Explanatory Statement

Issued by authority of the Minister for Revenue and Assistant Treasurer

EXPLANATORY STATEMENT

Subject - Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 6)

Section 353 of the Superannuation Industry (Supervision) Act 1993 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The purpose of these Regulations is to make drafting and technical changes to provisions relating to superannuation and family law and portability of superannuation.

The Family Law Legislation Amendment (Superannuation) Act 2001, which commenced on 28 December 2002, provides for superannuation to be split upon marriage breakdown. Consequential amendments have also been made to a range of legislation, including the Superannuation Industry (Supervision) Regulations (the SIS Regulations). In relation to the SIS Regulations, the consequential amendments were in the Superannuation Industry (Supervision) Amendment Regulations 2001 (No. 3) (SR 2001 No. 353) and the Superannuation Industry (Supervision) Amendment Regulations 2002 (No. 5) (SR 2002 No. 353), both of which commenced on 28 December 2002.

Consultations with industry since the amendments commenced have disclosed several technical and drafting issues. These Regulations address those issues.

The Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5) come into effect on 1 July 2004 and amend the Superannuation Industry (Supervision) Regulations 1994 to provide for superannuation benefits to be portable.

These regulations make a technical amendment to the Superannuation Industry (Supervision) Regulations 1994 as amended by the Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5), to allow the provisions relating to the portability of superannuation benefits to operate as originally intended.

Details of the Regulations are set out in the Attachment.

The Regulations relating to superannuation and family law commenced on gazettal. The Regulations relating to portability of superannuation benefits commenced on 1 July 2004.

Attachment - Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 6)

Explanation of the amendments

Regulation 1 - specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 6).

Regulation 2 - provides that:

·
the regulations relating to splitting superannuation upon marriage breakdown (Regulations 1 to 3 and Schedule 1) commenced on the date of notification in the Gazette; and
·
the regulations relating to portability (Schedule 2) commenced on 1 July 2004.

Regulation 3 - provides that:

·
Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 (the Principal Regulations); and
·
Schedule 2 amends the Principal Regulations as amended by the Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5).

Schedule 1 - Amendments commencing on gazettal

Item 1 amends the definition of 'transferable benefits' in subregulation 1.03(1). Paragraph (c) of the definition is relevant when a family law agreement or order specifies that a certain percentage of each payment from a member's superannuation must be paid to the member's former spouse. The trustee of the member's superannuation fund may (under Part 7A of the Principal Regulations) roll over or transfer an amount representing the former spouse's entitlement to another superannuation fund for the former spouse. The amount to be transferred (the 'transferable benefits') is the amount of the interest multiplied by the specified percentage. The method for determining the amount of the interest depends on the type of interest. The amendment ensures that the trustee uses the appropriate method for an interest in a self managed superannuation fund or a partially vested accumulation interest.

Items 2 and 3 also amend the definition of 'transferable benefits' in subregulation 1.03(1). Part 5 of the Family Law (Superannuation) Regulations 2001 (the FLS Regulations) contain methods for the Court to use to determine the value of a superannuation interest before making an order to split the interest. These amendments remove any doubt that the trustee should use the methods in the FLS Regulations for the purpose of determining how much to roll over or transfer for the member's former spouse.

Item 4 corrects a referencing error.

Items 5 and 6 amend the trustee's obligations to report significant events to the former spouse of a member. If the member lodges a binding death benefit nomination (under regulation 6.17A) in favour of a child of the member, the amended regulation would require the trustee to report the nomination to the member's former spouse in certain circumstances. This is because, under the FLS Regulations, the former spouse may be unable to receive a share of a payment of superannuation death benefits made to a child of the member.

Item 7 amends the conditions that determine whether a fund is a public offer fund. Public offer funds must comply with additional disclosure and capital adequacy requirements. Paragraph 3.01(f) allows a fund to create a new interest for the former spouse of a member without becoming a public offer fund. Item 7 amends paragraph 3.01(f) to allow the former spouse to remain a member even after the original member has left the fund.

Items 8 and 9 amend regulation 6.17 to ensure that actions by a trustee under the family law provisions (including certain actions that these Regulations do not specifically require) do not breach the payment standards in Part 6 of the Principal Regulations.

Items 10 and 11 relieve a trustee of the duty to pay benefits in accordance with a binding death benefit nomination if the trustee is aware that such a payment, or the lodgement or failure to revoke the nomination, would breach a court order.

