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OCCUPATIONAL SUPERANNUATION STANDARDS REGULATIONS (AMENDMENT) 1991 NO. 148

STATUTORY RULES 1991 No. 148

ISSUED BY AUTHORITY OF THE TREASURER

OCCUPATIONAL SUPERANNUATION STANDARDS ACT 1987

OCCUPATIONAL SUPERANNUATION STANDARDS REGULATIONS (AMENDMENT)

LEGISLATIVE BASIS FOR THE REGULATIONS

Section 22 of the Occupational Superannuation Standards Act 1987 (the Act) provides that the Governor-General may make regulations for the purposes of the Act, and, in particular, to prescribe methods for determining whether an eligible termination payment, superannuation pension or annuity is within or exceeds the reasonable benefit limits.

BACKGROUND

Part IIIA of the Act, which commenced on 1 July 1990, established arrangements for the administration of the reasonable benefit limits. Coinciding with the commencement of Part IIIA, the Occupational Superannuation Standards Regulations were amended by inserting Part 1A to prescribe the method by which the Insurance and Superannuation Commissioner (the Commissioner) determines a person's reasonable benefit limit and whether a benefit received by a person is within or in excess of that limit.

The amending Regulations inserted several technical amendments to remove practical difficulties with the administration of the reasonable benefit limits (RBLs). These difficulties have been identified both by the Insurance and Superannuation Commission and industry bodies with whom the Commission has consulted over the months since July 1990.

DETAILS OF THE REGULATIONS

The amendments are described in detail in the Attachment.

DATE OF OPERATION

Regulation 9 did not commence until 1 July 1991 so that the prescribed amount for reporting payments was consistent throughout the 1990/91 financial year. The remaining regulations commenced on the date of gazettal, although where specified, some apply only to payments made on or after 1 January 1992.

Attachment

Occupational Superannuation Standards Regulations (Amendment)

References in the following paragraphs are to provisions of the amending Regulations. References to the "principal regulations" are references to the Occupational Superannuation Standards Regulations.

Regulation 1

Subregulation 1.1 provides that regulation 9 did not commence until 1 July 1991 so that the prescribed amount for reporting payments was consistent throughout the 1990/91 financial year. The remaining regulations commenced on the date of gazettal, although where specified, some apply only to payments made on or after 1 January 1992.

Regulation 2

Subregulation 2.1 provides that the Occupational Superannuation Standards Regulations are amended as set out in the Regulations.

Reaulation 3

Subregulation 3.1 corrected a grammatical error in paragraph 4(1)(ab) of the principal regulations.

Reaulation 4

This regulation sets out several amendments to subregulation 4A(1) of the principal regulations.

Subregulation 4.1 amended the definition of "accrued retirement benefit component" which applies in relation to a superannuation pension which is paid as a result of the permanent disability of a person.

The definition contains a formula which works out that part of the pension which relates to service which the person would have had to age 65 if he or she had not retired on disability grounds.

It is necessary to calculate this part of the pension as it does not count towards the person's reasonable benefit limit whereas the accrued retirement benefit component does count towards the limit.

Where a person receives a disability pension after age 65, the previous definition led to the "accrued retirement benefit component" being greater than the capital value of the pension. In order to avoid this outcome a minimum of zero has been placed on the calculation.

Subregulation 4.2 amended the definition of "gainful employment". Paragraph (a) of this definition previously referred to 20% of the full-time adult average weekly ordinary time earnings (AWOTE) first published by the Australian Statistician for the March quarter in the preceding financial year.

This was intended to allow a person to establish that his or her work participation is genuine by indicating the payment of a salary commensurate with the work performed.

However, as AWOTE is published as a weekly figure, this meant that a person would be required to earn a very small salary to meet the test at paragraph (a).

Paragraph (a) has therefore been amended so that it refers to the full-time adult average weekly ordinary time earnings first published by the Australian Statistician for the March quarter in the preceding financial year multiplied by 52.

Subregulation 4.3 amended the definition of "net business income" so as to exclude deductions for superannuation contributions.

Subregulation 4.4 provides for a corresponding amendment to the definition of "net business losses" in subregulation 4A(1) of the principal regulations.

Subregulation 4.5 is a technical amendment that provides for consistency between the wording of the definitions of "pension RBL" and "lump sum RBL".

Subregulation 4.6 included a definition of "quarter". This amendment was necessary to prevent confusion arising from the use of the term throughout the regulations relating to the reasonable benefit limits.

Subregulation 4.7 excluded lump sums paid on termination of employment in respect of unused annual leave or long service leave from the definition of "salary". This treatment is consistent with the basis for the definition of salary which is that remuneration for personal exertion which is not concessionally taxed is included in salary for reasonable benefit limit purposes. The amendment removed any uncertainty surrounding the treatment of such payments.

Subregulation 4.8 omitted the definition of "standard indexation rate" in subregulation 4A(1) of the principal regulations and referred to a new definition in terms of a new regulation 4DA of the principal regulations that was inserted by subregulation 7.1.

