Explanatory StatementIssued by authority of the Minister for Revenue and Assistant Treasurer
Superannuation Industry (Supervision) Act 1993
Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by the SIS Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the SIS Act.
The Superannuation Industry (Supervision) Regulations 1994 set out the minimum pension and annuity standards, the contribution and benefit accrual standards, and provide for spouse contributions-splitting.
The Regulations complement regulations previously registered on 2 April 2007 which support the Government's Simplified Superannuation reforms by broadening the scope of the pension and annuity standards, modifying to whom amounts should be returned when a member contribution is unable to be accepted and clarifying a definition which supports the spouse contributions-splitting arrangements.
The Regulations also implement the 2007-08 Budget measure to prevent public offer funds from requiring an employer to sign a participating employer agreement before accepting contributions on behalf of an existing fund member. This will allow an employee to choose to remain in a fund of which they are already a member under the choice of superannuation fund measure, without requiring their new employer to sign an agreement with the fund.
Details of the Regulations are set out in the Attachment.
The SIS Act specifies no conditions that need to be met before the power to make the Regulations may be exercised.
The Minute recommends that the Regulations be made in the form proposed.
The Regulations are legislative instruments for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on 1 July 2007.
No public consultation was undertaken on the Regulations. Targeted consultation was undertaken in relation to the broadening of the scope of the new minimum pension standards and the Budget measure.
Regulation 1 specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2007(No. 3).
Regulation 2 provides that the Regulations commence on 1 July 2007.
Regulation 3 provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) as amended by the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1).
Items 1, 2, 5 and 6
Subregulations 1.05(11B) and 1.06(9B) provide that a contract or rules for the provision of an income stream will not meet the pension and annuity standards in the SIS Regulations if the income stream is transferred to a person who would not be eligible to be paid a benefit in that form under subregulation 6.21(2A).
These items amend subregulations 1.05(11B) and 1.06(9B) with the effect that an annuity or pension that is transferred to a person in accordance with subregulation 6.21(2A) must be cashed as a lump sum on the occurrence of a trigger event specified in subregulation 6.21(2B).
Items 3 and 8
Items 3 and 8 broaden the definition of indexation arrangement for the purpose of the pension and annuity standards in the SIS Regulations. The broadened definition encompasses arrangements which link annual payments from an annuity or pension to movements in the CPI or an index of average weekly earnings, but which cap the percentage increase in payments at a particular level.
Subregulation 1.06(9A) contains the new minimum standards for pensions that apply from 1 July 2007. Rules for the provision of a pension can meet the standards of subregulation 1.06(9A) by meeting the standards of subregulation (2). Subregulation (2) contains the standards for what are commonly referred to as lifetime 'complying' pensions.
Item 4 amends subregulation 1.06(9A) so that fund rules in existence at the date of registration of these amendments will meet the standards of subregulation 1.06(9A) if the rules otherwise meet the standards of subregulation (2) but for those elements of the rules which permit the pension to be commuted and/or allow payments to be varied or terminated in respect of a child of a deceased member.
The effect of the amendments is to bring within the scope of the new minimum pension standards pensions paid from certain defined benefit superannuation schemes which would not otherwise meet those standards.
Example: The rules of ABC superannuation fund allow for lifetime pensions payable from the fund to be partially commuted. These rules do not meet the standards of subregulation 1.06(2) because they provide for a pension to be commuted other than in accordance with paragraph 1.06(2)(e). Also, because payments from the pension would be reduced following a partial commutation, the rules also breach paragraph 1.06(2)(c) which requires that annual payment amounts generally cannot be less than the previous year's payment. The effect of the amendments is to allow the rules of ABC fund to comply with the standards of subregulation 1.06(9A).
Item 7 provides that a pension being paid from a successor fund, under rules to which subparagraph (9A)(b)(iv) applied in the original fund, will meet the pension standards contained in subregulation (9A).
The 'transition to retirement' condition of release for preserved and restricted non-preserved benefits was renumbered to item 110 of Schedule 1, Part 1 of the SIS Regulations as a result of the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1). This condition of release was previously at item 109A. Item 9 updates the references to this condition of release in regulation 6.15A.
The definition of untaxed splittable employer contributions in the SIS Regulations as amended by Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1) only applies to contributions that are included in the assessable income of a superannuation fund.
It was intended that this definition instead apply to a contribution that is made by the Commonwealth, State or Territory to a public sector scheme but is not included in the assessable income of the entity. For example, employer contributions made into a regulated superannuation fund that is either a constitutionally protected scheme or a scheme that is otherwise exempt from income tax.
Item 10 amends paragraph 6.41(5)(b) of the SIS Regulations as amended by the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1) so that the definition of untaxed splittable employer contributions refers to contributions made by the Commonwealth, State or Territory to a public sector scheme that are not included in the assessable income of the entity.
Item 11 inserts new regulation 7.04A into the SIS Regulations. The new regulation prevents public offer superannuation funds from requiring a new employer of an existing fund member to become a standard employer-sponsor of the fund, before the fund will accept employer contributions on behalf of the member.
This allows employees to choose to remain in the same fund when they change employment, rather than having their employer contributions returned or paid to another fund if their new employer is not a standard employer-sponsor of the fund. The regulation supports the Government's choice of fund policy.
This amendment applies to new employment arrangements entered into from 1 July 2007.
Shaz is a member of fund ABC on 29 June 2007. She changes employment on 2 July 2007. Shaz's new employer is not required to become a standard employer-sponsor of fund ABC in order for Shaz to choose to stay with fund ABC. Similarly, if Shaz joins fund ABC on 2 July 2007 and changes employment on 5 July 2007, she can choose to remain with fund ABC without her employer having to become a standard employer-sponsor of the fund.
This amendment does not change industrial award obligations that may require contributions to be paid into a particular superannuation fund.
The SIS Regulations as amended by the Superannuation Industry (Supervision) Amendment Regulations 2007 (No. 1), provide that where an amount paid to a superannuation fund cannot be accepted under the contribution acceptance rules set out in subregulations 7.04(1), (2) or (3), the amount is returned to the member, regardless of who paid the amount on the member's behalf.
Item 12 amends regulation 7.04 such that where a member does not meet the contribution acceptance rules, the amount paid is returned to the entity or person that paid the amount.
This avoids the unintended consequences that would arise if the amount were returned to the member, such as an increased tax liability.