Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293
EXPLANATORY STATEMENT
STATUTORY RULES 1995 No. 293
Issued by the authority of the Treasurer
Superannuation Industry (Supervision) Act 1993
Superannuation Industry (Supervision) Regulations (Amendment)
The Superannuation Industry (Supervision) Act 1993 (the Act) and the Superannuation Industry (Supervision) Regulations (the Principal Regulations) provide for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.
Section 353 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.
The proposed regulations amend the Principal Regulations by substituting a new paragraph 2.29(1)(h), which will require funds to report to members earnings for the previous 5 years. They will also be required to provide a 5 year rolling average of fund earnings. Currently, funds are only required to provide earnings figures for the past 3 years.
By way of background, the Government has been concerned for some time about the tendency for trustees, members, and some service providers to place undue emphasis on the short-term performance of superannuation funds. 'Short-termism' can lead to the formulation by funds of inappropriate, overly conservative investment strategies aimed at reducing volatility, at the expense of lower returns for members in the long run. In this regard, 'short-termism' is arguably a strong factor underlying the persistent calls for Government direction of superannuation assets into 'national interest' investments.
Overall, the Government considers that five year rolling average figures, together with individual annual figures for the past five years, will operate as a more effective counterbalance to the short-term considerations that arise from annual reporting than the three year annualised reporting currently required. The figures will also better complement industry and Government education campaigns aimed at facilitating a longer term investment perspective on the part of members.
The regulations are described in detail in the attachment.
The regulations commence on gazettal.
ATTACHMENT
Superannuation Industry (Supervision) Regulations (Amendment)
Regulation 1 - Amendment
Regulation 1 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.
The Regulations will commence on gazettal.
Regulation 2 - Regulation 2.29 (Specific requirements in particular cases)
Regulation 2 substitutes a new paragraph 2.29 (1) (h) which requires trustees to provide, in respect of the relevant sub-plan or, if none, of the fund, the actual or notional rate of net earnings in respect of each of the most recent reporting periods that in total, constitute a period of at least five years. The trustee is also required to provide the compound average actual or notional rate of net earnings for the five years ending at the end of the reporting period.
'Compound average' takes into account the previous years earnings. In contrast, a simple arithmetic average would only take into account current year earnings.
The amendment made by Regulation 2 inserts a new paragraph 3A which provides that if at the end of a reporting period, a fund or sub-plan has not been in existence for 5 years, the references in paragraph (1)(h) to 5 years are taken to be references to the whole period of existence of the fund or sub-plan as appropriate.
Regulation 3 - Application
The amendment made by Regulation 2 applies in relation to the reporting period of a fund or subplan, as the case requires, for the 1995-96, financial year and each succeeding reporting period.
Overview
The Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293 was enacted to address the issue of 'short-termism' in the management and reporting of superannuation funds, where undue emphasis is placed on short-term performance at the expense of long-term returns for members. The Superannuation Industry (Supervision) Act 1993 and its associated regulations provide for the prudent management of superannuation funds and their supervision by the Insurance and Superannuation Commissioner. The proposed regulations amend the Principal Regulations by introducing new requirements for superannuation funds to report earnings and a rolling average of fund earnings over a five-year period rather than the previously required three-year period. This amendment was introduced by the Australian Government, with the policy objective of providing a more effective counterbalance to short-term considerations in the investment strategies of superannuation funds. The regulations were issued under the authority of the Treasurer and commenced on gazettal.
Scope and Application
The Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293 pertains to the amendment of the existing Superannuation Industry (Supervision) Regulations, which are governed by the Superannuation Industry (Supervision) Act 1993. This Act and its regulations are designed to ensure the prudent management of certain superannuation funds, approved deposit funds, and pooled superannuation trusts, and they provide for the oversight of these entities by the Insurance and Superannuation Commissioner. The amendment seeks to address the issue of short-termism by requiring superannuation funds to report on their earnings for the previous five years and provide a five-year rolling average of these earnings, thereby encouraging a more long-term investment perspective. This regulation applies to all trustees of relevant superannuation funds and will commence upon gazettal, affecting reporting periods starting from 1995-96 and each subsequent reporting period. The amendment does not explicitly exclude any specific entities or circumstances, but it does provide for adjustments where a fund or sub-plan has not been in existence for the full five-year period. The regulations are issued under the authority of the Treasurer and are designed to complement broader industry and government efforts to promote long-term investment strategies within the superannuation industry.
Key Provisions
The Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 293 amends the Principal Regulations under the Superannuation Industry (Supervision) Act 1993. Specifically, Regulation 2 updates paragraph 2.29(1)(h) to require trustees of superannuation funds to report the actual or notional rate of net earnings for the five most recent years. Additionally, they must provide a five-year rolling compound average of these earnings (Regulation 2). This change extends the current requirement of reporting earnings for the previous three years, aiming to counteract short-termism in the management and perception of fund performance by trustees, members, and service providers.
These regulations impose new obligations on trustees of superannuation funds. Firstly, they must now report earnings data for a five-year period rather than the previous three years. This extended reporting period is designed to provide a more comprehensive view of fund performance and to encourage a longer-term investment perspective. Secondly, trustees must calculate and report a five-year rolling compound average of net earnings, which takes into account the performance of each of the previous years. This requirement replaces the previous need for a simple arithmetic average, which only considered the current year's earnings. If a fund has not been in existence for the full five years, Regulation 2(3A) mandates that the reporting period be extended to cover the entire period of the fund's existence.
Failure to comply with these regulations may result in civil consequences. While the Explanatory Statement does not explicitly detail penalties, non-compliance with regulations under the Superannuation Industry (Supervision) Act 1993 can typically lead to enforcement actions by the Insurance and Superannuation Commissioner. These actions may include fines, orders for corrective action, or other regulatory measures intended to ensure compliance with the Act. The maximum penalties for breaches of the Act or its regulations can be significant, reflecting the importance of prudent and transparent management of superannuation funds.