Subregulation 4.9 omitted from paragraph 4A(2)(a) of the principal regulations the requirement that overseas salary earned during part of a year should be converted into Australian currency at the exchange rates current at the start and end of the part year. It is sufficient to value the foreign currency using exchange rates from the start and end of the relevant full financial year.

Reaulation 5

Subregulation 5.1 is a technical amendment that provides for consistency in wording between paragraphs 4B(1)(a) and (b) of the principal regulations.

Subregulation 5.2 added to the list of eligible termination payments which are not taken into account in determining whether a person is eligible for indexation of his or her highest average salary in terms of paragraph 4B(2)(c) of the principal regulations.

That paragraph provides for indexation of highest average salary where a person has not received an eligible termination payment or a benefit which does not meet the pension and annuity standards before the person turns age 65. This subregulation excludes, for the purposes of this paragraph, eligible termination payments which do not count for reasonable benefit limits purposes.

The subregulation also excludes from the application of paragraph 4B(2)(c) amounts which are eligible termination payments but which cannot be rolled over, specifically those amounts referred to in subsection 27A(12B) or (12E) of the Tax Act. This ensures that receipt of such a benefit will not exclude a person from entitlement to indexation of highest average salary.

Eligible termination payments which are wholly excessive do not attract concessional tax treatment and hence are also excluded.

In order to allow for administrative systems to be redeveloped, this amendment is to be effective in respect of payments made on or after 1 January 1992.

Subregulation 5.3 inserted a cross reference to the new subregulation 4B(3A) into subregulation 4B(3).

Subregulation 5.4 amended subparagraph 4B(3)(b)(ii) of the principal regulations so as to ensure that, in circumstances where a person is entitled to indexation of highest average salary by reason of having been engaged in gainful employment for at least three consecutive financial years after turning 55, the indexation only extends to the end quarter if that person was in gainful employment in the financial year in which the benefit was paid.

Subregulation 5.5 replaced paragraphs 4B(3)(d) and (e) of the principal regulations with new paragraphs (d), (da), (e) and (f). The amendments, which will apply to payments made on or after 1 January 1992, ensure that where a person becomes entitled to indexation of his or her highest average salary by reason of being paid a redundancy, early retirement or invalidity payment, it is the person's highest average salary at the time of the payment which is indexed rather than highest average salary at any later time.

The subregulation also provides that where a person receives a bona fide redundancy payment or a payment under an approved early retirement scheme, he or she is entitled to indexation of highest average salary (HAS) for five years, rather than two years as the regulation previously provided. This allows more time for a person to gain the level of salary which applied before the redundancy or early retirement before indexation ceases.

Subregulation 5.6 inserted a new subregulation 4B(3A) into the principal regulations. The new subregulation provides for the situation where a person's salary declines by at least 20 per cent at some point so that his or her HAS becomes an historical figure. If, at some later stage, the person's salary rises-to the point where it reaches the level of salary before the decline, the previous wording of subregulation 4B(3) meant that any indexation would only apply from the later time.

The amendment allows indexation to apply from the time of the earlier salary where this results in a higher reasonable benefit limit.

Subregulation 5.7 is a technical amendment that corrected an incorrect reference in subregulation 4B(5) of the principal regulations to subregulation 4B(2).

Regulation 6

The previous wording of the definition of "Annual Value" of a superannuation pension in subregulation 4D(1) of the principal regulations could have been interpreted so as to require the possibility of the death of the recipient to be taken into account in the valuation. This was not intended.

Subregulation 6.1 defined "annual value" for the purposes of the regulation.

Subregulation 6.2 inserted a cross reference to the new subregulation 4D(3).

Subregulation 6.3 replaced the words "Annual Value" in the formula with the symbol "AV". This is more consistent with the use of symbols in the formula.

Subregulation 6.4 defined the symbol "AV" as annual value.

Subregulation 6.5 inserted new subregulations 4D(3) and (4). Subregulation (3) sets out the method for valuing a superannuation pension which becomes payable as the result of an arrangement whereby the beneficiary ceases to be paid a superannuation pension from one fund but that pension is replaced by a pension from another fund.

The subregulation provides that only that part of the new pension which represents an increase over the value of the old pension will count against the person's reasonable benefit limit.

The new subregulation 4D(4) provides that "PVF", "UPP" and "RCV" have the same meaning as in subregulation (1).

Regulation 7

Subreaulation 7.1 inserted a new regulation 4DA into the principal regulations which sets out the method by which the Commissioner may determine the standard indexation rate. The new regulation removes the requirement in the previous definition of "standard indexation rate" in subregulation 4A(1) of the principal regulations for the Commissioner to determine the rate every year.

Regulation 8

Subregulation 8.1 inserted a new subregulation 4G(1A) into the principal regulations to provide that the tax file number of a payer is prescribed information for the purposes of subsection 15G(1) of the Act. This specific prescription was formerly included in Schedule 5 of the principal regulations.

