Explanatory Statement

Issued by the authority of the Assistant Treasurer

Explanatory Statement

Retirement Savings Accounts Act 1997

Retirement Savings Accounts Regulations (Amendment)

The Retirement Savings Accounts Act 1997 (the Act) and the Retirement Savings Accounts Regulations (the Principal Regulations) implement the 1996-97 Budget initiative. to allow banks, building societies, credit unions and life insurance companies to provide superannuation without a trust structure in the form of retirement savings accounts (RSAs). RSAs may be offered from 1 July 1997.

Section 200 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.

Under the Principal Regulations, superannuation benefits in an RSA will generally be required to be 'preserved' in the superannuation system until retirement on or after age 55. However, subject to the terms and conditions of an RSA, early release of 'preserved' benefits is permitted under the Principal Regulations in certain restricted circumstances including 'severe financial hardship' or 'compassionate' grounds.

The purpose of the Regulations is to vary the original measures announced in the 1997-98 Budget to tighten and streamline the administration of the early release of superannuation benefits.

The Regulations:

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amend the objective test announced in the 1997-98 Budget for 'severe financial hardship' and introduce a subjective test of 'Severe financial hardship' to be administered by RSA providers (Regulation 2);

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introduce flexibility in the arrangements for the release of benefits on 'compassionate' grounds, rightly linked to the defined criteria announced in the 1997-1998 Budget (Regulation 3); and

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provide for a transitional period where preserved superannuation can be accessed on the ground of permanent departure from Australia (Regulation 4).

The Regulations we described in detail in the attachment.

The Regulations commence on date of gazettal.

Regulation 1 - Amendment

Regulation 1 provides that the Retirement Savings Accounts Regulations (the Principal Regulations) are amended as set out in these Regulations.

Regulation 2 - Regulation 4.01 (Interpretation)

The Principal Regulations were amended with effect from 1 July 1997, as announced in the 1997-98 Budget, to remove the subjective assessment of applications for release of benefits on the ground of 'severe financial hardship' by the Insurance and Superannuation Commissioner. An objective test of hardship was inserted to be administered by RSA providers based on evidence that members had received specified Commonwealth income support payments for a continuous period of 52 weeks (or for a person aged 55 years and 39 weeks or over, a cumulative period of 39 weeks after turning age 55 years).

The Regulations reduce the required period for the continuous receipt of Commonwealth income support payments for persons both over and under 55 years and 39 weeks to 26 weeks as well as insert a subjective test to be administered by the RSA provider. The test for persons aged 55 years and 39 weeks and over of a cumulative period of 39 weeks after turning age 55 years will continue to apply, in addition to the new test, as an optional, alternative test of 'severe financial hardship',

Subregulation 2.1 omits paragraph 4.01 (5)(a) and inserts a new paragraph 4.01 (5)(a). New paragraph 4. 01 (5)(a) sets out the new test for persons to be taken to be in 'severe financial hardship' as follows:

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receipt of Commonwealth income support payments for a continuous period of 26 weeks; and

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satisfy a subjective test of 'severe financial hardship', to be administered by the RSA provider, that requires a RSA provider to be satisfied that the person is unable to meet reasonable and immediate family living expenses.

In addition persons aged 35 years and 39 weeks or over are taken to be in 'severe financial hardship' (existing paragraph 4.01(5)(b) refers) if.

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they have received specified Commonwealth income support payments for a cumulative period of 39 weeks after timing age 55 years (the new RSA provider-administered subjective test will not apply); and

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they are not gainfully employed on a full-time or part-time basis on the date of application to the RSA provider.

Regulation 3 - Regulation 4.22A (Release of benefits on compassionate grounds)

Regulation 4.22A defines the criteria for the release of benefits on 'compassionate' grounds as announced in the 1997-98 Budget.

Subregulation 3.1 omits subparagraph 4.22A(1)(e)(iv) and substitutes a new subparagraph 4.22A(1)(e)(iv) to provide for a new criteria for the release of benefits on 'compassionate' grounds (see subregulation 3.2 below).

Subregulation 3.2 inserts a new paragraph 4.22A(1)(f) to provide the Insurance and Superannuation Commissioner with a qualified discretion in relation to 'compassionate' grounds to approve cases that almost fan within the boundaries of the objective criteria in paragraphs 4.22A(1)(a) to (e) but at present cannot be approved because they do not strictly meet the letter of the criteria.

Regulation 4 - Schedule 2 (Condition of release and cashing restrictions preserved benefits and restricted non-preserved benefits)

As announced in the 1997-98 Budget, the Principal Regulations do not provide for access to superannuation benefits on the ground of permanent departure from Australia from 1 July 1997.

The Regulations provide for a transitional period where people may apply for access superannuation benefits on the ground of permanent departure from Australia.

Subregulation 4.1 inserts item 104 into Schedule 2 to the Principal Regulations. Item 104 provides for a new transitional provisions to enable RSA providers to release an amount on the ground of permanent departure in respect of members who make an application for the release of their superannuation benefits and permanently depart overseas prior to 1 July 1998.

Subregulation 4.2 amends item 105 so that the maximum amount that can be released on the grounds of 'severe financial hardship' in any year is reduced from $15,000 to $10,000.

Regulation 5 - Application

Subregulation 5.1 provides that the amendments made by regulation 2 and subregulation 4.2 do not relate to applications made to the RSA provider before the date of gazettal of these Regulations. This amendment will ensure that the Principal Regulations apply in relation to applications for the early release of superannuation benefits on the ground of 'severe financial hardship' received by RSA providers from 1 July 1997 until the date of gazettal of the Regulations.