Corporations Amendment Regulations 2004 (No. 5) 2004 No. 145
EXPLANATORY STATEMENT
STATUTORY RULES 2004 No. 145
Issued by authority of the Minister for Revenue
and Assistant
Treasurer
Retirement Savings Accounts Act 1997
Superannuation Industry
(Supervision) Act 1993
Income Tax Assessment Act 1936
Corporations Act
2001
Retirement Savings Accounts Amendment Regulations 2004 (No.
2)
Superannuation Industry (Supervision) Regulations 2004 (No. 4)
Income
Tax Assessment Amendment Regulations 2004 (No. 4)
Corporations Amendment
Regulations 2004 (No. 5)
The purpose of the Regulations is to amend the Retirement Savings Account
Regulations 1997, the Superannuation Industry (Supervision) Regulations
1994, the Income Tax Regulations 1936 and the Corporations
Regulations 2001 in order to implement Government policy initiatives
announced in the 25 February 2004 statement 'A More Flexible and Adaptable
Retirement Income System'.
The announced initiatives broaden the availability of superannuation, provide
more choices in financing retirement income, make superannuation more adaptable
to changing work arrangements and improve the integrity of the system.
The initiatives include: removing the work test for superannuation
contributions before age 65; simplifying the work test and cashing
superannuation benefits rules for those aged 65 to 75; changes to cashing
superannuation benefits for people over 75; increased choice and competition in
the retirement income streams market; and preservation of rolled-over employer
eligible termination payment benefits.
Retirement Savings Accounts Amendment Regulations 2004 (No. 2)
Subsection 200(1) of the Retirement Savings Accounts Act 1997 (the RSA
Act) provides in part that the Governor-General may make regulations
prescribing matters required or permitted by the RSA Act to be prescribed, or
necessary or convenient to be prescribed for carrying out or giving effect to
the RSA Act.
The Retirement Savings Accounts Regulations 1997, among other matters,
set out the contribution and cashing rules for Retirement Savings Account
providers. They also contain the preservation of benefits and the rules
relating to the payment of pensions for the purposes of the RSA Act.
The Regulations remove the requirement for those aged under 65 contributing to
superannuation
to
have worked at least 10 hours in a week at some time in the last two years,
simplify the work test and cashing rules for those aged 65 to 74, change the
rules applying to the cashing of superannuation benefits for people aged over
75 and preserve employer eligible termination payments that are rolled over
into a Retirement Savings Account (RSA). The Regulations also extend the
definition of pension to include a new class of market linked pension.
Details of the Regulations are set out in Attachment A.
Regulations 1 to 3 and Schedule 1 commence on 1 July 2004, Schedule 2 commences
on 1 September 2004 and Schedule 3 commences on 20 September 2004.
Superannuation Industry (Supervision) Amendment Regulations 2004 (No.
4)
Subsection 353(1) of the Superannuation Industry (Supervision) Act 1993
(the SIS Act) provides in part that the Governor-General may make regulations
prescribing matters required or permitted by the SIS Act to be prescribed, or
necessary or convenient to be prescribed for carrying out or giving effect to
the SIS Act.
The Superannuation Industry (Supervision) Regulations 1994, among other
matters, set out the contribution and cashing rules for superannuation
funds. They also contain the rules relating to the preservation of benefits
and the payment of pensions and annuities for the purposes of the SIS Act.
The Regulations remove the requirement for those aged under 65 contributing to
superannuation to have worked at least 10 hours in a week at some time in the
last two years, simplify the work test and cashing rules for those aged 65 to
74, change the rules applying to the cashing of superannuation benefits
for people aged over 75 and preserve employer eligible termination payments
that are rolled over into a superannuation fund.
The Regulations will also extend the definition of pension and annuity to
include a new class of market linked income stream and align certain features
of the existing complying life expectancy income stream with those of the new
market linked income stream.
Details of the Regulations are set out in Attachment B.
Regulations 1 to 3 and Schedule 1 commence on 1 July 2004, Schedule 2 commences
on 1 September 2004 and Schedule 3 commences on 20 September 2004.
