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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Superannuation Legislation Amendment
Bill 1998
Date Introduced: 3 December 1998
House: House of Representatives
Portfolio: Treasury
Commencement: The Act commences on the day
on which it receives the Royal Assent. The dates on which the
amendments proposed in the various Schedules commence are indicated
in the Main Provisions of this Digest.
The purpose of
this Bill is to make miscellaneous amendments set out in:
-
- Schedule 1 of the Bill to the Bankruptcy
Act 1966 (the Bankruptcy Act)
-
- Schedule 2 of the Bill to the
Superannuation Industry (Supervision) Act 1993 (the SIS
Act), and in
-
- Schedule 3 of the Bill to the
Superannuation (Resolution of Complaints) Act 1993 (the
SRC Act)
to improve the efficiency and effectiveness of
the superannuation supervisory framework.
The regulatory system for financial services
changed on 1 July 1998.
The former Australian Securities Commission
(ASC) was renamed the Australian Securities and Investment
Commission (ASIC) from 1 July 1998. ASIC enforces and administers
the Corporations Law and consumer protection law for investments,
life and general insurance, superannuation and banking (except
lending) throughout Australia.
The Australian Prudential Regulation Authority
(APRA) provides prudential regulation for deposit taking
institutions, life and general insurance companies and larger
superannuation funds.
The Reserve Bank of Australia (RBA) is
responsible for monetary policy and the stability of the financial
system.(1)
The SIS Act provides for the prudential
regulation of the superannuation industry between the Australian
Prudential Regulation Authority (APRA) and the Australian
Securities and Investment Commission (ASIC). These changes which
took effect from 1 July 1998 followed the implementation of the
Wallis Report.(2) The SIS Act regulates the conduct of trustees of
superannuation entities to ensure prudent management of
superannuation fund monies. The monitoring and investigatory powers
of both regulators are to be enhanced by the proposed amendments.
The division of regulation of the superannuation industry between
the two authorities has the prospect of creating grey areas where
responsibility may not be clearly defined. As stated in the Second
Reading Speech,(3) the Bill contains measures to finetune and
clarify the operation of the supervisory framework to assist
trustees in discharging their obligations to fund members.
The SRC Act established the Superannuation
Complaints Tribunal to resolve member complaints about trustee
decisions in a fair, informal and quick manner. The Superannuation
Legislation Amendment (Choice of Superannuation Funds) Bill 1998
will give employees a greater role in the choice of funds to which
their contributions could be directed.(4) Employees will be called
upon to make informed decisions on the basis of disclosures made by
trustees and managers of funds. The Tribunal may be expected to be
called upon to deal with a significant increase in the number of
complaints following the implementation of the choice of funds
proposal. The measures in the Bill are intended to improve the
efficiency and productivity of the Tribunal and to promote public
confidence in the superannuation regime.
This section of the Digest will deal only with
the significant provisions in each Schedule to the Bill. The reader
is referred to the Explanatory Memorandum to the Bill for further
details.
Schedule 1 - Amendment of
the Bankruptcy Act 1966
Uniform treatment of creditors' access to superannuation
funds in the event of bankruptcy of employees
Under the Bankruptcy Act 1966 (the
Bankruptcy Act) any benefits that the bankrupt has in
superannuation is not available to creditors up to the pension
reasonable limit (RBL).(5)
The amendments to the Bankruptcy Act are
intended to ensure that benefits in an exempt public sector
superannuation schemes are treated in the same manner as benefits
in regulated superannuation funds. Proposed
sub-subparagraph 116(2)(d)(iii)(c) inserted to the
Bankruptcy Act by Item 1 of Schedule
1 provides that a member's benefits in an exempt public
sector superannuation scheme are not available to creditors up to
the member's pension RBL in the event of the member's
bankruptcy.
This amendment commences on the date of the
Royal Assent under proposed clause 2(1) of the
Bill.
Schedule 2 - Amendments to the
SIS Act
Amendments in Part 1 of Schedule
2
Commissioner authorised to deal directly with custodian
of fund or trust
The definition of relevant person in subsection
10(1) of the SIS Act is being expanded to include a custodian in
relation to a fund or trust by the insertion of proposed
paragraph 10(1)(e) by Item 1 of
Schedule 2. This will enable the Commissioner to
obtain information relating to superannuation assets directly from
a custodian instead of through the trustee of a fund or trust.
In-house asset rules where there are two or more
employer-sponsors and al least one is unrelated
Part 8 of the SIS Act sets out the rules in
relation to the level of in-house assets of a regulated
superannuation fund. At present, the 'in-house asset ratio' of a
fund must not exceed 10 per cent. Section 74 of the SIS Act sets
out the 'in-house asset ratio' as follows:
cost of the in-house assets of the fund
x 100
cost of all the assets of the fund
An 'in-house asset' is defined in section 71 as
an asset of the fund that is a loan to, or an investment in, an
employer-sponsor of the fund or an associate of the
employer-sponsor.
