Explanatory StatementIssued by the authority of the Assistant Treasurer
Superannuation Industry (Supervision) Act 1993
Superannuation Industry (Supervision) Regulations (Amendment)
The Superannuation Industry (Supervision) Act 1993 (the Act) and the Superannuation Industry (Supervision) Regulations (the Principal Regulations) provide for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.
Section 3-53 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.
The purposes of these Regulations are to amend the Principal Regulations to implement certain minor amendments to improve the efficiency and effectiveness of the regulatory framework for superannuation and to make miscellaneous technical refinements to the Principal Regulations. The amendments have been prepared in light of administrative experience and/or industry representations. All amendments are 'stand alone' and relatively minor in nature. In summary, the Regulations:
- include in the definition of 'reviewable decision', a decision by the Insurance and Superannuation Commissioner under regulation 12.08 of the Principal Regulations to specify a deadline for a fund trustee to make an application for a pre-1 July 1988 funding credit (Regulation 3);
- make changes to Schedule 1AA of the Principal Regulations which lists those Commonwealth, State and Territory public sector superannuation schemes which are exempt public sector superannuation schemes (ie, exempt from the provisions of the SIS Act and the Superannuation (Resolution of Complaints) Act) (Regulations 4, 20 and 21);
- insert into the body of the Principal Regulations, the substance of Modification Declaration No. 20 (MD 20), which was effective from 17 February 1997. MD 20 allows trustees of regulated superannuation funds and Approved Deposit Funds (ADFs) to give a charge over the assets of the fund in relation to derivatives transactions (Regulations 6, 18 and 19);
- provide that certain fund documents be given on request to a concerned person or an employersponsor (Regulation 7);
- restrict the application of the provision of disclosure of information regarding the existence and functions of the Superannuation Complaints Tribunal to cases of 'complaints' only (Regulations 8, 9 and 10);
- provide that a decision by a delegate of the trustee who has been properly delegated by the trustee to make such decisions is valid without requiring a two-thirds majority of a trustee board (Regulation 11);
- permit the arrangement for Deferred Annuities to provide reversionary annuities (Regulation 12);
- provide that fund trustees may treat certain benefits as unrestricted nonpreserved benefits under the Principal Regulations (unrestricted non-preserved benefits are benefits which the fund member can access anytime) (Regulations 13, 14 and 15); and
- enable a trustee to pay up to two lump sums for compulsory cashing of benefits: an interim payment of a portion of the benefit when the member's entitlement arises and the remainder of the benefit when finally ascertained (Regulations 16 and 17). The Regulations are described in detail in the Attachment.
The regulations will commence on gazettal, except for Regulation 15 which will commence on 1 November 1998.
Regulation 1 provides that Regulation 15 commences on 1 November 1998. The remainder of the Regulations commence on gazettal.
Regulation 2 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.
Regulation 3 amends the definition of 'reviewable decision' in subregulation 1.03(1) of the Principal Regulations to include a decision by the Insurance and Superannuation Commissioner under regulation 12.08 of the Principal Regulations to specify a deadline for fund trustees to make an application for a pre-1 July 1988 funding credit for the purposes of taxation of fund contributions. This provides for a decision under regulation 12.08 to be subject to a review by the Administrative Appeals Tribunal-
The regulation amends subregulation 1.04(4D) and adds subregulation 1.04(4E) to specify the years of application of Part 3 of Schedule 1AA of the Principal Regulations. The Schedule lists those Commonwealth, State and Territory public sector superannuation schemes which are 'exempt public sector superannuation schemes' (ie, exempt from the provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation (Resolution of Complaints) Act 1993).
The Regulation deletes subregulation 2.08(2) of the Principal Regulations. Subregulation 2.08(2) contains specific exceptions from the requirement for fund trustees to provide information to prospective members in certain cases. Subregulation 2.08(2) appears to be superfluous as the exceptions provided by it are already contained in section 157 of the SIS Act.
