BILLS DIGEST NO. 17, 2011–12, 15 August 2011

Superannuation Legislation Amendment (Early Release of Superannuation) Bill 2011

Kai Swoboda
Economics Section

Date introduced:  6 July 2011

House:  House of Representatives

Portfolio:  Treasury

Commencement:  Sections 1 to 3 commence on Royal Assent; Schedule 1 commences on a single day to be fixed by Proclamation, or 6 months after Royal Assent, whichever occurs first.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

The purpose of the Superannuation Legislation Amendment (Early Release of Superannuation) Bill 2011 (the Bill) is to transfer responsibility for the administration of the early release of superannuation benefits on compassionate grounds from the Australian Prudential Regulation Authority (APRA) and the Commissioner of Taxation to the Chief Executive Medicare.

The Bill does not propose any change to the criteria for the early release of superannuation benefits on compassionate grounds.

Background

Current eligibility arrangements

Superannuation benefits cannot generally be accessed before 55 years of age.[1] In some specific circumstances, persons are able to apply to their superannuation fund/retirement saving account provider for the early release of superannuation benefits, including financial hardship, permanent incapacity (permanent and total disability), terminal illness, where the preserved benefit balance is $200 or less, and in cases of permanent departure from Australia.[2]

Superannuation benefits may also be released early on ‘compassionate’ grounds by application to APRA for superannuation and retirement savings accounts or by application to the Commissioner of Taxation for Self Managed Superannuation Funds.[3] The changes proposed by the Bill relate only to the administrative arrangements for applications about early release of superannuation on compassionate grounds.

The circumstances under which an application for the early release on compassionate grounds can be granted are specified in the Superannuation Industry (Supervision) Regulations 1994 and Retirement Savings Accounts Regulations 1997 and include:

•         to pay for medical treatment or medical transport for the person or a dependant

•         to enable the person to make a payment on a loan, to prevent:

–      foreclosure of a mortgage on the person’s principal place of residence, or

–      exercise by the mortgagee of an express or statutory, power of sale over the person’s principal place of residence

•         to modify the person’s principal place of residence, or vehicle, to accommodate the special needs of the person, or a dependant, arising from severe disability

•         to pay for expenses associated with the person’s palliative care, in the case of impending death, and

•         to pay for expenses associated with a dependant’s palliative care, in the case of impending death, funeral or burial.[4]

It is important to note that while individuals apply to APRA for the early release of superannuation benefits on compassionate grounds, the superannuation fund trustee or retirement savings account provider decides what benefits they will or will not release, subject to the governing rules of the fund.[5]

Administrative arrangements

In assessing applications for the early release of superannuation benefits, APRA is required to adhere to specific assessment criteria in relation to who qualifies as a ‘dependant’ and how an applicant satisfies the grounds for medical treatment, medical transport and payment of a loan relating to their principal place of residence, as specified in the Superannuation Industry (Supervision) Regulations 1994 and the Retirement Savings Accounts Regulations 1997. For example, in the case where money is required for medical treatment, two registered medical practitioners (at least one of whom must be a specialist) must certify that:

•         the medical treatment is necessary to treat a life threatening illness or injury, or alleviate acute, or chronic, pain, or alleviate an acute, or chronic, mental disturbance, and

•         the treatment is not readily available to the person, or the dependant, through the public health system.[6]

An applicant not satisfied with APRA’s decision may request an internal review by an independent APRA delegate or an external review of the process by the Commonwealth Ombudsman.[7]

The number of applications received and approved and average and total amounts approved for release over the period 2005–06 to 2010–11 is set out in table 1. In 2009–10 (the latest year for which complete data are available) APRA received more than 16 000 applications for the early release of superannuation benefits and approved more than 10 500 claims in part or in full.[8]

While APRA is responsible for the administration of applications for the early release of superannuation on compassionate grounds, Medicare Australia has been managing these claims since February 2011 under delegation from APRA.[9] There is no public information about the terms of this delegation, including the amount of funding transferred to Medicare Australia to enable it to perform this task.

