House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Chapter 7 Amendments to the Occupational Superannuation Standards Act

Amendments relating to transferred retiree members of superannuation funds

Summary of the proposed amendments

Purpose of amendment: To amend subsection 3(1) of the Occupational Superannuation Standards Act 1987 (OSS Act) to amend the definition of "transferred retiree member" in such a way as to allow such a member's benefit to be funded from any rolled over eligible termination payment (ETP). This will increase the opportunity for people to choose between pension providers.

Date of effect: Royal Assent

Background to the legislation

A superannuation fund cannot retain the monies of a member when he or she retires. An exception to this general rule is where the fund is paying a bona fide pension or income stream to the retired person from assets accumulated during their working life and now held in the fund as a source for the pension payment.

A recent amendment to the OSS Act allows a superannuation fund to accept a direct payment of monies from another superannuation fund on behalf of a retired person. This amendment has made it easier for the retiree to choose a pension provider which best suits his or her circumstances, thereby encouraging retirees to choose the pension option and encouraging competition among pension providers. The key to this provision is the definition of a "transferred retiree member", who is the only retired person on whose behalf monies may be transferred to a superannuation fund.

Eligible termination payments may be made to or on behalf of retired people by superannuation funds, approved deposit funds, deferred annuities and by their previous employer. The retiree then has 90 days to decide what to do with this benefit. However, having retired, these monies currently cannot be then placed with a superannuation fund. However, it is reasonable that the recipient's choices within the 90 days should include rollover to a superannuation fund that will provide a pension funded by the rolled over monies.

The proposed amendments will amend the definition of "transferred retiree member" to include a member who has retired and whose benefit in a new fund is funded by a payment that is the rollover of an eligible termination payment within the meaning of that phrase in the Tax Act. This retains the existing recognition of direct fund to fund transfers, and includes other rollover transactions that take place within the standard 90 day period.

Explanation of the proposed amendments

Section 3 of the OSS Act will be amended by omitting paragraph (b) of the definition of "transferred retiree member" in subsection (1) and substituting paragraphs which explain that the payment which funds the benefit of such a member must represent the roll-over of an eligible termination payment (within the meaning of section 27A of the Tax Act) [Clause 45].

The amendments made by Division 2 apply in relation to amounts paid to the trustees of a fund after the commencement of this section [Clause 46].

Amendments relating to the notification of breaches of superannuation fund conditions

Summary of proposed amendments

Purpose of amendment: To amend subsection 12(3A) of the Occupational Superannuation Standards Act 1987 (OSS Act) to:

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excuse superannuation funds from having to notify all of their contributing employers in the event of funds becoming aware of a failure to meet the superannuation fund conditions, provided that circumstances prescribed by the OSS Regulations exist;

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limit the employers to be notified to those employers to be specified in the OSS Regulations; and

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clarify that subsection 12(3A) has always applied to breaches that continued or occurred after 30 June 1992 and in the case of breaches which continue after 30 June 1992 only to the extent that they relate to 1992/93 and later years.

Date of effect: Amendments relating to when notification is required or not required, and which employer-sponsors to notify - Proclamation.

Amendments related to application of subsection 12(3A) - Royal Assent.

Background to the legislation

Contributions must be paid to superannuation funds which comply with the superannuation fund conditions (ie funds which have received or will receive a notification of compliance from the Insurance and Superannuation Commissioner) in order to reduce employers' Superannuation Guarantee obligations. The OSS Act provides circumstances in which the Commissioner must overlook a breach of the superannuation fund conditions, in particular, where the fund fixes the breach within 30 days (or such longer period as is approved by the Commissioner) and has notified the Commissioner and all employers who have contributed to the fund about the breach.

Minor breaches which are fixed within 30 days should generally not result in a fund having to incur the expense of notifying all contributing employers (there are a large number of contributing employers in some funds) in order to maintain the fund's capacity to accept Superannuation Guarantee contributions.