Income Tax Amendment Regulations 2004 (No. 4)
Subsection 266(1) of the Income Tax Assessment Act 1936 (the Tax Act)
provides in part that the Governor-General may make regulations not
inconsistent with the Tax Act or the Income Tax Assessment Act 1997 (the
1997 Act) prescribing all matters which by the Tax Act or the 1997 Act are
permitted or required to be prescribed, or which are necessary or convenient to
be prescribed for giving effect to the Tax Act.
The Income Tax Regulations 1936, among other matters, specify the
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pensions and annuities that meet the pension and annuity standards for the
purposes of the Tax Act
. These products are commonly referred to as
complying pensions and annuities. The Regulations ensure that a new class of
market linked income stream is treated as meeting the pension and annuity
standards so that these products will be eligible for assessment against the
higher pension reasonable benefit limit (RBL). The RBL system imposes a
lifetime limit on the amount of superannuation benefits which can attract
concessional tax treatment.
Details of the Regulations are set out in Attachment C.
The Regulations commence on 20 September 2004.
Corporations Amendment Regulations 2004 (No. 5)
Subsection 1364(1) of the Corporations Act 2001 (the Corporations Act)
provides in part that the Governor-General may make regulations prescribing
matters required or permitted by the Corporations Act to be prescribed by
regulations, or necessary or convenient to be prescribed by such regulations
for carrying out or giving effect to the Corporations Act.
The Corporations Regulations 2001 (Corporations Regulations),
among other matters, set out certain requirements in relation to child
superannuation account transactions. The Regulations remove the special
disclosure and cooling-off rights, and decision making rules which relate to
child superannuation accounts view of the intention to cease issuing new child
superannuation accounts.
The Corporations Agreement 2002 requires the Commonwealth to consult members of
the Ministerial Council for Corporations before making amendments to the
Corporations Regulations. The responsible Ministers of the States, the Northern
Territory and the Australian Capital Territory on the Ministerial Council for
Corporations have been consulted regarding the Regulations.
The Corporations Act otherwise specifies no conditions that need to be met
before the power to make the Regulations may be exercised.
The Ministerial Council for Corporations has been consulted about the
Regulations and no adverse comments have been made.
Details of the Regulations are set out in Attachment D.
Regulations 1 to 3 and Schedule 1 commence on 1 July 2004 and regulation 4 and
Schedule 2 commence on 1 October 2004.
The varying start dates allow for the orderly withdrawal of child
superannuation accounts from the market.
REGULATION IMPACT STATEMENT
The Government announced a number of new retirement income initiatives on 25
February 2004 in its statement 'A more flexible and adaptable retirement income
system'. These initiatives include changes to the superannuation contribution
and payment rules, the preservation of rolled over employer eligible
termination payments (ETPs) and to superannuation complying income streams.
Simplifying the work test for contributions and payment of benefits for
members aged 65 to 74
Policy objective
The objective in modifying the work test provisions is to:
• make the test more consistent with current and
future work trends for people in this age group who pay prefer to work on an
irregular part time basis than every week; and
• reduce compliance costs for superannuation
providers associated with administering the current superannuation work tests.
Implementation options
Option 1
Amend the Superannuation Industry (Supervision) Regulations 1993 and Retirement
Savings Accounts Regulations 1997 to change the 10 hours a week work test for
people aged 65 to 74 to an annual test.
Option 2
Remove the work test completely for people below the age of 75.
Option 3
Do not amend the above mentioned legislation and retain the status quo.
Assessment of impacts
Impact group identification
The superannuation industry is required to administer the current 10 hour a
week work test in accordance with circulars issued by the Australian Prudential
Regulation Authority. This requires superannuation providers having to monitor
and verify the employment status of members aged 65 and more at least on a
monthly basis.
The work test also imposes burdens and costs on members over the age of 65 in
responding to superannuation providers' monitoring requirements - for example,
completing an employment status declaration.
The Productivity Commission Review of the Superannuation Industry
(Supervision) Act 1993 and Certain other Superannuation Acts (the
Productivity Commission review) noted that these compliance costs would tend to
be larger for industry and public offer (retail) funds than for corporate funds
and funds with less than 5 members, given the former group's larger member
bases and more distant relationship between trustees and members.
