House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Scott Morrison MP and Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

Chapter 2 - The objective of the superannuation system

Outline of chapter

2.1 The Superannuation (Objective) Bill 2016 (the Objective Bill) establishes a legislative framework to guide the development of future superannuation policy. It does this by enshrining the primary objective and subsidiary objectives of the superannuation system in legislation, and requiring new bills and regulations relating to superannuation to be accompanied by a statement of compatibility with the primary and subsidiary objectives of the superannuation system.

2.2 All legislative references in this Chapter are to the Objective Bill.

Context of amendments

2.3 Superannuation is important to improving the retirement income of all Australians and is one pillar of the Australian retirement income system, together with the age pension and other voluntary savings. Over 80 per cent of working age Australians have superannuation savings. It is the second largest savings vehicle, making up around 22 per cent of all assets held by Australian households.

2.4 Superannuation is also a key component of the financial services industry and the economy more broadly. Superannuation assets have increased from $245 billion in 1996 to over $2 trillion today, representing well over 100 per cent of Australia's Gross Domestic Product.

2.5 In response to the Financial System Inquiry, the Government agreed to enshrine the objective of the superannuation system in legislation. This will provide a way in which competing superannuation proposals can be measured and a framework for evaluating future changes in the superannuation system.

2.6 As the superannuation system matures and financial assets increase further, the role of superannuation will increase. It is therefore important that new superannuation proposals be considered in light of the objective of the superannuation system so that future changes build and maintain confidence in the superannuation system.

2.7 The objective of the superannuation system was an important anchor for the development of the Government's 2016-17 Budget Superannuation Reform Package.

Summary of new law

2.8 The Objective Bill enshrines the primary and subsidiary objectives of the superannuation system in legislation. It also introduces a requirement for statements of compatibility with the primary objective and subsidiary objectives of the superannuation system to be prepared for every Bill or regulation relating to superannuation.

2.9 The subsidiary objectives of the superannuation system will be set out in regulation. Regulations will also prescribe certain Acts that are exempt from the requirement to prepare a statement of compatibility. These Acts relate to the operation of Commonwealth superannuation schemes, which are similar to the trust deeds of other superannuation funds, rather than relating to superannuation policy more generally.

Comparison of key features of new law and current law

Detailed explanation of new law

2.10 For every Bill or regulation relating to superannuation, there must be a statement of its compatibility with the primary objective and subsidiary objectives of the superannuation system.

The objective of the superannuation system

2.11 The Objective Bill enshrines the primary objective and subsidiary objectives of the superannuation system in legislation.

2.12 The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension. [Section 4, subsection 5(1)]

2.13 This objective clarifies that the role of the superannuation system is to assist individuals to support themselves by providing income to meet their expenditure needs in retirement, rather than being a concessionally taxed investment vehicle for tax minimisation and estate planning.

2.14 Superannuation, through a combination of requiring compulsory employer superannuation guarantee contributions and allowing voluntary contributions, supports the other pillars of the retirement income system - the age pension and other savings. Its purpose is not to allow for tax minimisation or estate planning.

2.15 The subsidiary objectives of the superannuation system will be prescribed by regulation. [Section 4, subsection 5(2)] They are to:

•

facilitate consumption smoothing over the course of an individual's life;

•

manage risks in retirement;

•

be invested in the best interests of superannuation fund members;

•

alleviate fiscal pressures on Government from the retirement income system; and

•

be simple, efficient and provide safeguards.

2.16 Enshrining the primary objective of the superannuation system in legislation, in combination with the subsidiary objectives prescribed by regulation, will provide a framework against which future superannuation policy proposals can be assessed.

2.17 The primary objective and subsidiary objectives of the superannuation system do not affect the meaning of any law of the Commonwealth (other than the Objective Bill and its regulation). This means that the primary objective and subsidiary objectives cannot be used to interpret other Commonwealth laws. [Subsection 5(3)]

2.18 For example, the objective of the superannuation system will not affect the interpretation of provisions such as section 62 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which outlines the sole purpose test for regulated superannuation funds. This provision states that funds must be maintained solely for one or more of the core purposes (including provision of benefits on retirement, attainment of certain age and death) or for one or more of the ancillary purposes (including termination of employment, ill-health, and death). Benefits that are provided within the scope of the sole and ancillary purposes are consistent with the objectives of the superannuation system.

