Select Legislative Instrument 2005 No. 330

Issued by authority of the Minister for Revenue
and Assistant Treasurer

Retirement Savings Accounts Act 1997
Superannuation Industry (Supervision) Act 1993

Retirement Savings Accounts Amendment Regulations 2005 (No. 4)
Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 7)

The 'transition to retirement' changes to the Retirement Savings Accounts Regulations 1997 and the Superannuation Industry (Supervision) Regulations 1994 allow a person who has reached their preservation age to access their superannuation benefits through an income stream while continuing in the workforce.  The proposed Regulations would make a minor technical change to the superannuation preservation rules which would simplify the administration of the transition to retirement measure and ensure that it operates in the way that was originally intended.

The amendments also implement the Government's response to the Review of the Provision of Pensions by Small Superannuation Funds which aims to improve income stream choices for all retirees, including those in small funds, by providing more flexible draw down rules for popular pension and annuity products.  The new rules allow retirees to better manage their income needs and increase certainty that they will not outlive their retirement savings.  The new rules apply to allocated pensions and annuities, and to complying market linked and life expectancy income streams.

Retirement Savings Accounts Amendment Regulations 2005 (No. 4)

Subsection 200(1) of the Retirement Savings Accounts Act 1997 (the RSA Act) provides in part that the Governor-General may make regulations prescribing matters required or permitted by the RSA Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to that Act.

The Retirement Savings Accounts Regulations 1997 (the RSA Regulations), among other matters, contain the rules for the preservation of benefits and the payment of pensions in these accounts.

Schedule 1 to the Regulations ensures that investment earnings on benefits in an income stream commenced under the 'transition to retirement' condition of release are classified as preserved benefits.  This change simplifies the administration of the transition to retirement measure for income stream providers by avoiding the need to apportion investment earnings on an income stream containing a mix of preserved and non-preserved benefits.

Schedule 2 to the Regulations updates the allocated pension draw down factors in line with current life expectancy.  This better enables retirees to draw down their capital over their whole retirement.  The new factors apply to allocated pensions with a commencement day on or after 1 January 2006.  Proposed transitional provisions enable income stream providers to use the old factors until 30 June 2006.

Schedule 2 to the Regulations also extends the maximum term of a market linked pension, so that payments may continue until the recipient reaches age 100 (or until the recipient's spouse reaches age 100).  The change applies to market linked pensions with a commencement day on or after 1 January 2006.

In addition, Schedule 2 to the Regulations allows annual payments from market linked pensions to vary between plus or minus 10 per cent of the payments calculated under the usual payment rules.  This provides retirees with more flexibility to manage their income payments from year to year.  This change applies to market linked pensions regardless of their commencement day.

The RSA Act specifies no conditions that need to be satisfied before the power to make the proposed Regulations may be exercised.

Details of the Regulations are set out in Attachment A.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Regulations 1 to 3 and Schedule 1 commence on the day after they are registered.  Schedule 2 commences on 1 January 2006.

Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 7)

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) provides, in part, that the Governor-General may make regulations prescribing matters required or permitted by the SIS Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to that Act.

The Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations), among other matters, contain the rules for the preservation of superannuation benefits and the payment of annuities and pensions for purposes of the SIS Act.

Schedule 1 to the Regulations ensures that investment earnings on benefits in an income stream commenced under the 'transition to retirement' condition of release are classified as preserved benefits.  This change simplifies the administration of the transition to retirement measure for income stream providers by avoiding the need to apportion investment earnings on an income stream containing a mix of preserved and non-preserved benefits.

Schedule 2 to the Regulations updates the allocated pension and annuity draw down factors in line with current life expectancy.  This better enables retirees to draw down their capital over their whole retirement.  The new factors apply to allocated pensions and annuities with a commencement day on or after 1 January 2006.  Transitional provisions enable income stream providers to use the old factors until 30 June 2006.

Schedule 2 to the Regulations also extends the maximum term of a market linked income stream, so that payments may continue until the recipient reaches age 100 (or until the recipient's spouse reaches age 100).  The change applies to market linked pensions with a commencement day on or after 1 January 2006. 

Similarly, Schedule 2 to the Regulations extends the maximum term for other life expectancy income stream products with a commencement day on or after 1 January 2006.

In addition, Schedule 2 to the Regulations allows annual payments from market linked income streams to vary between plus or minus 10 per cent of the payments calculated under the usual payment rules.  This provides retirees with more flexibility to manage their income payments from year to year.  This change applies to market linked income streams regardless of their commencement day.

