Commonwealth Numbered Regulations - Explanatory Statements Commonwealth Numbered Regulations - Explanatory Statements[Index] [Search] [Download] [Related Items] [Help]
SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS (AMENDMENT) 1995 NO. 159
EXPLANATORY STATEMENTSTATUTORY RULES 1995 No. 159
Issued by the Authority of the Treasurer
Superannuation Industry (Supervision) Act 1993
Superannuation Industry (Supervision) Regulations (Amendment)
The Superannuation Indus" (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. Section 353 enables regulations to prescribe matters required or permitted by the Act or necessary or convenient for carrying out or giving effect to the Act.
The regulations:
- insert new regulations into the Principal Regulations prescribed for the purposes of amendments made to the Act by the Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995. That Act makes a number of miscellaneous amendments (relating to rules to protect members with small amounts and lost members) to the Act;
- make amendments to the Principal Regulations, amendments related to amendments made to the Act by the Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995;
- make amendments to the Principal Regulations so as to improve the operation of standards relating to the protection of members with small amounts and 'lost members'; and
- introduce new measures relating to the protection of members with small amounts (e.g. the introduction of special rules for existing personal superannuation members).
The regulations amend the Principal Regulations and are described in detail in the attachment.
Most of the regulations will commence on 1 July 1995. Regulations 22 and 25 commence on gazettal.
ATTACHMENT
Superannuation Industry (Supervision) Regulations (Amendment)
The Superannuation Industry (Supervision) Regulations (Amendment) ("the Amending Regulations") amend the Superannuation Industry (Supervision) Regulations ("the Principal Regulations").
COMMENCEMENT OF THE REGULATIONS
All regulations (except two regulations) will commence on 1 July 1995.
The relevant two regulations dealing with a 3 month extension to pay certain members from the fund and a change to. the exit fee restriction will commence on gazettal.
BACKGROUND TO THE REGULATIONS
Section 353 of the Superannuation Industry (Supervision) Act 1993 ("the Principal Act) enables regulations to prescribe matters required or permitted by the Act or necessary or convenient for carrying out or giving effect to the Act.
Sections 31 and 32 of the Principal Act enable regulations to prescribe standards ("operating standards") applicable to the operation of regulated superannuation funds and approved deposit funds.
The regulations relate to the protection of members with small amounts and lost members.
The protection of members with small amounts was announced by the Treasurer, the Hon. Ralph Willis on 28 June 1994 in his Statement entitled 'Superannuation Policy - Statement of Measures' (under the sub-heading of "Protection of Superannuation Fund Members").
The protection of lost members was originally announced by the then Treasurer the Hon. John Dawkins on 21 October 1992 in his Statement entitled 'Strengthening Super Security: New Prudential Arrangements for Superannuation' (under the sub-heading of "Unclaimed benefits") and has been modified as a consequence of measures to protect members with small amounts.
In general terms, the regulations do four things:
1. they insert new regulations into the Principal Regulations prescribed for the purposes of amendments made to the Principal Act by the Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995;
2. they make amendments to the Principal Regulations, amendments related to amendments made to the Principal Act by the Superannuation Laws Amendment (Small Accounts and Other Measures) Act 1995;
3. they make amendments to the Principal Regulations so as to improve the operation of standards relating to the protection of members with small amounts and lost members; and
4. they introduce new measures into the Principal Regulations relating to the protection of members with small amounts (e.g. the introduction of special rules for existing personal superannuation members).
All requirements imposed by the regulations are operating standards prescribed pursuant to Part 3 of the Principal Act.
The Government has sought in these regulations to introduce a number of changes which will improve the system for protecting superannuation fund members.