The amendment is necessary because Schedule 5 sets out the prescribed information for the purposes of both subsections 15G(1) and (3) of the Act. Subsection 15G(1) requires payers to notify the Commissioner of prescribed information, while subsection (3) requires notification of prescribed information to the recipient of the payment. So as not to require the tax file number of the payer to be given to the recipient of the payment, this prescription has been removed from Schedule 5 and placed in subregulation 4G(1A) with a specific reference to subsection 15G(1).

Regulation 9

Subregulation 9.1 increased the prescribed amount for the purposes of subsection 15G(4) of the Act from $2,500 to $5,000, with effect for payments made on or after 1 July 1991.

As a large number of payments within the range $2,500 to $5,000 include only a small amount which is counted for the purposes of the reasonable benefit limits, this amendment reduces the administrative burden on payers for reporting payments to the Commissioner. The objectives of the reasonable benefit limits will continue to be met notwithstanding the increase in the amount of non-reportable payments.

Regulation 10

Subregulation 10.1 amended subregulation 4J(1) of the principal regulations so as to allow the Commissioner to grant an extension of time for notifications under section 15J(1) of the Act. This section requires persons who rollover payments to inform the Commissioner of having done so. This amendment gives full effect to the requirement in section 15J(1) that a reasonable period be prescribed.

Subregulation 10.2 brought regulation 4J of the principal regulations into line with regulation 4G by effectively providing that no information under regulation 4J is required before 14 September 1990. This amendment provides a respite for payers who did not notify the Commissioner of rollovers before 14 September 1990 where the rollover took place more than 28 days before that date for the initial period of operation of the notification requirements.

Regulation 11

Subregulation 11.1 is a technical amendment which brought the wording of paragraph 4K(5)(a) of the principal regulations (most recently amended by Statutory Rules 1991 No. 58) into line with the enabling section of the Act, subsection 15K(8).

Subregulation 11.2 provides for a corresponding amendment to paragraph 4K(5)(b).

Regulation 12

Subregulation 12.1 added to the information which payers may request from the Commissioner, the RBL amount of a benefit (unindexed). As previously worded, only the indexed value is prescribed. This amendment was necessary because, where the request is made within 12 months of the benefit being paid, the RBL amount should not be indexed but this was not provided for under the previous wording.

Regulation 13

Regulation 4M of the principal regulations sets out the method the Commissioner will use to make an interim determination. An interim determination will be made in cases where the Commissioner does not have all of the information necessary to make a determination under subsection 15K(1) of the Act.

In making an interim determination, the Commissioner is to make a number of assumptions where certain information has not been provided by the payer. These assumptions, which are set out in regulation 4M, are intended to cover items which, although there is provision for them to be notified on the forms which payers are required to forward to the Commissioner, are not prescribed information in the Schedules to the Regulations. The payer is therefore not subject to any penalty if these items are not provided.

Regulation 4M formerly set out three assumptions which are incorrect in that they are in respect of information which is in fact prescribed. These were contained in paragraphs 4M(e), (j) and (m). There were also three items of information which were not prescribed, but which may have relevance for the determination and for which regulation 4M did not set out assumptions.

Subregulation 13.1 added a cross reference in paragraph 4M(a) of the principal regulations to the new paragraph 4W(1)(ba). This allows the Commissioner to issue a final determination where all that is not known is the person's highest average salary and the total benefits are less than the base reasonable benefit limit (that is, the limit specified in subparagraphs (a)(ii) and (b)(ii) of the definition of "lump sum RBL" or paragraph (b) of the definition of "pension RBL" in subregulation 4A(1) of the principal regulations, or the limit prescribed by regulation 4ZA or 4ZB if applicable).

Subregulation 13.2 omitted paragraph 4M(e) of the principal regulations and inserted in its place a new paragraph 4M(e) which provides that where the Commissioner does not know whether an eligible termination payment, superannuation pension or annuity is paid as a result of the death of another person, he is to assume that it is not.

Subregulation 13.3 omitted paragraph 4M(j) of the principal regulations and inserted in its place a new paragraph 4M(j) which provides that where the Commissioner does not know whether a superannuation pension or annuity is payable to a person as the result of the death of another person and is a reversion of another pension or annuity that was already payable to the other person, he is to assume that it is not.

Subregulation 13.4 omitted paragraph 4M(m) of the principal regulations and inserted in its place a new paragraph 4M(m) which provides that where the Commissioner does not know whether an eligible termination payment is paid to the trustee of an estate, he is to assume that it is not.

Regulation 14

Subregulation 14.1 corrected an incorrect reference in subregulation 4N(1) of the principal regulations to subsection 15M(1) of the Act and replaced it with the correct reference to subsection 15N(1) of the Act.

Regulation 15

Subreaulation 15.1 omitted the word "previously" from the opening words of subregulation 4P(1) of the principal regulations. This made clear the intention that the benefits referred to in that subregulation are never taken into account regardless of whether they were previously paid or are the current benefit.

