Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon. J. Kerin, M.P.)Chapter 27 Occupational Superannuation Standards
Overview
Corrects a technical deficiency whereby certain payers of eligible termination payments were not required to report such payments to the Insurance and Superannuation Commissioner.
Gives the Insurance and Superannuation commissioner the power to treat a superannuation fund as if it had satisfied the superannuation fund conditions for a particular year even though it had not complied with a request by the Insurance and Superannuation Commissioner to commute an excessive pension.
Reasonable Benefit Limits Administrative Arrangements
27.1. The Bill will make several minor changes to the arrangements for the administration of the reasonable benefit limits as set out in the Occupational Superannuation Standards Act 1987.
27.2. For convenience, the Occupational Superannuation Standards Act 1987 will be referred to as the "Principal Act" in the following chapter.
Summary of the proposed amendments
27.3. The proposed changes to the administration of the reasonable benefit limits are -
Provision of Information on Benefits Paid
27.4. The reasonable benefit limits are a lifetime limit on the amount of superannuation or termination of employment benefits that a person may receive concessionally taxed.
27.5. The limits are administered by the Insurance and Superannuation Commissioner who keeps a record of all concessionally taxed benefits that a person receives and determines whether each benefit is within, or in excess of, the recipient's reasonable benefit limits. Central to this administrative arrangement is the notification by the payer of information on benefits paid.
27.6. The definition of 'payer' will be amended so that all payers of eligible termination payments will be covered by the requirements to report such payments to the Insurance and Superannuation Commissioner.
Deemed Pension Commutations - Discretion
27.7. Where the Insurance and Superannuation Commissioner determines that a pension benefit is in excess of the reasonable benefit limits, the superannuation fund paying the pension is required to commute the excessive component to a lump sum. A fund that does not commute this amount is taken not to have satisfied the superannuation fund conditions for as long as the excessive pension remains payable.
27.8 . The amendment will give the Insurance and Superannuation Commissioner a discretion to determine that a fund has complied with the superannuation fund conditions, even though it has failed to commute the excessive component of a pension.
Background to the legislation
27.9. In determining whether a benefit received by an individual is within or in excess of his or her reasonable benefit limits, the Insurance and Superannuation Commissioner relies, in the first instance, on information which is required to be provided to him by the payer of the benefit under the provisions of Part IIIA of the Principal Act.
27.10. The existing definition of payer in subsection 15E(1) has proved to be inadequate as some payers of eligible termination payments have avoided reporting such payments because they are not one of the types of organisations listed.
27.11. A superannuation fund which fails to comply with a request by the Insurance and Superannuation Commissioner to commute the excessive component of a pension under subsection 15S(4) is taken not to have satisfied the superannuation fund conditions. Hence, even where there are good reasons for the fund failing to commute the excessive component of the pension, this provision would operate so that the fund is non-complying.
27.12. There are some funds that are unable to commute excessive pension benefits without the member's consent. In such cases the Commissioner currently has no discretion to treat the fund as a complying fund.
Explanation of the proposed amendments
27.13. All payers of eligible termination payments will be required to report those payments to the Insurance and Superannuation Commissioner in accordance with Part IIIA of the Principal Act. [Clause 104]
27.14. Notwithstanding that a superannuation fund has failed to comply with a request by the Insurance and Superannuation Commissioner to commute the excessive component of a pension, it may seek an exercise of discretion by the Insurance and Superannuation Commissioner so that it does not lose its compliance status. [Clause 105]
Clauses involved in the proposed changes
Clause 104 : amends subsection 15E(1) so that any entity which makes an eligible termination payment is a payer for the purpose of Part IIIA of the Principal Act.
Clause 105 : enables the Insurance and Superannuation Commissioner to treat a superannuation fund as having satisfied the superannuation fund conditions where the fund has failed to comply with a request under subsection 15S(4) to commute the excessive component of a pension.
Part 2 - Pre - 1 July 1988 Funding Credits
Summary of the proposed amendments
27.15. The Bill provides that a superannuation fund must apply for a pre - 1 July 1988 funding credit on or before a date to be prescribed in the Occupational Superannuation Standards Regulations.
Background to the legislation
27.16. The Act currently provides that an application for a pre - 1 July 1988 funding credit must be made by 31 December 1991.
27.17. The method by which the Insurance and Superannuation Commissioner will grant a pre - 1 July 1988 funding credit is to be prescribed in the Regulations.
27.18. As these regulation will not be made by 31 December 1991, the date by which a fund must apply for a funding credit must be extended.
Explanation of the proposed amendments
27.19. Section 15D of the Act provides that the trustees of a superannuation fund may apply to the Insurance and Superannuation Commissioner for such a credit and that the Commissioner shall grant a specified amount of credit if he is satisfied that certain conditions apply. One of those conditions is that the amount is an amount that the Regulations provide may be treated as a pre - 1 July 1988 funding credit.
27.20. It is intended that the Regulations will provide that a pre - 1 July 1988 funding credit is, essentially, and amount of contributions that may be made exempt from contributions tax to a superannuation fund after 30 June 1988 to meet an obligation to make those contributions that existed as at that date.
27.21. The Act currently specifies that applications for pre - 1 July 1988 funding credits must be made by 31 December 1991. The amendment will allow applications to be made up to a date prescribed in the Regulations.
Clauses involved in the proposed amendments
Clause 103 : will amend section 15D of the Principal Act so that an application for a pre - 1 July 1988 funding credit must be made on or before a date prescribed in the Regulations.