SUMMARY OF THE REGULATIONS
In summary, the regulations:
1. insert provisions dealing with payments from the Superannuation Holding Accounts Reserve to superannuation funds (amendment to regulations 1.03, 5.01, 6.02, 10.06 and Schedule 2 of the Principal Regulations);
2. make various changes to make it clear that a defined benefit member must have retirement or termination of employment benefits (amendment to regulation 1.03 of the Principal Regulations);
3. provide that member protection applies not only in respect of benefits that would be payable if the member voluntarily ceased to be a member but also in respect of other benefits that would be payable if the member ceased to be a member for any other reason e.g. death benefits (amendment to regulation 1,03 of the Principal Regulations);
4. allow funds to treat a member as a lost member if only 1 written communication is returned unclaimed (amendment to regulation 1.03A of the Principal Regulations);
5. exclude from those members who may become lost on the ground of inactivity, members who did not join the fund as standard employer sponsored members i.e. personal superannuation members (amendment to regulation 1.03A of the Principal Regulations);
6. remove the wide exemption for eligible rollover funds from disclosure requirements (amendment to regulations 2.08, 2.12, 2.18, 2.32 and 2.42 of the Principal Regulations);
7. vary disclosure requirements for eligible rollover funds to take account of their special role in the superannuation system (amendment to regulations 2.08 and 2.12 of the Principal Regulations and the insertion of regulation 2.11 A into the Principal Regulations);
8. vary disclosure and other regulations relating to successor funds to take account of their special role in the superannuation system (amendment to regulations 2.08, 2.09 and 2.12 of the Principal Regulations and the insertion of regulations 3.09A, 3.09B and 3.13 into the Principal Regulations);
9. impose a specific requirement on trustees of regulated superannuation funds and approved deposit funds (other than excluded funds) to give prospective and new members, and on member reports for all members, information relating to the circumstances in which their benefit may be paid to an eligible rollover fund (amendment to regulations 2.10, 2.11, 2.16 and 2.23 of the Principal Regulations);
10. allow trustees who wish to use the $ 1500 exception to member protection to take into account the contributions made by employers who are associated with members in forming an expectation as to whether a member will have withdrawal benefits of $ 1500 within 12 months (amendment to regulation 2.26B of the Principal Regulations);
11. impose a requirement on trustees of regulated superannuation funds and approved deposit funds to give appropriate significant event information to members who will be transferred to an eligible rollover fund unless they choose an entity within a specified time period (the insertion of regulation 2.36A into the Principal Regulations);
12. relocate the definition of "administration costs" so that the term applies to all references to the term "administration costs" in Part 5 (amendment to regulation 5.01 of the Principal Regulations);
13. change the definition of "administration costs" to clarify a number of matters (amendment to regulation 5.01 of the Principal Regulations);
14. change the definition of "member financed benefits" and "mandated employer financed benefits" to clarify that such benefits include benefits of the same type rolled over or transferred into the fund (amendment to regulation 5.01 of the Principal Regulations);
15. insert a provision which makes it clear that a trustee that decides to protect only minimum benefits cannot apply uncharged minimum benefit costs to erode non-minimum benefits (the insertion of regulation 5.02A into the Principal Regulations);
16. change the exit fee restriction to provide that a benefit is not taken to be rolled over or transferred at the instigation of the trustee if the rollover or transfer was required by the rules as in force on 22 March 1995, i.e. rules in force before the exit fee restriction commenced (amendment to regulation 5.09 of the Principal Regulations commencing from gazettal);
17. clarify that a unitised fund that has a buy/sell administration cost spread is not automatically achieving member protection (amendment to regulation 5.14 of the Principal Regulations);
18. insert regulations recognising that there are special features of personal superannuation products which warrant that such products should be treated differently under the member protection rules (the insertion of regulations 5.15A and Division 5.6 (regulations 5.19 - 5.24) into the Principal Regulations and the amendment of regulations 5.17, 6.28 and 6.29 of the Principal Regulations);
19. insert a regulation which addresses the situation where trustees may not be able to transfer members who will be subject to member protection out of the fund before the trustee must member protect the member i.e. 1 July 1995 (the insertion of regulation 5.15B into the Principal Regulations commencing from gazettal);
20. change the member protection standards so that funds with lost members have 90 days to find the member or transfer the member to another entity (e.g. an eligible rollover fund) before having to protect the member (amendment to regulation 5.17 of the Principal Regulations);
21. clarify that if a member does not have any benefits taking account of any exit fee of less than $ 1000 in respect of a reporting period, small amount protection does not apply to that period (amendment to regulation 5.17 of the Principal Regulations);
22. clarify that for the purposes of determining whether the fund has had a bad investment period for the purposes of the member protection standards, the investment return is the investment return that would normally be credited or debited to members i.e. the net rather than gross investment return (amendment to regulation 5.17 of the Principal Regulations);
23. provide greater flexibility for how trustees may protect members in bad investment periods (amendment to regulation 5.17 of the Principal Regulations);
24. impose a requirement on trustees of regulated superannuation funds and approved deposit funds to give beneficiaries who were beneficiaries of the fund on 30 June 1995 other than beneficiaries who the trustee does have to disclose to (because, for example, the trustee is satisfied on reasonable grounds that their address is incorrect), a minimum 28 day opportunity of nominating an entity before the beneficiary is transferred to an eligible rollover fund (the insertion of regulations 6.29A and 6.29B into the Principal Regulations);
25. insert a new definition of "eligible rollover fund" (amendment to regulation 10.01 of the Principal Regulations);
26. prescribe various matters for the purposes of the power of trustees to pay benefits to an eligible rollover fund without consent which is contained in the Principal Act (amendment to regulation 10.03 of the Principal Regulations);
27. extend the 28 day period from the end of each half year in which funds must-report lost members to 4 months (amendment to regulation 11.08 of the Principal Regulations);
28. extend the 28 day period that funds have to transfer a lost member out of the fund (e.g. to an eligible rollover fund) before being required to report the member to the register of lost members, to the time at which the fund must report the member (amendment to regulation 11.08 of the Principal Regulations);
29. amend the reporting requirements applying to when lost members cease to be lost so that funds are only required to notify the register of the fact that a lost, member has ceased to be lost together with sufficient information for the register to identify the particular member (amendment to regulation 11.08 of the Principal Regulations);
30. provide flexibility for funds to treat lost members as ceasing to be lost at the end of the reporting period in which the member actually ceases to be lost rather than when the member actually ceases to be lost (amendment to regulation 11.08 of the Principal Regulations);
31. insert an operating standard to ensure that funds that cease to be eligible rollover funds maintain existing entitlements in respect of existing members (the insertion of regulation 13.17C into the Principal Regulations); and
32. make other miscellaneous amendments (amendment to regulations 1.03A, 5.17, 5,18, 10.04, 10.04A, 10.06 and 11.08(1) of the Principal Regulations).