Regulation 2.29 of the Principal Regulations requires trustees of superannuation fund to give to each member of the fund items of information as prescribed in the regulation so far as they are applicable.
Subregulation 6.1 amends subregulation 2.29(1) by inserting new paragraph (ga) to require the trustee to inform members of the fund if the derivatives charge ratio of the fund exceeds 5% at any time during the fund reporting period.
Subregulation 6.2 inserts new subregulations 2.29(5) and (6).
Subregulation 2.29(5) inserts a definition of 'derivatives charge ratio' for the purposes of paragraph 2.29(1)(ga). The ratio represents the market value of the assets of the fund (other than cash) that are subject to a charge in relation to a derivatives contract as a proportion of the market value of all the assets of the fund.
Subregulation 2.29(6) requires the fund trustee to inform the Insurance and Superannuation Commissioner, as soon as practicable, and in any event within six months after the end of the reporting period, if the derivatives charge ratio of the fund exceeds 5% during the fund reporting period,
At present, subregulation 2.41(2) of the Principal Regulations provides that particular documents, such as the governing rules and the most recent actuarial report of the superannuation entity, need not be given on request to a ' person', if the person is not a 'concerned person'. A 'concerned person' is defined in subregulation 2.40(3) as a person who is, or was within the preceding 12 months, a member of the superannuation entity or is a beneficiary.
As employer-sponsors may wish to make a decision as to whether to continue contributing to the superannuation entity, it is reasonable to provide employersponsors with access, on request, to the governing rules of the entity and financial information on the entity.
Therefore, subregulation 2.41(2) is amended to provide the exception that the above documents need not be given to a person other than a concerned person or an employer-sponsor. By implication, the documents specified in subregulation 2.41(1) would therefore be given on request to a concerned person or an employer-sponsor.
The Regulation amends the heading of Division 2.6A to reflect the application of the Division to complaints only, as amended by Regulations 9 and 10 below.
Regulations 2.41A and 2.41B of the Principal Regulations are amended to overcome a drafting error which impedes the policy intent of the regulations and creates inconsistency between the Principal Regulations and the Retirement Savings Accounts Regulations.
The intention of regulations 2.41A and 2.41B is to require the disclosure of information regarding the existence and functions of the Superannuation Complaints Tribunal only where a complaint is made to the fund (under section 10-1 of the SIS Act). However, the Principal Regulations were drafted to require this disclosure to occur where both inquiries and complaints are made to the fund. The amendments will restrict the application of these regulations to 'complaints' as originally intended.
Subregulation 4.08(3) of the Principal Regulations provides that, where equal representation applies, a decision of individual trustees or the board of directors of the corporate trustee of a standard employer-sponsored fund must be taken not to have been made, or to be of no effect, if fewer than two-thirds of the total number of trustees or directors, as the case requires, voted for it.
The effect of the application of subregulation 4.08(3) is that trustees of standard employer-sponsored funds are prevented from delegating their decision-making functions and powers, even where such delegation is permitted under the governing rules of the fund and under relevant trust statute and case law. This does not affect trustees of other funds and the consequence is unintended.
Therefore, subregulation 4.08(2) of the Principal Regulations is amended to provide that, notwithstanding the provision of subregulation 4.08(3), a decision by a delegate of the trustee who has been properly delegated by the trustee to make such decisions is valid without requiring a two-thirds majority.
A 'deferred annuity' (DA) is an annuity which defers benefit payments until a future date after purchase.
The definition of 'deferred annuity' in subregulation 5.01 (1) currently requires the payment of benefits from a DA to commence as soon as the annuitant dies, thereby not allowing for a DA to revert to a reversionary annuitant with payments commencing at a future date.
The Regulation amends the definition of DA by providing that the terms of a DA ensure that payment of benefits commences not earlier than the time when the benefits are permitted or required under the Principal Regulations to be paid and as soon as practicable after the annuitant attains (or, if the annuitant has died, would have attained) age 65.