Table 1: Early release of superannuation benefits, 2005–06 to 2010–11

2005–06

2006–07

2007–08

2008–09

2009–10

2010–11

Number of applications received

15 027

18 245

20 524

17 918

16 331

not available

Applications approved in part or full

12 754

15 412

14 947

11 776

10 539

not available

Approved for release
($ ‘000)

120 842

156 905

173 602

144 739

111 122

more than
$150 000

Average amount released per application ($)

9475

10 181

11 615

12 291

10 544

11 316

Sources: Australian Prudential Regulation Authority (APRA), Annual Report 2009–10, Melbourne, APRA, 2010, p. 24, viewed 13 July 2011, http://www.apra.gov.au/AboutAPRA/Annual-Report-2010.cfm; B Shorten MP (Assistant Treasurer and Minister for Financial Services and Superannuation), Transfer of the administration of early release of superannuation on compassionate grounds, media release, no. 103, 7 July 2011, viewed 7 July 2011, http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2011/103.htm&pageID=003&min=brs&Year=&DocType

In recent years Medicare Australia has been responsible for administering a range of non-health related programs including the LPG vehicle scheme on behalf of the Department of Innovation, Industry, Science and Research, the home insulation program on behalf of the Department of Climate Change and Energy Efficiency, and the Department of the Environment, Water, Heritage and the Arts and the family assistance program on behalf of the Department of Families, Housing, Community Services and Indigenous Affairs.[10] Medicare Australia also assumed, from July 2010, responsibility as the small business superannuation clearinghouse, which allows small business employers to pay their superannuation contributions to a single location in one simple electronic transaction.[11]

Basis of policy commitment

There does not appear to have been any public announcement prior to the introduction of the Bill about the transfer of the administration of the early release of superannuation benefits on compassionate grounds from APRA and the Commissioner of Taxation to the Chief Executive Medicare.

The Explanatory Memorandum provides two reasons for the transfer of this function:

•         the administration of the early release of superannuation does not fit well with APRA’s role as prudential regulator of the Australian financial services industry or the Commissioner of Taxation’s role in the general administration of the tax system, and

•         this function would be more appropriately administered by an agency that has other elements of income support and an efficient customer support infrastructure.[12]

The Explanatory Memorandum also notes that the transfer is consistent with the Australian Government’s approach, announced in December 2009, of developing a new service delivery approach.[13] This 2009 announcement[14] related to the integration of Medicare Australia and other human services portfolio agencies within the Department of Human Services and office co-locations.[15]

Committee consideration

The Bill was referred to the Joint Committee on Corporations and Financial Services on 7 July 2011.[16] As at the date of publication, the Committee was considering what action to take with the Bill.[17]

Policy position of non-government parties/independents

Non-government parties and independents have not expressed a position in relation to the Bill.

Position of major interest groups

The peak body for superannuation funds in Australia, the Australian Superannuation Funds Association (ASFA), supports the proposed changes in administrative arrangements.[18]

In expressing support for this measure, the ASFA’s Chief Executive Officer noted that:

ASFA has been pushing the case for more than five years that the regulator is not the appropriate body to administer early release ...  It is a common sense solution for early release to be administered by a body that already has a customer service operation in place, as well as the appropriate systems to assess and deal with claims on compassionate grounds.[19]

Financial implications

Funding to administer the early release of superannuation benefits on compassionate grounds is provided from a levy on the superannuation industry. The industry levy is determined annually by the Minister for Superannuation and Financial Services and is used to cover the costs to the Commonwealth of providing market integrity and consumer protection functions for prudentially regulated institutions.[20]

There is no information provided in APRA’s annual report/s or from other publicly available sources on the revenue raised by the levy on the superannuation and retirement savings account entities for the administration of applications for early release on compassionate grounds.

