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 he 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 c~ restricted circumstances including severe financial hardship or compassionate grounds.

It was announced in the 1997-98 Budget that the current arrangements for early release of superannuation benefits would be reformed to tighten and streamline the administration of the early release of superannuation benefits. The Regulations implement the following Budget announcements:

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replacement of the current discretionary administration by the Insurance and Superannuation Commissioner of the release of superannuation benefits on the ground of 'severe financial hardship' with an objective test to be administered by RSA providers (subregulation 3.2); and

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replacement of the current broad discretion of the Insurance and Superannuation Commissioner to release superannuation benefits on 'compassionate' grounds with defined criteria that must be satisfied for release on 'compassionate' grounds (regulation 4).

The Regulations are described in detail in the attachment.

The Regulations will commence on 1 July 1997.

The Office of Regulation and Review have advised that a Regulation Impact Statement is not necessary in respect of the Regulations.

Regulation 1 - Commencement

Regulation 1 provides that the Regulations will commence on 1 July 1997.

Regulation 2 - Amendment

Regulation 2 provides that the Retirement Savings Accounts Regulations (the Principal Regulations) are amended as set out in these Regulations.

Regulation 3 - Regulation 4.01 (Interpretation)

Subregulation 3.1 amends subregulation 4.01(2) of the Principal Regulations by inserting definitions of a number of words and expressions for the purposes of the Principal Regulations. In particular, definitions of 'Commonwealth income support payment', 'compassionate ground' and 'condition of release' are inserted.

Subregulation 3.2 omits subregulation 4.01(5) and inserts a new subregulation 4.01(5). New subregulation 4.01(5) sets out two tests under which a person is taken to be in 'severe financial hardship'.

If a person satisfies one of the tests of 'severe financial hardship' they may apply to their RSA provider for release of part or all of their preserved or restricted nonpreserved superannuation amounts (see regulation 5 below). In order to release any preserved or restricted non-preserved amounts the RSA provider must be satisfied that the person meets one of the tests based on written evidence provided by a Commonwealth department or agency responsible for administering a class of Commonwealth income support payments (see subregulation 3.1 above) for example, Departments of Social Security and Veterans' Affairs.

In order for a person to be taken to be in 'severe financial hardship' they must satisfy one of the following two tests:

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For persons less than 55 years and 39 weeks, they must be in receipt of Commonwealth income support benefits (see subregulation 3.1 above) for a continuous period of 52 weeks and be in receipt on the date of application to the RSA provider.

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For persons aged 55 years and 39 weeks or more, they must be receipt of Commonwealth income support benefits (see subregulation 3.1 above) for a cumulative period of 39 weeks after turning age 55 years and not be gainfully employed on a full-time or part-time basis on the date of application to the RSA provider.

It should be noted that the ability of an RSA provider to release superannuation monies on the ground of severe financial hardship is subject to the terms and conditions of the RSA.

Subregulation 4.01(5A) provides that the written evidence referred to in paragraph 4.01(5)(a) remains valid for 21 days. If more than 21 days has elapsed from the date of the written evidence and the date of the person's application to the RSA provider for cashing of their superannuation benefits, then the RSA provider will not be able to release on the basis of that written evidence and the person will have to obtain new written evidence from the Commonwealth department or agency.

Regulation 4 - New regulation 4.22A

Regulation 4 inserts a new regulation 4.22A into the Principal Regulations which defines the criteria for the release of benefits on 'compassionate' grounds.

Subregulation 4.22A(1) provides that a person may apply to the Commissioner for early release of their superannuation benefits on a 'compassionate ground'.

'Compassionate' grounds cover payment to treat life threatening illnesses; payment for medical transport; prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home; home and vehicle modifications to accommodate the special needs of a severely disabled person or dependant; and payments for palliative care and funeral and burial expenses.

Subregulation 4.22A(2) provides that if the Commissioner is satisfied that release is required on a 'compassionate' ground (set out in subregulation 4.22A(1)) and does not have the financial capacity to meet the payment, then the Commissioner must determine, in writing that the person has satisfied a condition of release on a compassionate ground, However, the ability of an RSA provider to release superannuation monies on the basis of a determination from the Commissioner is subject to the terms and conditions of the RSA.

Subregulation 4.22A(3) provides that where money is required for medical treatment, the member must have two medical certificates, one of which must be from a medical specialist, that state that the treatment is necessary and that it is not readily available to the person through the public health system.

Subregulation 4.22A(4) provides that a person who requires money for medical transport must satisfy paragraph 4.22A(1)(a), that is, the member must have two medical certificates, one of which must be from a medical specialist, that state the person requires medical treatment.

Subregulation 4.22A(5) provides that a person who requires money to prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home must provide written evidence from the mortgagee that payment of an amount is overdue and that the mortgagee intends to take action if the amount is not paid.

Subregulation 4.22A(6) provides that the written statement under subregulation 4.22A(5) must also include details of the amount equal to three months' repayments and twelve months' interest on the outstanding balance of the loan at the time the statement is made.

Regulation 5 - Schedule 2 (Condition of release and cashing restrictions preserved benefits and restricted non-preserved benefits)

Subregulation 5.1 omits item 105 - Severe Financial Hardship - from Schedule 2 to the Principal Regulations and inserts anew item 105. New item 105 states that severe financial hardship' is a condition of release for preserved and restricted nonpreserved benefits in an RSA and sets out the cashing restriction if this condition of release is met. For a person taken to he in severe financial hardship under paragraph 4.01 (5)(a) the amount that is permitted to be released from an RSA is limited to a single lump sum in each 12 month period with a minimum release amount of $1,000 (except where the person's benefits are less than that amount) and a maximum of $15,000. For a person taken to be in severe financial hardship under paragraph 4.01 (5)(b) there is no restriction on the amount that can be released.

Subregulation 5.2 inserts a new item 110 into Schedule 2 to the Principal Regulations to insert 'compassionate ground' as a condition of release for preserved and restricted non-preserved benefits in an RSA. The cashing restriction for release on a 'compassionate ground' is limited to a single lump sum not exceeding an amount determined by the Commissioner that is reasonably required in the circumstances. However, in relation to the compassionate ground that enables payment to prevent foreclosure by a mortgage or the exercise of an express or statutory power of sale over the family home, the amount that can be released cannot exceed an amount equivalent to 3 months' repayments and 12 months' interest on the outstanding balance of the loan in any twelve month period.