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SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS (AMENDMENT) 1995 NO. 64
EXPLANATORY STATEMENTSTATUTORY RULES 1995 No. 64
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) and the Superannuation Industry (Supervision) Regulations (the Principal Regulations) provide for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the insurance and Superannuation Commission.
Section 353 of the Act provides that the Governor-General may make Regulations for the purposes of the Act. Section 353 enables regulations to prescribe matters required or permitted by the Act or necessary or convenient for carrying out or giving effect to the Act.
Sections 31 and 32 of the Act enable regulations to prescribe standards applicable to the operation of regulated superannuation funds and approved deposit funds.
The regulations give effect to a number of the measures concerning the protection of small superannuation amounts announced by the Treasurer on 28 June 1994 in "Superannuation Policy -Statement of Measures". Other legislation that provides for the further implementation of the measures concerning the protection of small superannuation amounts includes: the Small Superannuation Accounts Bill 1995; the Superannuation Laws Amendment (Small Accounts and Other Measures) Bill 1995; any Regulations that may be made pursuant to these Bills (should they be enacted); and Statutory Rules 1995 No. 47.
The regulations amend the Principal Regulations and are described in detail in the attachment.
Regulations 8, 18, 20, 21 and 23 commence on 1 July 1995. The remaining regulations commence on gazettal.
ATTACHMENT
Superannuation Industry (Supervision) Regulations (Amendment)
COMMENCEMENT
Most of the regulations commence on gazettal. The remaining regulations commence on 1 July 1995.
SUMMARY
The main aim of the regulations is to:
- require funds to protect members with small superannuation amounts;
- assist funds in protecting members by reducing disclosure requirements in respect of such members; and
- require funds to protect and report the details of lost members.
The protection of members with small superannuation amounts and the associated reduction in disclosure requirements take effect on 1 July 1995.
The protection and reporting of lost members takes effect on 30 June 1996.
BACKGROUND
Section 353 of the Superannuation Industry (Supervision) Act 1993 (the Act) enables regulations to prescribe matters required or permitted by the Act or necessary or convenient for carrying out or giving effect to the Act.
Sections 31 and 32 of the Act enable regulations to prescribe standards ("operating standards") applicable to the operation of regulated superannuation funds and approved deposit funds.
The regulations amend the Superannuation Industry (Supervision) Regulations (the Principal Regulations) which have already been made under the Act.
The regulations will implement two parts of the announcement by the Treasurer dated 28 June 1994 entitled 'Superannuation Policy - Statement of Measures': the "Protection of Superannuation Fund Members" and "Reduction in Disclosure Requirements for Small Amounts". These regulations take effect from 1 July 1995.
The regulations also contain consequential measures relating to lost members. These measures are aimed at protecting lost members and ensuring that lost members are reported to a register of lost members. They take effect from 30 June 1996.
The main aim of the measures announced by the Treasurer is to protect superannuation fund members. Protection generally entails that an amount (whether a small amount or an amount of a lost member) is not eroded by administration fees and charges.
This protection will allow the large numbers of small amounts in the superannuation system to grow to a self sustaining level.
Small and lost amounts are particularly prevalent in industries which employ a high number of part time or casual workers - such as the tourism (e.g. hospitality staff) and agriculture industries (e.g. fruit pickers). Women in particular are likely to be holders of small or lost amounts.
The Government has sought in these regulations to introduce a number of changes which will strengthen the system for protecting superannuation fund members.
OVERVIEW OF THE AMENDMENTS
The regulations involve:
• a new definition of lost member;
• the reduction in the disclosure requirements in respect of members with small amounts (applies with effect from 1 July 1995);
• the insertion of a requirement on funds to give information in respect of lost members on the transfer of lost members (applies with effect from 30 June 1996);
• the empowerment of trustees to protect amounts to a greater degree or from an earlier date than is required by the regulations (applies with effect from gazettal);
• provisions governing how member protection applies to unitised funds (applies with effect from 1 July 1995);
• provisions clarifying that the member protection requirements do not apply to situations where member protection exists (applies with effect from 1 July 1995);
• provisions to deal with the use of sub-funds by funds (applies with effect from 1 July 1995);
• the creation of member-protection standards enshrining member protection
requirements by:
- imposing limitations upon the charging of fees;
- prohibiting the charging of costs to members which had been forgone in previous years because of the member protection requirements (these member protection standards apply with effect from 1 July 1995);
• the imposition of new operating standards on eligible rollover funds which replace certain existing requirements applying to eligible rollover funds (applies with effect from 1 July 1995);
• the imposition of a requirement on funds with lost members (replacing a similar existing requirement on eligible rollover funds which has been deferred) to report details of lost members to the Commissioner (applies with effect from 30 June 1996); and
• other miscellaneous amendments.
