SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS (AMENDMENT) 1994 NO. 432

Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS (AMENDMENT) 1994 NO. 432

EXPLANATORY STATEMENT

STATUTORY RULES 1994 No. 432

Issued by the authority of the Treasurer

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Regulations (Amendment)

The Superannuation Industry (Supervision) Act 1993 (the Act) provides for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.

The Superannuation Industry (Supervision) Legislation Amendment Act 1994 was given Royal Assent on 28 November 1994. A small number of regulations were required as a result of this Act. In addition, a small number of minor amendments were needed to the existing Superannuation Industry (Supervision) Regulations.

Section 353 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.

The regulations are described in detail in the attachment. They amend the Superannuation Industry (Supervision) Regulations (the Principal Regulations) by making a number of miscellaneous amendments to the Principal Regulations aimed at enhancing the system of prudential supervision and clarifying the operation of the Principal Regulations.

The regulations commence on gazettal.

ATTACHMENT

Superannuation Industry (Supervision) Regulations (Amendment)

Regulation 1 - Amendment

Regulation 1 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.

Regulation 2 - Regulation 1.04 (Section 10 of the Act - prescribed matters)

Regulation 2 provides that regulation 1.04(3) of the Principal Regulations be deleted.

This is required because section 5 of the Superannuation Industry(Supervision) Legislation Amendment Act 1994 amended the definition of 'approved deposit fund' in section 10 of the Act so that an approved deposit fund will no longer be required to have 'approved rules'. As a result, the definition of 'approved rules' in section 10 of the Act was also deleted. Accordingly, Principal Regulation 1.04(3), which prescribes the approved rules, is no longer relevant and is consequently deleted.

Regulation 3 - Regulation 3.01 (Public offer superannuation fund - prescribed persons)

Normally, if a fund has a member who is not a 'standard employer sponsored member' then the fund will be classified as a public offer superannuation fund (under section 18 of the Act).

The effect of Principal Regulation 3.01. however, is that a fund with a 'non standard employersponsored member' will not be a public offer fund provided that member is within a prescribed class.

Regulation 3 amends regulation 3.01 of the Principal Regulations to provide that the prescribed class for the purposes of sub-subparagraph 18(1)(a)(ii)(B) of the Act consists of former standard employer sponsored members of the fund who, since ceasing to be standard employer sponsored members of the fund, have remained members of the fund at all times.

The amendment ensures that the manner of determining whether a fund is a public offer superannuation fund is much simpler and improved. This will assist fund trustees in determining the nature of their fund and (given that under the Act and Principal Regulations different requirements apply depending on whether a fund is a public offer superannuation fund) the requirements of the Act and Principal Regulations that apply to them.

Regulation 4 - New Regulation 3.04A

Regulation 4 inserts a new regulation, 3.04A, into the Principal Regulations.

Section 45 of the Superannuation Industry (Supervision) Legislation Amendment Act 1994 has inserted a new section 60A into the Act. The new section will prohibit persons other than the Commissioner from removing the trustee of a public offer entity, unless the removal is of a kind specified in regulations.

For the purposes of subsection 60A(2) of the Act the following kinds of removal are specified by this new regulation:

(a) a removal where immediately after the removal is effective the fund complies with the basic equal representation rule prescribed in section 89 of the Act; or

(b) a removal which complies with all of the following requirements:

- the question whether the removal should be made, and who should replace the trustee if the removal is agreed to, has been voted on at a meeting of beneficiaries; and

- the beneficiaries who at the meeting vote (whether in person or by proxy) on the question of removal, and on who should replace the trustee if removal is agreed to, hold interests equal in value to at least 25% of the total value of all the interests in the fund; and

- at least 75% of the beneficiaries who voted (whether in person or by proxy) on the question of removal cast their votes in favour of removing the trustee; and

- at least 75% of the beneficiaries who voted (whether in person or by proxy) on the issue of who should replace the trustee, cast their votes in favour of a particular trustee and that trustee becomes the new trustee from the date of effect of removal of the old trustee.

This allows a trustee to be removed where the purpose of the removal is to allow the fund to implement equal representation or where the beneficiaries are in favour of replacing the trustee with a new trustee. In the latter case the new trustee would normally be required to be an approved trustee (refer Part 2 of the Act).

Regulation 5 - Regulation 7.04 (Acceptance of contributions - regulated superannuation funds)

Regulation 5 amends regulation 7.04 of the Principal Regulations so as to allow people who are on leave from their employer, for the purposes of raising children, to continue to contribute to their superannuation fund, for a period of up to seven years. The amendment ensures that people in such situations can continue to save for their retirement, provided that the person continues to be in an employment relationship.

Regulation 6 - Regulation 7.05 (Accrual of benefits - defined benefit funds)

Regulation 6 amends regulation 7.05 of the Principal Regulations so as to allow people who are on leave from their employer, for the purposes of raising children, to continue to have superannuation benefit accruals granted, for a period of up to seven years. The amendment ensures that people in such situations can continue to save for their retirement, provided that the person continues to be in an employment relationship.