Statements of compatibility with the objective of the superannuation system

2.19 A statement of compatibility must be prepared for a Bill or regulation that relates to superannuation.

2.20 It is the responsibility of the member of Parliament proposing to introduce a Bill into a House of Parliament to cause a statement of compatibility to be prepared. The statement of compatibility must be presented to the House of Parliament by the member of Parliament who introduces the Bill, or another member acting on his or her behalf. [Subsection 6(1), subsection 6(2)]

2.21 A statement of compatibility with the primary objective and subsidiary objectives of the superannuation system will ordinarily form part of the explanatory memorandum for a Bill that is introduced into a House of Parliament.

2.22 It is the responsibility of the rule-maker for a regulation to cause a statement of compatibility to be prepared for a regulation relating to superannuation. The statement must be included in the explanatory statement relating to the regulation. [Subsection 7(1), note to subsection 7(1)]

2.23 Whether a Bill or regulation relates to superannuation is discussed at paragraphs 2.36 to 2.38.

2.24 The term 'rule-maker' has the same meaning as in the Legislation Act 2003. [Section 4]

2.25 A regulation is a form of legislative instrument. The note to subsection 8(1) of the Legislation Act 2003 states that legislative instruments may be described by their enabling legislation in different ways, for example as regulations, rules, ordinances or determinations. As such, regulations are legislative instruments that are so described by their enabling legislation.

2.26 A statement of compatibility will not be required for legislative instruments that are not regulations, for example determinations made by the Commissioner of Taxation (Commissioner) or prudential standards made by APRA. This is because Bills and regulations are more likely to contain measures implementing Government policy decisions than legislative instruments made by regulators such as the ATO, ASIC and APRA. Since the purpose of legislating the objective of the superannuation system is to guide the development of superannuation policy, it would be unnecessary to require regulators instituting such legislative instruments to comply with the requirement to prepare a statement of compatibility.

2.27 There is no prescribed format that a statement of compatibility must take. However, the statement must include an assessment of whether the Bill or regulation is compatible with the primary objective and subsidiary objectives of the superannuation system. [Sections 6(3) and 7(2]

2.28 The statement of compatibility should address the major components of the Bill or regulation. It is not necessary to address any aspects of the Bill or regulation that are minor or machinery in nature.

2.29 The statement of compatibility need only address those parts of the Bill or regulation that relate to superannuation. For example, if an omnibus Bill implements several measures, one of which relates to superannuation, the statement need only be prepared in relation to that measure.

2.30 A statement of compatibility with the objective of the superannuation system prepared for a Bill or regulation is not binding on any court or tribunal. [Subsection 6(4), subsection 7(3)] This is not intended to exclude the operation of section 15AB of the Acts Interpretation Act 2001, which deals with the use of extrinsic materials in the interpretation of an Act or legislative instrument. A statement of compatibility could be used by a court or tribunal to ascertain the meaning of provisions in the Act or regulation to which the statement relates, where the meaning of those provisions is unclear or ambiguous.

2.31 If a statement of compatibility is not prepared for a Bill or regulation relating to superannuation this will not affect the validity, operation or enforcement of the Act or regulation or any other law of the Commonwealth. [Subsections 6(5) and 7(4)]

2.32 Regulations may prescribe certain Acts and regulations that, if amended or repealed, do not require a statement of compatibility to be prepared. These Acts relate to the operation of Commonwealth superannuation schemes, which are similar to the trust deeds of other superannuation funds, rather than relating to superannuation policy more generally. Amendments to these Acts (or regulations made under these Acts) will not require a statement of compatibility to be prepared as the Acts do not relate to superannuation policy more generally. [Subsection 6(6) and 7(5)]

2.33 The simplified outline of the Objective Bill states that for every Bill or regulation relating to superannuation, there must be a statement of its compatibility with the primary and subsidiary objectives of the superannuation system. [Section 3]

2.34 Simplified outlines are non-operative provisions that are used to assist readers understand the legislation. They are not intended to be comprehensive and the substantive provisions of the Bill must be relied upon.

2.35 The Governor-General may make regulations prescribing matters required or permitted by the Objective Bill to be prescribed by the regulations, or necessary or convenient to be prescribed for carrying out or giving effect to the Objective Bill. [Section 8]

Relating to superannuation

2.36 Statements of compatibility with the objective of the superannuation system must only be prepared for Bills or regulations relating to superannuation. 'Relating to superannuation' is not a defined term so takes its ordinary meaning.