EXPLANATION OF THE AMENDMENTS
Regulation 1
Regulation 1 provides that certain regulations commence on 1 July 1995. The remaining, regulations commence on gazettal. The regulations commencing on 1 July 1995 relate to:
• the reduction in the disclosure requirements in respect of members with small amounts;
• provision for the member-protection standards not to apply to certain protected members;
• the imposition of new operating standards on eligible rollover funds; and
• the deletion of certain existing requirements and conditions applying to eligible rollover funds.
Regulation 2
Regulation 2 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in the regulations.
Regulation 3
Regulation 3 provides for a number of new definitions to be inserted into regulation 1.03 of the Principal Regulations. These new definitions include 'excluded member', 'member protection standards', 'protected member' (including an accompanying provision to be inserted into regulation 1.03(3)) and 'successor fund' (moved from Part 6).
Regulation 4
Regulation 4 provides for a new regulation 1.03A to be inserted into the Principal Regulations. New regulation 1.03A provides a definition for the term 'lost member'.
There are two main implications in respect of a member becoming lost:
(1) the fund must protect the member; and
(2) the fund must report details regarding the member to the Commissioner (these details will be kept by the Commissioner for the purpose of the keeping of a register of lost members).
There is also likely to be implications for the requirement on funds to disclose information to the member pursuant to Part 2 of the Principal Regulations (see regulation 2.05 of the Principal Regulations and regulation 5 of these regulations which amends regulation 2.05 of the Principal Regulations).
When is a member a lost member
A member is a lost member if at a particular time the member is:
• uncontactable; or
• inactive; or
• has joined the fund from another entity as a lost member.
However, a member is not a lost member if:
• the trustee of the fund has recently verified the member's address and has no reason to believe that the address may now be incorrect; or
• the member is permanently excluded from being a lost member.
"Uncontactable"
A member is uncontactable only if the fund has never had an address for the member (for example, an itinerant worker who does not give their employer their address, or the address is lost due to administrative error), or alternatively, if the fund has attempted to contact the member on two occasions in writing and the communications have been returned unclaimed.
"Inactive"
A member is inactive only if they have been a member for two or more years and the fund has not received a contribution or rollover for the member in the last two years of membership.
The member has joined the fund from another entity as a lost member
This limb of the definition is required so that lost members remain 'lost' wherever they are in the superannuation system (until of course they cease to be lost members).
The trustee of the fund has recently verified the member's address and has no reason to believe that the address may now be incorrect
A member's address will only be considered to have been recently verified if the fund has verified that the member's address is correct in the last two years of membership.
Verification means acquiring reasonable evidence that the member's address is correct (e.g. a slip returned by the member acknowledging that the address which the fund has for the member is correct or telephoning the member and confirming that their address is correct).
Permanent exclusion from the lost member definition
A member of a fund is permanently excluded from being a lost member if:
• the member is a member of an "excluded fund" (defined in section 10 of the Act);
• the member is an inactive member and has indicated through a positive act that they wish to remain a member of the fund (e.g. a deferred member); or
• the member has contacted the fund at any time after the time at which they joined the fund and indicated to the fund that they wish to continue to be a member of the fund.
The first sub-category of permanently excluded members is necessary so as to make the protection of lost members. consistent with the protection of small amounts and accordingly to recognise that a requirement to protect members is impractical where there are only a few members in the fund.
The last two sub-categories of permanently excluded members are designed to allow, in certain cases, trustees to exclude from protection and reporting, members who have indicated that they wish to continue being a member of the fund. If this exclusion did not apply, these members may be transferred to an eligible rollover fund (on the ground that the fund is not prepared to protect and report on behalf of these members) against their wish to remain a member of the fund.
The certain cases are essentially cases where on the evidence it is likely that the member will be able to contact the fund so as to notify the fund of any change of address and/or collect their benefits.
Subject to the constraint that trustees cannot add other types of members to the defined category of permanently excluded members, trustees have total flexibility with the concept of permanently excluded members so as to meet the particular circumstances of the fund and each member within the fund. This flexibility is set out in new regulation 1.03A(3) contained in regulation 4.
Regulation 5
Regulation 5 provides that the definition of missing member in regulation 2.05 of the Principal Regulations is amended to take account of the new definition of lost member.
Regulation 6
Regulation 6 amends regulation 2.13 of the Principal Regulations so as to make it clear that if a member is only a member of a fund for a very short period of time (which is less than the time period in which trustees must give new member information to the member) the trustee of the fund is not required to give the member information under Division 2.3 of the Principal Regulations ("new member information").
The amendment contemplates, amongst other situations, the situation where a member with a small amount is a member of a fund for only a short period of time because the small amount has been inadvertently accepted into the fund and the fund subsequently decides to pay the small amount to an eligible rollover fund.