Details of the Regulations are set out in Attachment B.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Regulations 1 to 3 and Schedule 1 commence on the day after they are registered.  Schedule 2 commences on 1 January 2006.

ATTACHMENT A

Details of the Retirement Savings Accounts Amendment Regulations 2005 (No. 4)

Regulation 1 specifies the name of the Regulations as the Retirement Savings Account Amendment Regulations 2005 (No. 4).

Regulation 2 provides that regulations 1 to 3 and Schedule 1 commence on the day after they are registered and that Schedule 2 commences on 1 January 2006.

Regulation 3 provides that Schedules 1 and 2 amend the Retirement Savings Account Regulations 1997 (the RSA Regulations).

Schedule 1 -- Amendment commencing on day after registration

Item 1

The Regulations substitute a new regulation 4.17B into the RSA Regulations.  The effect of the new substituted regulation is to ensure that investment earnings on benefits in a pension commenced under the 'transition to retirement' condition of release are classified as preserved benefits.  This treatment applies up to the point in time at which the pensioner satisfies a condition of release with a nil cashing restriction -- for example, retiring on or after reaching preservation age or attaining age 65.  Once a condition of release with a nil cashing restriction is met, investment earnings on a 'transition to retirement' pension becomes unrestricted non-preserved benefits.

The amendment places investment earnings on benefits in the 'transition to retirement' phase on the same footing as investment earnings on benefits in the accumulation phase, that is, as preserved benefits.  This treatment recognises the special nature of benefits in a 'transition to retirement' pension, in particular that the pensioner has not yet met a condition of release with a nil cashing restriction.

The amendment also simplifies the administration of 'transition to retirement' income streams for product providers by avoiding the need to apportion investment earnings on income streams containing a mix of preserved and non‑preserved benefits.

Schedule 2 -- Amendments commencing on 1 January 2006

Item 1

Item 1 amends subregulation 1.07(2) to make clear that payments made under allocated pensions with a commencement day before 1 January 2006 must be made within the range of the maximum and minimum limits set out in the existing Schedule 1.

Item 2

Item 2 inserts a new paragraph (da) in subregulation 1.07(2), specifying the annual payment limits for allocated pensions with a commencement day on or after 1 January 2006.  

For payments made before 1 July 2006, under allocated pensions with a commencement day on or after 1 January 2006, transitional arrangements allow retirement savings account providers to calculate payments by using either the old pension valuation factors in the existing Schedule 1 or the new pension valuation factors (updated for life expectancy) in Schedule 1A.

For payments made on or after 1 July 2006, under allocated pensions with a commencement day on or after 1 January 2006, the payments must be made in accordance with the new pension valuation factors in Schedule 1A. 

Items 3 and 4

These items amend the existing subregulation 1.07(2) to ensure that payments before full commutation of an allocated pension must be made in accordance with the existing Schedule 1 or the new Schedule 1A, as the case may be under the rules for payment of allocated pensions (see item 2).

Items 5 to 9

These items amend existing subregulation 1.07(3A) to extend the maximum term of market linked pensions with a commencement day on or after 1 January 2006.  This allows a pension to be paid until a beneficiary reaches age 100.

Under the existing subregulation 1.07(3A), market linked pensions have a minimum term equal to the primary beneficiary's life expectancy on the commencement day (rounded up to the next whole number).  The existing maximum term is the life expectancy of the primary beneficiary calculated as if they were 5 years younger, or the life expectancy of the primary beneficiary's spouse calculated as if they were 5 years younger, as the case may be.  These existing rules will continue to apply to market linked pensions with a commencement day before 1 January 2006.

Items 5 and 6 extend the maximum term of market linked pensions, with a commencement day on or after 1 January 2006, where the term is set using the life expectancy or age of the primary beneficiary.  The new maximum term of the pension is the difference between age 100 and the primary beneficiary's age in years on the commencement day (or where greater, the life expectancy of the primary beneficiary calculated as if they were 5 years younger on the commencement day).

Items 7 to 9 extend the maximum term of market linked pensions, with a commencement day on or after 1 January 2006, where the primary beneficiary chooses to utilise the reversionary beneficiary's life expectancy or age in setting the term.  The new maximum term is the difference between age 100 and the age of the primary beneficiary's spouse on the commencement day (or, where greater, the life expectancy of the spouse calculated as if they were 5 years younger on the commencement day).

The term chosen may be any period (in whole years) between the minimum and maximum terms inclusive. 

Example 1.  Joe is aged 65 on 1 January 2006.  For a market linked pension that commences on that day, Joe can choose a term of between 18 years (his life expectancy in whole years) and 35 years (the difference between age 100 and Joe's current age).