Subregulation 15.2 added to subregulation 4P(1) of the principal regulations three categories of benefits which do not count for the purposes of the reasonable benefit limits. They are:

•       an eligible termination payment arising from the commutation of a superannuation pension or annuity which did not have to be notified to the Commissioner because it was paid to the spouse or child of a person as a result of that person's death, where that payment was made to the spouse or child within 6 months of the date of death or 3 months of probate;

•       an eligible termination payment made to a charitable or religious body; and

•       an eligible termination payment made to a person under the age of 18 as the result of the death or disability of another person.

The first of these exclusions ensures that benefits to which subsection 15G(5) of the Act applies are not subsequently counted upon commutation. The second reflects the tax exemption of charitable or religious bodies. The third ensures that a minor's own capacity to fund for his or her retirement is not affected by the receipt of a benefit arising from the death or disability of another person.

With the omission of the word "previously" from the opening words, the closing words are no longer necessary and have been omitted.

Subregulation 15.3 As formerly worded, subregulation 4P(2) of the principal regulations did not exclude amounts that have previously been found to be in excess of the reasonable benefit limits from being counted as benefits previously received. Such amounts have not been afforded concessional tax treatment and therefore should not be counted. This amendment ensures that they are not.

Subregulation 15.4 The new subregulation 4P(3A) of the principal regulations is effective only in respect of benefits payable on or after 1 January 1992. Subregulation (3) was therefore amended in order for the previous rule to continue to apply to benefits received before that date.

Subregulation 15.5 Subregulation 4P(3) of the principal regulations ensures that, where a person rolls over an eligible termination payment resulting from the commutation or residual capital value of a superannuation pension, the Commissioner reduces the amount of the benefit previously received to take account of the rollover. However, where the commutation or residual capital value is paid before the pension itself has commenced, the Commissioner will have no record of a previous benefit to adjust. This amendment restricts the application of subregulation 4P(3) to superannuation pensions which have commenced to be paid, and have therefore already been notified to the Commissioner.

Subregulation 15.6 Subregulation 4P(3) of the principal regulations previously provided that where a person rolls over either the residual capital value of a superannuation pension or commutes a superannuation pension and rolls over part of the resulting eligible termination payment, the Commissioner is to reduce the amount of the pension which he has counted towards the person's reasonable benefit limit by the amount of the rollover. This is because the benefit which has been rolled over will be counted when it is withdrawn from the rollover fund and if the amount was not taken off at the point at which it is rolled over it would be counted twice towards the person's reasonable benefit limit.

However, the previous provision provided that the benefit rolled over is taken off the original amount counted towards the person's reasonable benefit limit even if the roll over does not occur until many years after the benefit was first paid.

The new subregulation 4P(3A) of the principal regulations provides that the capital value of the superannuation pension, or the eligible termination payment rolled over to purchase the annuity, be reduced by the adjustment amount. The subregulation is effective for rollovers on or after 1 January 1992.

The new subregulation (3B) sets out what is meant by the adjustment amount. This is:

•       where the rollover was made within 12 months of the payment of the benefit - the amount rolled over, less undeducted contributions and concessional components; or

•       the amount worked out by dividing the amount rolled over (less undeducted contributions and concessional components) by the index number for the quarter two quarters before the quarter in which the rollover occurred, and multiplying by the index number for the quarter in which the commencement day of the superannuation pension or annuity falls.

Subregulations 15.7 and 15.8 made corresponding amendments to subregulation 4P(4) in relation to annuities, with the exception of the proviso that the annuity have commenced to be paid. An annuity which has not commenced to be paid cannot have a residual capital value, and any commutation will be notifiable as an eligible termination payment.

Subregulation 15.9 corrected a grammatical error in subparagraph 4P(5)(a)(i) of the principal regulations by inserting the words "the benefit" after "ETP - ".

Subreaulation 15.10 amended an incorrect cross reference in paragraph 4P(6)(a) of the principal regulations.

Subregulation 15.11 ensures consistency between the treatment of different types of benefits previously received in relation to whether those benefits are indexed, when the person is entitled to use the balance held in rollover funds as at 15 February 1990 as the reasonable benefit limit. As formerly worded, paragraph 4P(6)(d) of the principal regulations requires the Commissioner to exclude the excessive component of an eligible termination payment when ascertaining whether a person's previous benefits are less than his or her 15 February 1990 balance, but does not exclude any excessive amount of a superannuation pension or annuity. The amendment ensures that the latter amounts are also excluded.

Subregulation 15.12 amended the cross reference at the end of subregulation 4P(6) of the principal regulations so as to be consistent with the amendment of paragraph 4P(6)(d).

Regulation 16

Subregulation 16.1 corrected a grammatical error in paragraph 4U(a) of the principal regulations by inserting the words " the sum of" after "employer".

Subregulation 16.2 added a definition of "employee" to regulation 4U of the principal regulations. The definition was necessary to include persons engaged under contracts for services and directors of companies.

Regulation 17

Subregulation 17.1 added a new paragraph 4W(1)(ba) to the principal regulations which allows the Commissioner to issue a final determination where the total amount of benefits to be taken into account in relation to a person is less than the base reasonable benefit limit. In the absence of this provision, the Commissioner would be required to issue an interim determination where one of the items of information referred to in regulation 4M of the principal regulations is unknown. This requirement serves no purpose where the total of all benefits is below the applicable base limit.

