Retirement Savings Accounts Regulations (Amendment)

Administered by Department of the Treasury

Legislation au F1998B00164 Regulations Not in force Legislative Instrument

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Retirement Savings Accounts Regulations (Amendment) 1998 No. 178

EXPLANATORY STATEMENT

STATUTORY RULES 1997 NO. 178

Issued by the authority of the Assistant Treasurer

Retirement Savings Accounts Act 1997

Retirement Savings Accounts Regulations (Amendment)

The Retirement Savings Accounts Act 1997 (the Act) and the Retirement Savings Accounts Regulations (the Principal Regulations) implement the 1996-97 Budget initiative to allow banks, building societies, credit unions and life insurance companies to provide superannuation without a trust structure in the form of retirement savings accounts (RSAs). RSAs may be offered from 1 July 1997.

Section 200 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.

Under the Principal Regulations, superannuation benefits in an RSA will generally be required to be 'preserved' in the superannuation system until retirement on or after age 55. However, subject to the terms and conditions of an RSA, early release of 'preserved' benefits is permitted under the Principal Regulations in certain restricted circumstances such as 'severe financial hardship'- A person is considered to be in 'severe financial hardship' if the person satisfies a test of 'severe financial hardship'.

An objective test of 'severe financial hardship' requires the person to be in receipt of a specified Commonwealth income support payment for a continuous period of six months. In addition, the person has to satisfy a subjective test of 'severe financial hardship' to be administered by the RSA provider requiring the RSA provider to be satisfied that the person is unable to meet reasonable and immediate family living expenses. Persons aged 55 years or over have the choice of applying for the early release of their benefit under an alternative test where they are required to have been in receipt of a Commonwealth income support payment for a cumulative period of 9 months (no subjective test applies). Commonwealth income support payment is currently defined in subregulation 4-01(2) of the Principal Regulations.

It is intended that the definition of 'Commonwealth income support payment' should only capture those social security payments where the maximum benefit payment is intended to 'fully support' recipients and their dependants and not include other social security entitlements or Commonwealth payments. As such, a specified Commonwealth income support payment only includes a social security benefit, social security pension, income support supplement or service pension as defined under section 23 of the Social Security Act 1991.

The purpose of the Regulations is to vary the 'Commonwealth income support payment' definition to include an Exceptional Circumstances Relief Payment (previously known as Drought Relief Payment) and a payment of salary or wages made under the Community Development Employment Projects Scheme, as these payments are consistent with the existing policy rationale of the 'early release of benefit' arrangements (refer Regulations 3 and 4).

The regulations also ensure that Austudy will continue to be excluded from the Commonwealth income support payment definition. From 1 July 1998, as a result of new Social Security legislation, Austudy is replaced with a youth allowance payment and austudy payment and both automatically come under the existing definition of 'Commonwealth income support payment'. The regulations therefore make amendments to expressly exclude youth allowance and austudy payments from the existing definition of 'Commonwealth income support payment'. It is important to note that as the youth allowance is a payment for young people, including students and those actively seeking work, only the youth allowance paid to recipients who studying full-time will be excluded (refer Regulation 4).

The Regulations are described in detail in the Attachment.

Regulation 1, 2 and 3 are taken to have commenced on 1 January 1998. The retrospective effect of the Regulations ensures that recipients of an Exceptional Circumstances Relief Payment (previously known as Drought Relief Payment) and a payment of salary or wages made under the Community Development Employment Projects Scheme will be eligible to meet the objective component of the 'severe financial hardship' test from 1 July 1998 as well as consistency in the 'early release of benefit' arrangements. The retrospective effect of the Regulations will not adversely affect the rights of any person. Therefore, subsection 48(2) of the Acts Interpretation Act 1901 will not be contravened. Regulation 4 commences on 1 July 1998.

ATTACHMENT

Regulation 1 - Commencement

Subregulation 1.1 provides that this Regulation and regulations 2 and 3 are taken to have commenced on 1 January 1998.

Subregulation 1.2 provides that Regulation 4 commences on 1 July 1998.

Regulation 2 - Amendment

Regulation 2 provides that the Retirement Savings Accounts Regulations (the Principal Regulations) are amended as set out in these Regulations.

Regulation 3 - Regulation 4.01 (Interpretation)

Regulation 3 amends the definition of 'Commonwealth income support payment' contained in subregulation 4.01(2) of the Principal Regulations. The new definition of 'Commonwealth income support payment' includes an Exceptional Circumstances Relief Payment (previously known as Drought Relief Payment) and a payment of salary and wages under the Community Development Employment Projects Scheme from 1 January 1998. This ensures that these payments are recognised as Commonwealth income support payments from 1 January 1998. As such a person who has been in continuous receipt of these payments for six months prior to 1 July 1998, will meet the objective test of 'severe financial hardship' from 1 July 1998.