Medicare Australia includes in its annual report any funding received to administer programs on behalf of another agency. As Medicare Australia has been administering applications for the early release of superannuation on compassionate grounds since February 2011, this information would be expected to be included in its 2010–11 annual report, which is usually tabled in the Parliament in October or November following the financial year to which it relates.

The Explanatory Memorandum for the Bill notes that the proposed arrangements have no financial impact.[21]

Key provisions

The Bill amends three Acts that currently regulate the early release of superannuation benefits on compassionate grounds:

•         Retirement Savings Accounts Act 1997

•         Superannuation Industry (Supervision) Act 1993, and

•         Australian Prudential Regulation Authority Act 1998.

Part 1—Amendments to the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993

Item 1 of Schedule 1 to the Bill amends the Retirement Savings Accounts Act 1997 to retain the existing distribution of responsibilities between the APRA and the Australian Securities and Investments Commission (ASIC) except that the particular function relating to making determinations that an amount of benefits in a retirement savings account may be released on compassionate grounds, is now allocated to the Chief Executive Medicare.[22]

Item 2 defines the term ‘Chief Executive Medicare’ to have the same meaning as in the Human Services (Medicare) Act 1973.[23]

Item 3 amends the definition of the term ‘Regulator’ to include the Chief Executive Medicare but only in relation to the making of determinations that an amount of benefits in a retirement savings account may be released on compassionate grounds.

Item 4 clarifies that the power of the regulator to intervene in proceedings under section 168 cannot be exercised by the Chief Executive Medicare.

Items 5 and 6 clarify that the power of the regulator to grant exemptions from, and make modifications to, certain provisions of the Retirement Savings Accounts Act 1997 and Retirement Savings Accounts Regulations 1997 under section 173 cannot be exercised by the Chief Executive Medicare.

Item 7 inserts a proposed section 198 into the Retirement Savings Accounts Act 1997 to acknowledge expressly that the early release of superannuation benefits on compassionate grounds is an additional function of the Chief Executive Medicare.

Items 8 and 9 amend the Superannuation Industry (Supervision) Act 1993 to change existing distribution of responsibilities between APRA, the Commissioner of Taxation and ASIC so that APRA, the Commission of Taxation and ASIC continue with their existing responsibilities except that the particular function relating to making determinations that an amount of benefits in a superannuation entity may be released on compassionate grounds is now allocated to the Chief Executive Medicare.

Item 10 defines the term ‘Chief Executive Medicare’ to have the same meaning as in the Human Services (Medicare) Act 1973.

Item 11 amends the definition of the term ‘Regulator’ to include the Chief Executive Medicare but only in relation to the making of determinations that an amount of benefits in a retirement savings account may be released on compassionate grounds.

Item 12 clarifies that the power of the regulator to intervene in proceedings under section 320 cannot be exercised by the Chief Executive Medicare.

Items 13 to 15 clarify that the power of the regulator to grant exemptions from, and make modifications to, certain provisions of the Retirement Savings Accounts Act 1997 and the Retirement Savings Accounts Regulations 1997 cannot be exercised by the Chief Executive Medicare.

Item 16 inserts a proposed new section 351 into the Superannuation Industry (Supervision) Act 1993 to acknowledge expressly that the early release of superannuation benefits on compassionate grounds is an additional function of the Chief Executive Medicare.

Part 2—Amendment of the Australian Prudential Regulation Authority Act 1998

Item 17 of Schedule 1 amends subsection 50(1) of the Australian Prudential Regulation Authority Act 1998 to identify separately the Minister’s powers to determine the amount of an industry levy for the costs of administering the function of making determinations about the release of benefits on compassionate grounds from a retirement savings account or APRA-regulated superannuation entity.

Items 18 and 19 insert definitions of ‘retirement savings account’ and ‘superannuation entity’ into subsection 50(b) of the Australian Prudential Regulation Authority Act 1998. The terms are defined by reference to the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993. The definitions are required in the Australian Prudential Regulation Authority Act 1998 as a consequence of the amendment to subsection 50(1) of the Australian Prudential Regulation Authority Act 1998 made by item 17 of Schedule 1 to the Bill.