However, to provide appropriate prudential supervision and information to members, there should remain scope for the Insurance and Superannuation Commissioner to require a fund to notify all contributing employers even if a breach is rectified within 30 days (for example if a single employer fund repeatedly loans the bulk of its assets back to the employer, who repays within 30 days). It is also appropriate to allow the Commissioner scope to excuse a fund from notifying all contributing employers even if a breach exists for longer than 30 days, for example in the case of a breach with a very minor impact on members.

It is the intention of the Government to recommend to the Executive Council regulations, under the authority of the proposed amendment, which would enable the Insurance and Superannuation Commissioner to request, or to excuse, a superannuation fund from notifying all contributing employers about a breach, notwithstanding the time taken to rectify it. If the breach is rectified within 30 days funds need not notify employers unless the Commissioner requires it. If the breach lasts over 30 days, funds must notify employers unless the Commissioner agrees otherwise.

It is also intended to recommend regulations which would enable the Commissioner to prescribe which employer-sponsors should receive notification. The Government's intention is to limit notification to those employers who may have been, or may be affected by the breach(es) rather than requiring notification of all employers who ever contributed to the fund.

Explanation of proposed amendments

Section 12(3A) of the OSS Act will be amended by omitting subparagraph (3A)(a)(i) and substituting subparapgraphs (3A)(i), (3A)(ia)(A) & (B) and (3A)(ib)(A) & (B) which provide that the Commissioner must disregard a breach of the superannuation fund conditions provided that certain criteria have been met [Clause 47].

These criteria are:

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the trustee must notify the Commissioner of the breach as soon as practicable after becoming aware of the breach [subparagraph 12(3A)(i)];

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if the trustee's response to the breach is covered by the OSS regulations and the trustee has complied with any written notice under the OSS regulations requesting the trustee to take all reasonable steps to notify the breach to all prescribed employer-sponsors in relation to the fund [subparagraph 12(3A)(ia)(A) & (B)]; or

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if the trustee's response to the breach is not covered by the OSS regulations and the trustee has not been given a written waiver from the requirements of this subparagraph, the trustee took all reasonable steps to notify the breach to all prescribed employer-sponsors in relation to the fund [subparagrpah 12(3A)(ib)(A) & (B)].

The amendments made by Section 47 apply in relation to a breach of a superannuation fund condition. If the breach continued over a period the amendments apply to so much of the breach as occurred after the commencement of this amendment, in any other case the amendments apply if the breach occurred after the commencement of this amendment [Clause 48].

Transitional arrangements will apply so that paragraph 12(3A) only applies to breaches occurring or continuing after 1 July 1992 and only with respect to the period commencing on 1 July 1992 [Clause 49].

Amendments relating to prospectuses

Summary of proposed amendment

Purpose of amendment: To insert Section 12A into the Occupational Superannuation Standards Act 1987 (OSS Act) to enable the Insurance and Superannuation Commissioner (the Commissioner) to exempt (conditionally or otherwise) individual funds, from compliance with any or all of the prospectus requirements contained in the Occupational Superannuation Standards Regulations (OSS Regulations), or to modify the application of the provisions.

Date of effect: Royal Assent

Background to the legislation

The OSS Regulations require certain publicly offered superannuation funds to lodge a prospectus with the Commissioner. This has been a requirement since 24 February 1993. Most publicly offered superannuation funds had previously been required to lodge a prospectus with the Australian Securities Commission (the ASC) until 22 December 1992, when the ASC requirement was removed. The ASC had, when administering these requirements, a substantial discretionary power within the Corporations Law which permitted a flexible response in dealing with a superannuation fund's compliance with the prospectus provisions. Operational experience has shown the need for the Commissioner to have a discretionary power, similar to that exercised by the ASC, to appropriately deal with the administration of the prospectus requirements.

The amendment will give the Commissioner power to exempt (conditionally or otherwise) funds from the prospectus provisions or to modify the application of the provisions. It is proposed that the SIS legislation which is expected to come into operation in July 1994 will provide similar powers to the Commissioner.