DETAILED EXPLANATION OF THE REGULATIONS
1. Amendments as a consequence of the establishment of the Superannuation Holding Accounts Reserve.
(Amendments made to Principal Regulations 1.03, 5.01, 6.02, 10.06 and Schedule 2 by Amending Regulations 3.1, 3.5, 20.4, 30, 40.1 and 43)
The Superannuation Holding Accounts Reserve (SHAR) is to be established by the Small Superannuation Accounts Act 1995. The Reserve is to be established for the purpose of accepting and providing protection for small superannuation contributions from employers, where such employers have difficulty finding a superannuation fund that member protects.
A person with amounts in SHAR may request that their amounts be paid into a superannuation fund which meets certain criteria set out in the Small Superannuation Accounts Act 1995.
The regulations deal with how these amounts are treated for the purposes of the minimum benefit standards and the payment standards when paid into a superannuation fund. In this respect, the regulations provide that such amounts are taken to be both minimum benefits (i.e. mandated employer contributions) and preserved benefits.
In providing that the amounts are taken to be mandated employer contributions, the amounts are also taken to be mandated employer financed benefits. This means that if the person's withdrawal benefits are less than $ 1000 and the person is not an excluded member (as defined in Part 1 of the Principal Regulations), the person's benefits must be member protected in accordance with the member protection standards.
The regulations also remove certain references relating to the commencement day for clarity purposes. This amendment recognises that payments from the Superannuation Holding Accounts Reserve could not have been made to superannuation funds from the "commencement day" as defined in regulation 6.01(2) of the Principal Regulations because the Reserve was not necessarily in existence on that day.
2. Defined benefit member must have retirement or termination of employment benefits.
(Amendments made to Principal Regulation 1.03 by Amending Regulations 3.2 and 3.3)
The regulations change the definition of "defined benefit fund", inserting a new definition of "defined benefit member" and making a consequential change to the definition of "excluded member" to make it clear that a defined benefit member must have retirement or termination of employment benefits. This means that a defined benefit member cannot only have defined death or disability benefits.
3. The benefits subject to member protection extend beyond only withdrawal benefits.
(Amendment made to Principal Regulation 1.03 by Amending Regulation 3.4)
The regulations change the definition of "protected member" to provide that member protection applies not only in respect of benefits that would be payable if the member voluntarily ceased to be a member (see the definition of "withdrawal benefits" in regulation 1.03 of the Principal Regulations) but also in respect of other benefits that would be payable if the member ceased to be a member for any other reason (e.g. death or retrenchment).
4. Funds may treat a member as lost if only one written communication is returned unclaimed.
(Amendment made to Principal Regulation 1.03A by Amending Regulation 4.1)
The regulations change the definition of "lost member" so that funds may treat a member as a lost member if only one written communication is returned unclaimed from the member's last known address. A fund must still treat a member as lost if two written communications have been returned unclaimed from the member's last known address.
5. Exclusion of members who joined the fund as non-standard employer sponsored members from the inactivity limb of the lost member test.
(Amendment made to Principal Regulation 1.03A by Amending Regulation 4.2)
The regulations change the definition of "lost member" to exclude from those members who may become lost on the ground of inactivity, members who did not join the fund as standard employer sponsored members.
The term 'standard employer sponsored member' refers to the substance of the definition of 'standard employer sponsored member' so it may apply to a member who joined the fund before the term came into use.
6. Increased information disclosure requirements for eligible rollover funds.
(Amendments made to Principal Regulations 2.08, 2.12, 2.18, 2.32 and 2.42 by Amending Regulations 5, 10, 12, 15 and 17)
The regulations remove the wide exemption for eligible rollover funds from the information disclosure requirements.
From 1 July 1995, eligible rollover funds will be able to act like normal funds (e.g. accept contributions). As a consequence, the exclusion of eligible rollover funds from most of the disclosure requirements of the Principal Regulations is removed.
These requirements are found in the following regulations of the Principal Regulations:
- regulation 2.08 (prospective information);
- regulation 2.12 (new member information);
- regulation 2.18 (reporting period information);
- regulation 2.32 (significant event information); and
- regulation 2.42 (exit information).
This exclusion is due to the fact that eligible rollover funds were established predominantly for receiving the amounts of lost members and so information could not be supplied to the member as would usually be the case.
Eligible rollover funds will not be required, as a result of the removal of the exclusion, to disclose in respect of the period before 1 July 1995.
7. Variation of existing information disclosure requirements in respect of eligible rollover funds.
(Amendments made to Principal Regulations 2.08 and 2.12 and the insertion of new Regulation 2.11A by Amending Regulations 5, 9 and 10)
Although the regulations remove the wide exemption for eligible rollover funds from the information disclosure requirements, the regulations vary existing information disclosure requirements for eligible rollover funds to take account of their special role in the superannuation system (e.g. accepting lost members in addition to other types of members).