Subregulation 17.2 replaced the words "those limits" with "the reasonable benefit limits" to clarify the reference.

Subreaulation 17.3 omitted the cross reference to subregulation 4W(3) of the principal regulations which has also been omitted.

Subregulation 17.4 amended the references in paragraph 4W(2)(b) to certain benefits payable as the result of a person's death. As these are excluded altogether for reasonable benefit limits purposes by subregulation 4P(1), it was necessary to remove them from the application of regulation 4W.

Subregulation 17.5 omitted subregulation 4W(3) of the principal regulations. As a result, the Commissioner is to determine that a benefit"paid to a person as the result of the death of another person is reasonable, regardless of whether the deceased was an associate of his or her employer immediately before his or her death.

Regulation 18

Regulation 4X of the principal regulations sets out the criteria for the assessment of a benefit against the lump sum reasonable benefit limit. A benefit will be assessed against the lump sum limit if the person receiving it has taken more than half of the qualifying portions of his or her benefits in a form which does not meet certain standards set out in regulation 4ZC of the principal regulations. The method of determining the qualifying portion of a benefit is set out in regulation 4Y of the principal regulations.

However, regulation 4Y was expressed in terms of benefits previously received. As a result there was nothing in the principal regulations which set out how to take the current benefit for the purpose of determining whether the benefit is assessed against the lump sum limit.

Subregulation 18.1 added a cross reference to the new subregulations 4X(2) and (3).

Subregulation 18.2 replaced subparagraph 4X(1)(a)(iv) with a new subparagraph which provides that the amount worked out in accordance with subparagraph 4X(1)(a)(i) is included in the assessment. This amount is the amount of the current benefit reduced by any undeducted contributions, concessional components or non-qualifying components of the current benefit.

Subparagraphs 4X(1)(b)(i) and 4X(1)(c)(i) previously referred to the capital value of the current benefit. However, the paragraphs refer to both a superannuation pension and an annuity and the term "capital value" applies only to a superannuation pension.

Subregulation 18.3 corrected this deficiency by replacing subparagraph 4X(1)(b)(i) with a new subparagraph which sets out the value to be placed on an annuity.

Subregulations 18.4, 18.5 and 18.6 made corresponding amendments to paragraphs 4X(1)(b) and (c) of the principal regulations.

Subregulation 18.7 replaced subregulation 4X(2) of the principal regulations with two new subregulations. The new subregulation (2) makes clear that it refers to benefits previously received, not the current benefit. The subregulation continues to have the effect that, where the person is less than 55 years old at the time of the determination and the person's lump sum reasonable benefit limit is less than half of the total qualifying portions of all benefits, a reference to the lump sum limit replaces the reference to 50% of total qualifying portions in subregulation (1).

The new subregulation 4X(3) ensures that, where the total of previous benefits and the current benefit exceed the person's pension reasonable benefit limit, the current benefit is reduced by that excessive amount before the 50/50 test, which determines whether the lump sum or pension RBL applies, is done.

Regulation 19

Regulation 4Y of the principal regulations sets out the method by which the Commissioner is to work out the qualifying portion of a benefit previously received. This is relevant to whether benefits paid to the person are assessed against the lump sum, or the pension, reasonable benefit limit.

The qualifying portion of a benefit is not necessarily equal to the amount of the benefit which is counted for reasonable benefit limit purposes. However, an excessive benefit will not have a qualifying portion to the extent to which it is excessive. The previous wording of regulation 4Y provided for only the excessive component of an eligible termination payment to be excluded.

It was also not clear that benefits to which subregulation 4P of the principal regulations applies, that is benefits which do not count for reasonable benefit limit purposes, do not have qualifying portions.

Subregulation 19.1 amended paragraph 4Y(1)(b) of the principal regulations so as to exclude the amount of a superannuation pension which has been determined to be excessive from the qualifying portion of the pension.

Subregulation 19.2 replaced paragraph 4Y(1)(c) of the principal regulations with a new paragraph 4Y(1)(c) which excludes the amount of an annuity which has been determined to be excessive from the qualifying portion of the annuity.

Subregulation 19.3 added a new subregulation 4Y(3) which ensures that benefits to which subregulation 4P(1) applies do not have qualifying portions.

Reaulation 20

Regulation 4ZA of the principal regulations is intended to ensure that persons who had rollover amounts in approved deposit funds, life assurance companies or registered organisations as at 15 February 1990 are able to receive, on a concessionally taxed basis, benefits up to that amount.

The regulation achieves this by prescribing that the reasonable benefit limit for these persons is the total of the rollover amounts held by those persons in those funds, companies or organisations as at 15 February 1990. For persons who were aged 50 years or more on 15 February 1990, the limit is equal to the total of those amounts plus any earnings on those amounts. That is, it is intended to include compound interest on those amounts even though the previous wording of regulation 4ZA was capable of being read so as to include only simple interest.