Regulation 7 - New Regulation 10.04

Regulation 7 inserts a new regulation, 10.04A, into the Principal Regulations.

Section 248 of the Act allows the trustee of a fund that would otherwise be required to pay a member's benefit to an eligible rollover fund to instead pay that benefit to the Commissioner as 'unclaimed money', provided the amount of the benefit is less than the 'minimum amount'.

Section 22 of the Superannuation Industry (Supervision) Legislation Amendment Act 1994 has amended section 248 of the Act to make it easier to ascertain the 'minimum amount'. The minimum amount will now be the amount prescribed by regulations for the purpose of section 248, which upon the insertion of regulation 10.04A, will be $500. In effect this ensures continuity with previous practices.

Regulation 8 - Regulation 12.01 (Interpretation)

Regulation 8 inserts a definition for 'defined benefit fund' into regulation 12.01 of the Principal Regulations.

Under the Occupational Superannuation Standards Act 1987 (the predecessor to the Act) any 'superannuation fund' could apply for a pre 1 July 1988 funding credit. The Act (section 342) is based on the same principle and only refers to 'superannuation funds'.

However Part 12 of the Principal Regulations, which complements section 342, uses the term 'defined benefit fund' in various places (for example, regulations 12.02(1)(b), 12.02(3)(a), 12.12, 12.13). Defined benefit fund is defined in Principal Regulation 1.03.

To be a defined benefit fund a fund must first be a 'regulated superannuation fund'. This is in contrast to the situation under the Occupational Superannuation Standards Act 1987 where a defined benefit fund needed only be a 'superannuation fund' (as opposed to a 'regulated superannuation fund'). It was not intended, for the purposes of Part 12, to change this requirement when the provisions were transferred into the Act and Principal Regulations.

Accordingly, for the purposes of Part 12, 'defined benefit fund' will be defined in such a manner that it need not be a 'regulated superannuation fund'.

Regulation 9 - Regulation 12.08 (Date before which applications must be made)

Regulation 9 amends regulation 12.08 of the Principal Regulations so that the prescribed date under which applications for pre 1 July 1988 funding credits must be made under paragraph 342(3)(b) of the Act is changed from 30 September 1994 to 31 March 1995.

Regulation 10 - Regulation 12.11 (Time and manner in which prescribed events must be notified to the Commissioner)

Under paragraph 342(4)(b) of the Act, the trustee of a fund is effectively required to notify the Commissioner of a prescribed event within the prescribed period. Regulation 12.11 currently provides that the prescribed period is not later than 3 months after the occurrence of the event or 30 September 1994, whichever happens last.

Regulation 10 amends regulation 12.11 of the Principal Regulations by deleting '30 September 1994' and replacing it with '31 March 1995'.

Regulation 11 - Regulation 13.11 (Interpretation)

Regulation 11 provides that the definition of the term 'approved non-bank financial institution' in Principal Regulation 13.11 be deleted. The term is now defined in section 10 of the Principal Act as it was amended by paragraph 8(b) of the Superannuation Industry (Supervision) Legislation Amendment Act 1994. Accordingly it is no longer necessary to define the term in Principal Regulation 13.11.

Regulation 12 - Regulation 13.17 (Approved deposit funds - restriction on loans and investments)

Regulation 12 amends regulation 13.17 of the Principal Regulations by extending the exceptions to the general prohibition on trustees of approved deposit funds lending fund money to, or investing fund money in, the trustees themselves or in a related body corporate.

Currently the trustee of a public offer superannuation fund or approved deposit fund can only invest in related bodies if the investment is a life insurance policy with a life insurance company, or a deposit with an approved bank or approved non bank financial institution.

The amendment will mean that other types of related bodies investments in life insurance companies, approved banks and approved non bank financial institutions are allowed, provided the trustee complies with new regulation 13.17AA in relation to those investments (see regulation 14 below for details).

Regulation 13 - Regulation 13.17A (Public offer superannuation funds restriction on loans and investments)

Regulation 13 amends regulation 13.17A of the Principal Regulations by extending the exceptions to the general prohibition on trustees of public offer superannuation funds lending fund money to, or investing fund money in, the trustees themselves or in a related body corporate.

Regulation 14 - New regulation 13.17AA

Regulation 14 inserts a new regulation 13.17AA into the Principal Regulations.

The new regulation will, in conjunction with Principal Regulations 13.17 and 13.17A, allow trustees of approved deposit funds and public offer superannuation funds to also make other types of related body investments in, or loans to, life insurance companies. approved banks and approved non bank financial institutions.

These other types of related body investments and loans are defined as 'prescribed investments' and the level of these types of investments are restricted by the new regulation.

The restriction on these types of related body investments works in a similar manner to how section 82 of the Act works in relation to 'in-house assets'. That is, if these prescribed investments exceed 5% at market value at the end of a year of income then the fund trustee must prepare and give effect to a plan designed to ensure that the level of such assets reduces to below 5%. A prohibition on the acquisition of these types of assets is also included, based on section 83 of the Act.

These amendments recognise that in some circumstances investments in related parties are justified, while at the same time recognising that restrictions on the level of such investments are necessary to protect the interests of members.