Accordingly, trustees of funds which transfer members to an eligible rollover fund pursuant to section 243 of the Principal Act will not be required to give prospective information (information set out in Division 2.2 of the Principal Regulations) to such members but only new member information (information set out in Division 2.3 of the Principal Regulations) i.e. information after, rather than before, joining the eligible rollover fund.
This variation will make it unnecessary for eligible rollover funds to give prospective information to members who have exercised no choice in the decision as to whether or not to join the fund.
8. Variation of certain requirements for successor funds.
(Amendments made to Principal Regulations 2.08, 2.09 and 2.12 and the insertion of new Regulations 3.09A, 3.09B and 3.13 by Amending Regulations 5, 6, 10, 18 and 19)
The regulations vary existing information disclosure requirements and prescribing other regulations relating to successor funds to take account of their special role in the superannuation system (e.g. providing at least equivalent rights in respect of benefits, to members accepted from another fund without consent).
The variation will have the effect that:
- trustees of successor funds will not be required to give prospective information to members whose benefits are transferred to the fund (where the member receives at least equivalent rights in respect of the benefits to their original fund). Successor funds will however be required to give such members new member information; and
- such trustees will not be required to give any prospective information to standard employer sponsors which transfer across with members of the original fund, to the successor fund.
The regulations also relax other requirements in relation to successor funds viz.
- the requirement to give members a right to a cooling off period; and
- the requirement to have each member/standard employer sponsor sign an eligible application form.
The concept of successor fund only applies where the member is transferred into the fund and receives at least equivalent rights to their original fund in respect of the benefits paid into the fund.
9. Information requirements relating to the circumstances in which a member's benefits may be paid to an eligible rollover fund.
(Amendments made to Principal Regulations 2.10, 2.11, 2.16 and 2.23 by Amending Regulations 7, 8, 11 and 13)
The regulations impose a specific requirement on trustees of regulated superannuation funds and approved deposit funds (other than excluded funds) to give prospective and new members (as relevant), and on member reports for all members, information relating to the circumstances in which their benefit may be paid to an eligible rollover fund.
The information is:
- the circumstances in which their benefits may be paid to an eligible rollover fund (if any); and
- if there are circumstances in which their benefits may be paid to an eligible rollover fund:
- the contact details of the eligible rollover fund; and
- a statement of the effect of having benefits paid to an eligible rollover fund.
If the trustee changes the eligible rollover fund to which it proposes to pay benefits or the circumstances in which a member's benefits may he paid to an eligible rollover fund, the trustee must give written notice to the member in accordance with significant event disclosure requirements.
The regulations also make similar changes so that trustees of public offer funds are required to give to prospective standard employer-sponsors like information.
10. Special accommodation in the $1500 exception (from member protection) for members associated with their employers.
(Amendment made to Principal Regulation 2.26B by Amending Regulation 14)
The regulations allow trustees who wish to use the $1500 exception to member protection to take into account the contributions made by employers who are associated with members (e.g. a family business in respect of a family member) in forming an expectation as to whether the member will have withdrawal benefits of $1500 within 12 months.
It is recognised that where fund members are associated with their employer, the likelihood that the "fast growth" expectation will eventuate is significantly higher than the circumstances facing an ordinary employee.
In view of this, Principal Regulation 2.26B is amended so as to provide that the term "current employer" used in this regulation dots not include an employer in respect of which the member is an associate. The definition of associate used for this regulation is the same as that used in paragraph 70(a) of the Principal Act.
If a member has more than one employer, and one or more of these employers are not associated to the member, then those non-associated employers are not excluded from the definition of "current employer" in Principal Subregulation 2.26B(2).
Under the amendments, trustees will only be able to use this exception once in respect of each membership period of a fund. (That is, generally the exception would only be able to be used once in respect of each member unless a member leaves the fund, then rejoins, at a later date, in which case the trustee will be able to use this exception again in respect of the member. This is to avoid the situation of the fund having to monitor former members of the fund.
11. New significant event disclosure requirements in respect of certain cases when beneficiaries are transferred to an eligible rollover fund.
(Insertion into the Principal Regulations of new Regulation 2.36A made by Amending Regulation 16)
The regulations impose a requirement on trustees of regulated superannuation funds and approved deposit funds to give appropriate significant event information to members who will be transferred to an eligible rollover fund unless they choose an entity.
This is to ensure that beneficiaries being transferred to eligible rollover funds, when given the option of choosing an entity, make an informed choice whether to have benefits paid to an eligible rollover fund or an entity of their choice. The term "transfer" when used in relation to a member connotes either the transfer or rollover of a member's benefits.
This amendment is particularly targeted at the transfer of beneficiaries with small amounts to an eligible rollover fund but may also have application to other situations where beneficiaries are transferred to an eligible rollover fund.
The information which a fund is required to give pursuant to the amendment is only information which relates to the transfer of the beneficiary to the eligible rollover fund. For example, funds are not required to give the beneficiary any information relating to entities, other than the eligible rollover fund, into which the beneficiary may choose to have their benefits paid.
