EXPLANATORY STATEMENT
Retirement Savings Act 1997, section 177
MODIFICATION DECLARATION No 1
PURPOSE OF DECLARATION
1 The purpose of Modification Declaration No 1 (MD 1) is to provide for transitional arrangements in respect of the amendments to subregulations 4.24(1) and 4.24(2) of the Retirement Savings Accounts Regulations 1997 (the RSA Regulations) made by the Retirement Savings Accounts Amendment Regulations 2004 (No 2) (SR No 147 of 2004).
BACKGROUND
2 SR No 147 of 2004 amended subparagraphs 4.24(1)(a)(ii) and 4.24(2)(a)(ii) of the RSA Regulations, with effect from 1 July 2004, to simplify the compulsory cashing rules for individuals aged 65 to 74.
3 Prior to these amendments, an RSA provider had to cash out the benefits of an RSA holder aged between 65 and 74 where the person ceased being gainfully employed for at least 10 hours in a week.
4 Under the amendments, an RSA provider must cash out the benefits of an RSA holder aged between 65 and 74 only where the person had ceased to be gainfully employed “at a part-time equivalent level”. New subregulation 4.24(6) provides that a person is gainfully employed at a “part‑time equivalent level” if the person was gainfully employed for at least 240 hours during the financial year that ended on the last occurring 30 June (ie the most recent financial year).
5 Thus, with effect from 1 July 2004, the work test for compulsory cashing changed from assessing work undertaken in the current financial year (the requirement being that the RSA holder remain working at least 10 hours per week) to assessing work undertaken in the previous financial year (the requirement being that the RSA holder have worked for at least 240 hours in that year).
REASON FOR DECLARATION
6 SR No 147 of 2004 contains no transitional provisions in relation to the introduction of an annual work test for compulsory cashing. While the amendments do not, strictly speaking, have retrospective effect, there is potential for inequity to result from the application of the new annual work test in the first year of operation as it refers to periods of activity that occurred prior to the commencement of the amendments.
EXPLANATION FOR DECLARATION
7 MD 1 provides transitional arrangements for implementing the change from a weekly work test to one based on the previous financial year.
8 From 1 July 2004 the 10 hours per week work test ceases to apply.
9 MD 1 inserts a new subregulation 4.24(2A) into the RSA Regulations. New subregulation 4.24(2A) removes the requirement for RSA providers to compulsorily cash benefits in accordance with paragraphs 4.24(1)(a) and 4.24(2)(a) of the RSA Regulations during the period from 1 July 2004 to 30 June 2005. There is therefore no requirement for compulsory cashing based on work tests for individuals aged 65 to 74 in 2004‑05.
10 New subregulation 4.24(2B) provides that an RSA provider is not in breach of paragraph 4.24(1)(a) or 4.24(2)(a) of the RSA Regulations if, during the period 1 July 2004 to the date of commencement of MD 1, the RSA provider did not compulsorily cash RSA holders’ benefits in accordance with those paragraphs as they existed prior to the commencement of MD 1.
11 From 1 July 2005 RSA providers must apply the new annual work test. This work test will take into account gainful employment undertaken in the 2004-05 financial year.
COMMENCEMENT
12 MD 1 commences on the date it is signed.
REGULATION IMPACT STATEMENT
13 A Regulation Impact Statement is not necessary in relation to MD 1, as the declaration is of a minor or machinery nature and does not substantially alter existing arrangements.
Dated 2 May.2005
(Published by the Australian Prudential Regulation Authority)
Overview
The Retirement Savings Act 1997, enacted by the Australian Parliament, was introduced to address the need for a regulatory framework governing retirement savings accounts (RSAs) in Australia. The Act established a regulatory environment designed to protect the interests of RSA holders while facilitating the efficient operation of RSAs. Modification Declaration No 1 (MD 1) is an amendment to the Retirement Savings Accounts Regulations 1997, made to address transitional issues arising from the Retirement Savings Accounts Amendment Regulations 2004 (No 2). The purpose of MD 1 is to provide transitional arrangements for the amendments to subregulations 4.24(1) and 4.24(2) concerning the compulsory cashing rules for RSA holders aged between 65 and 74. Prior to the amendment, compulsory cashing was triggered if the individual ceased working at least 10 hours a week; the amendment changed this to a requirement of at least 240 hours of work in the previous financial year. MD 1 provides a transitional period from 1 July 2004 to 30 June 2005 during which the new annual work test does not apply, thus preventing potential inequities in the initial application of the new rule.
Scope and Application
The Retirement Savings Act 1997, as modified by Modification Declaration No 1, applies to RSA providers and RSA holders aged between 65 and 74 years, primarily within the Commonwealth jurisdiction. The primary objective of this declaration is to address transitional arrangements concerning the amendments to the compulsory cashing rules, which were introduced by the Retirement Savings Accounts Amendment Regulations 2004 (No 2). The declaration aims to mitigate potential inequities arising from the application of the new annual work test, which shifted from assessing weekly employment hours to annual hours, in the initial period after the amendments took effect. The declaration is effective from 1 July 2004, with the transitional period ending on 30 June 2005, after which RSA providers must adhere to the new annual work test. During this transitional period, RSA providers are exempt from compulsorily cashing benefits for RSA holders aged 65 to 74, as stipulated by the previous work test provisions. The declaration provides a regulatory framework that ensures a smooth transition, preventing any breaches of the RSA Regulations during this interim period.
Key Provisions
Modification Declaration No 1 (MD 1), under section 177 of the Retirement Savings Act 1997, introduces transitional arrangements for the changes in compulsory cashing rules for individuals aged 65 to 74. The declaration aims to manage the shift from a weekly work test to an annual work test, which was implemented in the Retirement Savings Accounts Amendment Regulations 2004 (No 2) (SR No 147 of 2004). The primary operative sections of MD 1 include the introduction of new subregulations 4.24(2A) and 4.24(2B) to the Retirement Savings Accounts Regulations 1997 (RSA Regulations). Subregulation 4.24(2A) exempts RSA providers from the compulsory cashing requirement based on the old weekly work test for the financial year 2004-05. Subregulation 4.24(2B) ensures that RSA providers do not face penalties for not adhering to the old compulsory cashing rules during this transitional period.
The obligations imposed by MD 1 on RSA providers include the suspension of compulsory cashing for individuals aged 65 to 74 from 1 July 2004 until 30 June 2005. This period allows RSA providers to adjust their systems and processes to the new annual work test, which requires individuals to have worked at least 240 hours in the previous financial year to avoid compulsory cashing. The declaration ensures that RSA providers are not required to cash out benefits based on the previous weekly work test during this transitional period. Furthermore, RSA providers are protected from penalties for non-compliance with the old compulsory cashing rules during this time.
Any breach of the transitional arrangements in MD 1 could result in civil consequences, as RSA providers are expected to adhere to the new rules from 1 July 2005. However, the declaration itself does not specify any penalties or criminal consequences for non-compliance. The primary focus of MD 1 is to provide a smooth transition to the new annual work test, ensuring that RSA providers and account holders are not adversely affected by the changes in the compulsory cashing rules. The declaration's purpose is to avoid potential inequities that might arise from the immediate application of the new rules without a transitional period.