 23 financial assistance.

2.43 All grants of financial assistance made under the Part 23 framework are firstly paid by the Government from consolidated revenue. The amount paid is then recovered from the superannuation industry through the imposition of the Financial Assistance Levy (FAL), which is applied to all APRA-regulated superannuation funds, including both DBFs and accumulation funds. SMSFs and PSTs are not levied.

2.44 The Government examined the issue of compensating fund members affected by fraudulent conduct or theft in superannuation funds in its October 2001 Issues Paper, 'Options for Improving the Safety of Superannuation'. The Superannuation Working Group that was appointed by the Government to examine and consult on the Issues Paper recommended in its final report that the Government review the operation of Part 23 of the SIS Act after the first decision to pay financial assistance had been made. The first decision to grant financial assistance under the provisions of Part 23 was made in June 2002.

Review of Part 23

2.45 The Government subsequently released the initial Consultation Paper 'Review into Part 23 of the Superannuation Industry (Supervision) Act 1993' on 4 June 2003. The Review sought comments from industry on:

·
the entities covered by Part 23;
·
what should constitute an eligible loss;
·
what should constitute a substantial diminution of a fund's assets;
·
the level of compensation;
·
whether post-retirement products should be eligible for compensation;
·
the process for determining applications; and
·
the funding of compensation arrangements.

Consultations

2.46 The paper sought submissions from the public by 1 August 2003 and eight written submissions were received from industry associations representing the superannuation industry, superannuation trustees, accountants, members of the public and APRA.

2.47 The Department of Finance and Administration and the Australian Taxation Office (ATO) were also consulted as part of the Review.

2.48 Comments from both industry stakeholders and Government agencies were generally supportive of proposals for change arising from the Review. Representatives from industry were particularly supportive of proposals for legislative amendment to promote equitable access to financial assistance under Part 23 for DBFs.

2.49 In relation to the definition of eligible loss, two submissions raised the possibility of including dishonesty in the definition. Adding an element of dishonesty was deemed unnecessary as it is central to the concept of fraudulent conduct. In addition, this would make the test for Part 23 more subjective and would require a much wider class of evidence to be considered.

2.50 In relation to the issue of what should constitute a substantial diminution of a fund's assets, some submissions suggest that a threshold should be used. These suggestions were not taken up to ensure flexibility and allow individual applications can be considered on a case by case basis.

2.51 In addition, the Government conducted an industry roundtable consultation with key stakeholders.

2.52 On July 7 2004, the then Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, announced that the Government accepted all the recommendations from the Review. The key findings of the Review included that:

·
a fund must be a regulated superannuation fund or an approved deposit fund, but not a SMSF, at the time a loss is suffered in order to be eligible for financial assistance under Part 23;
·
however, if individual members transfer into a SMSF, another regulated superannuation fund or an approved deposit fund after the loss is suffered, they are not precluded from applying for assistance;
·
the existing distinction between DBFs and accumulation funds for the purposes of Part 23 should be removed;
·
Part 23 should only cover losses suffered as a result of fraudulent conduct or theft; however, the legislation should be amended to clarify that any deficit in the fund arising from the failure of an employer-sponsor to pay contributions, is not covered under Part 23; and
·
a number of specific policy aspects of the current arrangements under Part 23 be retained.

2.53 A more detailed examination setting out the particulars of some of the outcomes can be found in the next section.

Outcomes of the Review

1. Ensure all beneficiaries of the fund at the time of the eligible loss are entitled to Part 23 financial assistance

2.54 Due to the time delay from when an eligible loss is suffered, to the time when a grant of financial assistance is made, former beneficiaries, who were beneficiaries at the time of the eligible loss, may not receive entitlement to Part 23 assistance. This occurs where beneficiaries have transferred their superannuation savings to another fund before a Part 23 application, and subsequently a grant of financial assistance, is made. Alternatively, they may have been forced to exit the system for reasons such as retirement.

2.55 The Government considered it inequitable to prevent former beneficiaries from receiving Part 23 financial assistance because they are no longer beneficiaries of the fund at the time the grant is made. As a result, the Government has committed to amend the SIS Act to ensure that a fund may make an application on behalf of all the members at the time the loss was suffered (that is, both current and former beneficiaries of the fund).

