Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS (AMENDMENT) 1997 NO.152

STATUTORY RULES 1997No. 152

Issued by the authority of the Assistant 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 fluids, approved deposit funds, and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.

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

At present, superannuation benefits are generally required to he 'preserved' in the superannuation system until retirement on or after age 55. However, subject to the governing rules of the superannuation fund, early release of 'preserved' benefits is permitted under the Principal Regulations in certain restricted circumstances including severe financial hardship or compassionate grounds or where, on termination of gainful employment, the amount subject to preservation is less than $500.

It was announced in the 1997-98 Budget that the current arrangements for early release of superannuation benefits would be reformed to tighten and streamline the administration of the early release of superannuation benefits. The Regulations implement the following Budget announcements:

*       removal of the condition of release that permits amounts less than $500 to be released upon the termination of the member's gainful employment (subregulation 5.2);

*       replacement of the current discretionary administration by the Insurance and Superannuation Commissioner of the release of superannuation benefits on the ground of 'severe financial hardship' with an objective test to be administered by fund trustees (subregulation 3.2); and

*       replacement of the current broad discretion of the Insurance and Superannuation Commissioner to release superannuation benefits on 'compassionate' grounds with defined criteria that must be satisfied for early release on 'compassionate' grounds (regulation 4).

The Regulations are described in detail in the attachment.

The Regulations will commence on 1 July 1997.

The Office of Regulation and Review have advised that a Regulation Impact Statement is not necessary in respect of the Regulations

ATTACHMENT

Regulation 1 - Commencement

Regulation 1 provides that the Regulations will commence on 1 July 1997.

Regulation 2 - Amendment

Regulation 2 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.

Regulation 3 - Regulation 6.01 (Interpretation)

Regulation 3.1 amends subregulation 6.01(2) of the Principal Regulations by inserting definitions of a number of words and expressions for the purposes of the Principal Regulations. In particular, definitions of 'Commonwealth income support payment' and 'compassionate ground' are inserted.

Regulation 3.2 omits subregulation 6.01 (5) of the Principal Regulations and inserts a new subregulation 6.01(5). New subregulation 6.01(5) sets out two tests under which a person is taken to be in 'severe financial hardship'.

If a person satisfies one of the tests of 'severe financial hardship' they may apply to the trustee of their superannuation fund or approved deposit fund for release of part or all of their preserved or restricted non-preserved superannuation amounts (see regulation 5 below for minimum and maximum release amounts). In order to release any preserved or restricted non-preserved amounts the trustee must be satisfied that the person meets one of the tests based on written evidence provided by a Commonwealth department or agency responsible for administering a class of Commonwealth income support payments (see subregulation 3.1 above) for example, Departments of Social Security and Veterans' Affairs.

In order for a person to be taken to be in 'severe financial hardship' they must satisfy one of the following two tests:

*       For persons less than. 55 years and 39 weeks, they must be in receipt of Commonwealth income support benefits (see subregulation 3.1 above) for a continuous period of 52 weeks and still be in receipt on the date of the written evidence from the Commonwealth department or agency.

*       For persons aged 55 years and 39 weeks or more, they must he receipt of Commonwealth income support benefits (see subregulation 3.1 above) for a cumulative period of 39 weeks after turning age 55 years and not be gainfully employed on a full-time or part-time basis on the date of application to the trustee of the fund.

It should he noted that the ability of a trustee of a superannuation fund to release superannuation monies on the ground of severe financial hardship is subject to the governing rules of the fund.

Subregulation 6.01(5A) provides that the written evidence referred to in paragraph 6.01(5)(a) remains valid for 21 days. If more than 21 days has elapsed from the date of the written evidence and the date of the person's application to the trustee for cashing of their superannuation benefits, then the trustee will not be able to release on the basis of that written evidence and the person will have to obtain new written evidence from the Commonwealth department or agency.

Regulation 4 - New regulation 6.19A

Regulation 4 inserts a new regulation 6.19A into the Principal Regulations which defines the criteria for the release of benefits on 'compassionate grounds'.

Subregulation 6.19A(1) provides that a person may apply to the Commissioner for early release of their superannuation benefits on a 'compassionate ground'.

'Compassionate' grounds cover payment to treat life threatening illnesses; payment for medical transport; prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home; home or vehicle modifications to accommodate the special needs of a severely disabled member or dependant- and payments for palliative care and funeral and burial expenses.