Example 2.  Joe's spouse, Betty, is aged 63 on 1 January 2006.  For a market linked pension that commences on that day and reverts to Betty on Joe's death, Joe has the option to choose a term of between 23 years (Betty's life expectancy in whole years) and 37 years (the difference between age 100 and Betty's current age). 

Item 10

Subregulation 1.07(3A) currently provides that, where the term of a market linked pension has been selected with reference to the spouse's life expectancy, the pension cannot be commuted under subparagraph 1.07(3A)(e)(iii) until the death of both spouses.

Item 10 amends the commutation restrictions to include reference to the reversionary's age as well as their life expectancy.  The change reflects the new term option which allows the pension to be payable until the spouse of the primary beneficiary reaches age 100.

Item 11

This item amends the heading in the existing Schedule 1 to clarify that the existing Schedule 1 applies only to pensions with a commencement day before 1 January 2006 (subject to the transitional provisions for pensions and annuities with a commencement day on or after 1 January 2006 (see item 2)).

Items 12 and 13

These items clarify the rules concerning the maximum pension valuation factors that apply in Schedule 1 from age 80.

Item 13 inserts a new clause 4A in the existing Schedule 1 providing that in a year where a pension valuation factor of 1 is used in calculating the maximum payment limit under clause 1, the retiree has the option of drawing down the entire account balance at any time during the year.  The purpose of this amendment is to allow a pension to be wound up in any year in which the maximum pension valuation factor is 1.

Item 12 amends clause 1 in Schedule 1 concerning the calculation of the maximum limits, to provide that it is also subject to the new clause 4A.

Item 14

Item 14 inserts a new Schedule 1A, containing new maximum and minimum pension valuation factors updated for life expectancy, to apply only to pensions with a commencement day on or after 1 January 2006.

The payment rules are as for the existing Schedule 1, amended to take account of the provision for drawing down the account balance in a year where a pension valuation factor of 1 is used in calculating the maximum payment limit (see items 12 and 13).

Item 15

This item corrects a typographical error in the existing paragraph 3(a) of Schedule 4 regarding payments for market linked pensions.

Item 16

Schedule 4 contains the payment rules for RSA market linked pensions.

Item 16 inserts a new clause 8 in Schedule 4 to allow annual payments from a market linked pension to vary between plus or minus 10 per cent of the amount calculated under the usual payment rules for these products. 

The provision allows flexibility in determining the payment amount for a year, provided the total payment is within the bounds of plus or minus 10 per cent of the rounded amount determined under clauses 1 and 4 of Schedule 4.

The provision applies to all market linked pensions, regardless of the commencement day of the pension. 

 ATTACHMENT B

Details of the proposed Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 7)

Regulation 1 specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2005 (No. 7).

Regulation 2 provides that regulations 1 to 3 and Schedule 1 commence on the day after they are registered and that Schedule 2 commences on 1 January 2006.

Regulation 3 provides that Schedule 1 amends the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations).

Schedule 1 -- Amendment commencing on day after registration

Item 1

The Regulations substitute new subregulations 6.15A(2) to (5) into the SIS Regulations.  The effect of the new provisions is to ensure that investment earnings on benefits in an annuity or pension commenced under the 'transition to retirement' condition of release are classified as preserved benefits.  This treatment applies up to the point in time at which the annuitant or pensioner satisfies a condition of release with a nil cashing restriction -- for example, retiring on or after reaching preservation age or attaining age 65.  Once a condition of release with a nil cashing restriction is met, investment earnings on a 'transition to retirement' income stream become unrestricted non-preserved benefits.

The amendment places investment earnings on benefits in the 'transition to retirement' phase on the same footing as investment earnings on benefits in the accumulation phase, that is, as preserved benefits.  This treatment recognises the special nature of benefits in a 'transition to retirement' pension, in particular that the pensioner has not yet met a condition of release with a nil cashing restriction.

The amendment also simplifies the administration of 'transition to retirement' income streams for product providers by avoiding the need to apportion investment earnings on income streams containing a mix of preserved and non‑preserved benefits.

Schedule 2 -- Amendments commencing on 1 January 2006

Item 1; item 15

Items 1 and 15 amend subregulation 1.05(4) and 1.06(4) respectively to make clear that payments made under allocated annuities and pensions with a commencement day on or after 22 December 1992 and before 1 January 2006 must be made within the range of the maximum and minimum limits set out in the existing Schedule 1A.

Item 2; item 16

Items 2 and 16 insert new paragraphs, to amend subregulation 1.05(4) and 1.06(4) respectively, specifying the annual payment limits for allocated annuities and pensions with a commencement day on or after 1 January 2006.