The rules set out a timetable for a phased
reduction in the ceiling on a fund's permitted 'in-house' assets,
that is, from a limit of ten per cent of total fund assets on a
historical cost basis in 1997-98, to five per cent of total fund
assets on a market value basis by 2001-2002.
Section 72 of the SIS Act sets out how Part 8
applies to a fund which has two or more unrelated employer-sponsors
in the fund. The section provides that unrelated employer-sponsors
are treated separately for the purposes of the in-house asset
rules. For example, for each unrelated employer-sponsor the
in-house asset ratio is calculated by dividing the cost of the
in-house assets in the employer-sponsor or an associate by the cost
of the total fund assets multiplied by 100. The in-house asset
ratio in relation to each unrelated employer-sponsor must not
exceed ten per cent.
However, there is no provision at present for
the separate treatment of groups of unrelated standard
employer-sponsors in section 72. Item 7 of
Schedule 2 repeals section 72 and substitutes
proposed section 72 to provide for groups of
unrelated standard employer-sponsors as well. The reader is
referred to the Explanatory Memorandum for a detailed explanation
of the proposed provisions and an example illustrating how in
consequence groups of unrelated employer sponsors would be treated
in the same way as individual unrelated employer-sponsors.(6)
Modification of in-house asset rules for defined benefit
funds
As mentioned above, Division 3 of Part 8 of the
SIS Act sets out restrictions on the ability of trustees to make
loans to, or investments in, an employer-sponsor of the fund.
Item 9 inserts proposed Division
3A to set out the limits on in-house assets of certain
defined benefit funds which will enable them to hold their existing
in-house assets and not have to sell them in order to comply with
the phased reduction of in-house assets under Division 3. The
reader is referred to the Explanatory Memorandum for the conditions
that must be satisfied under proposed sections 83A
to 83E for proposed Division 3A
to apply, as well as an illustrative example.(7)
Contractual rights of employer-sponsor to be protected
to comply with paragraph 51(xxxi) of the Constitution
There is currently a general prohibition under
subsection 117(3) on trustees of standard employer-sponsored funds
paying an amount, or permitting an amount to be paid out, to a
standard employer-sponsor except as provided for in section 117.
The trustee's right to effect these retentions under this provision
overrides a standard employer-sponsor's contractual right to be
paid. This could be constitutionally invalid as amounting to an
'acquisition of property' on unjust terms for the purposes of
paragraph 51(xxxi) of the Constitution. Item 12
which inserts proposed subsection 117(3A)
excludes the application of subsection 117(3) in circumstances
where its application gives rise to the acquisition of property
otherwise than on just terms and the acquisition would be invalid
because of paragraph 51(xxxi) of the Constitution.
Monitoring and investigation powers of Commissioner to
specifically cover former trustees of funds
Division 1 of Part 25 of the SIS Act outlines
the monitoring and investigation powers of the Insurance and
Superannuation Commissioner. It is uncertain whether these powers
apply to the investigating of certain parties, including former
trustees of an entity. Proposed section 253A has
the effect of ensuring that the powers in Part 25 apply to all
relevant persons whether past or present.
Power of Commissioner to gather information and freeze
assets of funds enhanced
Section 264 gives the Commissioner the power to
obtain information and to freeze assets. The power to obtain
information is limited to the trustee or investment manager of a
superannuation entity.
Item 24 repeals subsections
264(2), 264(3) and 264(4) and substitutes proposed
subsections 264(2), 264(3), 264(4) and
264(4A) in the SIS Act
The Commissioner is given the general power
under proposed subsection 264(2) to obtain
information from a relevant person, which definition has been
widened to include a custodian under proposed paragraph
10(1)(e) to be inserted by Item 1 of
Schedule 2.. Proposed subsection
264(3) enables the Commissioner to direct the trustee or
investment manager subject to conditions as specified not to
acquire assets, not to dispose of assets or to deal with assets in
a particular way. The Commissioner is given the authority set out
in proposed subsection 264(3) in relation to a
person who has possession, custody or control of an asset by
proposed subsection 264(4).
The power of the Commissioner under
proposed subsection 264(3) or
(4) to direct a person not to deal in a particular
way in assets of a superannuation entity includes the power to
direct a person not to remove from Australia assets of the entity
that are in Australia under proposed subsection
264(4A).
Commencement of amendments proposed under Part 1 of
Schedule 1
The above amendments as well as the other
amendments proposed in Part 1 of Schedule 2 commence on the date of
the Royal Assent.
Amendments in Part 2 of Schedule
2
Amendment of definition of 'insolvent under
administration'
Section 120 of the SIS Act prevents a
disqualified person from being a trustee of a superannuation
entity, an investment manager of a superannuation entity or a
custodian of a superannuation entity. A person who is an 'insolvent
under administration' is a disqualified person under paragraph
120(1)(b) of the SIS Act.
