Retirement Savings Accounts Supervisory Levy Regulations 1997 No. 417
EXPLANATORY STATEMENT
STATUTORY RULES 1997 No. 417
Issued by the authority of the Assistant Treasurer
Retirement Savings Accounts Supervisory Levy Act 1997
Retirement Savings Accounts Supervisory Levy Regulations
Section 7 of the Retirement Savings Accounts Supervisory Levy Act 1997 (the Act) provides that the Governor-General may make Regulations for the purposes of the Act.
The 1996-97 Budget initiative on Retirement Savings Accounts (RSAs) provided that the cost of regulating RSAs would be recouped by the Insurance and Superannuation Commission (ISC) through the imposition of an annual levy on institutions offering RSAs. The Act makes provision for the application of a levy on RSAs providers and includes a basic levy amount and a late lodgement amount. The Act provides that the basic levy amount is to be prescribed by regulation.
The purpose of these regulations is to prescribe the basic levy amount payable by RSA providers as required by the Act.
Regulation 3 prescribes a method of calculating the basic levy amount which is intended to effect cost recovery of the ISC's functional supervision of RSAs, including both the cost of processing annual return forms and all of the remaining costs involved in monitoring the compliance of RSA providers and RSAs with the retirement income and other superannuation standards.
The basic levy amount prescribed by regulation 3 is graduated and based on the amounts held in RSAs by the RSA provider. The basic levy amount, payable by an RSA provider on the lodgment of an annual return for a year of income, is:
* $2,000 where the sum of the amounts held in RSAs by the RSA provider is not more than $5 million;
* $3,000 where the sum of the amounts held in RSAs by the RSA provider is more than $5 million but not more than $10 million; and
* $4,000 where the sum of the amounts held in RSAs by the RSA provider is more than $10 million.
An exception to this is provided in circumstances where ail RSA provider has ceased to be an RSA provider during the year of income. In this case, regulation 3 provides that the basic levy amount will be $2,000.
Regulation 3 also clarifies that, when determining the sum of the amounts held in RSAs for the purposes of ascertaining the basic levy amount, where an RSA is a life policy, the amount assessed by the levy payer (ie, the RSA provider) as the current value of that policy is to be taken to be the amount held in that particular RSA. Where the levy payer cannot assess the current value of the policy, the policy will be regarded as having a value of $20,000.
A Regulation Impact Statement in respect of these regulations is at the Attachment. The Regulations commence on gazettal.
ATTACHMENT
REGULATION IMPACT STATEMENT
A Problem or issue identification
The Insurance and Superannuation Commission (ISC) is responsible for the functional supervision of retirement savings accounts (RSAs); that is, ensuring RSA providers comply with retirement income and other superannuation standards as set out in the Retirement Savings Accounts Act 1997 and the Retirement Savings Accounts Regulations.
The Retirement Savings Accounts Supervisory Levy Act 1997 (the Levy Act) aims to effect cost recovery of the ISC's supervision of RSAs by imposing a levy on RSA providers that offer, or have offered, RSAs and who lodge an annual return with the ISC. The Levy Act provides that the amount of the levy is to be prescribed by regulation.
B Specification of the desired objective
In his 1996-97 Budget announcement on RSAs, the Treasurer stated that the ISC would recoup the costs of regulating RSAs through an annual levy on institutions offering RSAs (given effect to by the Levy Act) and that this should be comparable to the existing levy imposed on superannuation funds.
The object of this instrument is therefore to prescribe the levy amount payable by, RSA providers as required by the Levy Act.
C Identification of options
Option 1 -Proceed with proposed regulations
That the cost of functional supervision be recouped from RSA providers through a levy prescribed by regulations.
Sub-option 1
That the levy be graduated and based on the sum of the amounts held in RSAs by the RSA provider.
Sub-option II
That the levy be a fixed rate levy.
Option 2 - No specific action
That no regulations be made for the purposes of the Levy Act and instead the cost of the ISC's functional supervision of RSAs be absorbed from the ISC's existing Budget appropriation.
D Assessment of impacts (costs and benefits) of each option
Impact group identification
The following stakeholders will be affected directly or indirectly by the proposed legislative instrument:
* RSA providers - banks, building societies, credit unions and life insurance companies which offer RSAs, or have offered RSAs, will have to pay the levy prescribed by the instrument;
* Insurance and Superannuation Commission - the ISC will be responsible for calculating the levy, collecting it from RSA providers and processing the levy;
* RSA holders - the amount of the levy may be recouped by the RSA provider as an administration cost from RSA holders;
* other superannuation providers - a supervisory levy (also imposed to recover the ISC's supervisory costs) is paid by other superannuation providers.
Assessment of costs and benefits
Option 1 - Proceed with proposed regulations
It is expected that the primary cost to be faced by RSA providers as a result of this instrument will be the levy itself. Administrative, compliance and other costs to RSA providers resulting from the introduction of the regulations are expected to be negligible as RSA providers would generally have existing facilities in place to pay levies required under their prudential regimes. However, the levy amounts are small relative to the size of most RSA providers. RSA providers benefit from the prestige that ISC functional supervision confers in terms of their credibility and standing in the market place.
There will be some cost to the ISC as a result of its responsibility for collecting and processing the levy (although this is difficult to quantify given that the number of RSA providers in the medium to long term is unknown). The benefit, however, will be that the regulations will enable the cost of the ISC's functional supervision of RSAs to be recovered (as foreshadowed in the Treasurer's announcement referred to in B above).