Regulation 7
Regulation 7 provides for the amendment of regulation 2.14 of the Principal Regulations. The amendment provides that where a trustee is required to give new member information through the operation of Division 2.3 of the Principal Regulations (new member information) and the member has already received information through the operation of Division 2.2 of the Principal Regulations (prospective member information) the trustee is not required to provide the Division 2.3 information.
This amendment further enhances the beneficial effect of Regulation 2.14 of the Principal Regulations.
Regulation 8
Regulation 8 inserts two new regulations (2.26A and 2.26B) in the Principal Regulations.
These new regulations provide two exceptions to the requirement to provide member information in accordance with subdivision 2.4.2 (Member Information) of the Principal Regulations.
New regulation 2.26A: an exception in respect of member reports for members subject to compulsory protection.
New regulation 2.26A provides an exception from the member information reporting requirements for protected members.
The term "protected member" is defined in regulation 3. A protected member is a member of a regulated superannuation fund (other than an excluded member) who has withdrawal benefits which are less than $1,000 and contain or have contained mandated employer financed benefits. A benefit is taken to contain or to have contained mandated employer financed benefits unless the trustee of the fund knows otherwise.
If a member is a protected member at the end of a member reporting period, then the only information required to be disclosed under the member information reporting requirements in respect of those withdrawal benefits for the member reporting period is:
• the contact details of the fund; and
• either:
- the amount of the member's withdrawal benefit at the end of the member reporting period; or
- the total of the amounts which have been received by. the fund in respect of the member.
A protected member may request additional information pursuant to Division 2.6 of the Principal Regulations. It is intended that the reduced reporting requirements will lower costs for funds holding protected members.
New regulation 2.26B: an exception from disclosing the effect of compulsory protection to members who have small amounts which the trustee reasonably expects will grow quickly.
New regulation 2.26B provides an exception from disclosing the effect of compulsory protection to members who have small amounts which the trustee reasonably expects will grow quickly. The trustee must reasonably expect that the member will have a withdrawal benefit of at least $1,500 within 12 months of the end of the period. If the trustee utilises this exception, the trustee is not required to do anything different to which they would normally be required to do unless the expectation does not eventuate. The member is deemed to have been protected because they have a relatively large withdrawal benefit of $1500.
A trustee that uses this exception in respect of a member may not take advantage of the exception mentioned in new regulation 2.26A in respect of the member. This is because the trustee expects to provide the member with full member reports in the near future and any change in the level of disclosure would be confusing for the member.
A reasonable expectation
A trustee is not taken to have a reasonable expectation that a member will have a withdrawal benefit of $1500 within the 12 month period if termination of the member's employment with a current employer would be likely to result in the member's withdrawal benefit being below $ 1500 at the end of the 12 month period.
In practice, a trustee is likely only to have a "reasonable expectation" if the expectation is based (apart from the amounts already received for the member) upon amounts coming into the fund for the member other than employer contributions (unless the employer would continue making contributions if the member terminated employment with the employer). It is envisaged that the exception will generally only apply to employees who make significant voluntary contributions for their retirement.
What happens where the trustee's reasonable expectation does not eventuate ?
If the trustee's reasonable expectation does not eventuate (e.g. the member only has withdrawal benefits of $1,300 within 12 months) the trustee must for each member reporting period ending on or after the end of the 12 month period give information to the member which takes account of the effect of the member-protection standards.
The trustee must also treat the member as if the member had been subject to member protection. This may mean that the member has a larger withdrawal benefit (e.g. $1400) than has otherwise been the case (whilst member protection has not applied). This is likely to be as a result of the compounding effect on earlier protected balances.
Accordingly, in practical terms, funds using the $ 1500 exception will be required to keep two types of withdrawal benefits until it is determined whether the expectation has eventuated.
Example of what happens where expectation does not eventuate
Twelve months after the trustee has acted on a reasonable expectation that the member would have at least $1500 by the end of twelve months, the member only has a withdrawal benefit of $1300 (a "never been protected amount"). The member also has a withdrawal benefit, which would have applied if the member was subject to protection, of $1400 (a "once protected when under 5 1000 amount").
The member's "never been protected amount" has grown slower than the "once protected when under $1000 amount" because of erosion in the early stages of its growth which has meant that there has been a reduced compounding effect.
Since the trustee's expectation has not eventuated, the fund will be required to disclose the "once protected when under $1000 amount" of $1400.
Note: The trustee's expectation may also not eventuate because the member leaves the fund within 12 months of the end of the period with less than $1500.
When funds may use the exceptions provided by regulations 2.26A and 2.26B
Funds may use the exceptions provided by regulations 2.26A and 2.26B for all member reporting periods ending on or after 1 July 1995.
Regulation 9
Regulation 9 provides an amendment to subregulation 2.42 (2) of the Principal Regulations that takes into account the new regulation 2.48A which is inserted by regulation 10.
