EXPLANATORY STATEMENT

Select Legislative Instrument 2009 No. 106

Issued by the authority of the Minister for Superannuation and Corporate Law

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Amendment Regulations 2009 (No. 4)

Retirement Savings Accounts Act 1997

Retirement Savings Accounts Amendment Regulations 2009 (No. 3)

 

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993 (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 the SIS Act.

Subsection 200(1) of the Retirement Savings Accounts Act 1997 (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 the RSA Act.

The Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) require that a minimum payment be made from a superannuation account-based pension at least annually. Minimum payments are determined by age and the value of the account balance at 1 July of each year. The minimum annual payment rule is designed so that retirees draw down on their superannuation capital over their retirement. This rule recognises that superannuation is a retirement savings vehicle with substantial tax concessions.

The purpose of the Regulations is to give effect to the Government’s 2009-10 Budget measure to reduce the minimum payment amounts for account-based pensions for the 2009‑10 financial year. This measure extends the pension drawdown relief provided in March 2009 for the 2008-09 financial year. The Regulations also make minor technical changes to clarify the intended operation of the payment rules for account-based pensions.

The reduction in the minimum payment amounts for 2009-10 applies to account-based annuities and pensions, allocated annuities and pensions, and market-linked annuities and pensions.

This measure is designed to assist pension account balances to recover from capital losses associated with the global financial crisis. It benefits holders of account-based pensions by reducing the need to sell assets at a loss in order to meet the minimum payment amount for 2009-10.

The SIS Regulations, inter alia, contain the payment rules for annuities and pensions, including those products in relation to which there is an account balance attributable to the recipient.

The Retirement Savings Accounts Regulations 1997 (RSA Regulations) contain parallel payment rules for pensions payable from Retirement Savings Accounts.

The Regulations halve the minimum annual payment amounts for account‑based, allocated and market-linked annuities and pensions, and for pensions payable from Retirement Savings Accounts, for the 2009-10 financial year. The Regulations also make minor technical changes to clarify that rollovers (that is, payments within the superannuation system) do not count for the purpose of satisfying the minimum annual payment requirement for an account‑based annuity or pension.

Details of the amendments to the SIS Regulations are set out in Attachment A and details of the amendments to the RSA Regulations are set out in Attachment B.

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

The Regulations commence on the day after they are registered on the Federal Register of Legislative Instruments.

Targeted consultation was undertaken on the minor technical amendments to the payment rules for account-based pensions. Given their relatively straightforward nature, no consultation was undertaken on the amendments to extend the drawdown relief for account‑based pensions.

Authority:

Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993.

Subsection 200(1) of the Retirement Savings Accounts Act 1997.

ATTACHMENT A

Details of Superannuation Industry (Supervision) Amendment Regulations 2009 (No. 4)

Regulation 1 specifies the name of the Regulations as the Superannuation Industry (Supervision) Amendment Regulations 2009 (No. 4).

Regulation 2 provides that the Regulations commence on the day after registration.

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

Schedule 1 Amendments

Item 1

This item inserts new regulation 1.05A into the SIS Regulations. Regulation 1.05A specifies the meaning of rolled over for purposes of Division 1A.1. Unless otherwise specified, rolled over means paid as a superannuation lump sum within the superannuation system.

Items 2 and 4

The rules for account-based annuities and pensions require that the total amount of payments in each year must be at least the amount calculated under clause 1 of Schedule 7 (paragraphs 1.05(11A)(a) and 1.06(9A)(a)).

Items 2 and 4 amend paragraphs 1.05(11A)(a) and 1.06(9A)(a) to clarify that the total amount of payments which counts towards the minimum payment requirement excludes amounts rolled over within the superannuation system.

Items 3 and 5

Annuities and pensions which are not account-based can also be subject to a minimum payment requirement. For these products, the minimum payment requirement is calculated under clause 2 of Schedule 7 (sub-subparagraphs 1.05(11A)(b)(i)(B) and (ii)(D), and 1.06(9A)(b)(i)(B) and (ii)(C)).

Items 3 and 5 amend sub-subparagraphs 1.05(11A)(b)(i)(B) and (ii)(D), and 1.06(9A)(b)(i)(B) and (ii)(C) to clarify that the total amount of payments which counts towards the minimum payment requirement excludes amounts rolled over within the superannuation system.

Item 6

Regulations 1.07A, 1.07C and 1.07D contain rules requiring a pro-rata minimum payment to be made from an account-based income stream prior to a commutation. This rule does not apply to a partial commutation where the income stream account balance, immediately following the commutation, is sufficient to meet the required minimum payment for the year as reduced by the amount of payments already made in the year (paragraphs 1.07A(2)(ba), 1.07C(2)(ba) and 1.07D(1)(c)). Item 6 clarifies that amounts rolled over within the superannuation system cannot be counted as payments already made in the year for the purpose of these provisions.

