Approval of provision of benefits No. 1 of 2007
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Paragraph 62(1)(b)(v) of the Superannuation Industry (Supervision) Act 1993
The purpose of the instrument is to revoke Approval of provision of benefits issued by the Insurance and Superannuation Commissioner (ISC) on 1 July 1997 and to make a revised Approval of provision of benefits under subparagraph 62(1)(b)(v) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) .
Background
- The sole purpose requirements in section 62 of the SIS Act limit the provision of superannuation benefits by regulated superannuation funds to a range of prescribed or approved retirement or retirement-related circumstances under the core and ancillary purposes. The core purposes set out the reasons for which a fund may exist and pay benefits. They operate in conjunction with the payment standards. Ancillary purposes are those purposes for which a superannuation fund may be maintained under paragraph 62(1)(b) of the SIS Act. A regulated superannuation fund maintained for an ancillary purpose must also be maintained for at least one of the core purposes set out in paragraph 62(1)(a) of the SIS Act. Under subparagraph 62(1)(b)(v) of the SIS Act, a fund may provide other ancillary benefits not specified in the prescribed core or ancillary purposes where the fund has obtained the Regulator’s written approval.
- Both the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) have the power to approve other ancillary purposes in writing under subparagraph 62(1)(b)(v). This power was previously held by the former Insurance and Superannuation Commissioner whose 1 July 1997 approval of ancillary purposes for which benefits may be provided continued to have effect after APRA and the ATO took over the administration of the SIS Act from the ISC. The 1 July 1997 legislative instrument approved, in limited circumstances, the provision of welfare and long service leave benefits by certain funds and benefits provided on demutualisation of specified companies in which funds had invested. As those categories of benefit payments have been finalised, such approval is no longer relevant or appropriate. The 1 July 1997 legislative instrument approved the provision of benefits under Part 6 of the SIS Regulations and the revised approval will continue this while clarifying that the approval will include the provision of benefits under Part 6 as affected by modification declarations and exemptions.
Purpose of the instrument
3. The instrument revokes the 1 July 1997 approval and enacts a revised approval for funds under APRA's jurisdiction. This revocation and approval applies only to regulated superannuation funds under the trusteeship of Registrable Superannuation Entity (RSE) Licensees and has no application to the trustees of self managed superannuation funds regulated by the ATO.
4. The instrument approves the provision of benefits for, or in respect of, each member of a fund which Part 6 of the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations) permits or requires to be paid when, to the extent that, and to the persons to whom, the fund is permitted or required under Part 6 of the SIS regulations to pay them. To avoid doubt, the instrument makes clear that this includes situations where benefits are provided in accordance with Part 6 of the SIS Regulations as modified by APRA under section 332 of the SIS Act and/or the provision has been facilitated by an exemption made by APRA under section 328 of the SIS Act.
Operation of the instrument
5. The ancillary purpose approval relating to the provision of benefits under Part 6 of the SIS Regulations addresses tensions which might otherwise arise between the sole purpose test of section 62 and the payment standards of Part 6. For example:
- the sole purpose provisions allow for payment of benefits only to members, dependants or the legal personal representative of the member, whereas regulation 6.22 authorises payment of benefits in certain, very limited, circumstances to any individual;
- the sole purpose test may prohibit payment of benefits that had become
unrestricted non-preserved benefits because of termination of employment,
but that had been rolled over to a second fund. The benefits would not then
be payable from the second fund owing to the terms of paragraph 62(1)(b)(i),
which apply only to benefits to which the relevant employer had contributed; and
- the sole purpose test may prohibit payment of a benefit under $200 to a lost member who is found. The benefit may be paid under item 111 of the Conditions of release under Schedule 1 of the SIS Regulations.
However, the ancillary purpose approval ensures these benefits remain payable at any time.
6. The approval of benefits also recognises that the application of payment standards under Part 6 of the SIS Regulations may be affected by APRA’s powers of exemption and modification. Part 6 of the SIS Regulations is a ‘modifiable provision’ under paragraph 327(c) of the Act, as the payment standards of Part 6 are regulations made for the purposes of Part 3 of the Act.
Consultation
7. APRA consulted with relevant government agencies and industry organisations. No substantive issues were identified in the consultation process.
Commencement
8. The revocation and the approval of provision of benefits under subparagraph 62(1)(b)(v) of the SIS Act come into force from the date of registration of the instrument on the Federal Register of Legislative Instruments.
