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Superannuation Legislation Amendment Bill 1997
IRS Publications Office
Ã Copyright Commonwealth of Australia 1998
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Published by the Department of the Parliamentary Library, 1998
Information and Research Services
Law and Bills Digest Group
The Bill mak es a number of largely non-contentious amendments to legislation dealing with the regulation of superannuation. The main changes introduce specific restrictions on ‘in-house’ investments for defined benefit funds; marginally increased investigative powers; and administrative changes to the operation of the Superannuation Complaints Tribunal.
As there is no central theme to the Bill, the Background to the various measures will be discussed below.
Section 116 of the Act defines the property that is divisible amongst the creditors of a bankrupt. The section provides that all of the property of the bankrupt will be available for distribution unless it is excluded under the section. Currently, exclu ded property includes an interest in a regulated superannuation fund and an approved deposit fund up to the person’s reasonable benefit limit. Both terms are defined in the Superannuation Industry (Supervision) Act 1993 (SIS). There is some doubt as to whether an exempt public superannuation scheme (which is defined in SIS to be a fund so declared by regulation) will fall within the exemption as it is not regulated under SIS or its regulations. Item 1 of Schedule 1 will amend section 116 to provide that an interest in an exempt public sector fund is excluded from the divisible property of the bankrupt up to the person’s reasonable benefit limit. Other provisions of Schedule 1 also relate to this exclusion.
SIS and its regulations form the prudential rules for superannuation funds and are designed to provide a regime of member protection. SIS must be complied with for a superannuation fund, other than an excluded fund, to receive concessonal tax treatment on its income (excluded funds are generally those with less than 5 members). SIS is administered by the Insurance and Superannuation Commission (ISC).
Items 1 and 2 of Schedule 2 will amend the definitions of protected document and protected information to enable a larger range of documents and information to be protected and so used by the ISC. The new definitions include documents or information obtained by the ISC as well as the current categories of documents/information given to the ISC or produced under SIS.
Item 12 of Schedule 2 will insert a new Division 3A into SIS that deals with the limits on in-house assets of defined benefit funds. Part 8 of SIS currently contains restrictions on the amount of assets that may be held in-house (an in-house asset is generally a loan to an employer sponsor of the fund). The difficulty in applying the rules to defined benefit funds is that it is often difficult to calculate the value of the ‘assets’ of the fund as they are often unfunded or partially funded and benefits are paid out of the revenue of the organisation as they become due. The most common examples of unfunded defined benefit schemes are public sector schemes where benefits are paid from government revenue as they become due, although there are also private sector defined benefit funds. Failure to properly implement the in-house investment rules can lead to the danger of people’s benefits being at risk should the entity responsible for their payment cease to be able to do so.
Proposed section 83A contains a number of definitions, including those for:
- base amount: 120% of the greater of the funds liabilities in respect of vested benefits or it’s accrued actuarial liabilities;
- defined benefit fund: a public sector fund that is a regulated fund and has at least one defined benefit member or a private sector regulated fund that has at least one defined benefits member and in which some or all of the benefits payable are not paid into, or accumulated by, the fund;
- defined benefit member: where the benefit payable is defined wholly or partly be either, or both, of the member’s salary or averaged salary, or by reference to a specified amount;
- maximum permitted amount: the prescribed percentage applied to the base amount for the fund and any amount by which the market value of the fund’s assets exceeds the base amount;
- prescribed percentage: for 1998-1999 and 1999-2000, 10% and 5% for other years (these are the same as the rates currently set in SIS for other funds).
Proposed section 83C formally limits the maximum in-house assets to the maximum permitted amount. Proposed section 83D restricts a funds ownership of shares in a listed public company that is the employer sponsor or an associate of that company to 5% of the shares in the company. If the value of the in-house assets exceeds the allowable amount at the end of a year, the trustee is not to acquire, or enter into a contract to acquire, further in-house assets until after an actuary has certified that the limit is not exceeded ( proposed section 83E ).
Part 25 of SIS deals with the monitoring and investigation of superannuation entities. Proposed section 253A provides that where a notice is to be given to a relevant person in relation to an entity, it will be sufficient if the notice is given to a person who at any time has been a relevant person in relation to the entity.