2. 'Eligible loss' fund restructures to an SMSF before making a Part 23 application

2.56 Difficulties in the operation of Part 23 have also occurred in the case of small APRA-regulated funds (SAFs) that have suffered an eligible loss ('eligible loss' funds) and subsequently restructured to become an SMSF before making a Part 23 application. As a result of this restructure, they are ineligible for Part 23 financial assistance because the current legislative provisions specifically exclude an SMSF from making an application for financial assistance.

2.57 The policy of Part 23 is that financial assistance is not available to SMSFs because all members are trustees and therefore responsible for the prudent operation of the fund and investment strategy. However, the Government considered it inequitable to preclude a superannuation fund that was eligible for Part 23 financial assistance at the time the loss was suffered, and that restructured to an SMSF arrangement before making an application, from applying for Part 23 assistance. The Government is committed to ensuring that a fund eligible for financial assistance under Part 23 is not precluded from making an application despite subsequently transferring to an SMSF.

2.58 In the case of Commercial Nominees of Australia Limited (CNAL), approximately 19 funds that were SAFs under the trusteeship of CNAL at the time of the eligible loss subsequently restructured to become SMSFs. As a result, these funds were ineligible to apply. The Government has provided financial assistance to some funds in this situation through an Act of Grace payment made under the Financial Management and Accountability Act 1997 (FMA Act). However, this is not considered an optimal solution, as the costs are subsidised by Government since it is not possible to recoup these costs through the FAL.

3. Distinction between accumulation funds and DBFs

2.59 The differential treatment of DBFs under the legislative criteria was raised by industry representatives during the consultation process. An accumulation fund must have suffered loss as a result of fraudulent conduct or theft in order to be eligible for financial assistance under Part 23. However, DBFs must meet a higher threshold in order to successfully claim financial assistance under Part 23. For a DBF, an eligible loss is a loss resulting from fraudulent conduct or theft that an employer-sponsor is required to pay to the fund, but would be unable to pay without becoming insolvent.

2.60 During the review consultation, stakeholders expressed concern that the existing legislation creates inequity by not recognising that a superannuation entity and its employer-sponsor are separate legal entities. It was submitted that the impact of losses arising from fraudulent conduct or theft should not be borne by the employer-sponsor, who has already paid contributions to the fund. The Government agreed that the SIS Act should be amended to remove the distinction between accumulation funds and DBFs. This would ensure a level playing field for DBFs and accumulation funds in relation to access to financial assistance.

Proposed Legislative Amendments

2.61 Part 23 of the SIS Act is being amended to ensure that the trustee of a fund may make an application for financial assistance on behalf of all beneficiaries of the fund at the time the loss was suffered (that is, both current and former beneficiaries). In addition, the SIS Act is being amended to ensure that a superannuation fund that is eligible for financial assistance under Part 23 at the time a loss is suffered is not prevented from making a Part 23 application despite subsequently restructuring to an SMSF.

2.62 Amendments to Part 23 of the SIS Act are also being made to remove the distinction between DBFs and accumulation funds for the purpose of defining what constitutes an eligible loss. This will ensure that both types of fund must meet the same threshold requirements in order to be eligible for financial assistance and will give clearer recognition to the employer-sponsor as a separate legal entity to the fund.

2.63 These amendments would ensure that the Part 23 framework operates in a more equitable manner.

Assessment of impacts (costs and benefits)

2.64 The main groups likely to be affected by the proposed amendments are superannuation funds and their respective trustees, members of APRA-regulated superannuation funds, employer-sponsors of APRA-regulated DBFs, the Government and the community.

Costs

Costs to superannuation funds and trustees

2.65 These amendments would require trustees of an APRA-regulated fund eligible for Part 23 financial assistance to ensure that all eligible beneficiaries (both current and former fund members), that were beneficiaries at the time of the eligible loss, receive their entitlement to financial assistance. It is expected that there will be some administrative costs involved in identifying and locating former beneficiaries as current arrangements under Part 23 do not allow financial assistance to be paid to these persons. These administrative costs are generally included in the grant of financial assistance, which is subsequently recouped from all members of APRA-regulated superannuation funds through a levy.

2.66 These amendments may potentially increase the number of determinations made under Part 23 (because the legislation will expand the eligibility criteria for DBFs and 'eligible loss' funds that subsequently restructure to an SMSF). This is not expected to increase the compliance costs associated with the administration of the levy because there is only one levy to recoup the aggregate of financial assistance granted in a financial year.

