Bills Digest No. 170 2003-04
Superannuation Laws Amendment (2004 Measures No.
2) Bill 2004
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
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Superannuation Laws Amendment (2004 Measures No.
2) Bill 2004
Date Introduced: 27 May 2004
House: House of Representatives
Portfolio: Treasury
Commencement: Items 1 to 4 on Royal Assent, items 5 to 7 1 July 2010 and
item 8 immediately after the commencement of item 29 of Schedule 1 to
the Superannuation Safety Amendment Act 2004
The purpose of the Superannuation Laws Amendment (2004
Measures No. 2) Bill 2004 (the Bill) is to implement five measures of
which:
-
one was part of the A Better Superannuation System(1)
announcement
-
two were a part of the A more flexible and adaptable retirement
income system(2) announcement
-
one is the consequence of a yet to be implemented measure announced
in the A more flexible and adaptable retirement income system
announcement, and
-
one is a technical amendment.
The Howard Government, since the 1996 election, has made four major announcements
regarding the retirement income system. These announcements are:
-
Recognising older Australians(3)
-
Savings: Choice and Incentive(4)
-
A Better Superannuation System, and
-
A more flexible and adaptable retirement income
system
The aims of the changes included in these four announcements were to
provide greater access to superannuation, a more flexible system and the
option for individuals to choose who will control their superannuation
benefits.
Four of the five measures in the Bill relate to the last two major announcements
on superannuation by the Government, namely, A Better Superannuation
System and A more flexible and adaptable retirement income system.
The fifth measure is a technical amendment to changes made by the Superannuation
Safety Amendment Act 2004 that received Royal Assent on 27 April 2004
and which introduced new licensing requirements for superannuation entities
and superannuation trustees.
Among the measures announced on 5 November 2001 in the A Better Superannuation
System policy statement for the 2001 election, the government reaffirmed
its commitment to choice and portability of superannuation. The measure
in the Bill relates to the portability of superannuation benefits. The
portability of superannuation benefits will commence from 1 July 2004
following the gazettal of the Superannuation Industry (Supervision)
Regulations 2003 (No. 5). The measure in the Bill is a small change
to align the time frame imposed on retirement savings accounts (RSA) providers
to action a portability request with that of other superannuation entities.
On 25 February 2004 the Treasurer released the A more flexible and
adaptable retirement income system statement. The aim of the measures
announced in the statement is to improve the accessibility, flexibility
and integrity of the retirement income system and reduce red tape.(5)
The statement includes proposals to:
-
remove the ‘work test’ for superannuation for those under 65 years
age and simplify it for those over 65 years of age
-
require superannuation funds to start paying benefits to a person
as soon as practicable after they reach 75 years of age regardless
of whether they continue to work
-
permit superannuation entities, from 20 September 2004, to provide
market‑linked income stream products that will be treated as
complying pensions and annuities for reasonable benefit limits, taxation
and age pension purposes
-
make it easier for people to access their superannuation benefit
once they reach their preservation age while still remaining in the
workforce
-
remove the notional earnings base provisions so that an employee’s
ordinary time earnings are used as the base for determining the amount
of employer superannuation contributions needed to satisfy an employer’s
superannuation guarantee liability, and
-
remove the requirement for superannuation funds that only pay allocated
pensions to obtain an actuarial certificate, so that the income generated
from the assets supporting the allocated pension is tax exempt.
To implement the majority of the changes proposed in the statement, amendments
will need to be made to the Superannuation Industry (Supervision) Regulations
1994 (the SIS Regulations). However, some changes will have to be
implemented by amending acts. This Bill implements the last two changes
above.
The amendments also add a condition that people less than 18 years of
age need to satisfy before they can claim a tax deduction for personal
superannuation contributions. This is a consequential amendment resulting
from the measures included in the Treasurer’s statement to remove the
work test provisions for contributing to superannuation.
-
Clause 4 provides that, of the amendments made in Schedule
1:
-
the 28th day after the day this Bill received Royal Assent,
or
-
1 July 2004, and
-
items 5 to 7 apply to quarters commencing
on 1 July 2010 and subsequent quarters.
Item 1 inserts proposed subsections 273A(2) and (3)
into the Income Tax Assessment Act 1936 (ITAA 1936). Under these
proposed subsections, where:
-
a complying superannuation fund has segregated, for tax purposes,
assets used to solely support the payment of certain pensions, and
-
those assets are prescribed by regulations,
the superannuation fund may provide those pensions without the need to
obtain an actuarial certificate. If a complying superannuation fund provides
a type of pension not prescribed in the regulations then they will continue
to have to obtain an actuarial certificate in accordance with the current
provisions in section 273A.
Item 2 inserts proposed subsection 283(2A) in the ITAA
1936. It removes the requirement for a complying superannuation fund to
value its pension liabilities either by obtaining an actuarial certificate
under subsection 283(3) or as calculated under subsection 283(4) if the
pension liabilities are only in respect of pensions prescribed in the
regulations.
