Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)Chapter 4 - Accounts within the Reserve
Overview
3.1 This chapter provides for the establishment of individual accounts within the Superannuation Holdings Account Reserve. The chapter also provides a general summary of the administration and operation of the Reserve. The chapter particularly provides a summary of credits to and withdrawals from the Reserve. This chapter is to be read as a summary only, the detailed operational provisions relating to credits to the Reserve are contained in chapters 5 and 6 and those relating to withdrawals from the Reserve are contained in chapter 7.
3.2 The provisions set out the mechanics required to establish the Reserve. They deal with issues such as establishing a separate account for each employee, credits to and withdrawals from accounts, opening and closing of accounts, rules about accounts and notification of account balances.
Explanation of the provisions
The employee's individual account
3.3 A separate notional account is to be kept within the Reserve for each employee. The account kept in the name of an individual is to be known as the individual's account. [Clause 12 of Part 3]
Summary of credits to the account
3.4 The following outlines the circumstances in which amounts may be credited to accounts in the Reserve. [Clause 13 of Part 3]
3.5 An individual's employer may make deposits in respect of the individual to the Reserve. The employer may make these deposits instead of making superannuation contributions for those employees. As mentioned in paragraph 13 of chapter 1 the term deposit is only a label which is used for ease of understanding. It is important to note however that deposits to the Reserve must not contravene any law, award or legally enforceable agreement. This issue is further discussed in chapter 4. The deposits, once made, will result in a credit to the individual's account in the Reserve. [Clause 13 of Part 3]
Superannuation guarantee shortfalls
3.6 Where an employer pays a superannuation guarantee charge and there is a shortfall component in relation to an individual the amount of that superannuation guarantee shortfall may be credited to the individual's account in the Reserve. [Clause 13 of Part 3]
3.7 Amounts of interest earned on the investment of the Reserve's money under Part 6 of the Bill may be credited to the employee's account in the Reserve. For a more detailed explanation of the method of crediting interest refer to chapter 6. [Clause 13 of Part 3]
Summary of withdrawals from accounts
3.8 The following outlines the circumstances in which withdrawals may be made from an account in the Reserve [clause 14 of Part 3]:
- •
- Transfer to a regulated superannuation fund (the operative provision is clause 61 );
- •
- Balance of the account is less than $500 and the individual is not in employment (the operative provision is clause 63 );
- •
- Withdrawal as a result of severe financial hardship (the operative provision is clause 64) ;
- •
- Retirement due to disability (the operative provision is clause 65 );
- •
- Individual turns 65 (the operative provision is clause 66 );
- •
- Individual is not an Australian resident (the operative provision is clause 67 ); and
- •
- Upon the death of the individual (the operative provision is clause 68 ).
A detailed explanation of these circumstances is contained in chapter 7 dealing with withdrawal of account balances.
3.9 A withdrawal may also be made from an account in the Reserve in order to refund amounts that were not made in accordance with the Bill or were made by mistake. Part 8 of the Bill deals with refunds and a detailed explanation of those provisions is contained in chapter 8.
3.10 The Commissioner may open an account in the Reserve for an individual at any time. This enables the Commissioner to open an account in anticipation of a deposit or where an individual requests the Commissioner to open an account in their name. [Subclause 15(1) of Part 3]
3.11 Upon completion of her tertiary studies Kathy intends to go on a working holiday around Australia. Kathy intends to pick up jobs as and when she needs the money. Kathy writes to the Commissioner asking him to open an account for her. The Commissioner opens an account in Kathy's name. When Kathy's employers make payments to the Reserve they will be credited to Kathy's account and all the payments will be amalgamated into the same account.
3.12 The Commissioner must open an account for an individual where that individual does not already have an account and the individual's employer makes a deposit in respect of the individual. In the above example, even without a request from Kathy, the Commissioner would have to open an account for Kathy immediately the Commissioner receives the first payment from any of Kathy's employers. [Subclause 15(2) of Part 3]
3.13 The Commissioner may close an account where:
- •
- the balance of the account has been nil for the past two years;
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- an individual requests the Commissioner to close the account; or
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- the individual has died.