The information must include, as relevant and reasonable (see Principal Subregulation 2.32(2)):
- an explanation of why the trustee intends paying the member's benefits to an eligible rollover fund if no choice is exercised;
[Example: In the case of a fund which has decided not to retain and protect a small amount, this may (depending on the circumstances) involve stating that if the trustee were to retain the member, the trustee will be required by legislation to provide member protection for the benefits of the member, an explanation of member protection and a statement that the trustee has decided not to provide member protection for the member.];
- a statement of the effect of having benefits paid to an eligible rollover fund (e.g. that eligible rollover
funds are required to protect the benefits of all members);
- the contact details of the eligible rollover fund (e.g. name of fund and address);
- the amount of the member's benefit that will be paid from the fund, or if the exact amount of the benefit cannot be determined at the time the information is given, the approximate amount of the member's benefits; and
- a statement that if the member nominates an entity which does not accept the member's benefit, or if the member makes no nomination within the specified time, then the trustee will pay the benefits to the eligible rollover fund.
12. Relocation of the definition of administration cost.
(Amendment made to Principal Regulation 5.01 by Amending Regulations 20.1 and 27.5)
The regulations relocate the definition of "administration costs" so that the term applies to all references to the term "administration costs" in Part 5 of the Principal Regulations.
13. Amendment of the definition of administration cost.
(Amendment made to Principal Regulation 5.01 by Amending Regulation 20.1)
The regulations change the definition of "administration costs" to clarify that:
- the term includes all fees and charges charged against a member's benefits, whether or not charged against the contributions made by or in respect of the member;
- an insurance benefit means an insured (whether internally or externally insured) death or incapacity
(whether temporary or permanent) benefit; and
- the term "taxation costs" for example permits funds to deduct the 15% contributions tax from employer contributions.
14. Mandated employer-financed benefits and member financed benefits include benefits of the same type paid into the fund.
(Amendment made to Principal Regulation 5.01 by Amending Regulations 20.2 and 20.3)
The regulations change the definition of "member financed benefits" and "mandated employer financed benefits" to clarify that such benefits include benefits of the same type rolled over or transferred into the fund.
15. Not fair and reasonable to erode non-minimum benefits with minimum benefit costs.
(Insertion into the Principal Regulations of new Regulation 5.02A made by Amending Regulation 21)
The regulations insert a provision which makes it clear that a trustee who decides to protect only minimum benefits (rather than a member's total benefits) cannot apply uncharged minimum benefit costs to erode the non-minimum benefits of members subject to protection (i.e. both members with small amounts and lost members).
However non-minimum benefit costs may still erode non-minimum benefits. In other words, trustees can still charge fees that would normally be charged against the member's non-minimum benefits, against such benefits.
Non-minimum benefits are generally voluntary employer financed benefits.
16. A payment required by rules in force before the exit fee restriction commenced is not subject to the exit fee restriction. (Amendment made to Principal Regulation 5.09 by Amending Regulation 22)
The exit fee restriction prevents exit fees being charged when:
- the benefit rolled over or transferred is less than $1000;
- the benefit contains, or has contained, mandated employer financed benefits; and
- the benefit is rolled over or transferred at the instigation of the fund.
The restriction applies to non-excluded regulated superannuation funds. It ceases to have effect from 1 July 1996.
The intention of the exit fee restriction is to prevent exit fees from being charged to members whom the trustee intends to rollover or transfer out of the fund because they do not wish to provide member protection.
The regulations change the exit fee restriction to provide that a benefit is not taken to be rolled over or transferred at the instigation of the fund if the rollover or transfer takes place in accordance with the governing rules of the fund and the rollover or transfer was required by the rules as in force on 22 March 1995 (i.e. rules in force before the exit fee restriction commenced).
This change is to designed to exclude from the exit fee restriction those rollovers or transfers which the trustee would have made regardless of the introduction of the member protection standards (e.g. a rollover required to be made because the member has terminated employment with the employer sponsor of the fund).
The change is one of two changes which commence from gazettal (all other changes commence from 1 July 1995).
17. A unitised fund which has a buy/sell administration cost spread is not automatically achieving member protection.
(Amendment made to Principal Regulation 5.14 by Amending Regulation 24)
The regulations clarify that a unitised fund that has a buy/sell administration cost spread is not automatically achieving member protection. Such a fund may still achieve member protection but it does not automatically achieve member protection.
The more general principle enshrined in the regulation is that a unitised fund is not taken to be a fund in which all the administration costs of the fund are reflected in the price of units in the fund where administration costs are applied in respect of amounts received (e.g. entry fee) or paid from the fund (e.g. exit fee).
This general principle applies also in respect of other forms of automatic member protection re cognised in the Principal Regulations.
18. New member-protection rules for existing personal superannuation members.
(Insertion into the Principal Regulations of new Regulations 5.15A, 5.19, 5.20, 5.21, 5.22, 5.23 and 5.24 and the amendment of Principal Regulations 5.17, 6.28 and 6.29 by Amending Regulations 26, 27.3, 29, 32 and 33)
The regulations insert regulations recognising that there are special features of personal superannuation products which warrant that such products should be treated differently under the member protection rules. In many cases, employees have entered into these arrangements themselves and have been informed about the fees and charges in advance. Accordingly, special rules apply.