Regulation 10
Regulation 10 provides for the insertion of a new regulation 2.48A into the Principal Regulations. The new regulation 2.48A reduces the level of information that is required to be provided to a protected member when they leave a fund.
The only information required to be disclosed to a protected member for the exit reporting period is:
• the contact details of the fund: and
• the amount of the member's withdrawal benefit.
It is intended that the reduced reporting requirements will lower costs for funds transferring protected members out of the fund to a fund that will provide member protection.
When funds may use the exception provided by regulation 2.48A
Funds may use the exception provided by regulation 2.48A for all exit reporting periods ending on or after 1 July 1995.
Regulation 11
Regulation 11 provides for the insertion of a new Division (Division 2.7A Information to be given to other entities on transfer of lost members) including two new regulations (2.48B - Application of Division and 2.48C - Information to be given on transfer of lost members) into the Principal Regulations.
Regulation 2.48B provides that the new Division applies in the case of payment of the benefits of a lost member from a regulated superannuation fund or an approved deposit fund to another such fund on or after 30 June 1996.
It further provides that all requirements of Division 2.7A are, for the purposes of sections 31 and 32 of the Act, operating standards.
Regulation 2.48C provides that should the benefits of a lost member be paid to another fund, the trustee of the transferor fund (from where the lost member is being transferred) must give to the transferee fund (the fund to which the lost member's benefit is being paid);
• a statement that the member is a lost member;
• if the member has requested that certain information not be disclosed, a statement to that effect;
• all information that could reasonably help the transferee fund to locate or identify the lost member (other than the information that the member requested not to be disclosed).
Regulation 12
Regulation 12 changes the heading of Part 5 of the Principal Regulations from 'Minimum Benefits Standards' to 'Benefit Protection Standards' so as to recognise that not all provisions in Part 5 of the Principal Regulations relate solely to minimum benefits.
Regulation 13
Regulation 13 inserts a new regulation 5.0 1 B into the Principal Regulations. The new regulation provides that trustees of all regulated superannuation funds and approved deposit funds may go beyond the mandatory requirements of member protection. Trustees can provide a greater degree of member protection than required by Part 5 of the Principal Regulations or provide protection at a date earlier than a date required by Part 5 of the Principal Regulations. provided such protection is consistent with the mandatory requirements.
This power applies despite any provision in the governing rules of the fund.
For example, a fund could provide member protection:
• to all withdrawal benefits less than $1500; or
• from gazettal of the regulations rather than 1 July 1995.
Regulation 14
Regulation 14 amends regulation 5.02 of the Principal Regulations to reflect the introduction of the member-protection standards and new regulation 5.01B.
Regulation 15
Regulation 15 amends regulation 5.03 of the Principal Regulations to reflect the introduction of the member-protection standards and new regulation 5.01B.
Regulation 16
Regulation 16 provides that a new regulation 5.11 is inserted into the Principal Regulations. Regulation 5.11 provides that should there be any inconsistency between Divisions 5.4 and 5.5 of Part 5 of the Principal Regulations (Division 5.5 is introduced by these regulations), then Division 5.4 prevails.
Regulation 16 makes it clear that if an exit fee is subject to the restrictions mentioned in Division 5.4 of Part 5 of the Principal Regulations, the exit fee must not be charged despite member protection allowing the exit fee because the member has sufficient interest to absorb the fee.
Regulation 17
Regulation 17 provides for the insertion of a new Division: Division 5.5 - Member protection standards, including six new regulations, into the Principal Regulations:
• 5.12 - Interpretation;
• 5.13 - Operating standards - member protection;
• 5.14 - Member-protection standards not to apply to certain funds;
• 5.16 - Application of member-protection standards to sub-funds;
• 5.17 - Member-protection standards; and
• 5.18 - Costs not to be deferred.
Interpretation (regulation 5.12)
"Exit fee" is defined consistently with the restriction on exit, fees in Division 5.4 of Part 5 of the Principal Regulations.
"Member reporting period" is defined for the purposes of the Division as having the same meaning as in Part 2 and is also taken to include the exit reporting period.
Operating standards - member protection (regulation 5.13)
The member protection standards are operating standards.
Provisions governing how member protection applies to unitised funds (regulation 5.14)
Unitised funds are funds where the investment return of the fund is reflected in the price of units in the fund rather than credited or debited to a member's account.
Member protection does not apply to unitised funds where all administration fees and charges are reflected in the price of the units. These funds automatically achieve member protection so that no special action is needed by the trustee.
Where all charges are not reflected in the unit price (e.g. an account keeping fee applies), the fund must ensure that the benefits of it's members are protected in a manner consistent with the memberprotection standards.
Provisions clarifying that the member protection requirements do not apply to situations where member protection exists (regulation 5.14)
As with unitised funds where all the administration costs of the fund are reflected in the unit price, member protection will also be taken to exist where the administration costs of the fund are applied to each member in direct proportion to the investment return of the member or the member's benefits.
