EXPLANATORY STATEMENT
Superannuation Industry (Supervision) Act 1993, section 332
MODIFICATION DECLARATION No 24
PURPOSE OF DECLARATION
1 The purpose of Modification Declaration No 24 (MD 24) is to provide for transitional arrangements in respect of the amendments to subregulations 6.21(1) and 6.21(1A) of the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations) made by the Superannuation Industry (Supervision) Amendment Regulations 2004 (No 4) (SR No 148 of 2004).
BACKGROUND
2 SR No 148 of 2004 amended subparagraphs 6.21(1)(a)(ii) and 6.21(1A)(a)(ii) of the SIS Regulations, with effect from 1 July 2004, to simplify the compulsory cashing rules for individuals aged 65 to 74.
3 Prior to these amendments, trustees had to cash out the benefits of a member aged between 65 and 74 where the person ceased being gainfully employed for at least 10 hours in a week.
4 Under the amendments, a complying superannuation fund must cash out the benefits of a member aged between 65 and 74 only where the person had ceased to be gainfully employed “at a part-time equivalent level”. New subregulation 6.21(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 member remain working at least 10 hours per week) to assessing work undertaken in the previous financial year (the requirement being that the member have worked for at least 240 hours in that year).
REASON FOR DECLARATION
6 SR No 148 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 24 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 24 inserts a new subregulation 6.21(1B) into the SIS Regulations. New subregulation 6.21(1B) removes the requirement for trustees to compulsorily cash benefits in accordance with paragraphs 6.21(1)(a) and 6.21(1A)(a) of the SIS 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 6.21(1C) provides that a trustee is not in breach of paragraph 6.21(1)(a) or 6.21(1A)(a) of the SIS Regulations if, during the period 1 July 2004 to the date of commencement of MD 24, the trustee did not compulsorily cash members’ benefits in accordance with those paragraphs as they existed prior to the commencement of MD 24.
11 From 1 July 2005 trustees 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 24 commences on the date it is signed.
REGULATION IMPACT STATEMENT
13 A Regulation Impact Statement is not necessary in relation to MD 24, as the declaration is of a minor or mechanical nature and does not substantially alter existing arrangements.
Dated 2 May 2005
(Published by the Australian Prudential Regulation Authority)
Overview
The Superannuation Industry (Supervision) Amendment Regulations 2004 (No 4) introduced amendments to the Superannuation Industry (Supervision) Regulations 1994 to simplify the compulsory cashing rules for individuals aged 65 to 74. However, these amendments did not include transitional provisions, which could have led to inequity in the application of the new annual work test during its first year of operation. To address this issue, Modification Declaration No 24 was enacted to provide transitional arrangements for implementing the change from a weekly work test to one based on the previous financial year. This transitional measure ensures that there is no requirement for compulsory cashing based on work tests for individuals aged 65 to 74 during the period from 1 July 2004 to 30 June 2005.
Scope and Application
The Modification Declaration No 24 (MD 24) pertains to transitional arrangements for the amendments introduced by the Superannuation Industry (Supervision) Amendment Regulations 2004 (No 4) to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). Specifically, MD 24 addresses the changes to the compulsory cashing rules for superannuation members aged between 65 and 74. Previously, trustees were required to cash out the benefits of members in this age group if they ceased being gainfully employed for at least 10 hours per week. The amendments shifted this requirement to an assessment based on the member's employment in the previous financial year, specifically if they worked for at least 240 hours. The MD 24 provides a transitional period from 1 July 2004 to 30 June 2005, during which the weekly work test does not apply, and trustees are not required to compulsorily cash members’ benefits. From 1 July 2005, trustees must apply the new annual work test, which considers employment undertaken in the 2004-05 financial year. This transitional arrangement ensures a smooth implementation of the new rules and prevents potential inequities arising from the initial application of the amended regulations.
Key Provisions
Modification Declaration No 24 (MD 24) aims to provide transitional arrangements in response to the amendments made to subregulations 6.21(1) and 6.21(1A) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) by the Superannuation Industry (Supervision) Amendment Regulations 2004 (No 4) (SR No 148 of 2004) (sections 7, 12). These amendments introduced changes to the compulsory cashing rules for individuals aged between 65 and 74. Prior to the amendments, trustees were required to cash out the benefits of members who ceased being gainfully employed for at least 10 hours a week. The new rules, however, require trustees to cash out the benefits of members who ceased being gainfully employed "at a part-time equivalent level" (section 4).
The obligations and requirements imposed by MD 24 include a temporary exemption from the compulsory cashing rules for individuals aged 65 to 74 from 1 July 2004 to 30 June 2005 (section 9). Specifically, subregulation 6.21(1B) removes the requirement for trustees to cash benefits during this period. Additionally, subregulation 6.21(1C) exempts trustees from non-compliance if they did not cash benefits during the period from 1 July 2004 to the commencement date of MD 24, as per the previous regulations (section 10). Trustees are expected to comply with the new annual work test from 1 July 2005, taking into account employment in the 2004-05 financial year.
Under the MD 24, there are no specific offences, penalties, or civil/criminal consequences for breaches of the transitional arrangements (section 13). However, trustees are obligated to adhere to the new work test from 1 July 2005. Failure to comply with the new rules after the transitional period may result in penalties under the SIS Regulations. The explanatory statement clarifies that MD 24 is of a minor or mechanical nature, indicating that it does not substantially alter existing arrangements or necessitate a detailed Regulation Impact Statement.