Bills Digest 80 1996-97
Retirement Savings Accounts Bill 1996
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Retirement Savings Accounts Bill 1996
Date Introduced: 4 December 1996
House: House of Representatives
Portfolio: Treasury
Commencement: On a day fixed by Proclamation, or if no such day
is fixed within 6 months of the Bill receiving the Royal Assent, on the
first day after the end of that period.
To allow financial institutions to provide superannuation accounts that
do not require a trustee structure, which is currently required for entities
to receive concessional tax treatment. The details of the structure, in
the form of Retirement Savings Accounts (RSA), will be contained in regulations.
Superannuation products offered to the public are issued under a trust
structure that requires a trustee to be responsible for the actions of
the trust and to observe various prudential and other regulations, principally
those contained in the Superannuation Industry (Supervision) Act 1993
(SIS). The incentive for funds to comply with the SIS requirements is
a reduced tax rate of 15% which applies to complying superannuation funds.
Non-complying funds are subject to the normal taxation regime for companies
and trusts, which will generally make them liable to the company tax rate.The
trustee structure reflects the fact that superannuation funds hold money
on behalf of their members and are not profit making bodies, with any
net investment earnings being credited to members accounts, rather than
to the investment entity. It should be noted that the provision of superannuation
is not prohibited for financial intitutions, which can establish subsiduaries
that would have a trustee structure and so could be complying funds and
receive the tax concession. A number of financial institutions have established
superannuation subsiduaries. Examples of such funds are those offered
by the AMP, ANZ, GIO, Macquarie, Commonwelath, MLC and National Mutual.
As early as 1988, the then opposition suggeted an alternative to the
trustee based superannuation structure. Proposed RSAs were largely seen
to address three problems arising from the superannuation arrangements:
-
Lack of Choice: Current compulsory superannuation payments are made
under the Superannuation Guarantee legislation, which requires a percentage
of an employees salary to be contributed to superannuation. Prior
to this legislation, compulsory employer superannuation contributions
were required under Federal industrial awards. Award superannuation
generally provides for contributions to be made to industry funds,
which have an equal employer/employee representation as trustees.
Awards do not generally allow for individual employees to make a decision
on the fund that contributions made in respect of them will be invested.
While denying individual employees the choice of fund, industry funds
have the advantage to employers that contributions need only be made
to one fund, thus simplyfing the process to employers and so reducing
their administrative costs. The Workplace Relations and Other Legislation
Amendment Act 1996 originally proposed to exclude superannuation
from the matters that may be included in industrial awards, but was
amended in the Senate to retain superannuation as a matter that could
be included in awards. However, there remains doubt as to whether
superannuation will continue to be a matter that may be dealt with
in awards, with the Government and Australian Democrats foreshadowing
that the matter may be excluded in future legislation.(1) Consequently,
awards directing that superannuation contributions be contributed
to an industry fund currently remain valid.
-
Small Balances: As originally introduced, the SGC scheme had no means
of protecting small balances in superannuation funds arising from
compulsory contributions from being eroded by fees and charges imposed
by superannuation funds. This resulted in many people being disallousioned
with superannuation as they would see their contributions reduced.
Negative investment returns could also rapidily reduce small superannuation
balances. However, since1995 this problem has been greatly diminished
with the Small Superannuation Accounts Act 1995 providing
for the Australian Taxation Office to operate small accounts with
no fees, and member protection rules which provide that in small accounts
fees and charges are not to exceed the earnings of the account.
-
The Profileration of Accounts: With a more mobile workforce and the
increase in part-time employment with a number of employers, a person
may have a number of superannuation policies with small balances that
they take little effort to trace. While this may be addressed by the
ability of policy holders to withdraw balances of less than $500 when
their employment is terminated (the government has indicated that
this will be removed), the establishment of rules to deal with 'lost
members' and the fact that the number of policies exceeds the number
of employees suggests that the problem remains. While such accounts
could be amalgamated with the ATO under the small accounts legislation,
it is envisaged that RSAs would offer a more attractive solution to
the problem. However, if an award requires contributions to be paid
into a certain fund, as often occurs, RSAs will not address this problem
unless awards are changed to allow the alternative payment into a
person's RSA. There may also be some employer reluctance to contribute
to a range of RSAs rather than to one industry fund due to increased
administrative costs.
