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OCCUPATIONAL SUPERANNUATION STANDARDS REGULATIONS (AMENDMENT) 1992 NO.463
EXPLANATORY STATEMENTStatutory Rules 1992 No. 463
Issued by the Authority of the Treasurer
Occupational Superannuation Standards Act 1987
Occupational Superannuation Standards Regulations (Amendment)
Section 22 of the Occupational Superannuation Standards Act 1987 (the Act) provides that the Governor-General may make regulations for the purposes of the Act, in particular to prescribe matters necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The Regulations arose from amendments to the Act which were contained in the Taxation Laws Amendment (Superannuation) Act 1992 (the Amendment Act). The amendments relate to measures simplifying superannuation taxation arrangements arising in the context of the Treasurer's 30 June 1992 Statement, Security in Retirement: Planning for Tomorrow Today.
There was also a consequential amendment arising from amendments to the Act that came into effect on 24 December 1991 concerning the treatment of certain eligible termination payments for Reasonable Benefit Limits (RBL) purposes.
The Regulations cover the following matters:
(a) new minimum standards for pensions and annuities;
(b) clarification that superannuation funds may accept transfer of benefits on behalf of retired people without breaching existing restrictions in the Regulations on the contributions that a superannuation fund may accept; and,
(c) the amounts of Eligible Termination Payments (ETPs) paid by an employee share participation scheme that will be counted towards a person's RBL.
(A) New Standards for Pensions and Annuities
Definitions of "pension" and "annuity" were introduced into the Act which require Regulations to be made to define the characteristics that payments of, pension and annuity benefits must have to qualify for tax concessional treatment under the Income Tax Assessment Act 1936. Such payments will be made under:
• pensions or annuities complying with the standards set out in subregulations 3E(2), 3E(3), 3F(2), and 3F(3). The principal features of these benefits are payment for the whole of the life of the beneficiary (unless the beneficiary is a child), minimum indexation standards and payment to the beneficiary as income with commutation only permitted in limited circumstances
• pensions and annuities not meeting the foregoing standards but which have fixed payment entitlements defined at the outset, including a defined basis (if applicable) for any future payment levels. Annuities in this category would be those meeting essential characteristics of annuities in terms of current tax law and rulings, viz, they are for the payment of fixed amounts (ie, are of a 'sum certain' defined at the outset, including any defined basis of payment level variation, the capital used to purchase the annuity is transformed into annuity income under the contract and the annuity may provide for commutation and residual capital value;
• pensions or annuities where the payment rate and basis for any variation are not fully defined at the outset in the rules of the fund or annuity contract. These are known commonly as allocated pensions and annuities. Allocated annuities will be able to be offered from the date of Royal Assent to the Amendment Act subject to the controls contained in these Regulations. Such annuities are not acceptable under existing tax rulings. The Regulations will apply to payments made under allocated pensions from the date of Royal Assent to the amending Act regardless of when the pension commenced. Payments of the pension or annuity as income in the financial year will be subject to maximum and minimum annual payment limits. These benefits may be commuted;
• annuities which combine features of defined annuities and allocated annuities will be subject to the same controls as outlined above which will be applied to the corresponding component of such annuities.
These amendments are described in detail in the attachment and will commence on 1 July 1994, other than the provisions which replace Regulation 4ZC and those applying to allocated pensions and annuities which are to come into effect from the date of Royal Assent to the Amendment Act.
(B) - Transfers of Benefits on Behalf of Retired People
The definition of "superannuation fund" in the Act has been amended to permit retired people to transfer benefits into a superannuation fund.
The restrictions upon the acceptance of contributions by superannuation funds imposed by OSS Regulation 5AA appeared to prevent acceptance of benefits transferred on behalf of retired people. The Regulations were previously based on the premise that contributions to superannuation funds could only be made by persons in the workforce up to certain age limits. The amendments make it clear that those restrictions do not apply to transfers of benefits by retired people in the terms set down in the Amendment Act.