Trustees of funds which offer personal superannuation products, will be able to write to existing personal superannuation members (i.e. members who joined the fund before 1 July 1995) with small amounts presenting two options:
- waive member protection and stay in their current fund. Where a member waives member protection, ongoing contributions can be received from any source including superannuation guarantee contributions; or
- if they wish to receive member protection, to transfer to a fund of their choice (which could include an eligible rollover fund as a default if the member chooses to leave but does not nominate a new fund) with no exit fee being charged.
An 'existing personal superannuation member' means a member who joined the fund before 1 July 1995 and was not a standard employer-sponsored member on joining the fund (i.e. the first amount paid into the fund in respect of the member was not paid into the fund pursuant to an arrangement between an employer and the trustee of the fund).
The term 'standard employer sponsored member' refers to the substance of the definition of 'standard employer sponsored member' so it may apply to a member who joined the fund before the term came into use.
For new personal superannuation members (i.e. members who join the fund on or after 1 July 1995), superannuation guarantee contributions may only be accepted where member protection is provided.
Explained in more depth, the special rules applying in respect of existing personal superannuation members work as explained below.
Trustees of regulated superannuation funds with existing personal superannuation members may give such members (whether or not such members are or will be subject to protection) a choice in writing to waive member protection. Member protection for the purposes. of the special rules only means small amount protection so therefore members who waive member protection may still be protected as lost members.
If a trustee does give a member a choice to waive member protection, a number of consequences follow:
- the trustee must also give the member a choice of having their benefits paid to an entity of the member's choice.
- the trustee may also give the member a choice to have their benefits paid in any other permissible way.
- the trustee may specify a "default entity" into which the member's benefits will be paid if either:
- the member elects to have benefits paid to another entity but does not specify the entity; or
- the entity the member chooses refuses to accept the benefits.
- the trustee may also suggest entities that the member may choose.
- the default entity must be an entity to which the member protection standards as they relate to small amount protection apply or an eligible rollover fund.
- if the member does not respond to the letter giving choice, the trustee will be required to protect the member (if the member is subject to protection) or pay the benefits of the member out of the fund in accordance with the normal rules applying to such situations.
For example, the member may be transferred to an eligible rollover fund provided the member has been given the relevant information (generally the same as that required by the special rules for existing personal superannuation members) and choice (at least 28 days to choose another entity unless the member is an 'uncontactable member' for disclosure purposes). Therefore if the trustee wishes to transfer the member to an eligible rollover fund, it is open for the trustee to satisfy these requirements in the letter giving choice.
- no exit fee (including any exit fee that was applicable to the member as at 30 June 1995) must be charged if the member's benefits are paid from the fund unless of course the member has waived protection and the exit fee restriction does not apply.
- members can only waive member protection by positively indicating that they wish to waive member protection.
- waiver is permanent whilst the member is a member of the fund. the trustee must give appropriate information with the choice including:
- the contact details of the default entity (if any);
- a statement that the member is not required to make a choice;
- a statement of the effect of not making a choice;
- a statement of the effect of making an election in favour of each of the courses offered;
- a statement of the circumstances where a member will be taken to have chosen to have his or her benefits paid to the default entity; and
- the amount or approximate amount (where appropriate) of the member's benefits in the
fund.
- if the member waives small amount protection before 1 October 1995, small amount protection is taken never to apply to the member whilst a member of the fund. In any other case, small amount protection is waived from the date of waiver.
- if the member indicates that they wish to have their benefits paid out of the fund, then:
- if the benefits are paid before 1 October 1995, the member protection standards are taken never to apply to the member in the fund for the period that the member was a member of the fund; or
- if the benefits are paid on or after 1 October 1995, the member protection standards will apply as they would normally to the member.
The regulations also make a consequential amendment to recognise that existing personal superannuation members may (as outlined above) be transferred to another entity without their consent.
19. Three month extension to transfer members which the trustee currently has no intention of protecting.
(Insertion into the Principal Regulations of new Regulation 5.15B made by Amending Regulation 25)
The regulations insert a regulation which recognises that trustees may not be able to transfer members who will be subject to member protection out of the fund before the trustee must member protect the member (i.e. 1 July 1995).
The regulation is one of two regulations which commence from gazettal (all other amendments commence from 1 July 1995).
For example, the pre-1 July 1995 power to pay benefits to an eligible rollover fund is not available to personal superannuation funds nor are eligible rollover funds permitted to accept members from such funds in the pre-1 July 1995 period. Accordingly, the regulation provides that provided such members are transferred out of the fund before 1 October 1995. the member protection standards will be taken not to have applied to the member in the fund.
In more technical terms, the three month extension applies in the circumstance where the trustee of a fund had, before 1 July 1995, formed the genuine intention either:
- to make application to an eligible rollover fund pursuant to the Principal Act on behalf of a member; or
- not to protect the member.
If this intention is formed, and providing the benefits of the member are paid out of the fund before 1 October 1995 (without the application of any exit fee), the member protection standards are taken never to have applied to the member while the member was a member of the fund.