Subregulation 20.1 corrected a grammatical error in sub-subparagraph 4ZA(1)(c)(ii)(B) of the principal regulations.

Subregulation 20.2 amended paragraph 4ZA(1)(c) of the principal regulations so as to make clear that compound interest is included for those aged 50 or more on 15 February 1990.

Regulation 21

Subregulation 21.1 The new subregulation 4ZB(2) of the principal regulations is effective only in respect of benefits payable on or after 1 January 1992. Regulation 4ZB was therefore amended in order for the existing rule to continue to apply to benefits received before that date.

Subregulation 21.2 ensures that the transitional provision relating to a person who was a member of a superannuation fund on 15 August 1989 applies only if the fund pays pensions which meet the minimum standards set out in regulation 4ZC. The requirement that the pension exceed 11.25 times salary no longer applies.

The amendment has the effect that, in these circumstances, a pension payable under the rules of the fund in force on 15 August 1989 will be automatically determined to be reasonable, and gives effect to the original intention that the transitional provision is only applicable to benefits which meet the standards set out in regulation 4ZC.

Regulation 22

Subreaulation 22.1 replaced subparagraph 4ZC(b)(i) of the principal regulations with a new subparagraph 4ZC(b)(i) which makes it clear that a benefit to which the subparagraph refers must be payable throughout the life of the beneficiaries, as opposed to payable at some point during the life of the beneficiaries.

Subregulation 22.2 amended subparagraph 4ZC(c)(ii) of the principal regulations so that the amount referred to in that subparagraph is an amount not exceeding the sum referred to, rather than an amount equal to the sum referred to. This reflects the fact that the sum referred to is not possible to calculate precisely in all cases.

Subregulation 22.3 replaced subparagraph 4ZC(e) of the principal regulations with a new subparagraph 4ZC(e) which makes clear that a pension or annuity to which the paragraph refers must not have a reversionary component greater than 100% of the amount of the pension or annuity which was payable to the primary beneficiary before any commutation.

Regulation 23

Subregulation 23.1 corrected a grammatical error in subparagraph 17(1)(e)(i) of the principal regulations.

Subregulation 23.2 corrected grammatical errors in subparagraphs 17(1)(f)(i) and (iii) of the principal regulations.

Subparagraph 17(1)(f)(iv) of the principal regulations requires, among other things, a person who ceases to be a member of a superannuation fund to be informed if his or her old reasonable benefit multiple is greater than the base old reasonable benefit multiple according to Schedule 2 of the principal regulations. However, clause 2 of Schedule 2 specifies two base old reasonable benefit multiples, one of which is relevant when benefits are being assessed against the lump sum limit and the other when benefits are being assessed against the pension limit.

Subregulation 23.3 amended subparagraph 17(1)(f)(iv) of the principal regulations so as to specify that paragraph (a) of clause 2 of Schedule 2 is intended.

Subregulation 23.4 corrected a grammatical error in paragraph 17(1)(h) of the principal regulations.

Regulation 24

Subregulation 24.1 amended regulation 18A of the principal regulations so as to make clear that that regulation prescribes an operational standard for the purposes of subsection 7(1) of the Act.

Regulation 25

Subregulation 25.1 corrected the reference in subregulation 18B(1) of the principal regulations so as to refer to subsection 7(1) of the Act.

Subregulation 25.2 replaced subregulations 18B(3) and 18B(4) of the principal regulations with new subregulations (3), (4) and (4A).

The new subregulation (3) achieves two purposes:

•       to bring regulation 18B into line with regulation 5AA by allowing contributions to be made to a complying superannuation fund in spite of the fact that the member on whose behalf the contributions are made is more than 65 years of age, where those contributions are made pursuant to a prescribed agreement or award; and

•       to allow contributions to a complying superannuation fund after a person's 65th birthday where the rules of the fund at 30 June 1990 specified a retirement age within 12 months of the person's 65th birthday. This change accommodates funds whose members retire at a particular time of year rather than upon reaching a particular age.

The new subregulation 18B(4) corrected an unintended consequence that a person who was at least 60 years old on 1 July 1990 had no choice but to base contributions on a retirement age of 70. The new subparagraph gives full effect to the intention that such a person may fund for retirement at age 65 if desired.

The new subregulation 18B(4A) replaced the existing paragraph (4)(b). The new subregulation extended the transitional provision in that paragraph to funds which were constituted between 25 May 1988 and 30 June 1990.

The amendment also replaced the reference to the rules of the fund in subregulation 18B(4) with a reference to guidelines issued by the Insurance and Superannuation Commissioner.

This change reflects the fact that, before the insertion of the regulations relating to the reasonable benefit limits into the Occupational Superannuation Standards Regulations, contributions were governed by Income Tax Rulings and were unlikely to be set out in the rules of a fund.

Subregulation 25.3 replaced subparagraph 18B(5)(a)(i) of the principal regulations with a new subparagraph (i). The new subparagraph provides that, for contribution purposes, a person's reasonable benefit limit may be calculated using the lower retirement age, if any, applicable under the new subregulation (4A). This change is necessary so that a person to whom subregulation (4A) applies is able to make contributions to fund benefits up to his or her reasonable benefit limit by that age.