For payments made before 1 July 2006, under allocated annuities or pensions with a commencement day on or after 1 January 2006, transitional arrangements allow income stream providers to calculate payments by using either the old pension valuation factors in the existing Schedule 1A or the new pension valuation factors (updated for life expectancy) in Schedule 1AAB.

For payments made on or after 1 July 2006, under allocated annuities or pensions with a commencement day on or after 1 January 2006, the payments must be made in accordance with the new pension valuation factors in Schedule 1AAB.

Items 3 to 7;  items 17 to 21

These items amend existing subregulations 1.05(9) and 1.06(7) respectively to extend the maximum term of life expectancy annuities and pensions with a commencement day on or after 1 January 2006.  This allows an annuity or a pension to be paid until a beneficiary reaches age 100.

Under the existing subregulations 1.05(9) and 1.06(7), life expectancy income streams with a commencement day on or after 20 September 2004 have a minimum term equal to the primary beneficiary's life expectancy on the commencement day (rounded up to the next whole number).  The existing maximum term is the life expectancy of the primary beneficiary calculated as if they were 5 years younger, or the life expectancy of the primary beneficiary's spouse calculated as if they were 5 years younger, as the case may be.  These existing rules will continue to apply to life expectancy income streams with a commencement day on or after 20 September 2004 and before 1 January 2006.

Items 3 and 4 (and 17 and 18) extend the maximum term of life expectancy income streams, with a commencement day on or after 1 January 2006, where the term is set using the life expectancy or age of the primary beneficiary.  The new maximum term of the income stream is the difference between age 100 and the primary beneficiary's age in years on the commencement day (or where greater, the life expectancy of the primary beneficiary calculated as if they were 5 years younger on the commencement day).

Items 5 to 7 (and items 19 to 21) extend the maximum term of life expectancy income streams, with a commencement day on or after 1 January 2006, where the primary beneficiary chooses to utilise the reversionary beneficiary's life expectancy or age in setting the term.  The new maximum term is the difference between age 100 and the age of the primary beneficiary's spouse on the commencement day (or, where greater, the life expectancy of the spouse calculated as if they were 5 years younger on the commencement day).

The term chosen may be any period (in whole years) between the minimum and maximum terms inclusive. 

Example 1.  Bill is aged 68 on 1 January 2006.  For a life expectancy pension that commences on that day, Bill can choose a term of between 16 years (his life expectancy in whole years) and 32 years (the difference between age 100 and Bill's current age).

Example 2.  Bill's spouse, Joyce, is aged 65 on 1 January 2006.  For a life expectancy pension that commences on that day and reverts to Joyce on Bill's death, Bill has the option to choose a term of between 22 years (Joyce's life expectancy in whole years) and 35 years (the difference between age 100 and Joyce's current age). 

Item 8

Subregulation 1.05(9) currently provides that, where the term of a life expectancy annuity has been selected with reference to the spouse's life expectancy, the annuity cannot be commuted under subparagraph 1.05(9)(h)(iv) until the death of both spouses.

Item 8 amends the commutation restrictions to include a reference to the reversionary's age as well as their life expectancy.  The change reflects the new term option which allows the annuity to be payable until the spouse of the primary beneficiary reaches age 100.

Items 9 to 13; items 23 to 27

These items amend existing subregulations 1.05(10) and 1.06(8) respectively to extend the maximum term of market linked annuities and pensions with a commencement day on or after 1 January 2006.  This allows an annuity or a pension to be paid until a beneficiary reaches age 100.

Under the existing subregulations 1.05(10) and 1.06(8), market linked income streams have a minimum term equal to the primary beneficiary's life expectancy on the commencement day (rounded up to the next whole number).  The existing maximum term is the life expectancy of the primary beneficiary calculated as if they were 5 years younger, or the life expectancy of the primary beneficiary's spouse calculated as if they were 5 years younger, as the case may be.  These rules will continue to apply to market linked income streams with a commencement day before 1 January 2006.

Items 9 and 10 (and items 23 and 24) extend the maximum term of market linked income streams, with a commencement day on or after 1 January 2006, where the term is set using the life expectancy or age of the primary beneficiary.  The new maximum term of the income stream is the difference between age 100 and the primary beneficiary's age in years on the commencement day (or where greater, the life expectancy of the primary beneficiary calculated as if they were 5 years younger on the commencement day).