Industry and retail funds account for approximately 44 per cent of
superannuation assets under management and 80 per cent of the total number of
superannuation accounts. Statistics are not available on the proportion of
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people who are over 65 and still have money in a superannuation fund or
Retirement Savings Account (RSA).
Analysis of costs / benefits
Options 1 and 2 should benefit individuals who have more intermittent work
arrangements. Currently a person who only works for three months of the year
must take their benefits out of the system and cannot make superannuation
contributions, as they do not satisfy the 10 hours a week test. These options
accommodate these more flexible work arrangements.
Individuals are also likely to benefit from Option 1 as they would only have to
respond to requests from their superannuation provider about their employment
status once instead of 12 times a year. Option 2 would remove this requirement
completely.
Option 1 should also reduce compliance costs for superannuation providers as
employers will only have to confirm a member's work status annually instead of
monthly. The change to annual monitoring is not expected to impose any new
costs as funds are likely to follow the same procedures they already have in
place to do monthly monitoring.
Option 2 would mean that providers would never have to check the work status of
a member aged 65 to 74 and would completely remove these costs. However,
removing the work test for people aged over 65 is inconsistent with
superannuation's intended role as retirement vehicle. Without a work test
people could abuse the taxation concessions provided to superannuation.
Option 3 provides no benefits to individuals or superannuation providers.
Evidence given to the
Productivity
Commission review indicated that administering the current work test imposes
costs on businesses through the need to monitor and verify the employment
status of members over the age of 65 every month.
As an example of the magnitude of these costs, the Productivity Commission
received evidence from a firm administering 21,000 accounts for members aged
over 65 that the annual cost of monitoring the work status of these members
amounted to around $77,000 per annum.
Other survey evidence presented to the Productivity Commission indicated an
average annual cost of around $12,000 for individual funds associated with
monitoring the current work test for members aged over 65.
Consultation
In 2002, the Government reviewed the operation of the work test for
contributions and compulsory cashing for superannuation fund members aged 65
and over. The Government consulted with the superannuation industry about the
review in general, and certain particular options for reform. Industry
organisations generally expressed support for a move to annual monitoring of
the workforce status of members over 65.
Targeted confidential consultation with the superannuation industry on
implementation issues associated with this measure has taken place following
its announcement. As a result of these consultations the Government agreed to
have a contribution test where a person must have worked at least 40 hours in a
consecutive 30 day period and a payment test of 240 work hours in a financial
year.
Conclusion and recommended option
Option 1 is preferred as it reduces compliance costs for the superannuation
industry. These costs savings would not be attained under Option 3.
Option 2 is not preferred as there is a need to maintain a work test for
integrity purposes.
Compulsory cashing of benefits at age 75
Policy objective
The objective of this measure is to ensure that money saved within the
superannuation system is used for retirement income and not for estate planning
purposes.
Implementation options
Option 1
Amend the Superannuation Industry (Supervision) Regulations 1993 and Retirement
Savings Accounts Regulations 1997 to require people who reach age 75 from 1
July 2004 to start drawing down on their superannuation as either a lump sum or
an income stream.
Option 2
Extend the changes to include anyone who is aged 75 or over as at 1 July
2005.
Option 3
Do not amend the above mentioned legislation and retain the status quo.
Impact group identification
Option 1, will affect anyone who turns 75 from 1 July 2004 onwards and has yet
to access their superannuation benefits. This is expected to only affect a
very small number of individuals each year as the overwhelming majority of
people take their superannuation benefits before they turn age 75. Option 2
would impact on more people as it would also include people who are aged 75 or
over but can currently keep their benefits in a superannuation fund as they
meet the 30 hours a week test.
The superannuation industry is currently required to administer this work test
in accordance with circulars issued by the Australian Prudential Regulation
Authority. This involves superannuation providers frequently monitoring and
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verifying the employment status of members once they reach the age of 75.
Analysis of costs / benefits
Option 1 requires superannuation providers to advise their members they must
commence to take their benefits once they turn 75. This should reduce
administrative costs for superannuation providers compared to the current rules
which require them to determine on a monthly basis if the person had worked at
least 30 hours a week. Under Option 1 they will only have to advise the member
once that they must commence to take their benefits and get the member to
advise them if they wish to take their benefit as an income stream or lump sum.