Subregulations 25.4. 25.5 and 25.6 made corresponding amendments to subparagraphs 18B(5)(a)(iii), 18B(5)(b)(i) and 18B(5)(b)(iii).

Subregulation 25.7 inserted into subregulation 18B(6) a cross reference to the new subregulation (6A).

Subregulation 25.8 added a new paragraph (c) to the definition of "AGE" in subregulation 18B(6) of the principal regulations which establishes whether potential length of membership for funding purposes is to be based on age 65 or some earlier age. The new paragraph provides that where the new subregulation (4A) applies to the person, "AGE" is determined with reference to the earlier retirement age applicable by virtue of subregulation (4A).

Subregulation 25.9 inserted a new subregulation 18B(6A) which is intended to ensure that the maximum funding limit of a person who is a member of the fund only by virtue of being the recipient of a pension from the fund is equal to nil. This reflects the fact that any further contributions required to fund such pensions are covered by item B in the contribution formulae.

Subregulation 25.10 replaced subregulation 18B(7) of the principal regulations with new subregulations (7) and (7A). The previous wording of subregulation (7) effectively required an actuarial calculation to be done before any contributions could be made after 30 June 1990 and during the first year of an actuarial period.

The amendment requires that the maximum deductible contribution in the period between 1 July 1990 and the income year following the first actuarial calculation after 1 July 1990 be based on the rate determined at the last actuarial calculation before 1 July 1990.

Contributions for each year of the three income years following the income year in which the first actuarial calculation on or after 1 July 1990 is made are to be based on the actuarial rate as defined in the principal regulations determined in that calculation. Subsequent contributions are to be based on the actuarial rate determined during the final year of each three year period.

Subregulation 25.11 amended the definition of "AMV", the adjusted market value of the fund's assets, in relation to defined benefit funds in subregulation 18B(8) of the principal regulations so that unit-linked life policies are excluded from paragraph (c) of the definition. This has the effect that such policies are valued at 85$ of their market value under paragraph (d), a more appropriate calculation.

Subregulation 25.12 replaced the definition of "B", the amount required to fund postponed and deferred benefits and existing pensions, in relation to defined benefit funds in subregulation 18B(8) of the principal regulations with a new definition which sets out more clearly the matters to be taken into account in that definition.

Subregulation 25.13 replaced the definition of "D", the expected cost of insurance to cover the provision of disability benefits, in relation to defined benefit funds in subregulation 18B(8) of the principal regulations with a new definition.

The new definition makes it clear that the cost of self insurance can only be taken into account in calculating the cost to the fund to cover the difference between the sum of the reasonable benefit limits of all members of the fund and the adjusted market value of the assets of the fund (AMV) where the difference is not fully insured externally.

Subreaulations 25.14, 25.15 and 25.16 made corresponding amendments to subregulation 18B(9) of the principal regulations in relation to non-defined benefit funds.

Subregulation 25.17 The definition of "period to retirement" in subregulation 18B(14) of the principal regulations previously provided that that term meant 5 or the number of days until retirement divided by 365, where the result of that calculation is less than 5. This figure is used in the contribution formulae to apportion the maximum funding limit over the appropriate number of years.

However, where at the date of the calculation of the maximum contribution the person is less than one year from retirement, "period to retirement" is itself less than one. This will give rise to a maximum deductible contribution greater than the person's reasonable benefit limit. This amendment is intended to ensure that "period to retirement" cannot be less than 1.

Subreaulation 25.18 In order to assist with the administration of defined benefit superannuation funds, the definition of "salary amount" has been recast in terms of salary under the governing rules of the fund.

Subregulation 25 19 inserted definitions of 'HAS' (highest average salary), 'salary' and 'salary continuance benefit' into subregulation 18B(14) of the principal regulations.

The first two definitions are intended to overcome any uncertainty which may have arisen as the result of the absence of these definitions for the purposes of contributions. The definition of 'salary continuance benefit' has been inserted in response to representations that the use of that term in regulation 18B was unclear.

Regulation 26

This regulation made several changes to Schedule 2 of the principal regulations to give effect to matters which have been raised since the Schedule was inserted.

Subreaulation 26.1 replaced the definitions of 'account balance' and 'converted pension multiple' in Clause 1. The new definition of 'account balance' is intended to ensure that payments made to a superannuation fund under the terms of a prescribed agreement or award are included in the person's account balance for the purposes of Schedule 2.

The new definition of 'converted pension multiple' extended the effect of the definition to funds which were constituted between 25 May 1988 and 1 July 1990.

Subregulation 26.2 extended the definition of 'maximum fund multiple' to funds which were constituted between 25 May 1988 and 1 July 1990.

Subregulation 26.3 inserted a definition of "member" for the purposes of Schedule 2. In the absence of this definition, the term would have had its ordinary meaning which may not have included persons who have deferred benefits in a superannuation fund. The amendment ensures that such persons are included.

