EXPLANATORY STATEMENT
STATUTORY RULES 1990 NO. 150 1990
ISSUED BY AUTHORITY OF THE TREASURER
OCCUPATIONAL SUPERANNUATION STANDARDS ACT 1987
OCCUPATIONAL SUPERANNUATION STANDARDS REGULATIONS (AMENDMENT)
LEGISLATIVE BASIS FOR THE REGULATIONS
The Occupational Superannuation Standards Act 1987 (the Act) provides operating standards and other relevant conditions with which superannuation funds, approved deposit funds and pooled superannuation trusts are required to comply in order to be eligible for taxation concessions under the Income Tax Assessment Act 1936.
Section 22 of the Act provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
PURPOSE OF THE REGULATIONS
The main purpose of the regulations is to prescribe standards under subsection 7(1) of the Act to the operation of public sector superannuation funds, ie to apply operating standards similar to those applicable to private sector superannuation funds to public sector superannuation funds.
The Income Tax Assessment Act 1936, as amended by Taxation Laws Amendment Act (No 2) 1989, makes public sector superannuation funds liable for taxation from 1 July 1988. Under transitional arrangements (subsection 14(4) of the Taxation Laws Amendment Act (No 2) 1989), public sector funds were eligible for concessional taxation treatment for two income years without having to comply with the operating standards and other relevant conditions of the Act.
From the income year commencing on 1 July 1990, public sector funds will have to comply with these standards and conditions in the same manner as private sector funds, in order to be eligible for concessional taxation treatment. The standards are prescribed for public sector funds in the Occupational Superannuation Standards Regulations (the Principal Regulations) with effect from 1 July 1990.
Consistent with the announcement made by the Treasurer in the May 1988 Economic Statement, and the arrangements which were applied with respect to the application of equivalent standards to private sector funds, certain of the prudential standards (dealing with trustee arrangements and restricting lending of fund money to members) are to apply to funds established on or after 25 May 1988.
The amendments also allow trustees of private sector and public sector superannuation funds to borrow money to secure temporary finance from sources other than overdraft with an eligible bank for the purpose of paying superannuation benefits.
OPERATING STANDARDS
The key operating standards (each of which currently applies to private sector funds) to be applied to the public sector funds and, where relevant, the key dates of application of the standards to public sector funds, are:
(i) Vesting or paying standards
Member financed benefits - member contributions made prior to 30 June 1990 and member contributions and earnings thereon accruing after that date shall vest in the member.
Employer financed benefits - benefits arising from contributions made under prescribed agreements or awards shall vest in the member from 1 July 1990, or from the date of the award, whichever is the later.
(ii) Preservation standards
Vested benefits arising from employer contributions made under prescribed agreements or awards and benefits arising from certain contributions made by eligible employees after 1 July 1990 shall be preserved.
Vested benefits arising from arrangements made after 1 July 1990 under which new or additional employer financed benefits are conferred shall be preserved.
(iii) Preservation and portability
Preserved benefits may be transferred from one superannuation fund that a member is leaving to another superannuation fund, approved deposit fund or deferred annuity, which must also preserve the benefits.
(iv) Trustees
Large funds - the trustee board or trustee committee of large funds, ie those funds with 200 or more members, established on or after 25 May 1988 shall, in general, have equal member representatives and employer representatives. Decisions of the board or committee shall require at least two thirds of the members of the board to have voted in favour.
Small funds - small funds with fewer than 200 members established on or after 25 May 1988 shall have equal representation as above or alternatively appoint one or more mutually agreed trustees.
(v) Investment
Moneys of superannuation funds established on or after 25 May 1988 shall not be lent to fund members, fund trustees shall not borrow (other than to secure temporary finance), existing fund borrowings are to be repaid by 30 June 2000, and fund investments must be made at arm’s length.
(vi) Financial reports and disclosure of information
From 1 July 1990, subject to transitional arrangements, defined benefit public sector funds shall have an actuarial investigation made every three years.
An audit of the accounts of a fund shall be carried out after the end of each year of income of the fund by an approved auditor.
Except with the approval of the Commissioner or of all members of a superannuation fund, the governing rules of the fund shall not be amended so as to reduce any benefits that have accrued to any of its members.
The trustees of a fund shall, after the end of the year of income commencing on 1 July 1990, provide each member each year with a written statement containing details relating to the benefits of the member. Statements about benefits shall also be given to members on joining the fund and leaving the fund and members have the right to request certain additional prescribed information from the trustees.
The regulations prescribing these standards have effect from 1 July 1990.