Regulation 5.15 is discussed later as it commences on 1 July 1995 rather than on gazettal.
Provisions to deal with the use of sub-funds by funds (regulation 5.16)
Funds may treat sub-funds within a fund as a fund for the purposes of member protection if various conditions are satisfied. However, sub-funds may not be used for the purpose of circumventing member protection. An example of sub-funds being used for the purpose of circumventing member protection is where all members of the fund with small amounts are placed in the same sub-fund. If this were to occur, it would be common for all members in the sub-fund to suffer erosion (in both good and bad investment periods).
Member-protection standards (regulations 5.17 and 5.18)
1. Commencement
The member-protection standards take effect on 1 July 1995.
2. Overview
The member-protection standards protect from erosion the minimum benefit component of the benefits of members with small amounts (i.e. protected members) and lost members.
For the purposes of the member protection standards in relation to small amounts, the minimum benefit component is always comprised of a mandated employer financed component but may also be comprised of a member financed component (see the definition of "member financed benefits" and "mandated employer financed benefits" in Part 5 of the Principal Regulations).
The fair and reasonable requirements in subregulations 5.02(3) and 5.03(2) apply, for example, so as to prevent any excess administration costs (over investment returns) being fully applied against tile nonminimum component (if any) of a member's benefit.
If the member protection standards did not apply, minimum benefits (like other types of benefits) could be eroded by administration costs as the definition of minimum benefits in Part 5 of the Principal Regulations (see the definition of "member financed benefits" and "mandated employer financed benefits") allows for the deduction of costs.
The erosion of a benefit through administration costs is the reduction in value of the benefit as a result of administration costs when viewed over a given period of time.
In some mitigating cases (e.g, where the fund has a bad investment period), erosion will be permitted provided the erosion is -fairly and equitably distributed within the fund.
Trustees will also be permitted to charge costs in accordance with their current practice throughout a period provided that a redistribution is done at the end of the period so as to protect the amounts for the period.
3. Application of member-protection standards
The member-protection standards apply to members and member reporting periods.
The member-protection standards apply to a member:
- who, on or after 1 July 1995, is a protected member of the fund; or
- who. on or after 30 June 1996, is a lost member who has been subject to the reporting requirement in new regulation 11.08 (Subregulation 5.17(1)).
The member-protection standards apply to a member reporting period:
- in the case of a protected member: each member reporting period ending after 30 June 1995 where at the end of the period the member is a protected member.
(If a member reporting period begins before and ends after 1 July 1995, a trustee may treat only the part of that period beginning on 1 July 1995 as being a relevant member reporting period.)
- in the case of a lost member:
- where the member becomes reportable for the purposes of new regulation 11.08 on joining the fund - each member reporting period for any part of which the member is lost;
- where the member becomes reportable for the purposes of new regulation 11.08 otherwise than on joining the fund - the member reporting period beginning after the member becomes reportable and thereafter each member reporting period for any part of which the member is lost.
(If a member ceases to be a lost member in a member reporting period, a trustee may treat only the part of that period before the member ceases to be lost as being the relevant member reporting period.)
Trustees may use an earlier date than the dates appearing in regulation 5.17.
Definition of a "protected member"
A member is a protected member if the member is:
- a member of a regulated superannuation fund;
- has withdrawal benefits of less than $ 1000 which contain or have contained mandated employer financed benefits (i.e. superannuation guarantee contributions and award contributions); and
(Trustees should be able to determine whether a member has withdrawal benefits of less than $ 1000 at the end of the member reporting period, as this amount is the amount that appears as the member's withdrawal benefit on member reports issued by the fund.)
(Regulation 3 inserts a 'presumptive like provision' that a benefit in a fund is taken to contain or to have contained mandated employer financed benefits unless the trustee of the fund knows otherwise.)
- is not an excluded member.
(A person is an excluded member if they belong to a fund with less than 5 members. This reflects the provisions of the Act generally. Further, a fund with less than five members is unlikely to be in a position to provide the cross subsidies necessary to implement member protection.)
(A member is also an excluded member if the member is a member of a defined benefit fund whose benefits; are defined in the manner set out in paragraph (b) of the definition of "excluded member" in regulation 3.)
Definition of a "lost member"
The definition of a lost member has already been explained (see the explanation of regulation 4).
4. The substance of the member-protection standards (Subregulation 5.17(2))
The substance of the member-protection standards is contained in subregulation 5.17(1).
The substance is that the net effect of administration costs charged for a member reporting period against minimum benefits must be that:
• the portion of administration costs in respect of a member's benefit for a member reporting period that is charged against the minimum benefit component of the benefit;
must not exceed:
• the investment earnings in respect of the minimum benefits for the period;
unless the fund has had a bad investment period and the exceeding occurs in a fair and equitable manner.