There has been general agreement that the returns offered by RSAs will
be less than those offered by other superannuation providers. This reflects
the capital guarantee nature of RSAs where the amount invested cannot
be reduced due to negative investment returns. In return for such security
a lower return can be expected. In this regard, there have been a number
of calls for the maximum amount that can be invested in an RSA to be limited,
with the most often suggested limit being $10 000. It was proposed that
once this limit was reached the balance of the account would be required
to be transferred to an investment based superannuation account. Main
proponents for such a limit include superannuation industry bodies, such
as the Association of Superannuation Funds of Australia. Such a limit
on the amount that may be invested in RSAs has also been suggested by
independent commentators, including David Connelly, a consultant for the
legal firm Phillips Fox and the then Opposition spokesman on retirement
income prior to the 1996 General Election.(2) The suggestions for a maximum
limit on the amount that may be invested in a RSA are based on the expected
low return from RSAs which over a number of years will see, on current
returns, a substantially lower sum accumulated for retirement than a similar
investment in an investment based superannuation fund. This will reduce
the ability of superannuation savings to meet future retirement needs.
The proposal for a maximum limit for RSAs was rejected by the Government,
with RSA providers being required to inform holders of their investment
options when the limit is reached. This will allow RSA holders to chose
if they wish to remain in the RSA.
Another area where RSAs are envisaged to be more attractive to investors
is for those near retirement who wish a safe place to 'park' their superannuation
prior to retirement. The capital guaranteed, low risk nature of RSAs should
make them more attractive to such people than 'normal' superannuation
where the amount may be reduced by negative investment returns.
Part 2 of the Bill contains a number of definitions, including those
for:
Retirement Savings Account: an account or a policy provided by a RSA
institution, is capital guaranteed; is issued to an eligible person; satisfies
clause 15 (see below) and any prescribed criteria; and is opened or issued
on or after 1 July 1997, or such later date as prescribed.
RSA institution: a bank, building society, credit union, life insurance
company or a prescribed financial institution that has an approval under
proposed section 26.
Eligible person: a person who satisfies the prescribed criteria.
Capital guaranteed: where the balance of the account cannot be reduced
through negative interest or negative investment returns or any reduction
in the value of assets in which the policy is invested.
Clause 15 provides that a RSA must provide one or more of the
benefits listed in the clause. These are:
-
benefits that are only available on the earlier of the holders retirement
or their attaining the age specified in the regulations;
-
benefits payable on or after the holders death if the death occurred
before the holders retirement or attaining the prescribed age where
the benefits are payable to either or both of the holder's legal personal
representative or dependant/s;
-
where one or more of the above benefits is provided, the RSA may
also provide one or more of the following:
- - benefits available on termination of employment where the employer
or an associate of the employer contributed to the RSA;
- - benefits available where the holder ceases work on account of
ill-health;
- - benefits payable to the holders legal personal representative
or dependant/s where the benefit is payable after the holder has retired
or reached the prescribed age; or
- - such other benefits as the Insurance and Superannuation Commissioner
(the Commissioner) approves.
The legal personal representative of a holder of a RSA is defined to
be the executor of their will, the administrator of their estate, the
trustee of the estate of a person under a legal disability or a person
who holds a power of attorney granted by the holder (clause 16).
Division 2 of Part 2 (clauses 16 to 21) also contains a number
of other definitions. A large number of the terms are defined by reference
to other Acts, particularly the Superannuation Industry (Supervision)
Act 1993, and to the definition of various financial institutions,
such as banks, credit unions and building societies, which are defined
in terms of the of the relevant supervisory code or Act. The Division
also lists those decisions which are subject to review by the Administrative
Appeals Tribunal. Clause 19 provides an extended meaning of the
terms 'employer' and 'employee' which are the same as those contained
in the Superannuation Guarantee (Administration) Act 1992.
