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Government responds to Productivity Commission report on superannuation legislation.



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C36/02

17 April 2002

Government Responds to Productivity Commission Report on Superannuation Legislation

The Minister for Revenue and Assistant Treasurer, Senator the Hon Helen Coonan, today released the Government's interim response to the Productivity Commission's examination of the Superannuation Industry (Supervision) Act 1993 and certain other superannuation legislation.

Senator Coonan welcomed the report, but said the Federal Government had not agreed with the Commission's recommendation that the Superannuation Complaints Tribunal be abolished:

"The Government supports the retention of the Superannuation Complaints Tribunal," Senator Coonan said. "The Tribunal has widespread industry support in its role as a statutory body."

The Minister noted that a number of the Productivity Commission's recommendations had been the subject of Government election commitments.

This included the recommendation to allow temporary residents to access their superannuation benefits upon permanent departure from Australia, as well as the proposed simplification of the maximum age for contributions to superannuation, which the Government is committed to raising to 75 for personal contributions.

Senator Coonan said the Government had made an extensive response to the report, but did not want to pre-empt the outcomes of other examinations of superannuation which were currently under way, including the activities of the Superannuation Working Group.

The interim Government response is attached.

Media contact: Shaun Anthony (02) 6277 7360 or 0438 690 305

THE GOVERNMENT'S INTERIM RESPONSE TO THE RECOMMENDATIONS CONTAINED IN THE PRODUCTIVITIY COMMISSION REPORT INTO SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993 AND CERTAIN OTHER SUPERANNUATION LEGISLATION

Recommendation 4.1

The net tangible asset requirements for approved trustees should be strengthened through legislative amendment. All approved trustees which use an external custodian should be required to have an amount of net tangible assets (or approved guarantee or combination thereof) that is related to the value of assets under trusteeship, subject to specified minimum

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and maximum amounts in a manner similar to that required under the Managed Investments Act. Approved trustees who do not use custodians should continue to be required to have $5 million net tangible asset (or equivalent) in their own right.

Response

Noted. On 2 October 2001, the Government released an Issues Paper Options for Improving the Safety of Superannuation. A Superannuation Working Group (SWG) was established, chaired by Mr Don Mercer and comprising representatives of the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), and the Treasury, to conduct public consultation on the options in the paper. It is expected to report to Government by the end of March 2002.

The SWG is considering capital adequacy requirements. The Government will consider the issues in this recommendation when it responds to the SWG's recommendations.

Recommendation 4.2

The eligible and liquid asset requirements for approved trustees should be revised so as to require all approved trustees to have sufficient liquidity. The requirement could be cast in terms similar to that required or responsible entities under the Managed Investments Act.

Response

Noted. The SWG is considering capital adequacy requirements. The Government will consider the issues in this recommendation when it responds to the SWG's recommendations.

Recommendation 4.3

All trustees of superannuation entities regulated by APRA should be required to prepare a risk management strategy which addresses the various risk faced in management of funds, such as operational, investment and governance risk. Trustees should be required to obtain approval from APRA and have them audited each year as part of their compliance audits.

Response

Noted. The SWG is examining various risk management tools and operational and governance standards. The Government will consider the issues in this recommendation in its response to the SWG's recommendations.

Recommendation 4.4

APRA, in conjunction with the relevant parties, should review the need to confine the conduct and authorisation of a compliance audit to an approved financial auditor.

Response

Agreed. The Government is committed to ensuring that auditing, be it compliance or financial auditing, satisfies the highest acceptable standards. Any review of current audit provisions would take into account the report, Independence of Australian Company Auditors, by Professor Ian Ramsay, to which the Government is currently preparing its response.

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Recommendation 4.5

APRA, in conjunction with the relevant parties, should review the need to confine certain tasks in respect of accumulation funds to Members or Fellows of the Institute of Actuaries of Australia.

Response

Agreed. The Government supports measures to minimise compliance costs, subject to appropriate standards being maintained.