The cost to the ISC of administering and regulating RSAs has been calculated as $132,000 in the 1996/97 financial year, to increase to $495,000 in the 1997/98 financial year and $396,000 in the 1998/99 and subsequent financial years. The increase in the cost from 1996/97 to 1997/98 recognises that 1997/98 is the first full year of operation of the RSA legislation and includes functional supervision and administration tasks such as the development of supervision systems and annual returns. The decrease in the expected cost of supervision in the later years reflects the expectation that many of the initial development tasks will be completed.
Since banks, building societies, credit unions and life insurance companies have only been able to offer RSAs since 1 July 1997 it is difficult at this stage to determine the exact amount that will be received from the levy. This will depend on the number of RSA providers, and the amount held in RSAs by that RSA provider, in any given financial year. In view of this uncertainty, if the amount collected by the proposed levy does not cover the ISC's cost of functional supervision, the deficit in the particular year would have to be absorbed from other areas of the ISC's appropriation. If it is found that a deficit is ongoing, the levy may be reviewed by the ISC.
Option 1 has the benefit of making the ISC more transparent and accountable for the cost of regulating RSAs, not only to government, but also to the industry.
The proposed levy is to be payable annually after the lodgment of an annual return with the ISC. (Annual returns are required to be submitted within 5 months after the end of the RSA provider's year of income.)
Comparison between sub-option I and II
The cost to the ISC would be the same regardless of whether sub-option I (graduated levy) or sub-option II (fixed rate levy) were proceeded with.
The levy proposed by the instrument is in accordance with sub-option I. That is, the amount of the levy will be graduated, based on the amounts held in RSAs by the RSA provider and be:
* $2,000 where the sum of the amounts held in RSAs by the RSA provider is not more than $5 million;
* $3,000 where the sum of the amounts held in RSAs by the RSA provider is more than $5 million but not more than $10 million; and
* $4,000 where the sum of the amounts held in RSAs by the RSA provider is more than $10 million.
The graduated approach recognises that some costs to the ISC may be dependent on the RSA asset base of RSA providers. These include the cost to the ISC of following up complaints received from disaffected RSA holders with the RSA holder and RSA provider and any further investigation of these complaints. This also applies to the extra costs borne by the Superannuation Complaints Tribunal (SCT). However, it also recognises that the other costs related to functional supervision of RSAs would not vary significantly between an RSA provider with a small RSA asset base and one with a larger RSA asset base as the tasks undertaken by the ISC (eg, development and processing of the annual return, policy development, legislative review and amendment, industry liaison and statistical reporting) would be similar for each.
Sub-option 1 is also consistent with the manner in which the ISC's cost of supervision is recovered from the superannuation industry and therefore more closely meets the objective of comparability with the existing superannuation supervisory levy, as set out in B above.
The benefit to RSA providers of a fixed rate levy as proposed in sub-option II is that the amount payable would be known to the RSA provider in advance. It is however, more inequitable and assumes that the cost of supervision does not vary at all between RSA providers (specifically, the costs on the ISC and SCT resulting from complaints handling).
Option 2 - No specific action
RSA providers would benefit from this option as they would not have to pay for their functional supervision by the ISC. However, the effect of this option would be that the costs borne by the ISC in functionally supervising RSAs would have to be absorbed from the ISC's existing Budget appropriation. This may consequently result in a transfer of some resources away from supervision of the other industries regulated by the ISC to cover the supervision of RSAs. Alternatively, this option may necessitate an additional Budget appropriation to the ISC to fund the cost of the ISC's supervision of RSAs.
Effect on small business
Neither of the options would effect small business as the levy under the proposed regulations is payable by RSA providers. Only banks, building societies, credit unions and life insurance companies can be RSA providers.
E Consultation
A wide ranging consultation process was undertaken during the development of the proposed regulations. Those consulted included industry and consumer groups as well as relevant government agencies. Comments were invited from these parties on the drafting instructions for the Regulations and on the draft Regulations. A meeting with stakeholders was also held in Canberra in March 1997 at which the draft Regulations were discussed. The parties consulted included:
* Australian Association of Permanent Building Societies;
* Australian Bankers Association;
* Credit Union Services Corporation;
* Life, Investment and Superannuation Association; and
* National Credit Union Association.
The Reserve Bank and the Australian Financial Institutions Commission were also consulted.
There is acceptance by these organisations of the need to impose a levy on RSA providers through regulation.
F Conclusion and recommended option
Option 1 is the preferred option (and specifically, sub-option I). This is in keeping with the Government's intention to effect cost recovery of the cost of functional supervision through the imposition of a levy on providers of RSAs. Sub-option I is also consistent with the manner in which the cost of the ISC's supervision is recovered from the superannuation industry and achieves greater equity amongst RSA providers.
Option 2 is not acceptable as it could result in a significant transfer of resources away from the prudential supervision of the superannuation, general insurance and life insurance industries. Furthermore, this could involve cross subsidies within the ISC's internal funding allocation which, in turn, could adversely affect the way in which the ISC implements its supervisory regime (and hence lead to inefficient allocation of supervisory resources). Such cross subsidy may also reduce transparency by hiding the true costs of regulation, not only from government, but also from those regulated. Option 2 also involves relying on the Budget to fund the ISC's regulation of RSAs, meaning cost recovery would come from all taxpayers rather than targeting only RSA providers.
G Implementation and review
The regulation will be implemented, administered and enforced by the ISC.
In its response to the Financial System Inquiry Report, the Government indicated that regulation of RSAs would be the responsibility of the Australian Prudential Regulation Authority (APRA), to be established in 1998. The APRA will be funded by fees and levies from the institutions it regulates, which will be set to cover the costs of its operations. The proposed regulation will be reviewed at this time by APRA.
In addition, given that RSAs are a new product, the uncertainty as to the medium to long term number of RSA providers and the amounts they will have in RSAs, it is expected that APRA will regularly review the levy in future to ensure that it continues to achieve its objectives.