Explanation of the proposed amendments

Section 3 of the OSS Act will be amended by extending the definition of "reviewable decision" to include the following circumstances:

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a decision of the Commissioner refusing to give an exemption under section 12A in relation to a fund;

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a decision of the Commissioner to vary or revoke or refusing to vary or revoke an exemption under section 12A in relation to a fund;

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a decision of the Commissioner to make a determination under section 12A in relation to a fund;

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a decision of the Commissioner to vary or revoke or refusing to vary or revoke a determination under section 12A in relation to a fund [Clause 50].

New section 12A will operate in respect of standards relating to prospectuses. Section 12A provides that:

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the Commissioner may, by written notice to the trustee of a fund, exempt the fund from compliance with the standard;

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the exemption may be made either generally or as otherwise provided in the exemption;

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the exemption may be unconditional or subject to such conditions (if any) as are specified in the exemption;

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if the Commissioner makes a decision refusing an application for an exemption, the Commissioner must give to the applicant a written notice setting out the decision and giving the reasons for the decision;

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the Commissioner may, by written notice given to the trustee of a fund, vary or revoke an exemption applicable to the fund;

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if the Commissioner makes a decision to vary or revoke an exemption, or refusing to vary or revoke an exemption, the Commissioner must give the trustee of the fund concerned a written notice giving the reasons for the decision;

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the Commissioner may, by written notice given to the trustee of a fund, determine that the standard is to have effect, in its application in relation to the fund and in relation to a specified prospectus, as if it were modified in the manner specified in the determination;

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the determination may have effect either generally or as otherwise specified in the determination;

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if a determination is made, the standard has effect accordingly;

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a notice of determination must give the reasons for making the determination;

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the Commissioner may, by written notice given to the trustee of a fund, vary or revoke a determination applicable to the fund;

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if the Commissioner makes a decision to vary or revoke a determination or refusing to vary or revoke a determination, the Commissioner must give the trustee of the fund concerned a written notice giving the reasons for the decision;

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an exemption given in response to an application made within 90 days after the commencement of this section may be expressed to have taken effect on a day that is:(a) on or after 24 February 1993; and (b) earlier than the day on which the notice of exemption was given [Clause 51].

In this section 'modification' includes addition, omission and substitution.

Section 16 of the OSS Act is also amended to reflect the changes made to the definition of reviewable decision as outlined in Clause 50 of this Bill [Clause 52].

Amendments relating to disclosure of information about particular superannuation funds

Summary of the proposed amendments

Purpose of amendment: To amend Section 18(2A) of the Occupational Superannuation Standards Act 1987 (OSS Act) to allow, as an exception to the secrecy requirements of Section 18, the Insurance and Superannuation Commission (ISC) to provide the public with certain information about funds.

Date of effect: Royal Assent

Background to the legislation

The Superannuation Guarantee (Administration) Act 1992 (SG Act) requires that contributions paid by employers to meet their Superannuation Guarantee (SG) obligations must be paid to a complying superannuation fund.

Under the secrecy provisions of the OSS Act the ISC is prohibited from disclosing protected information. Protected information is essentially information obtained under the OSS Act relating to the affairs of the fund.

An amendment to the OSS Act which coincided with the passage of the SG Act, allowed the ISC to publish:

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the names of superannuation funds that have received a notice of compliance or non compliance;

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reasonable information to enable contact with the fund.

In addition, the OSS Act allows for information to be disclosed where, in the Minister's opinion, it is 'in the public interest'.

Experience since the SG Act was introduced has shown that employers and the public generally are also interested to know whether funds have ever lodged a return with the ISC, and whether their absence from the list is for that reason or simply because their return is still being processed prior to the issue of a notice. On 27 October 1992 the Minister Assisting the Treasurer approved in the public interest that the ISC may provide information on the compliance status and fund contact details for all superannuation funds. This approval was given to allow the provision of the information by the ISC until the OSS Act could be amended.