Part 3 of the Bill deals with the approval of RSA institutions. Clause
23 provides that a Constitutional corporation (ie. a corporation subject
to paragraph 51(XX) of the Constitution) that is a bank, building society,
credit union, life insurance company or a prescribed financial institution,
may apply to the Commissioner for approval as a RSA institution. The Commissioner
is to decide whether to approve such a body within 60 days of the application,
or 120 days if the Commissioner extends the period, and if a decision
has not been made by the end of the relevant period the application will
be taken to have been approved (clause 25). The Commissioner is
to approve an application unless satisfied that the institution cannot
be relied on to conduct RSAs in accordance with the Act and regulations,
and the Commissioner may determine that the approval is subject to conditions
(clause 26). An institution may apply for a variation of any conditions
attached to an approval (clause 28), and if the Commissioner fails
to make a decision on the application for a variation within the allowed
time (60 days or 120 if the Commissioner extends the period) the application
will be taken to have been refused (clause 29 - this may be compared
with clause 25).As well, the Commissioner may vary any condition
on the Commissioner's own initiative (clause 30).
Clause 33 gives the Commissioner power to suspend or revoke an
approval. Without limiting the grounds on which the Commissioner may so
act, the clause specifies that an approval may be revoked or suspended
if the Commissioner is satisfied, on reasonable grounds, that:
-
the RSA institution has requested the suspension or revocation;
-
the institution ceases to be a financial institution that may be
approved to operate RSAs;
-
there has been a breach of the conditions attached to an approval;
or
-
the institution can no longer be relied on to comply with the Act
and regulations.
Except where the institution has requested the revocation or suspension,
the Commissioner is not to act without consulting with the prescribed
regulatory authority and obtaining the written consent of the Minister.
The Commissioner may lift a suspension.
If an approval is suspended or revoked, the institution is to notify
the holders and employer contributors of the suspension or revocation
and not accept any contributions while the suspension/revocation is in
effect. If contributions are accepted after the suspension/revocation,
they must be refunded within 28 days (clause 34).
Operating and reporting standards are dealt with in Part 4 of the Bill.
The major provision, clause 38, provides that the operating standards
are to be fixed by regulation. The provision provides a non-exclusive
list of the matters that may be covered by the regulatons, which includes:
- who may hold a RSA;
- the circumstances under which contributions may be accepted;
- minimum benefits;
- the preservation and portability of benefits;
- the payment of benefits; and
- the provision, keeping and disclosure of information.
It wil be an offence to fail to comply with the operating standards
(clause 39) or for a RSA provider to enter into an interest off-set
arrangement where one of the accounts is a RSA (an interest off-set arrangement
is one where interest earned in one account is used to reduce liability
under another account and is generally used in relation to home loans)
(clause 40).
It will also be an offence to place a charge over a RSA or to assign
benefits available under a RSA, and the RSA provider will be guilty of
an offence if they recognise such a charge or assignment (clause 41).
RSA providers will also be guilty of an offence if they breach the capital
guarantee condition (clause 42) or to intentionally or recklessly
fail to comply with the requirement to lodge an annual return in accordance
with the approved form (clause 44). Where the capital guarantee
provision is breached, and a person suffers loss or damage, they may seek
to recover the loss or damage in a civil action (clause 43).
The duties of RSA providers is dealt with in Part 5 of the Bill.
Clauses 47 to 50 contain a number of specific duties of RSA providers
and make it an offence to breach the duty:
- A RSA provider is to take all reasonable steps to ensure that arrangements
exist to enable RSA holders to inquire about their account/policy or
to make a complaint and provides that such inquiries or complaints are
to be dealt with within 90 days. A person with an interest in any death
benefits must also be able to make a inquiry/complaint. Maximum penalty
for a reckless or intentional breach: 100 penalty units (a penalty unit
is defined in the Crimes Act 1914 to be $100) (clause 47);
- A RSA provider is to keep minutes of all meetings relating to decisions
regarding the operation of the Act or regulations for at least 10 years.
