Explanatory Statement
Issued by authority of the Minister for Revenue and Assistant TreasurerEXPLANATORY STATEMENT
Superannuation Industry (Supervision) Act 1993
Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5)
Subsection 353(1) 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 the Regulations is to provide for superannuation benefits to be portable. That is, there will be a requirement on superannuation funds to transfer a member's benefits to another fund if requested by the member. This requirement will however not apply in all cases.
Regulations for this same purpose were made on 30 July 2003 but were disallowed in the Senate on 18 September 2003.
The proposed regulations are substantially the same as those made on 30 July 2003, except for the addition of new subregulation 6.30(3). This subregulation provides that the obligation on superannuation funds to transfer benefits at the request of a member would not apply in the case that the member had received an employer contribution in the past six months. This change means that these regulations are not `the same in substance' as the previously disallowed regulations.
In general terms, this means that, if a superannuation fund member is receiving ongoing employer contributions and requests that his or her account balance be transferred out of the fund, the fund would not be required to comply with the request (though the fund could do so if it chose).
This change is intended to address concerns expressed in the parliament about the possible proliferation of superannuation accounts due to employees moving money from accounts into which their employers are making ongoing contributions (so-called active accounts) into new accounts. The issue of active accounts was a key reason for the disallowance of the previous regulations by the Senate.
Whilst other issues have been raised in respect of portability, such as the impact of exit fees and charges, these matters are generally not issues directly related to the operation of a portability regime or would not prevent the effective operation of such a regime.
Details of the Regulations are set out in the Attachment.
The Regulations commence on 1 July 2004.
Attachment - Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5)
Regulation 1 - specifies the name of the regulations as the Superannuation Industry (Supervision) Amendment Regulations 2003 (No. 5).
Regulation 2 - provides that the Regulations commence on 1 July 2004.
Regulation 3 - provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994.
Items 1, 3 and 5 amend the definition of protected member. In general terms a protected member is currently one with benefits of less than $1,000 that include mandated employer financed benefits. If a person is a protected member it means that the fees charged against their interest in the superannuation fund cannot normally exceed the investment earnings on that interest in any one year. The proposed Regulations will amend the definition of protected member so that if a member chooses to roll over or transfer their benefits from a fund in accordance with the new Division 6.5 (potentially leaving them with benefits of less than $1,000 in the fund) then they will no longer be required to be treated as a protected member.
Item 1 provides that the new definition of protected member is given by new Regulation 1.03B. Item 3 omits an existing provision that is relevant to the definition of protected member (the provision omitted is now replicated in new Regulation 1.03B(4)). Item 5 inserts new Regulation 1.03B, which provides for the new definition of protected member. The definition is effectively the same as the previous definition with the exception of paragraph 1.03B(3) which provides that a member will not be a protected member if they have rolled over or transferred benefits from the fund under new Division 6.5 (inserted by item 10).
Items 2, 4, 7 and 8 insert a definition of unfunded public sector superannuation scheme and make consequential changes to the existing regulations. An unfunded public sector superannuation scheme is defined as a regulated superannuation fund that is declared to be an unfunded defined benefits scheme under Regulation 2A of the Superannuation Contributions Tax (Assessment and Collection) Regulations 1997. Regulation 2A of those regulations refers to Schedule 1 of the same regulations which contains a list of the relevant unfunded defined benefits superannuation schemes. The new definition is relevant as such schemes are exempted from the requirements to provide portability under new Division 6.5 (refer item 10). The definition of unfunded public sector superannuation scheme actually already exists in Superannuation Industry (Supervision) (SIS) Regulations 1.03AA, 6.20A and 6.20B, hence those definitions are now deleted by items 4, 7 and 8, as it is more appropriate to have the term defined once in SIS Regulation 1.03 rather than numerous times throughout the SIS Regulations.
Item 6: Subparagraph 6.17(2)(a)(ii) currently refers to benefits being rolled over or transferred in accordance with Division 6.4. Since item 10 inserts a new Division 6.5 which also describes the way in which benefits may be rolled over or transferred, item 6 extends the reference in subparagraph 6.17(2)(a)(ii) to include both Divisions 6.4 and 6.5.
Item 9 amends the heading of existing Division 6.4. This is necessary to differentiate this Division (which provides some existing general rules for rollovers and transfers of benefits) from the new Division 6.5 which provides specific rules for when rollovers and transfers must be made on the member's request.
Item 10 inserts a new Division 6.5. The existing Division 6.5 Additional standards for eligible rollover funds now becomes Division 6.6 but is unchanged in all other respects. The new Division 6.5 requires a trustee to roll over or transfer a member's benefits to another fund if requested by the member in writing, subject to some limited exceptions.
New Regulation 6.30 - Application
This regulation provides that the new requirements that a fund must roll over or transfer a member's benefits on request applies to both regulated superannuation funds and approved deposit funds. However, the new requirements do not apply to unfunded public sector superannuation schemes, self-managed superannuation funds or pension benefits (other than allocated pensions).