Items 7 and 8

Schedules 1A and 1AAB set out the method for calculating the minimum and maximum payment limits for allocated pensions (and for the equivalent annuity product). Clause 2 in each of these Schedules sets out the method for calculating the minimum payment limits.

Clause 3A in each of Schedules 1A and 1AAB provides that, for the financial year commencing on 1 July 2008, the minimum payment limit is half the amount worked out using the formula in clause 2. Items 7 and 8 amend clause 3A in each of these Schedules so that it also applies to the financial year commencing on 1 July 2009.

Item 9

Schedule 6 contains the payment rules for market‑linked income streams. Clause 1 of Schedule 6 sets out the formula for determining the annual payment amount for a market‑linked income stream.

Clause 10 of Schedule 6 provides that, for the financial year commencing on 1 July 2008, an amount is taken to have been determined in accordance with clause 1 if it is not less than 45 per cent of the amount determined in accordance with clause 1, and not greater than 110 per cent of the amount determined in accordance with clause 1. Item 9 amends clause 10 so that it also applies to the financial year commencing on 1 July 2009.

Item 10

Schedule 7 contains the rules for calculating the minimum payment amount for a superannuation income stream. The method for calculating the minimum payment amount for an account-based pension (and for the equivalent annuity product) is set out in clause 1 of Schedule 7.

Clause 4A of Schedule 7 provides that, for the financial year commencing on 1 July 2008, the minimum payment amount is half the amount worked out using the formula in clause 1. Item 10 amends clause 4A so that it also applies to the financial year commencing on 1 July 2009.

 

 

ATTACHMENT B

Details of Retirement Savings Accounts Amendment Regulations 2009 (No. 3)

Regulation 1 specifies the name of the Regulations as the Retirement Savings Accounts Amendment Regulations 2009 (No. 3).

Regulation 2 provides that the Regulations commence on the day after registration.

Regulation 3 provides that Schedule 1 amends the Retirement Savings Accounts Regulations 1997 (RSA Regulations).

Schedule 1 Amendments

Items 1 and 2

The rules for account-based pensions paid from Retirement Savings Accounts require that the total amount of payments in each year must be at least the amount calculated under clause 1 of Schedule 5 (paragraph 1.07(3D)(a)).

Item 1 amends paragraph 1.07(3D)(a) to clarify that the total amount of payments which counts towards the minimum payment requirement for an account‑based pension excludes amounts rolled over within the superannuation system.

Item 2 inserts proposed new subregulation 1.07(5) into regulation 1.07. This new provision contains the meaning of the term rolled over. In regulation 1.07, rolled over means paid as a superannuation lump sum within the superannuation system.

Items 3 to 6

Regulations 1.08 and 1.08A contain rules requiring a pro-rata minimum payment to be made from a market-linked or account-based pension prior to a commutation. This rule does not apply to a partial commutation where the pension account balance, immediately following the commutation, is sufficient to meet the required minimum payment for the year as reduced by the amount of payments already made in the year (paragraphs 1.08(2)(ba) and 1.08A(1)(c)). Items 3 and 5 clarify that amounts rolled over within the superannuation system cannot be counted as payments already made in the year for the purpose of these provisions.

Items 4 and 6 insert new subregulations 1.08(4) and 1.08A(3) into regulations 1.08 and 1.08A respectively. These new provisions contain the meaning of the term rolled over. In regulations 1.08 and 1.08A, rolled over means paid as a superannuation lump sum within the superannuation system.

Items 7 and 8

Schedules 1 and 1A set out the method for calculating the minimum and maximum payment limits for allocated pensions paid from Retirement Savings Accounts. Clause 2 in each of these Schedules sets out the method for calculating the minimum payment limits.

Clause 3A in each of Schedules 1 and 1A provides that, for the financial year commencing on 1 July 2008, the minimum payment limit is half the amount worked out using the formula in clause 2. Items 7 and 8 amend clause 3A in each of these Schedules so that it also applies to the financial year commencing on 1 July 2009.

Item 9

Schedule 4 contains the rules for calculating the annual payment amounts for market‑linked pensions. The formula for determining the annual payment amount is set out in clause 1 of Schedule 4.

Clause 10 of Schedule 4 provides that, for the financial year commencing on 1 July 2008, an amount is taken to have been determined in accordance with clause 1 if it is not less than 45 per cent of the amount determined in accordance with clause 1, and not greater than 110 per cent of the amount determined in accordance with clause 1. Item 9 amends clause 10 so that it also applies to the financial year commencing on 1 July 2009.

Item 10

Schedule 5 contains the rules for calculating the minimum payment amount for an account‑based pension. The method for calculating the minimum payment amount is set out in clause 1 of Schedule 5.

Clause 3A of Schedule 5 provides that, for the financial year commencing on 1 July 2008, the minimum payment amount is half the amount worked out using the formula in clause 1. Item 10 amends clause 3A so that it also applies to the financial year commencing on 1 July 2009.