Maximum penalty for an intentional or reckless breach: 50 penalty units
(clause 48);
- A RSA provider is to keep copies of reports provided to RSA holders
while they are relevant or for a minimum of 10 years and make make them
available for inspection by the Commission. Maximum penalty for an intentional
or reckless breach: 50 penalty units (clause 49);
- If a holder of an RSA requests that the balance of their RSA be transferred
to another RSA, a superannuation entity, an exempt superannuation body
or a deferred annuity, the RSA provider must transfer the balance, worked
out in accordance with the regulations, as soon as practicable and within
12 months. Maximum penalty for an intentional or reckless breach: 50
penalty units (clause 50).
Clause 51 deals with the offering of RSAs and makes it an offence,
with a maximum penalty of 100 penalty units, to intentionally or recklessly
allow a person to become a holder of an RSA unless they have made an application
in accordance with the regulations. The form of the application must be
in accordance with any determination made by the Commissioner. Such a
determination will be disallowable by either House of Parliament.
Division 4 of Part 5 deals with the provision of information
to RSA holders. Basically, the requirement is that on application to become
a RSA holder, or where a person is a RSA holder, the RSA provider is to
supply to the person the information specified in the regulations. It
will be an offence, with a maximum penalty of 100 penalty units, to allow
a person to become the holder of an RSA unless the RSA provider is satisfied,
on reasonable grounds, that the information requirements have been complied
with. The offence will not apply where the information relates to an event
that occurred after the application or in circumstances specified in the
regulations.
The Commissioner will be able to issue an order requiring a RSA provider
to not enter into a contract for a RSA while the order is in force if
it appears to the Commissioner that a false or misleading material statement
is contained in a documentissued by the body offering RSAs and is such
that the issuer of the document knows, or reasonably ought to know, that
it would influence a decision of a person to enter into a RSA. It will
be an offence, with a maximum penalty of 2 years imprisionment, to breach
such an order (Division 5 of Part 5).
If a RSA provider receives money in respect of an account that has yet
to be opened, clause 60 provides that the money is to be held on
trust until the account is opened. The terms of such a trust are to be
determined by regulation and it will be an offence to intentionally or
recklessly breach this requirement.
The cooling-off period is dealt with in Division 7 of Part 5.
Where the application for a RSA is made by an employer of behalf of an
employee, the employee will have 14 days after the required information
is provided to request that any balance of the account be transferred
to another RSA or superannuation entity. In such a case, the RSA provider
is to transfer the funds within 28 days and no fees may be charged. Again,
it will be an offence to intentionally or recklessly breach this requirement.
The keeping of records and audit requirements are dealt with in Part
6 of the Bill. Basically, the Part requires that records relating
to the provision of RSAs be kept for 5 years and that RSA records be audited
annually for compliance with this Act (if and when enacted) and it's regulations.
There is also an obligation placed on auditors to inform the Commissioner
of a breach if the RSA provider has been informed of the breach and the
provider has not complied with a request by the auditor to report on steps
to be taken to rectify the breach or if the auditor is not satisfied that
the measures taken will rectify the breach. The Commissioner will be able
to report an auditor to the relevant professional bodyif not satisfied
that the auditor has comply with their obligations under the Act and regulations.
Part 7 of Division 5 provides that RSA providers are not to engage
in certain conduct, which may relate in either criminal or civil liability.
A regulated act is defined in clause 69 to be:
- applying to become a RSA holder, whether as an individual or as an
employer;
- opening a RSA or accepting a contribution to an RSA;
- publishing or broadcasting a statement in relation to an RSA;
- issuing a document that that the issuer knows, or ought reasonably
to know, would influence a decision of a person to eneter into a RSA;
- making a payment out of a RSA or providing benefits in relation to
a RSA; and
- doing anything in relation to the above acts.
It will be an offence, with a maximum penalty of 5 years imprisionment,
to intentionally induce a person to engage in a regulated act by dishonestly
concealing material facts, making a statement that the maker knows is
false or misleading or to record information that the person knows is
false or misleading (clause 70). If a person engages in conduct
in relation to aregulated act that is misleading or likely to mislead
they may be liable to civil action (clause 71). Similarly, civil
liability may arise if a RSA provider engages in conduct that is misleading
or likely to mislead when dealing with the holder of a RSA or an employer
contributor to a RSA (clause 72). It will also be an offence, with
a maximum penalty of 5 years imprisionment, for an RSA provider to intentionally
or recklessly issue a regulated document that that the provider knows
contains a material statement that is false or misleading(clause 74).