The amendment thus permits the terms of a DA to defer benefit payments to a reversionary beneficiary, on the death of the annuitant, until the time the annuitant would have attained age 65.
Regulation 13 inserts in subregulation 6.01(2) a definition of 'transitional period' which, in relation to a superannuation fund, is a period beginning at the beginning of the fund's 1994-95 year of income and ending, in the case of a public sector scheme, when the scheme became an exempt public sector superannuation scheme, or in the case of other superannuation funds, at the end of the day when the fund trustee lodges a fund's election notice to become regulated under the SIS Act.
The purpose of the transitional period is to limit the application of the provision for deeming certain benefits to be unrestricted non-preserved benefits introduced by Regulations 14 and 15 (see below) to the transitional period only.
At present, certain benefits which are or were in a fund subject to the Occupational Superannuation Standards (OSS) legislation, but which could be deemed to be 'unrestricted non-preserved' benefits under the Principal Regulations would be treated as restricted non-preserved benefits and cannot be accessed until there is another condition of release (unrestricted non-preserved benefits would have satisfied a condition of release and have a 'nil' cashing restriction, that is the benefits would be accessible at any time by the SIS fund member). This is because there is no category of benefits in the OSS legislation equivalent to 'unrestricted non-preserved' benefits in the Principal Regulations. If those benefits in the OSS fund were later rolled over ,or transferred into a SIS regulated fund, they would still be treated as restricted nonpreserved benefits.
To overcome such cases of inconsistencies which currently arise between the treatment of non-preserved benefits under the OSS legislation and the SIS legislation, an amendment is inserted in the Principal Regulations.
Regulation 6.15A is inserted to provide that benefits in a superannuation fund, or an approved deposit fund may be treated as unrestricted non-preserved benefits under the Principal Regulations if the trustee is reasonably satisfied that:
- during the transitional period (defined in subregulation 6.01(2), see Regulation 13 above) of the superannuation fund, there arose in relation to the benefits, a circumstance that would have resulted in the satisfaction of a condition of release and a 'nil' cashing restriction had the Principal Regulations applied; or
- if the benefits were rolled over or transferred from another superannuation fund (Fund A) during its transitional period,
- and during that transitional period there arose, in relation to the benefits, a circumstance that would have resulted in the satisfaction of a condition of release and a 'nil' cashing restriction had the Principal Regulations applied; or
- and the benefits themselves were rolled over to Fund A, during its transitional period, from a regulated superannuation fund or approved deposit fund, the relevant cashing restriction in respect of the benefits in the regulated superannuation fund or approved deposit fund was nil (that is the benefits have satisfied a condition of release and have no cashing restriction); or
- if the benefits were rolled over or transferred into the fund via a SIS regulated superannuation fund or approved deposit fund from another superannuation fund (Fund B) during its transitional period, the conditions and restrictions on benefits in b)(i) or (ii) above applied to the benefits in Fund B as would apply to those in Fund A.
Regulation 15 inserts subregulation 6.16(3) to provide that a trustee of a fund may alter the category of benefits in a fund from preserved benefits to unrestricted nonpreserved benefits for benefits that were subject to similar conditions of release and cashing restrictions to those under regulation 6.15A but were rolled over or transferred before the commencement of regulation 6.15A.
The Regulation provides an exception to the restriction on fund trustees altering the category of benefits so as to increase the amount of a member's unrestricted nonpreserved benefits.
The Regulation commences on 1 November 1998 to allow fund trustees approximately six months to make any necessary changes to the preservation status of member benefits.
Subregulations 6.21(2) and 6.25(2) of the Principal Regulations are amended to enable respectively a trustee of a superannuation fund or an approved deposit fund (ADF) to pay up to two lump sums for compulsory cashing of benefits: an interim payment of a portion of the benefit when the member's entitlement arises and the remainder of the benefit when finally ascertained.