Superannuation providers will still be required to monitor the employment
status of people who were at least age 75 on 30 June 2004 and remain a member
of the fund. However, the number of people that fall into this category will
reduce over time as people either stop working 30 hours a week or die.
Option 2 would remove the need for ongoing monitoring of the people who were at
least 75 on 30 June 2004 therefore it would reduce costs in relation to these
members compared to Option 1. However, Option 2 removes the member's current
ability to retain their benefits within a superannuation fund or RSA if they
are working 30 hours a week.
There would be no benefits to providers from adopting Option 3 as it retains
the status quo. Option 3 also does not satisfy the objective of the measure
which is to ensure superannuation benefits are used for retirement income
purposes.
Consultation
Consultations prior to the decision making stage in relation to this measure
was not regarded as appropriate as it is an integrity measure.
Targeted confidential consultation with the superannuation industry on
implementation issues associated with this measure has taken place following
its announcement.
Conclusion and recommended option
Option 1 and 2 will reduce compliance costs for the superannuation industry
compared to the current rules. Option 3 would not reduce costs or satisfy the
policy objective.
Option 2 would remove a current right for certain members to maintain benefits
in superannuation. Therefore, Option 1 is preferred.
Preservation of rolled-over employer eligible termination payments
(ETPs)
Policy objective
The policy objective of this measure is to treat employer ETPs (such as a
redundancy benefit) that are rolled over to a superannuation fund or RSA in a
consistent manner as other monies invested in superannuation which must be
preserved. This will ensure superannuation savings are used for their intended
purpose of supporting retirement income.
Implementation options
Option 1
Amend the Superannuation Industry (Supervision) Regulations 1993 and Retirement
Savings Accounts Regulations 1997 to require employer ETPs that are rolled over
into a superannuation fund or RSA from 1 July 2004 to be preserved. This will
mean that people will be unable to withdraw these benefits until they have
reached their preservation age and retired. Part of the purpose of a
redundancy benefit is to provide an employee with a source of money on which to
draw while looking for work. The change would not interfere with this purpose,
as employees would be free to choose whether to take the ETP in cash or roll it
over into superannuation.
Option 2
Extend the changes to anyone who has previously rolled over an employer ETP.
This will mean that that anyone who has ever rolled over an employer ETP, even
before 1 July 2004, cannot access these benefits until preservation age.
Option 3
Do not amend the above mentioned legislation and retain the status quo.
Impact group identification
Option 1 will affect employees who receive an employer ETP from 1 July 2004 and
wishes to roll that benefit over to a superannuation fund. Option 2 would
affect anyone who made a decision to roll over an employer ETP before 1 July
2004.
Options 1 and 2 will require superannuation providers to preserve amounts which
would have previously been unpreserved. Option 3 would have no impact on
individuals or superannuation providers.
Analysis of costs / benefits
Option 1 is expected to simplify the superannuation preservation rules and
reduce compliance costs for providers by avoiding the need for separate
classification of rolled-over employer ETPs. At present, these payments need
to be identified and recorded separately in funds' systems, both for purposes
of reporting member benefits and for future cashing purposes. Under Option 1,
a rolled over employer ETP would be preserved like a new contribution so the
provider would follow their current guidelines. Therefore, it is not expected
to impose additional costs on providers.
Option 2 may impose additional upfront costs on providers as they would have to
distinguish between unpreserved benefits that relate to employer ETPs and those
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which don't. It would also retrospectively disadvantage people who have
already rolled over their employer ETP on the basis they could access these
benefits at any time.
Option 3 does not meet the policy objective to ensure consistency between
employer ETPs and other monies invested in superannuation.
Consultation
Consultations prior to the decision making stage in relation to this measure
was not regarded as appropriate as it is an integrity measure.
Targeted confidential consultation with the superannuation industry on
implementation issues associated with this measure has taken place following
its announcement.
Conclusion and recommended option
Option 1 and 2 are the only options which satisfy the policy objective to
ensure superannuation savings are used for their intended purpose of supporting
retirement income. Therefore, Option 3 is not preferred.
Option 2 has the potential to impose additional costs on superannuation
providers as well as retrospectively disadvantaging individuals. Therefore,
Option 1 is preferred.