Where an individual has died and the individual's account balance has been paid to the individual's legal personal representative it is appropriate to close the account. The Commissioner may also close an individual's account where the balance of the account has been withdrawn due to the individual's retirement due to disability, attaining the age of 65, or ceasing to be a resident. An account may also be closed where the balance of the account is transferred to the Consolidated Revenue Fund due to inactivity on the account for a period of 10 years. In other circumstances the account must have a nil balance for the preceeding two years before an account can be closed. This is to provide for people moving in and out of the workforce at irregular intervals. [Clause 16 of Part 3]
3.14 An account may have a nil balance where:
- (a)
- there has been no money credited to the account;
- (b)
- the balance of the account has been withdrawn;
- (c)
- the balance of the account has been refunded; or
- (d)
- the balance of the account has be transferred to the Consolidated Revenue Fund.
It should be noted that these are only examples for the purpose of illustration and do not represent an exhaustive list of the circumstances which may give rise to a nil account balance. [Clause 17 of Part 3]
3.15 An individual is only allowed to have one account in the Reserve. It may occur however that due to clerical or spelling errors an individual may in fact have more than one account in the Reserve. Where the Commissioner becomes aware of two or more accounts for the one individual the Commissioner must amalgamate those accounts into a single account. [Clause 18 of Part 3]
3.16 John Smith has had 3 casual jobs during the year and each employer has made a payment to the Reserve. The employers however have made mistakes with the spelling of his name. The first employer spelt it the correct way as John Smith, the second employer spelt it Jon Smyth and the third employer John Smythe. As all three of the payments had John's correct address and Tax File Number the Commissioner amalgamated the accounts with John's correct and existing account in the Reserve.
Account balances are not held on trust
3.17 Money credited to an individual's account in the Reserve is not held on trust nor is it special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995 . Consequently, the Commonwealth is not able to deal with the money except in a manner provided by this Bill. This provision is to ensure that there is no misunderstanding as to the nature and status of the Superannuation Holding Accounts Reserve. [Subclauses 19(1) and (2) of Part 3]
3.18 The purpose of this provision is to make it clear that an individual's rights under this Bill are statutory. The provisions contained in this Bill do not create nor extend any common law rights.
3.19 The provision deeming money credited to an individual's account in the Reserve as not constituting special public money for the purposes of section 16 of the Financial Management and Accountability Act 1995 does not have effect until the commencement of the Financial Management and Accountability Act 1995 . [Subclause 19(3) of Part 3]
Notification of account balances
Notification of opening balance
3.20 As soon as practical after the Commissioner first credits an amount to an individual's account the Commissioner must notify the individual of the account balance. This also provides an opportunity for the Commissioner to provide information to an individual of the operation of the Reserve. [Clause 20 of Part 3]
3.21 An individual may at any time request the Commissioner to provide details of the individual's account and balance in the Reserve. The request must be in writing in a form approved by the Commissioner and the Commissioner must comply with the request. [Clause 21 of Part 3]
3.22 Where an individual's account balance exceeds zero the Commissioner must, as soon as practical after the end of the financial year, provide that individual with written advice as to the balance of the individual's account as at the end of the financial year. Where an individual's account balance is nil at the end of the financial year the Commisioner is not required to advise the individual of their account balance. [Clause 22 of Part 3]
Notification when account balance reaches $1,200
3.23 Where a particular credit to an individual's account increases the balance of the account to an amount of $1,200 or more the Commisioner must advise the individual, as soon as is practicable after that credit is made, of the balance of the account. The advice shall be in writing and shall also advise the individual that interest will not be paid on any amount that exceeds $1,200. The advice will also advise that interest is not paid on amounts that exceed $1,200 and that the individual may have the account balance transferred to a superannuation fund of their choice as is provided in clause 61. [Clause 23 of Part 3]
3.24 The policy behind the Superannuation Holding Accounts Reserve is to enable small accounts to be protected from fees and charges. Once an account reaches the level of $1,200 it is considered that interest earned in a superannuation fund would normally exceed any fees and charges on the account. At this level the account should be self sustaining. The investment restrictions on the Reserve (see paragraph 2.6) mean that the investment earnings of the Reserve could be less than can be obtained from a superannuation fund. In these circumstance once an account reaches $1,200 it is the policy intention that people transfer their accounts to a superannuation fund. For this reason the Commissioner will suggest this course of action to each individual when their account balance reaches $1,200.
Notification not required where address unknown
3.25 Where the Commissioner does not know the employee's current address there is no requirement for the Commissioner to issue a notification. This may occur where the Commissioner has previously sent out a notification and it has been sent back "return to sender". Until the Commissioner is made aware of a new address there is no requirement to continue to send notices to that old address.