The ISC has established a public access database (PADB) which provides information to any enquirer via computer modem or telephone enquiry. In order to enable information about the compliance status of a fund to be disseminated more quickly, the proposed amendments would allow information in relation to a compliance notice to be disclosed via the PADB when a decision is taken (which may be before a notice is despatched). This will markedly shorten the period between when funds lodge a return and when their compliance status is public knowledge. It will therefore reduce the number of enquiries about a fund's status.

Since the ISC has been operating the PADB, trustees and managers have received more enquiries from the public concerning the making of SG contributions to funds. However, in many circumstances the fund is either unable or unwilling to accept SG contributions in respect of the particular enquirer. Obvious examples are single employer funds which can only accept the employer's employees as members. Other funds are either administratively or legally unable to accept members from outside particular geographical areas, or from outside particular industries.

Therefore, in the interests of providing more useful information to the public, the annual return form for funds for ISC lodgement for the 1991/92 year of income invites the provision of information on a voluntary basis on whether the fund wishes to accept SG contributions, and if so from which geographical area, and in respect of which industry. It would also be useful for funds if this information was available to employers and employees.

Explanation of the proposed amendment

Subsection 18(2A) of the OSS Act will be repealed and substituted with a subsection which provides that the Commissioner is not prevented from disclosing particular information about a superannuation fund. Information that can be provided includes:

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whether or not the trustee of the fund has lodged a return under section 12 of the OSS Act

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whether of not a decision has been made by the Commissioner to give a notice, or a particular kind of notice, in relation to the fund under section 12 in respect of a particular year of income;

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whether or not a notice, or a particular kind of notice, has been given by the Commissioner under sections 10, 12 or 13 in relation to the fund in respect of a particular year of income;

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whether or not the trustee of the fund has asked the Commissioner to give the trustee a notice under subsection 13(1) in respect of a particular year of income;

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whether the trustee of the fund has told the Commissioner that the trustee is willing to accept a particular kind of contribution;

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an address at which business relating to the fund may be transacted;

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such other information as is reasonably necessary to enable members of the public to contact a person who has a function in relation to the fund [Clause 53].

Amendments relating to reporting of Eligible Termination Payments for Reasonable Benefit Limits

Summary of proposed amendment

Purpose of amendment: To amend subsection 15G(4) of the Occupational Superannuation Standards Act 1987 (OSS Act) to clarify that certain payers of eligible termination payments (ETPs) are eligible for the exemption from reasonable benefit limit (RBL) reporting of payments up to the threshold amount prescribed in the regulations.

Date of effect: 24 December 1991

Background to the legislation

The definition of "payer" in subsection 15E(1) of the OSS Act was amended with effect from 24 December 1991 so that, except for continuously non-complying approved deposit funds, any person or other entity paying an ETP, superannuation pension or annuity is obliged to report the benefit to the Insurance and Superannuation Commissioner for RBL purposes. The effect of the amendment was to bring within the RBL reporting obligation certain payers of benefits that had not previously had to report.

Subsection 15G(4), removes the administrative burden of reporting small amounts by providing an exemption from reporting small ETP payments to superannuation funds and employers below a threshold amount - prescribed in the regulations, currently $5,000. There is an inconsistency in that payers of ETPs which are not superannuation funds or employers must report all ETP payments, including small payments below the threshold amount. The amendment is designed to put all ETP payers on the same footing, except for defined categories of payers, such as approved deposit and deferred annuity funds, where the depositor had withdrawal rights akin to those for a bank savings account except where benefits are preserved. The exemption is not extended to ADFs and deferred annuity funds because partial withdrawals are allowed from these funds and if the threshold exemption applied, persons could circumvent the RBLs by making a number of small withdrawals below the threshold.

Explanation of the proposed amendment

All payers will be exempted from reporting ETP payments below the RBL reporting threshold, except if payers are ADFs, registered organisations or life assurance companies and the payment is made from a source other than a superannuation fund or it is made by a registered organisation or a life assurance company in their capacity as an employer. [subsection 15G(4) - Clause 54]