Costs to employer-sponsors of APRA-regulated DBFs

2.67 These amendments would not impose any direct costs on employer-sponsors of APRA-regulated DBFs.

Costs to members of APRA-regulated superannuation funds

2.68 These amendments would potentially increase the amount of the FAL levied on industry. Consequently the administrative costs payable on individual member accounts will also increase as trustees seek to recover the cost of the levy from members. However, given that any increase in levies would be spread over a larger number of members, the additional cost per member would be very small.

2.69 In addition, these amendments would potentially result in an increase in the number of applications. The increase in applications from DBFs is not expected to be significant. DBFs comprise a small proportion of the total superannuation market. As at 30 June 2006, there were 327,214 superannuation funds in total with 57 of these funds being DBFs. As a proportion of total assets, only 8.6 per cent (or $56.4 billion) of total superannuation assets were held by DBFs.

Costs to Government

2.70 The Government would incur costs in developing legislation. However, those time and resource costs are not expected to be significant.

2.71 These amendments may increase the administrative costs associated with processing Part 23 applications. There may be an increase in the number of applications from 'eligible loss' funds that have restructured to an SMSF before making an application or from DBFs.

2.72 However, the increase in applications is not expected to be significant. To date, there have been approximately 19 'eligible loss' funds that have been denied access to financial assistance under Part 23 because they restructured to an SMSF arrangement before making an application. These funds were compensated for lack of access to Part 23 financial assistance through Act of Grace payments made under the FMA Act. The total amount paid to the SMSFs was $155,931.69

Benefits

Benefits to community

2.73 Given the role of superannuation in the Government's retirement income policy, the compulsory nature of some superannuation savings and information asymmetries, it is essential that the community retain confidence in the safety of their superannuation savings. The proposal would also enhance public confidence by providing greater certainty and equity in the operation of Part 23.

Benefits to superannuation funds and trustees

2.74 APRA-regulated funds that suffer an eligible loss and restructure to an SMSF before making an application under Part 23 would benefit directly from the proposed legislative amendments. These amendments will result in a more equitable outcome for these funds that have inadvertently been denied access to financial assistance because they have restructured.

2.75 DBFs would benefit directly from legislative amendments that remove the additional eligibility requirements for DBFs seeking financial assistance under Part 23. Such amendments would improve the availability of financial assistance for DBFs, and would improve certainty by simplifying the process for seeking redress. These amendments are also expected to improve equitable treatment between DBFs and accumulation funds.

Benefits to employer-sponsors of APRA-regulated DBFs

2.76 These amendments directly reduce the employer-sponsor's exposure to costs, as the employer-sponsor would no longer be solely responsible for making up contributions lost due to fraudulent conduct or theft. The legislative amendments recognise that the employer-sponsor and the fund are separate legal entities and remove the potential liability for the employer-sponsor to make good losses suffered due to fraudulent conduct or theft.

2.77 In removing the employer-sponsor's potential liability to the fund, these amendments also increase certainty for the employer-sponsor regarding their obligations to make contributions to the fund.

Benefits to members of APRA-regulated superannuation funds

2.78 These amendments facilitate more equitable access to financial assistance in cases of fraudulent conduct or theft. By improving the certainty and security of the Part 23 framework, these amendments are also likely to increase confidence in the superannuation system. These amendments further reinforce that there is an effective safety net available when funds suffer losses as a result of fraudulent conduct or theft.

2.79 These amendments remove the legal impediments to the operation of Part 23 that prevent an equitable outcome for former beneficiaries and APRA-regulated funds that suffer an eligible loss and subsequently restructure to become an SMSF.

2.80 These amendments also ensure that members from both DBFs and accumulation funds have equitable access to financial assistance in instances of fraudulent conduct or theft. Currently the cost of financial assistance is recovered through the imposition of levies on both DBFs and accumulation funds. However, members of DBFs do not have the same access to financial assistance.

2.81 Improving access to the financial assistance provisions for DBFs may also impact on the financial viability of such funds, making it less likely that a DBF would be wound up in favour of an accumulation fund.

Benefits to Government

2.82 Improved confidence in the superannuation system is likely to result in more willingness to save for retirement. This would assist the Government in achieving its retirement income goals.

Implementation and Review Strategy

2.83 The amendments will take effect for all applications lodged under Part 23 of the SIS Act after the date of Royal Assent. As drafted, the proposed amendments will implement this.

Review strategy

2.84 The Government will continue to monitor the operation of Part 23 in respect of any new applications for financial assistance after the amendments have been implemented and will liaise with APRA and industry on issues relating to:

·
the number of applications received;
·
the type of funds submitting applications; and
·
the processing of applications.


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