Item 12 inserts a definition of 'relevant condition of release' at the start of Part 7A of the Principal Regulations. A relevant condition of release, in relation to a person, is the person's retirement, death or permanent incapacitation, or the person reaching age 65. This concept is used in certain situations for the purposes of determining whether or not the former spouse of an RSA holder can receive his or her entitlement in cash. This definition replaces an identical definition that is duplicated in several places in Part 7A (for example, in subregulation (7A.07(3), which is repealed by item 26 below).

Item 13 amends the heading to Division 7A.1A to reflect the fact that these amendments broaden the application of that Division.

Items 14 and 15 broaden the application of Division 7A.1A. When a member holds a superannuation interest (the 'original interest') which becomes subject to a family law agreement or order, the member's former spouse may ask the trustee to create a new interest in the fund, to hold his or her entitlement, under Division 7A.2. If the member's interest is an allocated pension, Division 7A.1A already allows the trustee to create a new interest for the former spouse without waiting for a request. This amendment provides that Division 7A.1A also applies if the original interest is an accumulation interest in the growth phase (that is, payments have not begun to be made to the member). If the trustee does not create a new interest under Division 7A.1A, the former spouse will be able to request a new interest, rollover or lump sum payment of his or her entitlement under the existing provisions in Division 7A.2.

Item 16 amends subregulation 7A.03B(3) to take account of the amendments in items 14 and 15 above. This would reflect the fact that the trustee may have been required (under the FLS Regulations) to adjust the base amount to which the former spouse is entitled (the base amount is not adjusted for allocated pensions).

Item 17 corrects an error in terminology.

Item 18 provides for a pro-rata division of the preserved, restricted non-preserved and unrestricted non-preserved benefits between the former spouses if the original interest is an accumulation interest in the growth phase. These categories are used for determining the conditions under which a member can access his or her benefits. Preservation is not relevant to an allocated pension, because the benefits in such an interest would be freely accessible to the pensioner.

Item 19 amends regulation 7A.03E so that, if the original interest is in the growth phase, the member's former spouse can only request a lump sum payment if he or she has satisfied a relevant condition of release or the original interest comprises only unrestricted non-preserved benefits.

After the trustee has created a new interest, the former spouse may request that the amount of the interest be retained in the fund, rolled over to another fund or paid in cash.

Items 20 and 21 amend the conditions under which the trustee may not give effect to such a request. If the fund has fewer than five members and the member's former spouse asks the trustee to retain his or her interest in the fund, the trustee may choose to refuse the request. If the trustee refuses the request, the trustee must roll over or transfer the interest to another superannuation entity.

Items 22 and 23 relate to the trustee's options in a situation in which the member's former spouse has not made any request about his or her new interest. The amendment ensures that those options are available to the trustee if the trustee has been unable to give a notice to the former spouse, for example where the trustee cannot locate the former spouse.

Item 24 makes an amendment that is consequential to the amendment in item 20 above. This amendment reflects the fact that, in a fund with fewer than five members, the trustee can choose whether or not to accept a request from the member's former spouse to retain his or her interest in the fund.

Item 25 ensures that, if at a particular time the original interest is a partially vested accumulation interest and the entitlement of the member's former spouse under family law would be greater than the current withdrawal benefit, the trustee is not required at that time to give effect to that entitlement through a new interest, rollover or cash payment.

Item 26 omits the definition of 'relevant condition of release' in regulation 7A.07 because the definition is now contained in regulation 7A.01A (see item 12 above).

Division 7A.2 allows the member's former spouse to request that his or her entitlement be paid into a new interest in the fund, rolled over to another fund or paid in cash.

Item 27 amends the conditions under which the trustee may not give effect to such a request. If the fund has fewer than five members and the member's former spouse asks the trustee to create a new interest in the fund, the trustee may choose to refuse the request. If the trustee refuses the request, the trustee must roll over or transfer the former spouse's entitlement to another superannuation entity.

Item 28 omits the trustee's reporting requirements after the trustee has rolled over or transferred an amount to an eligible rollover fund under regulation 7A.09. These requirements are provided for in regulation 7A.12.

Items 29 and 30 relate to the trustee's options in a situation in which the member's former spouse has not made a request for a new interest, rollover or cash payment. The amendment ensures that those options are available to the trustee if the trustee has been unable to give a notice to the former spouse, for example where the trustee cannot locate the former spouse.

Items 31, 32 and 33 clarify the process by which the trustee determines the amount of a new interest for the member's former spouse. These amendments ensure consistency with the definition of 'transferable benefits' as amended by items 2 and 3 above.

Item 34 corrects an error in terminology.