5. Where the fund has had a bad investment period (Subregulation 5.17(5))
A bad investment period occurs for a fund (or sub-fund) where the total administration costs of the fund for a member reporting period are greater than the total investment earnings of the fund for the period.
The total administration costs of the fund are the total of the costs which would otherwise be charged to the benefits of members of the fund if no adjustment was made for member protection.
The total investment earnings of the fund are the total of the earnings which would otherwise be credited or debited to the benefits of members of the fund if no adjustment was made for member protection.
Erosion of accounts is permitted (luring a bad investment period, provided the exceeding of costs over investment earnings occurs in a fair and equitable manner.
6. Fair and equitable manner (Subregulation 5.17(8))
Any exceeding (as described above) is only taken to occur in a fair and equitable manner where all the administration costs of the fund are applied to each member of the fund in direct proportion to the investment return in respect of the member's benefits or the member's benefits, or where a fund applies administration costs to a member which are no greater than the sum of the investment return in respect of the member's benefits plus an amount no greater than 1% of any member's benefit in the fund.
7. Further points on the substance of the member-protection standards (Subregulations 5.17(6), (7) and, (9))
"Administration costs" - Subregulation 5.17(6)
Administration costs include all fees and charges (including exit fees) but do not include insurance costs, taxation costs or exit fees applicable to members of the fund as at 30 June 1995.
The benefits to which exit fees are taken to be charged - Subregulation 5.17(7)
For the purposes of member protection only, exit fees which fall within the definition of "administration costs" are taken to be charged against the minimum benefit component of the member's benefit.
Benefits are taken to be mandated employer financed benefits unless and to the extent that the trustee knows otherwise - Subregulation 5.17(9)
Benefits are taken to be mandated employer financed benefits unless and to the extent that the trustee knows otherwise.
The provision of member protection of small amounts when separate small accounts exist for a member
Many funds have separate accounts for different contributions received for a member. Funds have the option of combining all these individual accounts for the purposes of member protection or protecting them individually.
Where the fund decides to protect accounts individually'. the requirement to protect the accounts will apply regardless of whether the account contains or has contained mandated employer financed benefits. For example, a fund that chooses to treat separately a 5400 account receiving only member contributions (i.e. member financed benefits) and a $400 account receiving only superannuation guarantee contributions (i.e. mandated employer financed benefits) will generally be required to protect both accounts unless the accounts are in different sub-funds.
Indirect restrictions on the charging of exit fees.
Recent amendments to the Superannuation Industry (Supervision) Regulations have imposed restrictions on the charging of exit fees on small accounts rolled over or transferred out of a regulated superannuation fund (other than an excluded superannuation fund) at the instigation of the fund (e.g. as a result of the introduction of member
protection).
These direct restrictions on the charging of exit fees cease to apply after 30 June 1996.
From 1 July 1996 indirect restrictions contained in the member protection standards (which take effect on 1 July 1995) continue to apply (not only to members with small amounts but also to lost members).
These indirect restrictions arise as a result of the definition of administration costs which includes exit fees.
Member protection of the amounts of lost members in regulated superannuation funds and approved deposit funds
Lost members are required to be protected in a similar manner to members with small amounts. However, a number of differences exist between the protection of the amounts of lost members and the protection of small amounts.
The differences include:
1. The member protection of the amounts of lost members will apply to all members of regulated superannuation funds and approved deposit funds regardless of.
- whether the member's withdrawal benefits contains or have contained mandated employer financed benefits;
- whether the member is an excluded member (with the exception that members of excluded funds (along with other 'permanently excluded members') are similarly excluded from the protection of lost members); or
- the amount involved.
However like the protection of small amounts, member protection will only apply to minimum benefits.
2. Both member protection of small amounts and member protection of the amounts of lost members must be achieved on a member reporting period basis. However, member protection of lost members will only involve protecting for the next period whereas member protection of small amounts involves protecting for the current
period.
In other words, whereas member protection of small amounts involves protecting small amounts in the period that they are considered small, member protection of the amounts of lost members generally only requires funds to protect a member for the time period commencing the day after the member is determined to be lost (e.g. the period commencing on 1 July 1997, where the member was determined to be lost on 30 June 1996) until the member ceases to be lost (e.g. 31 January 1999 (note that the trustee may extend protection to the end of a member reporting period (e.g. 30 June 1999) for administrative convenience)). Accordingly, lost members must be protected for each member reporting period which relates to this time period (or for the relevant part of the period).
3. Where an amount of a lost member is also a small amount, the member protection requirements in respect of small amounts take precedence over the member protection requirements in respect of the amounts of lost members.
Example of the explanation given by paragraphs 2 and 3
Once the fund determines a member is lost on a particular date, the fund can pay the benefits of the member from the fund on that date without, except in the case where the member has a small amount, ensuring that the member has been protected for the last member reporting period.