Under paragraph (d) of the current definition of
'insolvent under administration', in subsection 10(1) of the SIS
Act, a person will be an 'insolvent under administration' for three
years after entering into a deed of assignment or a deed of
arrangement under Part X of the Bankruptcy Act. Similarly, under
paragraph (e) of the current definition of 'insolvent under
administration' a person will be an 'insolvent under
administration' for three years after his or her creditors have
accepted a composition under Part X of the Bankruptcy Act. On the
other hand a discharged bankrupt can immediately take part in the
management of a superannuation entity. Item 34
repeals paragraphs (d) and (e) of the definition of 'insolvent
under administration' and inserts proposed paragraphs
(d), (e) and (f) to the
definition of 'insolvent under administration'.
The definition of 'insolvent under
administration' will include a person:
-
- who has executed a deed of assignment and has not been issued
with a certificate under section 232 of the Bankruptcy Act in
respect of that deed of assignment (proposed paragraphs
(d))
-
- who has executed a deed of arrangement and has not been issued
with a certificate under section 237A of the Bankruptcy Act in
respect of that deed of arrangement (proposed paragraphs
(e)), and
-
- whose creditors have accepted a composition and who has not
been issued with a certificate under section 243A of the Bankruptcy
Act in respect of that composition (proposed paragraphs
(f)).
Payment from employer-sponsored funds to
employer-sponsor
Paragraph 117(5)(d) provides that the trustee of
a standard employer-sponsored fund must give notice to the members
of the fund of an intention to pay an amount to the standard
employer-sponsor in accordance with the governing rules of the
fund. There is no provision concerning the manner in which the
notice is to be given. Proposed subsection 117(5A)
to be inserted by Item 40 requires that the
trustee must be reasonably satisfied that all of the members of the
fund, other than lost members, have been informed about the payment
proposal.
Commencement of amendments proposed under Part 2 of
Schedule 2
The above amendments as well as the other
amendments proposed in Part 2 of Schedule 2 commence 28 days after
the Royal Assent.
Schedule 3- Amendments to the
SRC Act
Responsibilities of Tribunal Chairperson
Proposed section 7A inserted by
Item 1 of Schedule 3 provides
that the Tribunal Chairperson is the executive officer of the
Tribunal and is responsible for the overall operation and
administration of the Tribunal. Proposed subsection
7A(2) requires the Chairperson to monitor the operations
of the Tribunal, allocate its work among the members (including
himself or herself and the Deputy Chairperson) and may establish
written guidelines for the allocation of the work of the
Tribunal.
The amendment by Item 2 to
subsection 9(1) allows the Tribunal to be constituted by either
one, two or three members, selected by the Tribunal Chairperson,
and will enable efficiency gains and increased case through-put to
be achieved.
It is interesting to note that proposed
subsection 9(1A) inserted by Item 3 will
enable the Chairperson to reconstitute the Tribunal dealing with a
complaint before it has made a determination where the Chairperson
considers that the reconstitution is desirable:
-
- to remove any perception of bias, or
-
- to ensure the timely performance or exercise of the Tribunal's
functions or powers.
Commencement of amendments proposed under Schedule
3
The above amendments as well as the other
amendments proposed in Schedule 3 commence on Royal Assent under
proposed subsection 2(1).
As indicated in the Second Reading Speech, the
amendments proposed in the Bill are to ensure that an effective
regulatory regime is in place to enhance the security of members'
benefits. It is part of an ongoing review that is necessary in the
light of experience in implementing the legislation underpinning
the regulatory framework for the supervision of superannuation
entities.
-
- These changes were effected by the Financial Sector Reform
(Amendments and Transitional Provisions) Act 1998 and the
Financial Sector Reform (Consequential Amendments) Act
1998. The reader is referred to Bills Digest No. 194 1997-98
and Bills Digest No. 236 1997-98 for details of the changes that
were effected by these two Acts.
- Financial System Inquiry (FSI) - Final Report (March 1997) -
Chairman Mr Stan Wallis. The FSI Committee and the FSI Report are
popularly referred to as the Wallis Committee and Wallis Report.
- House of Representatives Hansard, 3 December 1998, p. 1288.
- The Reader is referred to the Bills Digest on the
Superannuation Legislation Amendment (Choice of Superannuation
Funds) Bill 1998.
- Section 140ZD of the Income Tax Assessment Act 1936 prescribes
the pension RBL.
- Explanatory Memorandum to the Bill, paragraphs 36 to 44, pp. 8
to 9.
- Explanatory Memorandum to the Bill, paragraphs 22 to 34, pp. 6
to 8.
Bernard Pulle
4 February 1999
Bills Digest Service
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ISSN 1328-8091
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