The Principal Regulations currently provide that, unless taken as a pension or annuity, superannuation benefits must be cashed as a single lump sum only.
Where a benefit in a fund is cashed and the fund's actual earning rate is not yet known for the period since the fund's last balance date, a fund's estimated earning rate is generally used to calculate the benefit for that period. If the estimated earning rate is lower than the actual earning rate, the earnings of a member who cashed his or her benefit according to the interim rate will be lower than the earnings of a member who has retained his or her benefit in the fund. This could lead to inequities between members.
Alternatively, the trustee can delay paying the single lump sum until the actual earning rate is known. In some circumstances, on the death of a member, the member's dependants may face financial hardship as a result of having to pay bills, and may be without income for a period until the benefit is paid.
Under regulation 13.14, it is an operating standard, subject to regulation 13.15, that regulated superannuation funds must not give a charge over, or in relation to, an asset of the fund. With the introduction of the exception to the standard in regulation 13.15A below, regulation 13.14 is amended to include the exception in regulation 13.15A.
At present, regulation 13.14 of the Principal Regulations prohibits trustees of regulated superannuation funds and ADFs from giving a charge over an asset of the fund. However, this prohibition was temporarily lifted by Modification Declaration No 20 issued by the Insurance and Superannuation Commissioner on 17 February 1997. Regulation 19 incorporates the Modification, with some amendments, as Regulation 13.15A, into the body of the Principal Regulations. Modification Declaration No 20 will be revoked after Regulation 19 comes into effect.
Regulation 13.15A is inserted into the Principal Regulations to provide that a trustee of a regulated superannuation fund or an ADF may give a charge over the assets of the fund in relation to derivatives contracts entered into on Australian, and certain specified foreign, stock exchanges or futures exchanges or clearing houses.
Subregulation 13.15A(1) provides that the trustee of a fund may give a charge over, or in relation to, an asset of a fund if the charge is given to comply with the rules of an 'approved body' (defined in subregulation 13.15A(2)). The trustee may only give a charge if the fund has in place a risk management statement and that the investment to which the charge relates is made in accordance with the risk management statement.
Subregulation 13.15A(2) prescribes, for the purposes of subregulation 13.15A(1), the names or types of bodies as approved bodies whose rules require the performance of obligations in relation to the derivatives contract to be secured.
In addition, subregulation 13.15A(2) defines 'derivative' and 'derivatives contract'. A derivatives contract means an option contract or futures contract relating to any right, liability or thing, including in particular an option contract or futures contract as defined in sections 9 and 72 respectively of the Corporations Law or an agreement to which section 72A or 92A of the Corporations Law applies.
Subregulation 20(1) replaces the heading of 'Schemes established by or under' wherever it occurs in the Schedule with 'Schemes established by or operated under' to recognise that the original legislation establishing some public sector schemes has been repealed or replaced.
Subregulation 20(2) inserts the name of the Defence Act 1903 into the Schedule to correct the list of Commonwealth exempt public sector schemes from the years 1994-95.
This Regulation substitutes a new Pan 2 applicable to the 1996-97 year of income, and inserts Part 3 into Schedule 1AA, applicable to 1997-98 year of income and subsequent years of incomes. Part 3 and the new Part 2 remove from the list of exempt public sector superannuation schemes from the years 1997-98, schemes established by or under, in respect of Victoria, the Port of Geelong Authority Act 1958 and the Port of Melbourne Authority Act 1958, and in respect of Queensland, the Government Officers' Superannuation Scheme (GoSuper), the Police Superannuation Fund (Police Super), the State Service Superannuation Fund (State Super) and the Queensland Fire Service Superannuation Plan.
The Regulation also replaces the name of the New South Wales Superannuation Administration Act 1991 with the Superannuation Administration Act 1996 from the year 1996-97 and the name of the Victoria Director of Public Prosecutions Act 1994 with the Public Prosecutions Act 1994.