Such action may also give rise to civil liability (clause 75).
Part 8 of the Bill deals with unclaimed money, which is defined
to be funds that are held in a RSA where the holder has reached retirement
age, a benefit is payable to the holder, the holder has not applied to
have the benefits paid and the RSA provider has not been able to locate
the holder after making reasonable efforts. Money will also be unclaimed
if the above conditions are satisfied but the holder has died and the
provider is unable to contact the beneficiary/s of the holder after taking
reasonable efforts to find them (clause 79). Unclaimed money is
generally to be paid to the Commoissioner of Taxation annually and is
to accompany a report to the Commissioner (clauses 80 and 81).
However, if a State or Territory law requires that unclaimed money be
paid to a State/Territory authority and that law satisfies reporting requirement
that are the same as those relating to the Commissioner of Taxation, the
unclaimed money is to be paid to the State/Territory authority (clause
82).
Rollover: If the conditions specified in the regulations are satisfied,
Part 9 of the Bill provides that funds in a RSA are to be transferred
to an eligible rollover fund as specified in the Superannuation Industry
(Supervision) Act 1993. This will apply regardless of the terms of
the RSA.
The monitoring and investigation of RSA providers is dealt with in Part
10. It provides for:
- reporting to the Insurance and Superrannuation Commission, the production
of accounts and other information on request and the inspection of premises;
- the appointment of inspectors and their power to enter premises to
inspect books;
- the issue of warrants in relation to books that have not been produced;
and
- the examination of people by an inspector.
Self-incrimination will not be a valid reason for refusing to produce
books or to refuse to give information, although such information will
generally not be admissable as evidence against the person except in proceedings
relating to the falsity of the statement or record. Legal professional
privilege will be a valid reason for refusing to provide information.
The provision and use of tax file numbers (TFN) is dealt with in Part
11 of the Bill. There will be no compulsion for a person to provide
their TFN, although RSA providers will be required to request a person's
TFN if they have not provided it. TFNs are to be used to trace the funds
belonging to a RSA holder.
Part 12 of the Bill contains a number of offences relating to
the compliation of statements and records by RSA providers. Basically,
the Part requires RSA providers to keep satisfactory records of their
accounts and makes it an offence to knowingly or recklessly make false
statements or records or to intentionally make deceptive or misleading
entry/s in such records.
The protection of RSA holders accounts is reinforced by Part 13
of the Bill which will allow courts to issue orders preventing the transferring
of funds from RSAs if investigations, legal proceedings or criminal prosecutions
have begun against a RSA provider or an asociated person. The Part also
provides for injunctions to be issued to prevent contraventions of the
requirements imposed by the Bill.
Part 15 of the Bill will give the Commissioner power to exempt
a person, or class of people, from a number of the requirements imposed
by the Bill and regulations. The more important provisions that an exemption
may be granted for relate to:
- the operating standards of RSA providers;
- liability in relation to certain documents and statements;
- certain duties of RSA providers;
- the rules relating to the payment of unclaimed money; and
- provisions relating to the rollover of funds.
In addition to being able to exempt people from these requirements,
Part 15 will also allow the Commissioner to modify the way in which the
provisions may apply. Any exemptions or modifications will be required
to be published in the Gazette, but will not be subject to disallowance
by Parliament. However, this may change if the Legislative Instruments
Bill 1996, which has been before Parliament for a considerable period,
is enacted.