(C) - Assessment of Employee Share Participation Scheme ETPs against RBL
On 24 December 1991, the definition of "payer" in subsection 15E(1) of the Act was amended to encompass all payers of ETPs with limited exceptions. The purpose of the amendment was to bring all benefits which are concessionally taxed or which are derived from concessionally taxed sources within the reasonable benefit limits arrangements (other than payments below a minimum amount).
This required certain trust arrangements. known as employee share schemes, which were not previously required to report the payment of ETPs to the Insurance and Superannuation Commission (ISC) to do so. The ISC must determine, in accordance with section 15K of the Act, whether the payment is in excess of the recipient's RBL. However, there was nothing in the regulations that provided a method to do this.
The new Regulations are made in relation to ETPs paid by employee share participation schemes from 24 December 1991 so that 85 per cent of the post-30 June 1983 component of an ETP paid by such schemes to an employee are counted towards the person's RBL subject to phasing in the amounts to be counted in twenty per cent increments, with 100 per cent of the amount being counted from the 1996/97 financial year. The first period is an extended one covering 24 December 1991 to 30 June 1993. The amount of an ETP received by an employee associated with the employer that is counted towards the RBL will include the whole of the pre1 July 1983 component of the ETP.
Details of the Regulations are in the Attachment.
ATTACHMENT
Occupational Superannuation Standards Regulations (Amendment)
References in the following paragraphs are to provisions of the amending Regulations. References to the "principal regulations" are references to the Occupational Superannuation Standards Regulations.
Regulation 1
Subregulation 1.1 provides that the Occupational Superannuation Standards Regulations are amended as set out in the Regulations.
Regulation 2
Subregulation 2.1 inserts new definitions of "benefit", "commencement day", "CPI", "ETP", and "rules" into subregulation 3(1) of the principal regulations.
Regulation 3
Subregulation 3.1 inserts new regulations 3E, 3F, 3G and 3H into the principal regulations. The new regulation 3E prescribes the meaning of "annuity" as provided for in subsection 3(1) of the Act. The new regulation 3F prescribes the meaning of "pension" as provided for in subsection 3(1) of the Act. The new regulation 3G allows for annuities and pensions to be suspended while a beneficiary holds paid public office.
Regulation 4
Subregulation 4.1 omits the definition of "benefit" from subregulation 4A(1) of the principal regulations to reflect the insertion of a new definition in subregulation 3(1) of the principal regulations.
Subregulation 4.2 omits the definition of "commencement day" from subregulation 4A(1) of the principal regulations to reflect the insertion of a new definition in subregulation 3(1) of the principal regulations.
Subregulation 4.3 omits the definition of "ETP" from subregulation 4A(1) of the principal regulations to reflect the insertion of a new definition in subregulation 3(1) of the principal regulations.
Subregulation 4.4 substitutes the reference to the standards referred to in principal Regulation 4ZC with a reference to the standards set out in the new principal regulations 3E and 3F.
Subregulation 4.5 omits the definition of "rules" from subregulation 4A(1) of the principal regulations to reflect the insertion of a new definition in subregulation 3(1) of the principal regulations.
Regulation 5
Subregulation 5.1 inserts the new Regulation 4UA into the principal regulations. This allows ETP amounts paid to employees under employee share participation schemes to be counted towards that employee's RBL. The Regulation will provide for the measure to be phased in with effect from 24 December 1991 to the 1996/7 year of income.
Regulation 6
Subregulation 6.1 substitutes a reference to the new subregulations 3F(2) and (3) for the reference to Regulation 4ZC in subparagraph 4ZB(2)(a)(ii) of the principal regulations.
Regulation 7
Subregulation 7.1 replaces principal regulation 4ZC by incorporating those standards, with minor amendments, at the new regulations 3E and 3F of the principal regulations.
Regulation 8
Subregulation 8.1 inserts new subregulation 5AA(4) into the principal regulations to clarify that superannuation funds are not prevented from accepting benefits transferred to them on behalf of retired persons.
Regulation 9
Subregulation 9.1 inserts Schedule 1A into the principal regulations. Schedule 1A specifies the Pension Valuation Factors to be used in the formula for calculating maximum and minimum payment limits in respect of pensions and annuities falling under' the new paragraphs 3E(4) and (5) and 3F(4) and (5) of the principal regulations.