Item 27 of Schedule 2 will amend section 264 of SIS to clarify the power of the ISC to require the production of information and freeze assets. The amendments strengthen the ISC’s power.
The definition of an ‘insolvent under administration’ will be amended by item 40 of Schedule 2. The relevant part of the definition deals with people who have made arrangements with creditors and the amendment will provide that they will cease to be an insolvent under administration where the appropriate certificate has been issued under the Bankruptcy Act 1966.
Application: 28 days after Royal Assent.
As noted above, Part 8 of SIS deals with the in-house assets restrictions. Proposed section 69A provides that a sub-fund within a fund is to be treated as a fund for the purpose of the rules where the sub-fund has separately identifiable assets and beneficiaries and the interests of the beneficiaries is determined only by reference to the conditions governing the sub-fund ( item 51 ).
Application: 1 January 1999.
The definition of ‘governing rules’ contained in section 10 of SIS will be amended to include any unwritten rules concerning the fund ( item 52 ).
Application 6 months after Royal Assent.
The Superannuation Complaints Tribunal (SCT) was establis hed to provide a low cost alternative to court proceedings. Six hundred and ninety four complaints were made to SCT in 1996-97, with 38% relating to employer sponsored funds, 30% relating to industry funds, 26% relating to retail funds, 4% relating to public sector funds and 2% relating to other bodies. By the type of complaint, 27% related to disability benefits, 24% to death benefits, 16% to payments, 10% to disclosure and fees, and 22% to other matters. In relation to the 160 determinations made by SCT in 1996-97, 65% were affirmed, 24% set aside or new decisions substituted, 7% remitted, 3% varied and in 1% of cases there was no jurisdiction.(1)
A recent Full Federal Court decision has cast doubt on the ability of the SCT to continue to exercise it’s functions. In Neil Wilkinson, Tony Tuohey & Marita Wall v Clerical Administrative & Related Employees Superannuation Pty Ltd & Ors , delivered on 12 February 1998, a majority of the 3 judges ruled that the SCT was exercising judicial power when making a decision. As it is against the Constitution for an administrative body to exercise judicial power, the case effectively means that the SCT is acting unconstitutionally and its decisions are unenforceable. If this view is upheld, it would also mean that all previous decisions of the Tribunal were equally unenforceable. The options for the government are to appeal to the High Court, establish a court with low costs and the same jurisdiction as SCT, abandon the idea of a low cost body and allow matters to proceed through the current courts or give the matter back to industry to establish a complaints body. The Assistant Treasurer is reported as saying that the government was fully committed to ensuring access to a low cost alternative to the courts and that while the government was determining what course of action to take the SCT would perform an inquiry and conciliatory role.(2) Membership of the SCT is dealt with in section 7 of the Act, which also creates the position of Chairperson of the SCT. Proposed section 7A , which will be inserted into the Act by item 1 of Schedule 3, provides that the Chairperson is to be the executive officer of SCT and responsible for allocating work amongst members of SCT and ensuring that the operation of SCT is as fair, just, economical, informal and quick as practicable.
Section 9 of the Act provides that SCT is to consist of the Chairperson and 2 other members. Item 2 of Schedule 3 provides that the number of members may be between 1 and 3.
Proposed subsection 9(1A) provides that in the time between a tribunal being constituted to hear a particular complaint and its making a determination, the Chairperson may reconstitute the tribunal if satisfied that it is desirable to remove any perception of bias or to ensure the timely performance of SCTs functions ( item 3 of Schedule 3 ).
Section 63 of the Act deals with secrecy. Proposed subsection 63(3B) provides that a member of SCT or its staff must not intentionally disclose to a complaint-handling body information relating to a complaint that discloses personal information relating to an individual unless that individual has consented in writing to the disclosure. The maximum penalty for a breach of this provision is imprisonment for 2 years ( item 20 of Schedule 3 ).
- Superannuation Complaints Tribunal, 1996-97 Annual Report , 36-42.
- The Age , 14 February 1998.