Superannuation Industry (Supervision) Regulations (Amendment) 1995 No. 158
EXPLANATORY STATEMENT
STATUTORY RULES 1995 No. 158
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.
These regulations amend the Principal Regulations by making a number of miscellaneous amendments to the Principal Regulations including:
• changing the Commissioner's ability to approve an adverse alteration to a beneficiary's accrued benefits; and
• imposing a requirement on approved deposit funds to not lend money to members (a similar requirement already applies to regulated superannuation funds).
These amendments are aimed at enhancing the system of prudential supervision and clarifying the operation of the Principal Regulations.
The regulations are described in detail in the attachment.
The regulations commence on 1 July 1995.
ATTACHMENT
Superannuation Industry (Supervision) Regulations (Amendment)
Regulation 1 - Commencement
The regulations will commence on 1 July 1995.
Regulation 2 Amendment
Regulation 2 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.
Regulation 3 - Regulation 2.23 (Specific requirements in all cases)
Part 6 of the Principal Regulations prescribes when a member can access his or her benefits. Part 6 provides for three categories of benefits. Which category the benefits are in determines when they can be accessed. The categories are:
• preserved benefits - generally these cannot be accessed by the member until they are aged 55 and retired;
• restricted non-preserved benefits - in contrast to preserved benefits these benefits can in certain circumstances be accessed in lump-sum form on termination of gainful employment; and
• unrestricted non-preserved - these can be accessed by the member at any time.
The member reporting regulations in Part 2 of the Principal Regulations currently require a trustee to disclose to a member at least annually the amount of a member's benefits which are preserved.
Regulation 3 will amend paragraph 2.23(d) of the Principal Regulations to require the trustee of a regulated superannuation fund or approved deposit fund to disclose the amount of a member's withdrawal benefit that is in each of the above categories. The trustee will not have to disclose a nil amount.
Regulation 4 - Regulation 2.29 (Specific requirements in particular cases)
Regulation 4 amends paragraph 2.29(1)(d) of the Principal Regulations to require the trustee of a regulated superannuation fund or approved deposit fund to disclose whether or not the trustee has taken out indemnity insurance. This clarifies that even if a trustee does not have indemnity insurance they must make a disclosure to that effect.
Regulation 5 - Regulation 2.33 (Time for compliance)
Regulation 5 amends paragraph 2.33(1)(b) of the Principal Regulations to make it consistent with amendments made by Regulation 6.
Regulation 6 - Regulation 2-36 (Specific requirements)
Principal Regulation 2.36 currently provides that if the governing rules of a fund are changed and that change affects a member in one of the ways listed in subregulation 2.36(2) then information about the change must be given to the member. This would mean that if a change occurred, other than by the governing rules, the trustee does not have to inform the member under regulation 2.36 of that change, even if that change affects a member in one of the ways listed in subregulation 2.36(2).
Subregulation 6.1 amends subregulation 2.36(1) of the Principal Regulations so that, if the governing rules of the fund are changed, or if because of any other act carried out or consented to by the trustee, a member is affected in one of the ways listed in subregulation 2.36(2) then the member must be given information about the change.
Subregulation 6.2 amends paragraph 2.36(2)(a) of the Principal Regulations by omitting current paragraph 2.36(2)(a) and replacing it with a new paragraph. This amendment makes paragraph 2.36(2)(a) consistent with subregulation 13.16(1) of the Principal Regulations. While the amendment made to Principal Regulation 13.16 by regulation 11 of these regulations will now impose some direct disclosure requirements on reductions in accrued benefits, there still will be cases where reductions in accrued benefits are not subject to specific disclosure requirements. These other cases (for example, refer to Principal Regulation 13.16(2)(b) and (c)) will be subject to paragraph 2.36(2)(a).
Regulation 7 - Regulation 2.43 (Time for compliance)
Regulation 2.43 prescribes the time within which information must be given under Division 2.7. As it only refers to giving information to a person who ceases to be a member of the fund, the regulation does not currently prescribe a time limit for information to be given to a person who receives a benefit because of the death of a member. This is because in this case the person to whom information is to be given and who receives a benefit is not the person leaving the fund (the person leaving the fund being the member who has died).
Regulation 7 amends subregulation 2.43(1) to give the following effect:
• in the case of a person who ceases, otherwise than by death, to be a member of the fund the requirements in subregulation 2.43(1) to give information to that person apply unchanged; and
• in the case of a person who ceases by death to be a member of the fund, the obligation will be that the trustee give to each person receiving a benefit as a result of the death, the information required by regulation 2.45 and subregulation 2.46(2) as soon as practicable after the trustee becomes aware of the death, and in particular the trustee must make reasonable efforts to give the information within one month after becoming aware of the death.