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ISSN 1328-8091

[1].               Superannuation Industry (Supervision) Regulations 1994, regulation 6.01(2) (Preserved benefits in regulated superannuation funds — before 1 July 1999); Retirement Savings Accounts Regulations 1997, regulation 4.04 (Preserved benefits — before 1 July 1999).

[2].               Superannuation Industry (Supervision) Regulations 1994, Schedule 1 (Conditions of release of benefits); Schedule 2 (Conditions of release and cashing restrictions — preserved benefits and restricted non preserved benefits).

[3].               Ibid.

[4].               Superannuation Industry (Supervision) Regulations 1994, regulation 6.19A (Release of benefits on compassionate grounds); Retirement Savings Accounts Regulations 1997, regulation 4.22A (Release of benefits on compassionate grounds).

[5].               Superannuation Industry (Supervision) Act 1993, section 59.

[6].               Superannuation Industry (Supervision) Regulations 1994, regulation 6.19A (Release of benefits on compassionate grounds).

[7].               Australian Prudential Regulation Authority (APRA), Annual report 2009-10, APRA, 2010, p. 24, viewed 13 July 2011, http://www.apra.gov.au/AboutAPRA/Annual-Report-2010.cfm

[8].               Ibid.

[9].               B Shorten (Assistant Treasurer and Minister for Financial Services and Superannuation), Transfer of the administration of early release of superannuation on compassionate grounds, media release, no. 103, 7 July 2011, viewed 7 July 2011, http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2011/103.htm&pageID=003&min=brs&Year=&DocType

[10].               Medicare Australia, Annual report 2009-10, Medicare Australia, 2010, p. 203, viewed 7 July 2011, http://www.humanservices.gov.au/spw/corporate/publications-and-resources/annual-report/medicare/index.html

[11].               Ibid.

[12].               Explanatory Memorandum, Superannuation Legislation Amendment (Early Release of Superannuation) Bill 2011, p. 6.

[13].               Ibid.

[14].               C Bowen (Minister for Human Services, Minister for Financial Services, Superannuation and Corporate Law), address to the National Press Club, 16 December 2009, viewed 13 July 2011, http://www.chrisbowen.net/media-centre/speeches.do?newsId=2809

[15].               For further information about the integration see P Yeend, Human Services Legislation Amendment Bill 2010, Bills digest, No. 82, 2010–11, Parliamentary Library, Canberra, viewed 11 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2F626310%22

[16].               House of Representatives Selection Committee, Report No. 27, Private Members’ business and referral of bills to committees, House of Representatives, p. 3, viewed 11 August 2011, http://www.aph.gov.au/house/committee/selc/reports/43rd_parliament/report_27.pdf

[17].               Parliamentary Joint Committee on Corporations and Financial Services, ‘Current inquiries’, viewed 11 August 2011, http://www.aph.gov.au/Senate/committee/corporations_ctte/inquiries.htm

[18].               Australian Superannuation Funds Association, Common sense compassion – new arrangements to benefit fund members, media release, 7 July 2011, viewed 11 July 2011, http://www.superannuation.asn.au/mr110707/default.aspx

[19].               Ibid.

[20].               Australian Prudential Regulation Authority Act 1998, subsection 50(1).

[21].               Explanatory Memorandum, p. 3.

[22].               Under the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993 APRA has general responsibility for regulating the prudential framework of superannuation funds and their trustees while ASIC has general responsibility for monitoring, regulating and enforcing corporations law and financial services laws and promoting consumer protection across the financial services and the payments system including financial markets and trustee companies.

[23].               The term ‘Chief Executive Medicare’ is defined in sections 3 and 4 of the Human Services (Medicare) Act 1973 to mean a person who is an SES employee in the Department of Health and Ageing who is specified in a written instrument made by the Secretary of that Department. The person cannot be the Chief Executive Centrelink or the Child Support Registrar.