Recommendation 5.1

Age and employment requirements governing contributor status and compulsory cashing of benefits should be simplified. In particular, consideration should be given to treating members aged between 65 and 70 in the same manner as those under 65, provided there are no substantial implications for taxation revenue. The monitoring of employment status should be clarified with a view to reducing its frequency; alternatively, responsibility to provide the required information should be placed on members, with appropriate penalties for non-compliance.

Response

Noted. At the 2001 election the Government committed to allowing those aged up to 75 to make voluntary contributions to superannuation. The Government continues to monitor the operation of Australia's retirement income system with a view to ensuring that it efficiently provides positive outcomes for all Australians.

In this context, the Government has asked Treasury to review the monitoring requirements for superannuation funds in respect of the 10 hours per week part-time gainful employment test for persons aged between 65 and 70 years.

Recommendation 5.2

The present requirement for trustees to verify the addresses of all lost members should be removed. Protection of lost member accounts with balances in excess of $1,000 should also be removed.

Response

Noted. The Government supports the retention of address verification requirements for lost members and recommends industry make greater use of the ATO's 'SuperMatch' system to reunite lost members with their accounts.

Agreed. The Government agrees that member protection for lost member accounts with balances in excess of $1,000 should be removed.

Recommendation 5.3

Superannuation benefits of bona fide non-resident employees below a specified small limit should be available to non-residents on permanent departure from Australia. Amounts above

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that limit should be subject to a taxation adjustment to offset Australian taxation concessions accorded to superannuation.

Response

Agreed. In its 2001 election statement, A Better Superannuation System , the Government announced its commitment to allowing temporary residents to access their superannuation benefits upon permanent departure from Australia. The measure will commence on 1 July 2002 and will provide departing temporary residents with access to superannuation benefits subject to withholding tax arrangements to claw back tax concessions provided to the benefits.

The measure will not apply to departing residents who retain the option to retire in Australia and access the age pension.

Recommendation 5.4

Requirements governing the content of risk management statements related in investment in derivatives should be simplified in order to reduce compliance costs and to sharpen the prudent management focus of trustees. The present requirements that such statements be prepared by both investment managers and trustees for compliance audit purposes should be reviewed in order to remove any unnecessary duplication.

Response

Noted. The Government agrees that compliance costs should be as low as possible without compromising sound prudential management and that duplication be minimised.

Risk management issues are being considered as part of the SWG's consultations on the issues paper. The Government will consider this recommendation in its response to the SWG's recommendations.

Recommendation 5.5

The requirements for actuarial certificates should be simplified by APRA, in consultation with the Institute of Actuaries of Australia, DFACS and the ATO.

Response

Noted. The Government supports measures to simplify the superannuation legislative framework, where it provides better outcomes for participants and supports APRA reviewing whether actuarial certificates can be simplified. APRA have indicated that they will undertake such a review.

Recommendation 6.1

There should be no expansion of the current list of exempt public sector superannuation schemes. Consideration should be given by governments to the feasibility of closing exempt schemes which are open to new members. Any new schemes should be subject to the SIS legislation.

Response

Disagree. The existing Heads of Government Agreement (HOGA) for Exempt Public Sector Superannuation Schemes (EPSSS) has resulted in a high degree of compliance with the principles of

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the Commonwealth's retirement income policy by EPSSS. Departures from the undertakings in the agreement have been isolated and generally have been a consequence of existing entitlements provided by schemes that were established prior to the SIS legislation or through conflicting provisions in State or Territory legislation.

The Government is of the view that consistency between the operations of EPSSS and SIS regulated schemes is best achieved through ensuring that the undertakings provided in the HOGA accurately reflect the principles of the Commonwealth's retirement income policy and through the continuation of the monitoring arrangements in the agreement. The Department of the Treasury and relevant State and Territory authorities have been considering an addendum to the Agreement to incorporate recent changes to the Commonwealth's retirement income policy and financial regulatory arrangements.

Recommendation 7.1

The SIS legislation should be amended to simplify certain complex requirements which impose significant compliance costs, to increase competition amongst providers of certain services to superannuation entities, and to enhance the effectiveness of capital adequacy and other requirements imposed on trustees. Specific proposals for change are contained in the recommendations given above and in chapters 4 and 5.