Regulation 8 - Regulation 2.46 (Specific requirements in all cases)
The trustee of a regulated superannuation fund or approved deposit fund must provide certain information to members who leave a fund otherwise than by death. This information is prescribed in subregulation 2.46(1) of the Principal Regulations.
Regulation 8 amends paragraph 2.46(1)(d) in an equivalent way that Regulation 3 amends paragraph 2.23(d) so that members are aware of how much of their benefit is preserved, restricted non-preserved, or unrestricted non-preserved.
Regulation 9 - Regulation 3.10 (Commission and brokerage)
Regulation 3.10 currently requires details of commission or brokerage payable in respect of an application for an issue of an interest to be provided to a person before a superannuation interest is issued to that person pursuant to the application. This has the effect that persons other than the person applying for the interest have to be provided with the commission and brokerage details before the interest is issued.
For example, in the case where a standard employer sponsor applies for an interest to be issued to a standard employer sponsored member of that employer sponsor, then the commission and brokerage details have to be provided to the standard employer sponsored member before the interest is issued. This is unintended. Instead the details should be required to be provided to the applicant for the interest who is the standard employer sponsor in this case.
Regulation 9 amends Principal Regulation 3. 10 to fix this problem by requiring the commission and brokerage details to be given to the applicant, not to the person to whom the interest is issued.
Regulation 10 - New regulation 4.13
Regulation 20 of the Occupational Superannuation Standards Regulations prescribed 'approved rules' for approved deposit funds. One of these rules was that a member/depositor could not receive any money from the fund other than the repayment of the whole or part of the amount deposited in the fund. This effectively prohibited lending to members.
There is no equivalent requirement on approved deposit funds in the Act or Principal Regulations.
Regulation 10 inserts new regulation 4.13 which prohibits a trustee from lending money, or providing any other financial assistance to a member of the fund or a relative of a member of the fund. It also requires the trustee to take all reasonable steps to ensure that an investment manager does not lend money, or give any other financial assistance to members of the fund or a relative of a member of the fund.
Regulation 11 - Regulation 13.16 (Accrued benefits - restriction on alteration)
Principal Regulation 13.16 currently places restrictions on the circumstances in which a member's accrued benefits may be adversely altered. The general rule prohibiting such adverse alterations is in subregulation 13.16(1) and some limited exceptions to the general rule are in subregulation 13.16(2).
One of the exceptions is where the adverse alteration relates to benefits other than minimum benefits and the Commissioner has consented to the adverse alteration (refer existing paragraph 13.16(2)(a)).
Regulation 11 amends Principal Regulation 13.16 so that the Commissioner's consent to an adverse alteration to accrued benefits under paragraph 13.16(2)(a) is no longer on its own sufficient grounds for the adverse alteration to proceed. Rather the Commissioner's ability to consent to such a reduction will now be subject to either of the following having occurred:
• two-thirds of the beneficiaries of the fund whose right or claim to accrued benefits, or the amount of those benefits, will be adversely affected by the alteration have approved the alteration via voting on the issue, and certain procedures have been followed in obtaining that approval. The procedures to be followed are set down in new subregulation 13.16(4) and deal with ensuring the affected beneficiaries have been given information to consider the effect of the proposed alteration and at least 21 days to consider that information before voting on the matter; or
• if the fund complies with the basic equal representation rules in section 89 of the Act, two-thirds of the trustees (or directors if a body corporate trustee) have approved the alteration, and beneficiaries whose right or claim to accrued benefits, or the amount of those benefits, will be adversely affected by the alteration have been advised of the proposed alteration at least 21 days in advance of the trustees/directors voting on the issue.
The ability under existing paragraph 13.16(2)(a) of the Principal Regulations for an adverse alteration to accrued benefits to occur if the member affected consents to the alteration will continue. However, the reference to 'member' has been replaced with 'beneficiary'. There is also an added provision requiring the beneficiary to be given relevant information about the proposed alteration prior to giving their consent. The beneficiary must be allowed adequate time to consider the proposed alteration and its effect on his or her right or claim to accrued benefits and the amount of those benefits.
Subregulation 11.4 inserts new paragraph (d) into subregulation 13.16(2). This paragraph means that where an alteration is for the purposes of rectifying a mistake which has advantageously altered a beneficiary's accrued benefits, then a reduction can occur if the Commissioner has approved the alteration. In this circumstance there is no requirement to obtain beneficiary approval (or two-thirds approval of trustees/directors where equal representation exists).
The amended regulation 13.16 also now refers to beneficiary rather than member to ensure that all persons who have accrued benefits are protected by regulation 13.16. Beneficiary is defined in section 10 of the Act.
Regulation 12 - Schedule 1b (Pension valuation factors)
Regulation 14 amends Item 1 of Schedule I B to clarify that the Commissioner's ability to prescribe pension valuation factors for a pension that is indexed at a rate greater than 8% can only be exercised on a case by case basis (in relation to a particular pension or class of pensions).