In addition the new requirements do not apply in respect of a defined benefit component of a superannuation interest if the member who holds the interest is an employee of an employer sponsor of the fund. The new requirements also do not apply in respect of a member of a superannuation fund if the fund has received an employer contribution for the member in the past six months.
These last two provisions are intended to limit the application of the new requirements to `inactive accounts', that is, superannuation interests that are unlikely to receive employer contributions in the future.
New Regulation 6.31 - Definitions
This regulation provides a definition of a defined benefit component of a superannuation interest. This is relevant as such interests are excluded under new Regulation 6.30 from the requirement to roll over or transfer a member's benefit on request. A defined benefit component is defined to be a component of a superannuation interest in which the benefits are either specified amounts or are defined by reference to the member's salary or specified conversion factors. The benefits may also be defined by reference to the salary of another person, such as a judicial officer, a member of the Commonwealth or a State Parliament or the member of the Legislative Assembly of a Territory. The component is however not a defined benefit component if the only benefits defined in the way above are those payable on death or disability.
New Regulation 6.32 - Operating standards
This regulation provides that a requirement set out in Division 6.5 is an operating standard applicable to the operation of funds. Penalties can be applied for breaches of these standards.
New Regulation 6.33 - Request for rollover or transfer of withdrawal benefit
This regulation provides that a member of a regulated superannuation fund or an approved deposit fund may, in writing, ask the trustee of the fund to roll over or transfer an amount that is the whole or part of the member's withdrawal benefit. If the trustee requires further information, relating to the request, the trustee must as soon as practicable, ask the member for the information.
New Regulation 6.34 - Rollover or transfer of withdrawal benefit
If a trustee receives a request under Regulation 6.33, the trustee must roll over or transfer the amount in accordance with the request. The transfer must be made as soon as practicable but in any case, within 90 days of receiving the request or, if additional information was required, as soon as practicable but within 90 days of receiving the additional information.
The trustee must also be satisfied that the member is aware of their right to receive information on request, including information relating to any fees or charges that may apply to the rollover or transfer and the effect of the rollover or transfer on their existing entitlements in the fund, and that the member does not require such information before the rollover or transfer is made.
New Regulation 6.35 - When a trustee may refuse to roll over or transfer an amount
The trustee may refuse to roll over or transfer an amount if the fund or retirement savings account (RSA) to which the member has requested the transfer or rollover will not accept the amount.
The trustee may refuse to roll over or transfer an amount if the amount is only part of the member's benefit and the roll over or transfer would result in the member's residual interest in the fund being less than $5,000. This will allow funds to require a minimum balance to remain in the fund (provided the minimum balance is less than $5,000) in the case of part transfers. However, a member would still be able to move their entire balance (a full transfer) if they so desired.
The trustee may refuse a request to roll over or transfer an amount if the trustee has rolled over or transferred an amount of the member's interest under Regulation 6.34 in the past 12 months. This will allow funds to develop rules so that regular contributions to a fund are not required to be transferred or rolled over every time they are made (e.g. every fortnight) avoiding the high administrative costs that may otherwise arise. Funds will still be able to allow more regular transfers or rollovers if they so wish.
If the trustee makes a refusal on the grounds above, they must inform the member in writing.
New Regulation 6.36 - Suspension or variation by APRA
This regulation provides the Australian Prudential Regulation Authority (APRA) with the discretion to suspend or vary the obligation on the trustee to rollover or transfer benefits, if APRA believes, on reasonable grounds, that the rollover or transfer or a series of rollovers or transfers, would have an adverse effect on the financial position of the fund or the interests of the other members of the fund. APRA will also have the discretion to determine the length of the suspension or variation on a case by case basis.
New Regulation 6.37 - Suspension or variation on application of trustee
This regulation will allow the trustee of a regulated superannuation fund or approved deposit fund to apply to APRA to suspend or vary the obligation on the trustee to transfer or rollover amounts under Regulation 6.34. The application must contain information about the financial position of the fund and the effect of any rollovers or transfers on this position or on the interests of other members of the fund. APRA may also ask for further information. APRA must respond to the trustee's application within 30 days of either receiving the application, or receiving the further information, whichever is later. If APRA believes, on reasonable grounds, that a rollover or transfer, or series of rollovers or transfers, would have a significant adverse effect on the financial position of the fund or the interests of other members of the fund APRA may suspend or vary the obligation to rollover or transfer benefits under Regulation 6.34. The suspension or variation applies for the period specified by APRA.
New Regulation 6.38 - Trustee's obligation if APRA suspends or varies obligation to roll over or transfer amounts
If APRA suspends the trustee's obligation to roll over or transfer benefits, then the trustee must not make rollovers or transfers for the period of the suspension.
If APRA varies the trustee's obligation to roll over transfer benefits then the trustee may only make rollovers or transfers in accordance with the variation for the period of the suspension.
New Division 6.6 - Additional standards for eligible rollover funds
As described at the start of Item 10, because a new Division 6.5 is inserted, the existing Division 6.5 Additional standards for eligible rollover funds now becomes Division 6.6 but is unchanged in all other respects.