It is expected that the types of pensions that will be prescribed in
the regulations for the purposes of proposed subsections 273A(2),
273A(3) and 283(2A) will be allocated pensions.
Item 3 inserts proposed paragraph 26‑80(3)(a) into
the Income Tax Assessment Act 1997 (ITAA 1997). It imposes a work
test on persons less than 18 years of age so that they cannot claim a
tax deduction for personal superannuation contributions under section
82AAT of the ITAA 1936 unless they meet the conditions of the work test
along with any other condition imposed by section 82AAT of the ITAA 1936
and subsection 26-80(3) of the ITAA 1997.
Item 4 amends subsection 50(2) of the Retirement Savings Accounts
Act 1997 so that when a holder of a RSA makes a request to transfer
the amount of their RSA to another RSA or a superannuation fund the RSA
provider will have 90 days, rather than the current 12 months, to complete
the transfer.
Item 5 repeals, with application from 1 July 2010, sections 13,
13A, 13B and 14 of the Superannuation Guarantee (Administration) Act
1992 (the SGAA). Currently, these provisions permit employers to calculate
their superannuation guarantee liability using an earnings base other
than ordinary time earnings or salary and wages where the employer is
subject to the agreements covered by the provisions.
Item 6 will repeal subsections 23(2) to (5) of the SGAA that set
out how an employer’s liability to the superannuation guarantee charge
is reduced using an earnings base defined in section 13, 13A, 13B and
14. Item 6 also inserts proposed subsection 23(2) which
specifies that an employee’s ordinary time earnings will be used to determine
the amount their employer will need to contribute to a superannuation
fund, on behalf of the employee, so as to avoid the imposition of the
superannuation guarantee charge in respect of that employee.
Item 7 repeals subsection 23(9) of the SGAA as it relates to the
calculation of earnings bases under section 13, 13A, 13B and 14 that are
repealed by item 5.
These amendments will benefit employees subject to notional earnings
bases defined in the SGAA, as they will have their superannuation guarantee
contributions calculated from a higher base. The result is employees who
are currently subject to notional earnings bases defined in the SGAA will
have, from 1 July 2010, larger superannuation guarantees contributions
made on their behalf and, consequently, their retirement benefit will
be larger.
Item 8 makes a technical amendment to subsection 29G(1) of the
Superannuation Industry (Supervision) Act 1993 (the SIS Act) to
correct a cross-referencing error that was inserted into the SIS Act by
the Superannuation Safety Amendment Act 2004.
Overall, the amendments made in the Bill achieve the Government’s objectives.
The amendments to implement the two measures announced as part of the
statement, A more flexible and adaptable retirement income system,
continue the Howard Government’s reforms to the superannuation system.
While the Howard Government’s reforms continue to open up the superannuation
system to people not in workforce, they do not address the main problem
with the superannuation system, namely complexity. Both the Government
and the Opposition continue to make announcements that tinker and fiddle
with the superannuation system. Real reform of the superannuation system
is required so that those who are able to finance their own retirement
can do so without resorting to schemes to obtain access to welfare benefits
and those who cannot sufficiently finance their own retirement can receive
a benefit better than the age pension.
The amendments in the Bill relating to the removal of notional earnings
bases do simplify the superannuation guarantee system, but they will add
to the costs of some employers. Employers who are permitted to use the
old notional earnings bases generally have a lower base from which they
calculate their superannuation guarantee liability than if they used ordinary
time earnings, therefore, reducing their costs. While this may be a concern
to them, they do have six years in which to prepare for these changes.
This should be more than enough time to adjust to the new earnings base
for calculating superannuation guarantee contributions.
-
John Howard, A Better Superannuation System, Liberal Party
of Australia, Melbourne, 5 November 2001. Available at:
http://parlinfoweb.parl.net/parlinfo/Repository1/Library/partypol/X9G562.pdf.
-
Department of the Treasury, A more flexible and adaptable retirement
income system, Department of the Treasury, 25 February 2004.
Available at: http://demographics.treasury.gov.au/content/_download/flexible_retirement_income_system/flexible_retirement_income_system.pdf.
-
The Hon Peter Costello MP, Treasurer of the Commonwealth of Australia,
Senator the Hon Jocelyn Newman, Minister for Social Security, the
Hon Judi Moylan MP, Minister for Family Services and the Hon Bruce
Scott MP, Minister for Veterans’ Affairs, Recognising Older Australians,
20 August 1996.
-
The Hon Peter Costello MP, Treasurer of the Commonwealth of Australia
and Senator the Hon Jocelyn Newman, Minister for Social Security,
Savings: Choice and Incentive, 13 May 1997.
-
Peter Costello, A More Flexible and Adaptable Retirement Income
System, Press Release, no. 11, Canberra, 25 February 2004.
Available at: http://parlinfoweb.parl.net/parlinfo/Repository1/Media/pressrel/6MRB61.pdf.
Graeme Selleck
22 June 2004
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2004
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