Items 11 to 13 (and items 25 to 27) extend the maximum term of market linked income streams, with a commencement day on or after 1 January 2006, where the primary beneficiary chooses to utilise the reversionary beneficiary's life expectancy or age in setting the term.  The new maximum term is the difference between age 100 and the age of the primary beneficiary's spouse on the commencement day (or, where greater, the life expectancy of the spouse calculated as if they were 5 years younger on the commencement day).

The term chosen may be any period (in whole years) between the minimum and maximum terms inclusive. 

Example 1.  Joe is aged 65 on 1 January 2006.  For a market linked pension that commences on that day, Joe can choose a term of between 18 years (his life expectancy in whole years) and 35 years (the difference between age 100 and Joe's current age).

Example 2.  Joe's spouse, Betty, is aged 63 on 1 January 2006.  For a market linked pension that commences on that day and reverts to Betty on Joe's death, Joe has the option to choose a term of between 23 years (Betty's life expectancy in whole years) and 37 years (the difference between age 100 and Betty's current age). 

Item 14

Subregulation 1.05(10) currently provides that, where the term of a market linked annuity has been selected with reference to the spouse's life expectancy, the annuity cannot be commuted under subparagraph 1.05(10)(a)(iii) until the death of both spouses.

Item 14 amends the commutation restrictions for market linked annuities to include a reference to the reversionary's age as well as their life expectancy.  The change reflects the new term option which allows the annuity or pension to be payable until the spouse of the primary beneficiary reaches age 100.

Item 22

Subregulation 1.06(7) currently provides that, where the term of a life expectancy pension has been selected with reference to the spouse's life expectancy, the pension cannot be commuted under subparagraph 1.06(7)(g)(iv) until the death of both spouses.

Item 22 amends the commutation restriction to include a reference to the reversionary's age as well as their life expectancy.  The change reflects the new term option which allows the pension to be payable until the spouse of the primary beneficiary reaches age 100.

Item 28

Subregulation 1.06(8) currently provides that, where the term of a life expectancy pension has been selected with reference to the spouse's life expectancy, the pension cannot be commuted under subparagraph 1.06(8)(d)(iii) until the death of both spouses.

Item 28 amends the commutation restriction to include a reference to the reversionary's age as well as their life expectancy.  The change reflects the new term option which allows the pension to be payable until the spouse of the primary beneficiary reaches age 100.

Items 29 to 31

These items amend the existing regulation 1.07A to ensure that payments before full or part commutation of an allocated annuity or pension are made in accordance with the existing Schedule 1A or the new Schedule 1AAB, as the case may be under the rules for payment of allocated annuities and pensions (see items 2 and 16).

Item 32

This item amends the heading in the existing Schedule 1A to clarify that Schedule 1A applies only to pensions and annuities with a commencement day before 1 January 2006 (subject to the transitional provisions for pensions and annuities with a commencement day on or after 1 January 2006 (see items 2 and 16)).

Items 33 to 35

These items clarify the rules concerning the maximum pension valuation factors that apply in Schedule 1A from age 80.

Item 35 changes the maximum pension valuation factors in the existing Schedule 1A, applying for ages 80 and beyond, from 0 to 1.  They are changed to 1 because dividing the account balance by zero is undefined. 

Item 34 inserts a new clause 5 in the existing Schedule 1A providing that in a year where a pension valuation factor of 1 is used in calculating the maximum payment limit under clause 1, the retiree has the option of drawing down the entire account balance at any time during the year. The purpose of this amendment is to allow a pension to be wound up in any year in which the maximum pension valuation factor is 1.

Item 33 amends clause 1 in Schedule 1A concerning the calculation of the maximum limits, providing that it is also subject to the new clause 5.

Item 36

Item 36 inserts a new Schedule 1AAB, containing new maximum and minimum pension valuation factors updated for life expectancy, to apply only to pensions or annuities with a commencement day on or after 1 January 2006.

The payment rules are as for the existing Schedule 1A, amended to take account of the provision for drawing down the account balance in a year where a pension valuation factor of 1 is used in calculating the maximum payment limit (see items 33 to 35).

Item 37

This item corrects a typographical error in the existing paragraph 3(a) of Schedule 6 regarding payments for market linked income streams.

Item 38

Schedule 6 contains the payment rules for market linked pensions and annuities.

Item 38 inserts a new clause 8 in Schedule 6 to allow annual payments from a market linked pension or annuity to vary between plus or minus 10 per cent of the amount calculated under the usual payment rules for these products. 

The provision allows flexibility in determining the payment amount for a year, provided the total payment is within the bounds of plus or minus 10 per cent of the rounded amount determined under clauses 1 and 4 of Schedule 6. 

The provision applies to all market linked annuities and pensions, regardless of the commencement day.