The remaining provisions of the Bill deals with largely administrative
matters, the more important relate to:
- the rules of procedure that are to apply when a court action under
the Bill is undertaken (Part 14);
- a requirement that employer contributions to RSAs to be made within
28 days of the due date;
- the intention of an entity that provides RSAs so that the intention
of senior officers of such an entity may be taken to be those of the
provider;
- the exemption of the Commissioner and staff of the Commission, inspectors
and certain other peole from civil liability for their actions;
- requests to the Commissioner for internal reconsideration of certain
decisions;
- the collection and publication of statistical information;
- making the Bill and regulations subject to certain Acts, so that the
the Crimes (Superannuation Benefits) Act 1989, Australian Federal
Police Act 1979 (which provide for the forfeiture of superannuation
benefits when certain offences have been committed) and the Bankruptcy
1966 apply to RSAs; and
- requiring an annual report on the operation of RSAs to be submitted.
A major reason given for the introduction of RSAs is to provide greater
choice for those contributing, either compulsorily or voluntarily, to
superannuation. The ability of an individual to chose, where compulsory
contributions allow such a choice, the most appropriate vehicle for their
retirement savings largely depends on the information available and the
person's ability and desire to use such information. Small superannuation
balances, which the RSA regime aims to address, are often either ignored
or forgotten by the contributor, as the existing regime for lost members
and that contained in this Bill illustrate. Where the contributor has
no or little interest in the return from the account, it will be possible
for financial institution offering an RSA to offer different rates of
interest on various types of RSAs, unless this is prohibited by the regulations.
A RSA could therefore have a relative attractive interest rate to attract
customers, with this rate reducing in time.
Theprospect of RSA providers offering a very low rate of interest to
people who have little interest in their accounts may be compared to the
situation that existed for social security beneficiaries prior to the
introduction of the deemed interest rules. While there was no doubt that
a number of social security recipients wished to have minimal income from
savings for purposes of the social security income test, there were also
a large number of people who received minimal interest due to their lack
of interest, or inability, in monitoring the various returns offered by
financial institutions. When the deeming rates of interest were introduced,
financial institutions were able to offer the required rate of interest.
In light of the above, it may be argued that a minimum rate of interest
should also apply to RSAs. If financial institutions are able to offer
accounts to social security recipients that comply with the minimum deeming
rates such institutions should also be able to offer the same, or similar,
rate of interest on RSAs, particularly when the number of transactions
relating to a RSA will normally be lower than those applying to other
accounts as regular withdrawls are prohibited from RSAs due to the preservation
rules.
While RSAs are to be capital guaranteed, this should not be confused
with a guarantee that the money cannot be lost. While RSAs cannot be reduced
by negative investment returns, if the financial institution offering
the product faces difficulties and is forced into liquidation the funds
contained in a RSA will not be guaranteed. The difference between a capital
guarantee and an absolute guarantee will need to be understood by those
acquiring a RSA, particularly those using the RSA as a 'safe' place to
park their superanuation prior to retirement.
An unusual part of the Bill is the Commissioner's power to exempt people
from the operation of important provisions of the Bill or to modify how
it will apply (Part 15). The granting of such a power to the Commissioner
raises the question of the relevance of the provisions of the Bill and
the regulations that may be modified or from which people may be exempted.
It may be argued that the impact of Part 15 is such that these provisions
could be replaced by ones that grant the Commissioner a total discression
as to how such matters are to be dealt with and remove the need for regulations.
- Senate Hansard, 6 November 1996, p. 5204.
- For example, see ASX Perspective, 3rd Quarter 1996, p. 19.
Chris Field
31 January 1997
Bills Digest Service
Information and Research Services
This Digest does not have any official legal status. Other sources should
be consulted to determine whether the Bill has been enacted and, if so,
whether the subsequent Act reflects further amendments.
IRS staff are available to discuss the paper's contents with Senators
and Members and their staff but not with members of the public.
ISSN 1323-9031
Commonwealth of Australia 1996
Except to the extent of the uses permitted under the Copyright Act
1968, no part of this publication may be reproduced or transmitted
in any form or by any means, including information storage and retrieval
systems, without the prior written consent of the Parliamentary Library,
other than by Members of the Australian Parliament in the course of their
official duties.
Published by the Department of the Parliamentary Library, 1997.
This page was prepared by the Parliamentary Library, Commonwealth of
Australia
Last updated: 19 March 1997
|