Regulation 4 - Regulation 4.01 (Interpretation)

Regulation 4 amends the definition of 'Commonwealth income support payment' contained in subregulation 4.01(2) of the Principal Regulations.

The new definition of 'Commonwealth income support payment'.

*       includes the Exceptional Circumstances Relief Payment (previously known as the Drought Relief Payment) and a payment of salary and wages made under the Community Development Employment Projects Scheme from 1 July 1998; and

*       excludes the youth allowance (for recipients who are undertaking full-time study) and austudy payments from 1 July 1998.

 

Overview

The Retirement Savings Accounts Regulations (Amendment) 1998 No. 178, issued under the authority of the Assistant Treasurer, amends the Retirement Savings Accounts Regulations 1997 to address the gap in eligibility for early release of superannuation benefits under retirement savings accounts in specific circumstances. This amendment responds to the 1996-97 Budget initiative aimed at providing greater flexibility in accessing superannuation benefits, particularly in cases of severe financial hardship. The Retirement Savings Accounts Act 1997 and its regulations allow certain financial institutions to offer superannuation without a trust structure, effective from 1 July 1997. The policy objective is to ensure that the definition of 'Commonwealth income support payment' aligns with the intent of providing full support to recipients, thereby facilitating access to early release of benefits under defined hardship conditions. The regulation incorporates specific payments like the Exceptional Circumstances Relief Payment and wages from the Community Development Employment Projects Scheme while excluding certain allowances such as youth allowance for full-time students, reflecting the policy rationale behind the 'early release of benefit' arrangements.

Scope and Application

The Retirement Savings Accounts Regulations (Amendment) 1998 No. 178 amends the Retirement Savings Accounts Regulations 1997, which implement the Retirement Savings Accounts Act 1997. The Act and the Regulations apply to financial institutions, including banks, building societies, credit unions and life insurance companies, that offer retirement savings accounts (RSAs). RSAs are a form of superannuation that can be provided without a trust structure, allowing these institutions to offer superannuation from 1 July 1997. The Regulations are made under section 200 of the Act and are designed to modify the definition of 'Commonwealth income support payment', a term crucial for determining eligibility for early release of superannuation benefits in RSAs due to severe financial hardship. The Regulations aim to ensure that certain Commonwealth payments are recognised as income support payments for the purposes of these regulations, while excluding specific payments such as youth allowances for full-time students and austudy payments from this definition. The amendments are intended to align the definition with the policy rationale behind the early release arrangements, ensuring that only payments intended to fully support recipients and their dependants are included.

Key Provisions

The Retirement Savings Accounts Regulations (Amendment) 1998 No. 178, pursuant to section 200 of the Retirement Savings Accounts Act 1997, introduces amendments to the existing regulations governing retirement savings accounts (RSAs). These amendments are designed to refine the definition of 'Commonwealth income support payment', which is a critical factor in determining eligibility for early release of superannuation benefits under certain conditions. Regulation 1 specifies the commencement dates, with regulations 2 and 3 taking effect from 1 January 1998, and Regulation 4 coming into force on 1 July 1998. Regulation 2 provides the overarching amendment to the existing regulations, while Regulations 3 and 4 specifically modify the definition of 'Commonwealth income support payment' to include certain additional payments and exclude others. The amendments impose specific obligations on financial institutions offering RSAs and the account holders themselves. Financial institutions must now recognise certain additional payments as 'Commonwealth income support payments' for the purposes of determining eligibility for early release of superannuation benefits under severe financial hardship conditions. This includes an Exceptional Circumstances Relief Payment (formerly known as Drought Relief Payment) and payments of salary or wages made under the Community Development Employment Projects Scheme. Account holders benefit from these changes as they now have broader access to the early release provisions if they satisfy the relevant conditions. Conversely, the amendments exclude youth allowance and austudy payments from the definition of 'Commonwealth income support payment', effective from 1 July 1998. The Regulations do not explicitly outline criminal or civil penalties for non-compliance. However, financial institutions that fail to adhere to the amended definitions and conditions could face legal challenges from account holders who are denied early release of benefits or who are incorrectly assessed. The consequences for account holders could include financial hardship if they are incorrectly deemed ineligible for early release due to non-compliance by the financial institution. Moreover, the integrity of the superannuation system could be compromised if institutions do not accurately apply the regulatory changes. In summary, the Retirement Savings Accounts Regulations (Amendment) 1998 No. 178 clarifies and expands the definition of 'Commonwealth income support payment', thereby affecting eligibility criteria for early release of superannuation benefits under the severe financial hardship provisions. Financial institutions and account holders are both subject to specific obligations arising from these changes, with potential legal ramifications for non-compliance.

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