Occupational Superannuation Standards Regulations (Amendment) 1993 No. 14
EXPLANATORY STATEMENT
Statutory Rules 1993 No. 14
Issued by Authority of the Treasurer
Occupational Superannuation Standards Act 1987
Occupational Superannuation Standards Regulations (Amendment)
The Occupational Superannuation Standards Act 1987 (the Act) gives authority to the Government to set standards that superannuation funds must meet in order to be eligible for concessional taxation treatment.
Section 22 of the Act provides that the Governor-General may make regulations for the purposes of the Act.
Subsection 7 (1) of the Act provides that the regulations may prescribe standards applicable to the operation of superannuation funds. Standards relating to the investment of a superannuation fund's assets, including in in-house assets, are among those prescribed.
These regulations give effect to one of the measures in the Treasurer's statement of 21 October 1992 entitled "Strengthening Super Security: New Prudential Arrangements for Superannuation" of a prohibition on new purchases of in-house assets by superannuation funds where the existing level of a fund's inhouse assets exceeds 5% of total assets at market value.
Regulation 1 specifies that the Occupational Superannuation Standards Regulations are amended as set out in these regulations.
Regulation 2 inserts a new Regulation 16B which prohibits new purchases by superannuation funds of in-house assets:
(a) where the existing level of a fund's in-house assets already exceeds 5% of the fund's total assets at market value; and
(b) in circumstances such that any new purchases would cause the market value of a fund's in-house assets to exceed 5% of the fund's total assets at market value.
These Regulations commenced on gazettal.
Overview
The Occupational Superannuation Standards Regulations (Amendment) 1993 No. 14 were enacted to address the identified issue of excessive investment in in-house assets by superannuation funds, which could potentially lead to conflicts of interest and undermine the security of the funds. This amendment was issued by authority of the Treasurer under the Occupational Superannuation Standards Act 1987, which empowers the government to establish standards for superannuation funds to qualify for concessional tax treatment. The policy objective behind these regulations is to strengthen the security of superannuation funds by preventing funds from acquiring new in-house assets if the existing level of such assets already exceeds 5% of the total assets at market value, or if any new purchases would cause the proportion to exceed this threshold. These regulations commenced upon gazettal, ensuring immediate implementation of the new standards.
Scope and Application
The Occupational Superannuation Standards Regulations (Amendment) 1993 No. 14 applies to superannuation funds regulated under the Occupational Superannuation Standards Act 1987. This Act is a Commonwealth legislation designed to set standards for superannuation funds to qualify for concessional tax treatment, ensuring that these funds operate within specified regulatory boundaries. The regulations particularly address the investment practices of superannuation funds, including the acquisition of in-house assets. The amendment introduced by this legislation prohibits new purchases of in-house assets by superannuation funds if the existing level of these assets exceeds 5% of the fund's total assets at market value or if such purchases would cause the proportion of in-house assets to exceed this threshold. The regulations extend across the Commonwealth of Australia and are applicable to all superannuation funds operating within its jurisdiction. No specific exclusions or exemptions are provided in the text, though the application of these standards is contingent on the fund's adherence to the stipulated thresholds regarding in-house asset investments. These regulations commenced upon gazettal, immediately implementing the new restrictions on in-house asset acquisitions by superannuation funds.
Key Provisions
The Occupational Superannuation Standards Regulations (Amendment) 1993 No. 14 primarily serve to modify the existing regulations under the Occupational Superannuation Standards Act 1987, with a specific focus on the investment practices of superannuation funds. The most notable change introduced by these regulations is articulated in Regulation 2, which inserts a new Regulation 16B (section 2). This new regulation prohibits superannuation funds from making new purchases of in-house assets under two specific conditions: firstly, if the existing level of a fund’s in-house assets exceeds 5% of the fund’s total assets at market value; and secondly, if any new purchases would cause the market value of a fund’s in-house assets to exceed 5% of the fund’s total assets at market value. This amendment is a critical measure to ensure that superannuation funds maintain a balanced and prudent investment portfolio, preventing over-concentration in in-house assets.
The amendments impose specific obligations on superannuation funds and their trustees. They must ensure that the market value of in-house assets does not exceed 5% of the total assets at any given time. This means that funds must conduct regular assessments of their asset holdings and refrain from making new investments in in-house assets if doing so would breach the 5% limit. Trustees of these funds must be diligent in monitoring and reporting on the composition of their funds' assets, ensuring compliance with the new standards set out in Regulation 16B. This includes maintaining accurate records and providing transparency in their investment decisions to relevant stakeholders and regulatory bodies.
Failure to comply with the provisions of Regulation 16B may result in serious consequences for the superannuation fund and its trustees. Although the regulations themselves do not explicitly state penalties for non-compliance, breaches of the Occupational Superannuation Standards Act 1987 can attract penalties under other sections of the Act. For example, Section 30 of the Act provides that a superannuation fund may be liable for a penalty of up to 100 penalty units (currently AUD 22,000) for each day of non-compliance, and trustees of the fund may also be liable for penalties under Section 31. Additionally, in severe cases of non-compliance, the Australian Taxation Office may revoke the fund’s concessional tax status, leading to significant financial and operational repercussions for the fund and its members.