Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293
EXPLANATORY STATEMENT
STATUTORY RULES 1995 No. 293
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 Commissioner.
Section 353 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.
The proposed regulations amend the Principal Regulations by substituting a new paragraph 2.29(1)(h), which will require funds to report to members earnings for the previous 5 years. They will also be required to provide a 5 year rolling average of fund earnings. Currently, funds are only required to provide earnings figures for the past 3 years.
By way of background, the Government has been concerned for some time about the tendency for trustees, members, and some service providers to place undue emphasis on the short-term performance of superannuation funds. 'Short-termism' can lead to the formulation by funds of inappropriate, overly conservative investment strategies aimed at reducing volatility, at the expense of lower returns for members in the long run. In this regard, 'short-termism' is arguably a strong factor underlying the persistent calls for Government direction of superannuation assets into 'national interest' investments.
Overall, the Government considers that five year rolling average figures, together with individual annual figures for the past five years, will operate as a more effective counterbalance to the short-term considerations that arise from annual reporting than the three year annualised reporting currently required. The figures will also better complement industry and Government education campaigns aimed at facilitating a longer term investment perspective on the part of members.
The regulations are described in detail in the attachment.
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.
The Regulations will commence on gazettal.
Regulation 2 - Regulation 2.29 (Specific requirements in particular cases)
Regulation 2 substitutes a new paragraph 2.29 (1) (h) which requires trustees to provide, in respect of the relevant sub-plan or, if none, of the fund, the actual or notional rate of net earnings in respect of each of the most recent reporting periods that in total, constitute a period of at least five years. The trustee is also required to provide the compound average actual or notional rate of net earnings for the five years ending at the end of the reporting period.
'Compound average' takes into account the previous years earnings. In contrast, a simple arithmetic average would only take into account current year earnings.
The amendment made by Regulation 2 inserts a new paragraph 3A which provides that if at the end of a reporting period, a fund or sub-plan has not been in existence for 5 years, the references in paragraph (1)(h) to 5 years are taken to be references to the whole period of existence of the fund or sub-plan as appropriate.
Regulation 3 - Application
The amendment made by Regulation 2 applies in relation to the reporting period of a fund or subplan, as the case requires, for the 1995-96, financial year and each succeeding reporting period.
Overview
The Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293 were enacted to address the issue of short-termism in the superannuation industry, which can lead to the adoption of overly conservative investment strategies that ultimately result in lower returns for members over the long term. This regulation was introduced by the Parliament of Australia under the authority of the Treasurer and is an amendment to the Superannuation Industry (Supervision) Regulations 1993. The primary policy objective of these amendments is to provide a more comprehensive view of fund performance by requiring trustees to report earnings for the previous five years, along with a five-year rolling average of fund earnings. This change aims to counteract short-term considerations and better support education initiatives promoting a longer-term investment perspective among members. The amendments will take effect immediately upon gazettal.
Scope and Application
The Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293 amends the existing Superannuation Industry (Supervision) Regulations to enhance the reporting requirements of superannuation funds. The amended regulations apply to trustees of superannuation funds, who must now provide members with the actual or notional rate of net earnings for each of the most recent reporting periods that together constitute a period of at least five years. Additionally, trustees are required to provide a compound average actual or notional rate of net earnings for the five years ending at the end of the reporting period. This amendment is intended to mitigate the problem of 'short-termism' by encouraging a longer-term investment perspective among members, which the government believes will ultimately lead to better long-term returns. The changes apply to the 1995-96 financial year and each subsequent reporting period, and the regulations are effective from the date of their gazette. If a fund has not been in existence for five years, the required reporting period is adjusted to reflect the fund's entire period of existence.
Key Provisions
The Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293 introduces significant changes to the reporting requirements for superannuation funds, approved deposit funds and pooled superannuation trusts. Under section 2.29(1)(h) of the amended regulations, trustees must now report earnings for the previous five years, rather than the previously required three years (Reg. 2). This change is intended to counteract the phenomenon of 'short-termism', where undue emphasis is placed on short-term performance, potentially leading to less optimal investment strategies over the long term (Explanatory Statement). In addition to reporting individual annual earnings for the past five years, trustees must also provide a five-year rolling average of fund earnings (Reg. 2). The rolling average is defined as a 'compound average', which takes into account previous years' earnings, as opposed to a simple arithmetic average which only considers the current year's earnings (Reg. 2).
These new requirements impose additional obligations on trustees, who must now ensure they have accurate and comprehensive earnings data for the past five years, and that they can calculate a five-year rolling average. This may require trustees to implement additional record-keeping and data analysis processes (Reg. 2). The regulations also clarify that if a fund has not been in existence for five years, the reporting requirements apply to the entire period of existence of the fund (Reg. 2, para. 3A).
Failure to comply with the new reporting requirements may result in regulatory action being taken against the trustee, as the regulations are made under the Superannuation Industry (Supervision) Act 1993. The specific consequences of non-compliance are not detailed in the explanatory statement, but breaches of the Act or regulations may result in administrative or legal penalties, including fines and potential criminal charges (Superannuation Industry (Supervision) Act 1993, s. 355). The maximum penalties for breaches of the Act are not specified in the explanatory statement, but the explanatory statement does not suggest that the penalties are severe. The explanatory statement also does not provide information on any civil or criminal consequences for breach of the amended regulations.