4. Member protection of lost members is a compulsory requirement for the time period after the end of the first member reporting period ending on or after 30 June 1996. Protection of members with small amounts commences on 1 July 1995.
The member-protection standards also prohibit deferring costs to future member reporting periods (regulation 5.18)
The member protection standards also prohibit a trustee of a fund from charging to the member in a future member reporting period, administration costs which the trustee would have charged but for the member-protection standards in a current member reporting period.
Some examples of how Member Protection applies where a fund charges an exit fee
Example One - Member Protection not required (Interest > Costs; Exit fee is $15)
A protected member had at the beginning of a reporting period minimum benefits of $880. The member joined the fund after 30 June 1995 so member protection applies fully to exit fees. Over the course of the reporting period the member earns $50 in interest. Administration fees of $30 are due. An exit fee of $15 would apply if the m ember withdrew their benefits from the fund. The total administration fees and charges therefore total $45. This amount is less than the interest earned and so can be shown as charged to the member.
The following three amounts give an insight into how member protection applies:
| Type
of amount
|
The amount
|
| 1.
The member's withdrawal benefit reported to the member if the benefit was not
subject to protection:
|
$885.
|
| 2.
The member's withdrawal benefit reported to the member as a result of member
protection:
|
$885.
|
| 3.
The amount on which interest accrues:
|
$900.
|
[Note: The member has $900 in benefits in the fund (i.e. $880 plus $50 interest less $30 administration fees). The exit fee is only charged if the member leaves the fund.]
Example Two - Member Protection required (Interest > Costs; Exit fee is $30)
A protected member had at the beginning of a reporting period minimum benefits of $880. The member joined the fund after 30 June 1995. Over the course of the reporting period the member earns $50 in interest. Administration fees of $30 are due. An exit fee of $30 would apply if the member withdrew their benefits from the fund. Thus a total of $60 in administration fees and charges could arise in the reporting period. This is $10 greater than the interest earned. The member-protection rules will not permit these administration fees and charges to stand charged against the member's benefits. With the exception of a bad investment period, total administration fees and charges can only total $50.
| Type
of amount
|
The amount
|
| 1.
The member's withdrawal benefit reported to the member if the benefit was not
subject to protection:
|
$870.
|
| 2.
The member's withdrawal benefit reported to the member as a result of member
protection:
|
$880.
|
| 3.
The amount on which interest accrues:
|
$900.
|
Example Three - Member Protection required (Interest < Costs; Exit fee is $15)
A protected member had at the beginning of a reporting period minimum benefits of $920. The member joined the fund after 30 June 1995. The member cams $30 interest in the course of the reporting period. Administration fees of $50 accrue during the reporting period. If the member were to leave the fund an exit fee of $15 would be charged. Total administration fees and charges equal $65 ($50 + $ 15). However as the member is a protected member at the end of the reporting period ($920 + $30 $65 = $885 (< $ 1000)) only $30 of fees may be charged in the reporting period (unless the fund has had a bad investment period).
| Type
of amount
|
The amount
|
| 1.
The member's withdrawal benefit reported to the member if the benefit was not
subject to protection:
|
$885.
|
| 2.
The member's withdrawal benefit reported to the member as a result of member
protection:
|
$920.
|
| 3.
The amount on which interest accrues:
|
$920.
|
Example Four - Protection required (Interest < Costs; Exit fee is $30)
A protected member had at the beginning of a reporting period minimum benefits of $920. The member joined the fund after 30 June 1995. The member cams $30 interest in the course of the reporting period. Administration fees of $50 accrue during the reporting period. If the member were to leave the fund an exit fee of $30 would be charged. Total administration fees and charges equal $80. Like example 3, only $30 of administration fees may be charged in the reporting period (unless the fund has had a bad investment period).
| Type
of amount
|
The amount
|
| 1.
The member's withdrawal benefit reported to the member if the benefit was not
subject to protection:
|
$870.
|
| 2.
The member's withdrawal benefit reported to the member as a result of member
protection:
|
$920.
|
| 3.
The amount on which interest accrues:
|
$920.
|
Regulation 18
Regulation 18 inserts a new regulation 5.15 into the Principal Regulations. New regulation 5.15 provides that a protected member, whose benefits reach $1500 within 12 months in accordance with the exception contained in regulation 2.26B, is taken never to have been subject to the member-protection standards for the period from the start of the relevant member reporting period to the end of the 12 month period. The relevant member reporting period is the period at the end of which the trustee reasonably expected that the member's withdrawal benefits would reach $1500 within 12 months.
A member (who reaches $1500) is not subject to member protection after the end of the 12 month period by virtue of having withdrawal benefits which are equal to or greater than $1000. However, the member will become subject to member protection if the member's benefits fall below $1000.
