Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS (AMENDMENT) 1995 NO. 293

STATUTORY RULES 1995 No. 293

Issued by the authority of the Treasurer

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Regulations (Amendment)

The Superannuation Industry (Supervision) Act 1993 (the Act) and the Superannuation Industry (Supervision) Regulations (the Principal Regulations) provide for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Insurance and Superannuation Commissioner.

Section 353 of the Act provides that the Governor-General may make Regulations for the purposes of the Act.

The proposed regulations amend the Principal Regulations by substituting a new paragraph 2.29(1)(h), which will require funds to report to members earnings for the previous 5 years. They will also be required to provide a 5 year rolling average of fund earnings. Currently, funds are only required to provide earnings figures for the past 3 years.

By way of background, the Government has been concerned for some time about the tendency for trustees, members, and some service providers to place undue emphasis on the short-term performance of superannuation funds. 'Short-termism' can lead to the formulation by funds of inappropriate, overly conservative investment strategies aimed at reducing volatility, at the expense of lower returns for members in the long run. In this regard, 'short-termism' is arguably a strong factor underlying the persistent calls for Government direction of superannuation assets into 'national interest' investments.

Overall, the Government considers that five year rolling average figures, together with individual annual figures for the past five years, will operate as a more effective counterbalance to the short-term considerations that arise from annual reporting than the three year annualised reporting currently required. The figures will also better complement industry and Government education campaigns aimed at facilitating a longer term investment perspective on the part of members.

The regulations are described in detail in the attachment.

The regulations commence on gazettal.

ATTACHMENT

Superannuation Industry (Supervision) Regulations (Amendment)

Regulation 1 - Amendment

Regulation 1 provides that the Superannuation Industry (Supervision) Regulations (the Principal Regulations) are amended as set out in these Regulations.

The Regulations will commence on gazettal.

Regulation 2 - Regulation 2.29 (Specific requirements in particular cases)

Regulation 2 substitutes a new paragraph 2.29 (1) (h) which requires trustees to provide, in respect of the relevant sub-plan or, if none, of the fund, the actual or notional rate of net earnings in respect of each of the most recent reporting periods that in total, constitute a period of at least five years. The trustee is also required to provide the compound average actual or notional rate of net earnings for the five years ending at the end of the reporting period.

'Compound average' takes into account the previous years earnings. In contrast, a simple arithmetic average would only take into account current year earnings.

The amendment made by Regulation 2 inserts a new paragraph 3A which provides that if at the end of a reporting period, a fund or sub-plan has not been in existence for 5 years, the references in paragraph (1)(h) to 5 years are taken to be references to the whole period of existence of the fund or sub-plan as appropriate.

Regulation 3 - Application

The amendment made by Regulation 2 applies in relation to the reporting period of a fund or subplan, as the case requires, for the 1995-96, financial year and each succeeding reporting period.