2.37 A Bill or regulation will relate to superannuation if it amends a law that is relevant to superannuation, irrespective of whether the relevant instrument being amended predominantly relates to superannuation (such as the Superannuation Guarantee (Administration) Act 1992) or merely contains some provisions that deal with superannuation (such as the Taxation Administration Regulations 1976 or the Fair Work Act 2009). It is the subject matter of the amendment that is relevant as to whether it relates to superannuation, rather than the instrument being amended.

2.38 Whether a Bill or regulation relates to superannuation and requires a statement of compatibility to be prepared will ultimately be a decision for the relevant member of Parliament or rule-maker.

Example 2.1 : Statement required

The Government proposes to amend the mandatory disclosure requirements for superannuation products in the Corporations Regulations 2001. This would require a regulation to be made by the Governor-General in accordance with the regulation making power in section 1364 of the Corporations Act 2001.

Provisions in the Corporations Regulations 2001 predominantly relate to regulating corporations as a whole; however some parts of the Regulations are specific to corporate trustees that are superannuation providers. Part 10 of Schedule 10A of the Corporations Regulations 2001 contains the provisions that modify mandatory disclosure requirements in relation to superannuation products.

The Treasurer, as the Minister responsible for administering the Corporations Act 2001, would need to cause a statement of compatibility with the objective of the superannuation system to be prepared in respect of the proposed regulation. This is because the proposed regulation would amend provisions that relate to superannuation.

Example 2.2 : Statement not required

Section 15A of the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA) allows the Commissioner to specify, by legislative instrument, certain dates by which superannuation providers must give to the Commissioner statements and payments in relation to unclaimed superannuation money.

The Commissioner makes a new legislative instrument under this provision.

Although this legislative instrument would relate to superannuation it is not a regulation because section 15A of the SUMLMA refers to a 'legislative instrument' rather than a 'regulation'. This means that a statement of compatibility with the objective of the superannuation system would not need to be prepared.

Example 2.3 : Statement not required

Under section 34C of the SIS Act, APRA may determine prudential standards concerning registrable superannuation entities.

APRA makes a new prudential standard under this provision.

Subsection 34C(10) of the SIS Act states that an instrument made under section 34C is a legislative instrument (with some exceptions).

Although a prudential standard made by APRA under section 34C of the SIS Act would relate to superannuation, it would not be a regulation because the enabling legislation refers to it as a 'legislative instrument'. As such, a statement of compatibility with the objective of the superannuation system would not be required.

Consequential amendments

A consequential amendment is made to the Legislation Act 2003 to require a statement of compatibility with the objective of the superannuation system to be included in an initial explanatory statement, or replacement explanatory statement, for a regulation relating to superannuation (unless the regulation is exempt from the requirement). [Schedule 10 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016, item 112, paragraph 15J(2)(fa)]

Commencement

2.39 The Objective Bill commences from the start of the first day of the first quarter following Royal Assent of the Objective Bill. [Section 2]

2.40 Bills introduced into a House of Parliament or regulations made after this time, are required to be accompanied by a statement of compatibility with the objective of the superannuation system, if they relate to superannuation.

2.41 The consequential amendment to the Legislation Act 2003 commences from the start of the first day of the first quarter following Royal Assent of the TLA Bill. [Item 8 of the table in section 2 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Superannuation (Objective) Bill 2016

2.42 The Superannuation (Objective) Bill 2016 (the Objective Bill) and the consequential amendment to the Legislation Act 2003 in Schedule 10 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (the TLA Bill) are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

2.43 The Objective Bill establishes a legislative framework to guide the development of future superannuation policy. It does this by enshrining in legislation that the primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension. It also provides for subsidiary objectives of the superannuation system to be prescribed by regulation.

2.44 Bills and regulations relating to superannuation will need to be accompanied by a statement of compatibility with the primary and subsidiary objectives of the superannuation system. This will ensure that future superannuation policy is considered against the primary objective and subsidiary objectives of the superannuation system.

2.45 Part 5 of Schedule 10 to the TLA Bill makes consequential amendments to the Legislation Act 2003 in relation to the objective of the superannuation system.

Human rights implications

2.46 The Objective Bill and Part 5 of Schedule 10 to the TLA Bill do not engage any of the applicable rights or freedoms.

Conclusion

2.47 The Objective Bill and Part 5 of Schedule 10 to the TLA Bill are compatible with human rights as they do not raise any human rights issues.