Subregulation 6.19A(2) provides that if the Commissioner is satisfied that release is required on a 'compassionate' ground (set out in subregulation 6.19A(1)) and that the person does not have the financial capacity to meet the expense, then the Commissioner must determine, in writing that the person has satisfied a condition of release on a compassionate ground, However, the ability of a trustee of a superannuation fund to release superannuation monies on the basis of a determination from the Commissioner is subject to the governing rules of the fund.

Subregulation 6.19A(3) provides that where money is required for medical treatment, the person must have two medical certificates, one of which must he from a medical specialist, that state that the treatment is necessary and that it is not readily available to the person through the public health system.

Subregulation 6.19A(4) provides that a person who requires money for medical transport must satisfy paragraph 6.19A(a), that is, the member must have two medical certificates, one of which must be from a medical specialist, that state the member requires the medical treatment.

Subregulation 6.19A(5) provides that a person who requires money to prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home must provide written evidence from the mortgagee that payment of an amount is overdue and that the mortgagee intends to take action if the amount is not paid.

Subregulation 6.19A(6) provides that the written statement under subregulation 6.19A(5) must also include details of the amount equal to three months' repayments and twelve months interest on the outstanding balance of the loan at the time the statement is made.

Regulation 5 - Schedule 1 (Condition of release and cashing restrictions preserved benefits and restricted nonpreserved benefits)

Subregulation 5.1 omits item 105 - Severe Financial Hardship - from Part 1 of Schedule 1 to the Principal Regulations and inserts a new item 105. New item 105 states that 'severe financial hardship' is a condition of release for preserved and restricted non-preserved amounts in a regulated superannuation fund and sets out the cashing restriction if this condition of release is met. For a person taken to be in severe financial hardship under paragraph 6.01 (5)(a) the amount that is permitted to be released from a regulated superannuation fund is limited to a single lump sum in each 12 month period with a minimum release amount of $1,000 (except where the persons benefits are less than that amount) and a maximum of $15,000. For a person taken to be in severe financial hardship under paragraph 6.01(5)(b) there is no cashing restriction.

Subregulation 5.2 omits item 107 - Termination of gainful employment where the members benefits are less than $500 - and inserts a new item 107 into Part 1 or Schedule 1 to the Principal Regulations to insert 'compassionate ground' as a condition of release for preserved and restricted non-preserved amounts in a regulated superannuation fund. The cashing restriction for release on a 'compassionate ground' is limited to a single lump sum not exceeding an amount determined by the Commissioner that is reasonably required in the circumstances taking into account the person's financial capacity. However, in relation to the compassionate ground that enables payment to prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home, the amount that can be released cannot exceed an amount equivalent to 3 months repayments and 12 months interest on the outstanding balance of the loan in any twelve month period.

Subregulation 5.3 omits item 205 - Severe Financial Hardship - from Part 2 of Schedule 1 to the Principal Regulations and inserts a new item 205. New item 205 states that 'severe financial hardship' is a condition of release for preserved and restricted non-preserved amounts in an Approved Deposit Fund (ADF) and sets out the cashing restriction if this condition of release is met. For a person taken to be in severe financial hardship under paragraph 6.01(5)(a) the amount that is permitted to be released from an ADF is limited to a single lump sum in each 12 month period with a minimum release amount of $1,000 (except where the persons benefits are less than that amount) and a maximum of $15,000. For a person taken to be in severe financial hardship under paragraph 6.01(5)(b) there is no cashing.

Subregulation 5.4 inserts a new item 207 into Part 2 of Schedule 1 to the Principal Regulations to insert 'compassionate ground' as a condition of release for preserved and restricted non-preserved amounts in an approved deposit fund (ADF). The cashing restriction for release on a 'compassionate ground' is limited to a single lump sum not exceeding an amount determined by the Commissioner that is reasonably required in the circumstances taking into account the person's financial capacity. However, in relation to the compassionate ground that enables payment to prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home, the amount that can be released cannot exceed an amount equivalent to 3 months repayments and 12 months interest on the outstanding balance of the loan in any twelve month period.

Regulation 6 - Transitional

Subregulation 6.1 inserts a transitional provision into the Principal Regulations to require the Commissioner to deal with applications for release of benefits on compassionate grounds made before 1 July 1997 under the rules that existed at that time.

Subregulation. 6.2 inserts a transitional provision into the Principal Regulations to require the Commissioner to deal with applications for the release of benefits on severe financial hardship grounds made before 1 July 1997 under the rules that existed at that time.