Regulation 19
Regulation 19 deletes the definition of "successor fund" in regulation 6.01 of the Principal Regulations. The definition has been moved to Part 1 of the Principal Regulations.
Regulation 20
Regulation 20 deletes subregulation 6.30 (2) of the Principal Regulations with effect from 1 July 1995 as a consequence of applying member protection to eligible rollover funds with effect from 1 July 1995.
Regulation 21
Regulation 21 deletes regulation 10.02 of the Principal Regulations with effect from 1 July 1995 so as to allow eligible rollover funds to act like normal funds (e.g. accept contributions) in the new protection environment.
Regulation 22
Regulation 22 deletes regulation 10.05 of the Principal Regulations with effect from gazettal to recognise that new regulation 11.08 inserted by regulation 24 will be the sole regulation governing reporting details concerning lost members to the Commissioner (register of lost members).
Regulation 23
Regulation 23 substitutes a new regulation 10,06 in the Principal Regulations with effect from 1 July 1995. New regulation 10.06 provides, for the purposes of subsections 31 (1) and 32 (1) of the Act, additional operating standards for eligible rollover funds.
These standards recognise that eligible rollover funds will be funds which (subject to limited exceptions) accept and protect all persons in the superannuation system.
Regulation 24
Regulation 24 substitutes a new regulation 11.08 in the Principal Regulations from gazettal but with effect from 30 June 1996. New regulation 11.08 provides for certain information to be provided to the Commissioner by trustees of regulated superannuation funds and approved deposit funds regarding lost members.
The trustee of a fund must give certain information to the Commissioner within 28 days of the end of..
• the half year in which the member became reportable (unless the member ceases to be a member of the fund within 28 days of becoming reportable or the member ceases to be a lost member); and
• the half year in which the member ceased to be a lost member.
Half year
A "half year" is either 1 January to 3 0 June or 1 July to 3 1 December (see section 10 of the Act). For the purposes of new regulation 11.08, the regulation does not apply to a half year beginning before 1 January 1996.
Becoming reportable
A member becomes reportable if.
- the member is a lost member at the end of any member reporting period ending on or after 30 June 1996 (or an earlier time if the member is lost at that earlier time and the trustee wishes to deem the member as reportable at that earlier time); or
- the member joins the fund as a lost member on or after 30 June 1996.
Ceasing to be a lost member
A member ceases to be a lost member if they do so in accordance with the definition of lost member inserted by regulations 3 and 4 into Part 1 of the Principal Regulations. If a trustee wishes. a member may cease to be a lost at the end of the member reporting period in which the member would otherwise cease to be a lost member.
Special provisions for eligible rollover funds and successor funds
For the purposes of new regulation l 1.08, the trustee of an eligible rollover fund must treat as a lost member who became reportable on 30 June 1996, a member whose benefit was paid into the fund under Part 24 of die Act before 1 July 1996 unless the member is not lost.
This provision is for members who are likely to be lost (the exception applies to exclude members who turn out not to be lost). From 1 July 1996, funds should be informed where a member joining the fund is lost (see regulation 11 which inserts new Division 2.7A into the Principal Regulations).
For the purposes of new regulation 11.08, the trustee of an eligible rollover fund may treat as a lost member who became reportable on the date of payment into the fund, a member whose benefit was paid into the fund under Part 24 of the Act.
This gives trustees of eligible rollover funds a discretion to treat as lost members the following members:
- members whose benefit was paid into the fund under Part 24 of the Act before 1 July 1996 and who are not lost; and
- members whose benefit was paid into the fund under Part 24 of the Act on or after 1 July 1996.
This discretion has been given so as to facilitate simpler reporting for eligible rollover funds.
For the purposes of new regulation 11.08, similarly to eligible rollover funds, the trustee of a successor fund may treat as a lost member who became reportable on the date of transfer into the fund, a member whose benefit was transferred into the fund.
The information which is required to be reported to the Commissioner
Information to be reported to the Commissioner (register of lost members) includes the member's name, date of birth, last known contact details, sex, tax file number (if known), name and contact details of fund, name and contact details of the member's employer, and other information that the Commissioner believes will assist in the maintenance of the register of lost members.
Example of operation of register of lost members
The register of lost members begins to apply for the half year beginning on 1 January 1996. Therefore funds must report all lost members held by the fund to the register of lost members by 28 July 1996. These lost members will be the lost members of the fund who became reportable on 30 June 1996. The second half year ends on 31 December 1996, and so the relevant details regarding lost members must be reported to the register of lost members by 28 January 1997. These lost members will be the lost members of the fund who became reportable during that second half year (generally on the end dates (of the member reporting periods) falling within that half year).
The purpose of the register is to enable persons, suspecting that they have a beneficial interest in a superannuation account. to consult only one body to determine if they do have any superannuation accounts. The register will also assist in the consolidation of small superannuation amounts.