Items 35 and 36 ensure consistent treatment of a rollover or transfer of benefits where the rollover or transfer is done on the trustee's initiative under regulation 7A.09 (because the trustee has been unable, or chose not, to follow a request from the member's former spouse).

Items 37, 38 and 39 provide that the amount rolled over or transferred for the member's former spouse does not exceed the withdrawal benefit in the original interest immediately before the rollover or transfer takes place. This rule is consistent with existing provisions that apply when the trustee creates a new interest in the fund or makes a payment in cash under Division 7A.2.

Items 40 and 41 ensure that, when an amount is rolled over or transferred to an eligible rollover fund for the member's former spouse, he or she is given the name and contact details of the eligible rollover fund.

Items 42, 43 and 44 clarify the process by which the trustee determines the amount of a payment to the member's former spouse. These amendments ensure consistency with the definition of 'transferable benefits' as amended by items 2 and 3 above.

Item 45 corrects an error in terminology.

Items 46 and 47 amend the rules for handling payments made after the death of the member. Under family law, the member's former spouse may be entitled to receive a share of the member's superannuation after the member dies. Under certain circumstances the payment may not be able to be rolled over, due to provisions in the Income Tax Assessment Act 1936 dealing with death benefits. Accordingly, new subregulation 7A.14(2) ensures that the regulations do not require the payment to be rolled over under those circumstances.

Item 48 omits regulation 7A.15, which defined 'relevant condition of release', because the definition is now contained in regulation 7A.01A (see item 12 above).

Item 49 corrects a typographical error.

Items 50 and 51 amend the rules that apply when a person is entitled to receive part of a superannuation payment because of family law, but has not satisfied a relevant condition of release. The trustee must create a new interest in the fund for the person, or transfer the person's entitlement to another fund. The amendment ensures that, if the person has not indicated a preference for a particular action, the trustee may choose whether to create a new interest or transfer the amount to an eligible rollover fund.

Item 52 amends the rules that apply if a family law agreement or order applies to a payment that is made from an interest that was being paid as a pension (other than an allocated pension) at or before the time when the trustee received the agreement or order. The pensioner's former spouse is entitled to be paid his or her entitlement, even if he or she has not satisfied a relevant condition of release. The amendment allows the former spouse to ask the trustee to retain his or her entitlement in superannuation, if the amount is a lump sum resulting from the commutation of the pension. If the trustee cannot give effect to the request then the trustee may roll the amount over to another fund or, if requested, pay the amount in cash. For funds with fewer than five members, the trustee is permitted to refuse a request to create a new interest in the fund.

Item 53 corrects a typographical error.

Item 54 amends the rules that apply if a payment is payable and the member's former spouse has satisfied a condition of release. These rules also apply if the payment derives from an allocated pension. The former spouse may ask the trustee to retain his or her entitlement in superannuation. If the trustee cannot give effect to the request then the trustee may roll the amount over to another fund or, if requested, pay the amount in cash. For funds with fewer than five members, the trustee may refuse a request to create a new interest in the fund. In the absence of any request, the trustee will pay the amount in cash.

Schedule 2 - Amendments commencing on 1 July 2004

The Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5) come into affect on 1 July 2004 and insert a new Division 6.5 into the Superannuation Industry Supervision Regulations 1994. The previous Division 6.5 will become Division 6.6 but will otherwise be unchanged.

Subregulation 6.30(3) (part of the new Division 6.5) provides that the new Division does not apply to a superannuation interest that has received an employer contribution in the past 6 months.

Item 1 amends Subregulation 6.30(3) to provide that the new Division also does not apply to a superannuation interest that has received an allocated surplus amount in the past 6 months. The definition of allocated surplus amount is given by new subregulation 6.30(4) (see item 2).

Item 2 inserts the definition of allocated surplus amount . The definition provides that an allocated surplus amount , in relation to a member of a superannuation fund in relation to a financial year, means an amount that is allocated by the relevant superannuation provider for the benefit of the member in respect of the financial year (other than an amount paid for or by the member to the provider) to the extent to which the allocated amount exceeds an amount that, in the opinion of an eligible actuary according to Australian actuarial practice, is reasonable having regard to:

(a)
the amounts paid by or for the member to the provider; and
(b)
the fund's investment earnings relating to the member's interest in the fund; and
(c)
any other relevant matters.

In other words, the definition refers to amounts that are allocated to the interest of a fund member but come from a surplus within the fund rather than directly from the employer sponsor, the fund member, or arising as investment earnings in relation to the member's interest.

The effect of Items 1 and 2 is that superannuation interests that have received allocations from surplus are exempted from new Division 6.5 in the same way as superannuation interests that have received employer contributions.