Overview
The Approval of provision of benefits No. 1 of 2007, enacted in response to the need to update and clarify the regulatory framework surrounding the provision of ancillary benefits by regulated superannuation funds, was designed to address discrepancies between the sole purpose requirements in section 62 of the Superannuation Industry (Supervision) Act 1993 and the payment standards under Part 6 of the Superannuation Industry (Supervision) Regulations 1994. This legislative instrument, issued by the Australian Prudential Regulation Authority (APRA), revoked the 1 July 1997 approval provided by the Insurance and Superannuation Commissioner and introduced a revised approval mechanism to ensure the continued payment of ancillary benefits in specific circumstances. This update is particularly relevant to regulated superannuation funds under the trusteeship of Registrable Superannuation Entity (RSE) Licensees, thereby maintaining the integrity of the sole purpose test while allowing for necessary flexibility in the payment of benefits.
Scope and Application
The Approval of provision of benefits No. 1 of 2007 instrument, prepared by the Australian Prudential Regulation Authority (APRA), seeks to revoke the approval issued by the Insurance and Superannuation Commissioner on 1 July 1997 and establish a revised approval for regulated superannuation funds under the jurisdiction of APRA. This instrument applies specifically to regulated superannuation funds managed by Registrable Superannuation Entity (RSE) Licensees, excluding self-managed superannuation funds regulated by the Australian Taxation Office (ATO). The revised approval allows these funds to provide benefits as permitted or required under Part 6 of the Superannuation Industry (Supervision) Regulations 1994, including those modified by APRA or facilitated by exemptions. The instrument addresses inconsistencies between the sole purpose test and payment standards, ensuring that certain benefits remain payable despite the limitations of the sole purpose test. APRA consulted with relevant government agencies and industry organisations during the development of this instrument, with no substantive issues identified. The instrument's provisions come into effect from the date of registration on the Federal Register of Legislative Instruments.
Key Provisions
The instrument (F2007L04438) under section 62(1)(b)(v) of the Superannuation Industry (Supervision) Act 1993 (SIS Act) revokes the 1997 Approval of provision of benefits issued by the Insurance and Superannuation Commissioner (ISC) and establishes a new approval (paragraphs 3 to 6). The 1997 approval permitted certain regulated superannuation funds to provide specific ancillary benefits, such as welfare and long service leave benefits, where written approval had been obtained from the ISC. The new approval under the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) replaces this, clarifying that it applies to benefits provided under Part 6 of the Superannuation Industry (Superannuation) Regulations 1994 (SIS Regulations) and acknowledges any modifications or exemptions made by APRA.
Under the new approval, regulated superannuation funds under the trusteeship of Registrable Superannuation Entity (RSE) Licensees may provide benefits permitted or required by Part 6 of the SIS Regulations, to the extent and to the persons specified in the Regulations (paragraph 4). This includes benefits provided in accordance with modifications under section 332 of the SIS Act and/or exemptions made under section 328 of the SIS Act. The purpose of this approval is to address tensions that may arise between the sole purpose test of section 62 of the SIS Act and the payment standards of Part 6 of the SIS Regulations, ensuring that certain benefits can be paid despite these tensions (paragraph 5). For instance, the sole purpose test might restrict the payment of benefits to members, dependants, or the legal personal representative of the member, whereas regulation 6.22 allows payment in certain circumstances to any individual. Similarly, the sole purpose test might prohibit the payment of benefits that have become unrestricted non-preserved benefits due to termination of employment but have been rolled over to a second fund, or it might restrict the payment of a benefit under $200 to a lost member who is found. The approval ensures these benefits can be paid as permitted or required by the SIS Regulations.
The instrument imposes specific obligations on regulated superannuation funds under RSE Licensees. These funds must adhere to the payment standards and conditions outlined in Part 6 of the SIS Regulations, ensuring that any benefits provided comply with the approved ancillary purposes. Trustees must ensure that any benefits provided are in accordance with the SIS Regulations, including any modifications or exemptions made by APRA. Failure to comply with these obligations may result in regulatory action and potential penalties.
There are no specific offences, penalties, or civil/criminal consequences outlined for breaches of this instrument. However, non-compliance with the SIS Act or the SIS Regulations could result in penalties under those Acts. For example, under the SIS Act, trustees who fail to comply with the sole purpose test or payment standards could face penalties, including fines and imprisonment. Additionally, APRA has the authority to impose administrative penalties for breaches of the SIS Regulations, including fines up to $1.8 million for corporations and $360,000 for individuals. These penalties underscore the importance of adhering to the provisions of the instrument and the broader regulatory framework governing superannuation funds.