Response

Agreed. The Government will continue to monitor the operation of the SIS legislation and the retirement income framework with a view to greater simplification where it provides better outcomes for participants.

Recommendation 7.2

The SIS legislation should be amended to require that trustees of superannuation entities be licensed by APRA subject to specific conditions pertaining to such matters as trustee capacity and the provision of a risk management strategy. The Government and APRA should consult widely on the details of such a licensing arrangement.

Response

Noted. The SWG is currently undertaking a consultation process on, among other things, the licensing of trustees of superannuation funds and on operational and governance standards. The Government will respond to this recommendation in considering its response to the recommendations of the SWG report.

Recommendation 7.3

Duplication between the SIS legislation and the Managed Investment Act should be reviewed jointly by APRA and ASIC. The aim of such a review should be to achieve consistency between the two regimes for their application to providers of retail investment products.

Response

Noted. A review of the Managed Investments Act was recently completed and the Government is currently preparing its response. The Review has examined a number of aspects of the Managed

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Investments Act, which might be expected to influence the Government's response to this recommendation. These include examinations of a range of investor protection measures, dealing with obligations on scheme operators and member rights, as well as matters dealing with various compliance arrangements introduced by the Managed Investments Act.

Recommendation 7.4

APRA should review the possibility of removing the need for life insurance companies which write superannuation business in their statutory funds to comply with the prudential requirements of the SIS Act.

Response

Agreed. The Government supports APRA undertaking such a review, which APRA have agreed to undertake.

Recommendation 8.1

Trustees should provide members with information about the categories of complaints that are excluded by legislation from consideration by the SCT.

Response

Noted. The Government intends to consider this issue more closely in consultation with the SCT.

Recommendation 8.2

The Superannuation (Resolution of Complaints) Act 1993 should be repealed, subject to some transitional arrangements.

All superannuation entities regulated by APRA should be required to join a disputes resolution scheme approved by ASIC. This should be mandated as part of the compliance requirements of those superannuation entities.

Response

Disagree. The Government supports the retention of the Superannuation Complaints Tribunal. There is widespread industry support for the Tribunal, in particular its ongoing role as a statutory body.

Recommendation 8.3

Alternatively, the Superannuation (Resolution of Complaints) Act 1993 should amended for the following purposes:

to enable the Superannuation Complaints Tribunal to implement an incentive based system of charging superannuation entities for its resolution of complaints; ●

to give the Tribunal discretion to extend beyond one year the time limit for its decision on complaints against trustees' actions on disability payments; and ●

to give the Chairperson of the Tribunal discretion to name parties to complaints reviewed by it. ●

Response

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Noted. The Government has already indicated that it intends making legislative amendments to give discretion to the Tribunal, to extend beyond one year, the time limit for its decision on complaints against trustees' actions on disability payments.

In relation to the recommendations dealing with more direct user-charging for SCT services and the naming of parties by the Chairperson, the Government intends to consider the issues more closely in consultation with the SCT.

Recommendation 9.1

Part 23 of the Superannuation Industry (Supervision) Act 1993 should be amended to require the Minister to table in Parliament, as soon as practicable, the Australian Prudential Regulation Authority's advice and the reasons for the Minister's decision on whether to provide financial assistance to funds which suffer significant loss from theft or fraud.

Response

Noted. The SWG is considering elements of Part 23 of the SIS Act and the Government will consider this recommendation in its response to the SWG's recommendations.

Recommendation 9.2

The ATO should publish the cost components of its regulatory supervision of SMSFs to ensure public accountability.

Response

Agreed. Subject to the feasibility of specifically identifying the cost components of the regulatory supervision of SMSFs, the ATO will publish this figure.

Recommendation 9.3

The Occupational Superannuation Standards Regulations Application Act 1992 should be repealed.

Response

Noted. The Government would like to consider this proposal in greater detail prior to making a decision on repealing the Act. It would need to be satisfied that there would be no negative consequential effects flowing from repealing the Act.

© Commonwealth of Australia 2000

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