There is no prescription regarding the form of record needed to show that the trustee did form this intention, however the record should be sufficient to show that the intention was genuine and that the members were identified before 1 July 1995.
The trustee is not required to have given the member notice of their intention.
20. Funds will have 90 days to find or pay the benefits of a lost member (e.g. to an eligible rollover fund) before being required to protect them.
(Amendment made to Principal Regulation 5.17 by Amending Regulation 27.1)
The regulations change the member protection standards so that funds with lost members have 90 days to find the member or transfer the member to another entity (e.g. an eligible rollover fund) before having to protect the member.
If the lost member is subject to small amount protection the fund must immediately protect the member in accordance with the member protection standards applying to small amounts.
21. Clarification that a member with 51000 or more in respect of a reporting period does not require small amount protection.
(Amendment made to Principal Regulation 5.17 by Amending Regulation 27.2)
The regulations clarify that in respect of the 'less than $ 1000' limb of the test for whether member protection applies for a period (see the definition of "protected member" in regulation 1,03 of the Principal Regulations) trustees may, in the period up until member reports are prepared, ensure that the member's account has $1000 or more and is therefore not subject to small amount protection.
For example, a member may have $900 at the end of a period through the normal application of fees and charges. However because of member protection, a redistribution of fees and charges after the period means that the member has more than $900. The amendment clarifies that if the fund ensures in preparing the final member reports for that period that the member has $1000 or more for the period, the member (because they do not fall within the "protected member" definition) is not subject to member protection.
22. Clarification of when a bad investment period occurs.
(Amendment made to Principal Regulation 5.17 by Amending Regulation 27.4)
The regulations clarify that for the purposes of determining whether the fund has had a bad investment period for the purposes of the member protection standards, the investment return is the investment return that would normally be credited or debited to members (i.e. the net rather than gross investment return).
23. Greater flexibility for trustees in bad investment periods.
(Amendment made to Principal Regulation 5.17 by Amending Regulation 27.6)
The regulations provide more flexibility and simplicity for how trustees may protect members in bad investment periods, where the fund's earnings are less than the fund's total administration costs, so that now trustees are allowed to charge administration costs provided the charging complies with any one of the following two principles:
- each member of the fund is charged no more than either:
- the amount that a member would be charged if all administration costs charged against member's benefits were distributed in direct proportion to the investment return credited to or debited against, each member's benefits or the member's benefits; or
- the investment return credited to the member's benefits plus 10;
- each protected member of the fund is charged no more than an amount equal to the investment return credited to the member's benefits plus $10.
The changes to the current provision are as follows:
- the current option of making sure that each member of the fund is charged no more than the investment return credited to the member's benefits plus an amount no greater than 1% of the smallest member's benefits has been replaced by the option of making sure that each member of the fund is charged no more than the investment return credited to the member's benefits plus $10; and
- the farther option of making sure that each protected member is charged no more than an amount equal to the investment return credited to the member's benefits plus $10 is added.
24. Existing beneficiaries whom are not 'uncontactable' for disclosure purposes must be given at least a 28 day period to nominate another entity before being transferred to an eligible rollover fund.
(Insertion into the Principal Regulations of new Regulations 6.29A and 6.29B made by Amending Regulation 34)
The regulations impose a requirement on trustees of regulated superannuation funds and approved deposit funds to give existing beneficiaries (i.e. beneficiaries of the fund who were beneficiaries of the fund on 30 June 1995) other than beneficiaries who the trustee does have to disclose to because for example the trustee is satisfied on reasonable grounds that their address is incorrect, a minimum 28 day opportunity of nominating an entity before the beneficiary is transferred to an eligible rollover fund.
25. New definition of "eligible rollover fund".
(Amendment made to Principal Regulation 10.01 by Amending Regulation 36)
The regulations insert a new definition of "eligible rollover fund" prescribed for the purposes of the Principal Act.
The new definition allows any regulated superannuation fund or approved deposit fund which notifies the Commissioner that they wish to be an eligible rollover fund, to be an eligible rollover fund. This simplifies the procedure for funds wishing to become eligible rollover funds and takes account of the new operating environment for eligible rollover funds.
Existing eligible rollover funds that wish to continue being an eligible rollover fund are not required to notify the Commissioner, they will automatically become eligible rollover funds.
An eligible rollover fund has been defined by the regulations as:
- a regulated superannuation fund or approved deposit fund that:
- gives the Commissioner a notice in the approved form, the receipt of which has been acknowledged by the Commissioner (The approved form is a form on which the fund states that it is a eligible rollover fund. The fund will become an eligible rollover fund immediately upon acknowledgement by the Commissioner. There is no requirement for the Commissioner to approve eligible rollover funds.); and
- has not ceased to be an eligible rollover fund; or
- a fund that was an eligible rollover fund immediately before 1 July 1995 that has not ceased to be an eligible rollover fund.
The regulations provide that a fund can cease to be an eligible rollover fund by giving notice to the Commissioner in the approved form.