DETAILS OF THE REGULATIONS
Details of the regulations necessary to extend the operating standards and conditions applicable to private sector funds to public sector funds and to effect a minor change to the standard dealing with superannuation fund borrowings are set out in the Attachment.
ATTACHMENT
CONTENTS OF THE REGULATIONS
REGULATION 1 - This regulation specifies the date of commencement of the regulations as 1 July 1990.
REGULATION 2 - This regulation defines the Occupational Superannuation Standards Regulations as the Principal Regulations.
REGULATION 3 - This regulation amends regulation 3 of the Principal Regulations by inserting definitions of ‘fully funded fund’ and ‘private sector fund’.
• The definition of ‘fully funded fund’ refers to a level of funding of defined benefit superannuation funds that is intended to be reasonably adequate to provide for present and prospective liabilities.
• The definition of ‘private sector fund’ is inserted to allow for timing and other differences in the requirements under the Principal Regulations for public sector and private sector funds.
REGULATION 4 - This regulation amends regulation 4 of the Principal Regulations by specifying that the definition of ‘approved auditor’ in the Principal Regulations also includes the Auditor-General of the Commonwealth or of a State or Territory.
REGULATION 5 - This regulation amends regulation 6 of the Principal Regulations by extending the standards concerning the vesting of member financed benefits in private sector funds which were in operation on 30 June 1986 to public sector funds in operation on 30 June 1990.
REGULATION 6 - This regulation amends regulation 7 of the Principal Regulations by extending the standards concerning the vesting of member financed benefits in private sector funds established on or after 1 July 1986 to public sector funds established on or after 1 July 1990.
REGULATION 7 - This regulation amends regulation 8 of the Principal Regulations by extending the standard concerning the vesting of benefits arising from contributions made to private sector funds under prescribed agreements or awards to public sector funds. The amendment applies to benefits accruing on or after 1 July 1990, or the date of the prescribed agreement, whichever is the later.
REGULATION 8 - This regulation amends regulation 9 of the Principal Regulations by extending the standard concerning the preservation of member financed benefits that relate to certain contributions made to private sector funds by eligible persons to public sector funds. The amendment applies to benefits that relate to contributions made on or after 1 July 1990.
REGULATION 9 - This regulation amends regulation 10 of the Principal Regulations by extending the standard applying to private sector funds concerning the preservation of new or improved employer financed benefits arising from relevant arrangements or agreements made on or after 22 December 1986. The regulation is extended to benefits in relation to relevant arrangements or agreements made by public sector funds on or after 1 July 1990.
REGULATION 10 - This regulation amends regulation 13 of the Principal Regulations by extending the standard relating to trustees of large private sector funds to large public sector funds established on or after 25 May 1988.
REGULATION 11 - This regulation amends regulation 14 of the Principal Regulations by extending the standard relating to decisions of trustees of large private sector funds to large public sector funds.
REGULATION 12 - This regulation amends regulation 15 of the Principal Regulations by extending the standard relating to trustees of small private sector funds to small public sector funds established on or after 25 May 1988.
REGULATION 13 - This regulation amends regulation 16 of the Principal Regulations by inserting in the investment standards relevant dates applicable to public sector funds.
• The prohibition on private sector funds established before 16 December 1985 amending their governing rules to enlarge the scope of their power to lend money to members is extended to public sector funds established before 25 May 1988.
• The requirement that private sector funds which had on or before 11 June 1986 borrowed money in a manner that does not comply with the standards must comply with the standards as soon as practicable before 30 June 1995 is extended to public sector funds with the corresponding dates to be 1 July 1990 and 30 June 2000 respectively.
In addition, the regulation amends the Principal Regulations by omitting the words ‘by way of overdraft with an eligible bank’ in paragraph 1(b) to allow trustees of superannuation funds to borrow money from a wider range of sources in order to secure temporary finance for the purpose of paying benefits.
REGULATION 14 - This regulation amends regulation 17 of the Principal Regulations by:
• extending the standards in relation to the actuarial investigation of private sector defined benefit funds to public sector defined benefit funds;
• specifying matters which must be contained in an actuarial report in relation to a fully funded public sector fund and a public sector fund other than a fully funded fund;
• extending the disclosure of information standards applicable to private sector funds to public sector funds. The annual written statement shall be provided to members after the end of each year of income of a fund commencing on 1 July 1990 and, where a person ceases to be a member of a public sector fund on or after 1 July 1990, a written statement of details relating to the person’s benefits shall be provided.
REGULATION 15 - This regulation amends the Principal Regulations by substituting the words ‘governing rules’ for ‘trust deed’ wherever occuring.