Subreaulation 26.4 extended the definition of 'private sector fund' to funds which were constituted between 25 May 1988 and 1 July 1990.

Subregulation 26.5 replaced the definition of "retirement age" in clause 1 so as to relate it to the person to whom the benefit is paid rather than the superannuation fund, and also to differentiate between defined benefit funds and other funds. These amendments allow the old reasonable benefit multiple to be based on the age at which the benefit maximises.

Subregulation 26.6 is a technical amendment which is intended to ensure that the same interpretation is given to terms used in Schedule 2 as would be given in Part IA.

Subregulation 26.7 omitted subclause 3(3). That subclause previously referred to persons who had deferred benefits in the fund. Inclusion of such persons in the definition of "member" ensures those who had deferred benefits in funds at 30 June 1990 are entitled to a greater old reasonable benefit multiple. Therefore Subclause 3(3) is not necessary.

Subregulation 26.8 omitted from paragraph 4(a) the now superfluous reference to subclause 3(3).

Subregulation 26.9 replaced paragraph 4(c) with a new paragraph which allows for the possibility that a person may be in a lower membership category as at 30 June 1990 than the person was at some earlier date.

Subregulation 26.10 made subclause 6(1) subject to the new subclause 6(2).

Subregulation 26.11 replaced the definitions of "P", "Q" and "N" in clause 6 which sets out a formula to be used to calculate the old reasonable benefit multiple of a non-defined benefit. The formula projects forward to the retirement age of the fund (over N years) the proportion of a person's salary (P) being contributed and the person's account balance (Q) and future earnings on that balance.

The new definition of "P" is intended to make clear that it includes contributions made under a prescribed agreement or award, as well as specifying that "P" is nil in relation to a person who is a member solely by reason of having deferred benefits in the fund at 30 June 1990.

The new definitions of "Q" and "N" specify the values of those variables for persons who had deferred benefits in the superannuation fund at 30 June 1990.

Subregulation 26.12 added new subclauses 6(2), (3) and (4) which set out the manner in which the old reasonable benefit multiple should be calculated for non-defined benefit funds, the rules of which require contributions as a proportion of salary to be increased in any of the years following the 1989-90 financial year.

The new subclauses provide that calculations are to be done using the first formula prescribed in subclause (3) individually for every year or part thereof from 1 July 1990 to the day on which the person reaches his or her retirement age. The results of these calculations are then to be added together. To this total is added the amount worked out in accordance with the second formula.

Subregulation 26.13 amended clause 8 so as to correct the reference in that clause to the amount worked out in accordance with clause 5. The correct reference is to clause 6 or 7, whichever was used to calculate the old reasonable benefit multiple in respect of the non-defined benefit. The previous wording had the effect that the old reasonable benefit multiple was the amount worked out in accordance with clause 6 or 7 plus the base old reasonable benefit multiple.

This amendment also extends the application of clause. 8 to funds which were constituted between 25 May 1988 and 30 June 1990.

Subregulation 26.14 replaced clause 9 with a new clause 9 which makes clear that the application of that clause is restricted to superannuation funds which meet the requirements of the definitions of "private sector fund" and "public sector superannuation fund" in clause 1. The previous wording was not restricted in this way and could have been read so as to apply to any old reasonable benefit multiple which is greater than the base.

Subregulation 26.15 replaced clause 10 with a new clause which clarifies the purpose of that clause, which is the conversion of a multiple of salary under the governing rules of the fund to a multiple of highest average salary. The clause does not prescribe a method for the calculation of highest average salary.

Regulation 27

This regulation makes several technical amendments to Schedule 3 of the principal regulations. That Schedule sets out the factors to be used in the valuation of pensions for the purposes of the principal regulations.

Subregulation 27.1 replaced the heading of Schedule 3 with a heading which correctly refers to both regulations 4D and 18A of the principal regulations.

Subregulation 27.2 is a technical amendment which is intended to ensure that the same interpretation is given to terms used in Schedule 3 as would be given in Part IA.

Subregulation 27.3 amended clause 6 so as to broaden the application of that clause to a pension indexed by reference to any price index, instead of being restricted to pensions indexed by the Consumer Price Index.

Subregulation 27.4 added new clauses 7 and 8 to Schedule 3.

Clause 7 sets out how to determine the indexation factor to be used in cases where the pension is indexed at the discretion of the trustees of the fund. The indexation rate to be used is the arithmetic average of the indexation rates for the five year period, the last year of which is the financial year in which the pension commenced to be paid.

Clause 8 provides that where the fund has been in existence, or paying pensions, for less than 5 years, the standard indexation rate is to be used. As well as setting out which factor is to be used for such funds, the new clause 8 is intended to avoid the possibility of manipulation of the valuation rules by the use of recently constituted funds paying pensions with temporarily low indexation rates.

Subregulation 27.5 replaced the tables set out in Schedule 3 with new tables which include factors for ages 75, 80 and 85.

Regulation 28

Subregulation 28.1 replaced Schedule 4 of the principal regulations with a new Schedule 4. The new Schedule refers more fully to the type of payer to whom the Schedule relates.