26. The prescription of various matters for the purposes of the power to pay benefits to an eligible rollover fund.
(Amendment made to Principal Regulation 10.03 by Amending Regulation 37)
The regulations prescribe various matters for the purposes of the new power of trustees to pay benefits to an eligible rollover fund without consent which is contained in the Principal Act.
These include:
- the prescription of 1 July 1995 as the time from which trustees may use the new power to pay benefits to an eligible rollover fund; and
- the prescription of a beneficiary's withdrawal benefit as the consideration that must be paid by a trustee of a fund to the eligible rollover fund, when using the new power to pay benefits to an eligible rollover fund.
There are no conditions as to when the trustees may use the new power to pay benefits to an eligible rollover fund. However there are certain relevant requirements found elsewhere in the Principal Regulations.
If the beneficiary was a beneficiary of the fund as at 30 June 1995 and is not a beneficiary who, if a member, (the beneficiary may in fact be a member of the fund) would be a member to whom the trustee as a result of regulation 2.05 is not required to give information, then relevant requirements include:
- the general requirement that the fund must have given to either the beneficiary or a standard employer sponsor of the beneficiary (whichever is relevant):
- information about the circumstances in which his or her benefit may be paid to an eligible rollover fund, at the relevant times; and
- significant event information before payment of the benefits to the eligible rollover fund; and
- the requirement that the fund must have given the beneficiary 28 days to choose another entity before paying the benefits to an eligible rollover fund.
All other beneficiaries are not required to be given any opportunity of choosing another entity before the benefits are paid to an eligible rollover fund but must be given the above-mentioned information as relevant.
27. Extension of the 28 day 'reporting to the register period' for lost members to four months.
(Amendment made to Principal Regulation 11.08 by Amending Regulation 41.2)
The regulations extend the 28 day period from the end of each half year in which funds must report lost members to an obligation to report lost members in respect of the 1 January - 30 June half year before 1 November in the same calendar year and in respect of the 1 July 31 December half year before 1 May in the next calendar year.
28. Funds are not required to report lost members transferred out of the fund (e.g. to an eligible rollover fund).
(Amendment made to Principal Regulation 11.08 by Amending Regulation 41.2)
The regulations extend the 28 day period that funds have to transfer a lost member out of the fund (e.g. to an eligible rollover fund) before being required to report the member to the time at which the fund must report the member to the register of lost members.
29. Funds are only required to notify the register of the fact that a lost member has ceased to be lost together with sufficient information for the register to identify the particular member (in respect of a lost member ceasing to be lost).
(Amendment made to Principal Regulation 11.08 by Amending Regulation 41.3)
The regulations amend the reporting requirements applying to when lost members cease to be lost so that funds are only required to notify the register of the fact that a lost member has ceased to be lost, together with sufficient information for the register to identify the particular member.
30. Funds may treat lost members as ceasing to be lost at the end of the reporting period in which the member actually ceases to be lost.
(Amendment made to Principal Regulation 11.08 by Amending Regulation 41.4)
The regulations provide flexibility for funds to treat lost members as ceasing to be lost at the end of the reporting period in which the member actually ceases to be lost rather than when the member actually ceases to be lost.
31. Funds that cease to be eligible rollover funds must maintain existing entitlements in respect of existing members.
(Insertion into the Principal Regulations of new Regulation 13.1 7C made by Amending Regulation 42)
The regulations insert an operating standard to ensure that funds that cease to be eligible rollover funds maintain existing entitlements in respect of existing members. In other words, trustees of former eligible rollover funds will be required to continue to give members who were members of the fund at the date the fund ceased to be an eligible rollover fund the same entitlements enjoyed by members as a result of the fund being an eligible rollover fund on that date.
32. The making of other miscellaneous amendments.
(Amendment made to Principal Regulations 1.03A, 5.17, 5.18, 10.04, 10.04A, 10.06 and 11.08(1) by Amending Regulations 4.3, 27, 28, 38, 39, 40.2 and 41.1)
The regulations make other miscellaneous amendments:
- the regulations provide that a type of positive act which an inactive member could do (towards showing to the trustee that he or she wishes to continue being a member of the fund) would be deferring their benefit in the fund (amendment to regulation 1.03A of the Principal Regulations);
- the regulations make a number of amendments in line with the principle that the member protection standards apply to amounts that are received, accrue or charged in respect of a member reporting period or exit reporting period. In other words, the amounts do not necessarily have to be received, accrue or charged during the period. This is in line with the principle that the member protection standards are concerned with the net result for the period, which will be generally evidenced by the member report for the period (amendment to regulations 5.17 and 5.18 of the Principal Regulations);
- the regulations remove a number of redundant provisions in Part 10 of the Principal Regulations (deletion of regulations 10.04 and 10.04A of the Principal Regulations);
- the regulations make it clear that the meaning of the term "minimum benefits" as used in regulation 10.06 of the Principal Regulations is the same as for Part 5 of the Principal Regulations (amendment to regulation 10.06 of the Principal Regulations); and
- the regulations make it clear that the requirement in subregulation 11.08(3) (not subregulation 11.08(2)) is an operating standard for regulated superannuation funds and approved deposit funds for the purposes of the Principal Act (amendment to regulation 11.08(1) of the Principal Regulations).