Changes to retirement income streams
Policy objective
The objectives of this measure are to improve the operation of the complying
income streams market by:
• providing consumers with increased choice of income
stream products and
• improving competition among income stream
providers.
Implementation options
Option 1
Amend the Superannuation Industry (Supervision) Regulations 1993, Retirement
Savings Accounts Regulations 1997 and Income Tax Regulations 1936 to introduce
a new class of market linked complying income stream which will qualify for the
higher pension Reasonable Benefit Limit (RBL) and an exemption from the social
security assets test.
The new market linked income stream (MLIS) will be similar in most respects to
existing complying income streams, except that income payments will not be
guaranteed. The MLIS is designed so that a person will fully exhaust the
capital invested in the income stream over the term of the product.
The term of the new MLIS will be based on the purchaser's life expectancy at
the age at which they purchase the product, with an option to set the term
within a range between life expectancy at the age of purchase and life
expectancy at an age 5 years younger. In the case of a couple, there will
also be an option to choose a term based on the longer of the two spouses' life
expectancies.
This Option will also align certain features of the existing complying life
expectancy income stream with those of the market linked income stream.
Aligning the rules relating to term and purchase age for the existing complying
life expectancy income stream with those for the new MLIS will enable the two
products to compete on an even footing, and will allow retirees to more readily
compare the two products on the basis of their fundamental characteristics.
Finally, this Option will increase the maximum guarantee period for complying
lifetime income streams to the lesser of life expectancy or 20 years. This
will allow lifetime products to compete more effectively with life expectancy
products (including the MLIS) by offering annuitants a similar level of
protection against forfeiture of capital in the event of early death.
Option 2
Do not amend the above mentioned legislation and retain the status quo.
Impact group identification
The above changes to the regulation of complying income streams will impact on
income stream providers (including superannuation funds, RSAs and annuity
providers such as life insurance companies), retirees and the Government.
Analysis of costs / benefits
Income stream providers
Because of the current restriction that payments from complying income streams
must be guaranteed many superannuation funds are unable to provide a complying
income stream. Removing this restriction will open up the market to more
participants.
The need to provide a guarantee has also meant that income stream providers
invest premiums for these products in low risk, low yielding fixed interest
securities. This creates a distortion in the investment market which prevents
investments from being allocated across asset classes in the way they would be
in the absence of the restriction.
Removing this restriction will allow a new class of market linked complying
income stream to be offered. This will increase competition between providers
of complying income streams and lead to a more efficient allocation of pension
investments across different asset classes (eg fixed interest, equities,
property).
While the MLIS will be a new product with payment rules which are different
from other income stream products, providers will be free to choose whether to
offer the new product. Most retail or public offer pension providers currently
offer account-based income stream products in the form of allocated income
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streams. The regulatory arrangements applying to MLIS will be similar or the
same as allocated income streams in some key respects.
• The capital value of a MLIS for tax purposes will
be determined in the same way as an allocated pension - that is, with reference
to the products purchase price.
• An income tax exemption will apply to earnings on a
fund's assets supporting a MLIS in the same way that it does for allocated
income streams and for pensions and annuities generally.
• The drawdown, or payment arrangements for the MLIS
involve a single annual drawdown amount based on the product's account balance
and a set of prescribed payment factors. These drawdown rules are relatively
straightforward and are similar to those which currently apply to allocated
income streams, with the exception that allocated products allow some
discretion to choose annual income between minimum and maximum limits.
Given these similarities, the system changes required for providers to
accommodate the new MLIS should be minimal. It is envisaged that the new
product will be offered by public offer superannuation funds, as well as some
industry and self-managed superannuation funds. Life offices may also choose
to offer the MLIS alongside their existing guaranteed income stream products.
Changing the term rules that apply to existing complying life expectancy income
streams will require providers of these products to offer the same term options
as will be available for the MLIS. Given that providers of life expectancy
products are currently required to offer a choice between a term of 15 years
and a term equal to the purchaser's life expectancy (if that is greater than 15
years), the required changes to systems should not be significant.
Removing the restriction on the age at which complying life expectancy products
can be purchased will also remove any costs for income stream providers
associated with verifying the age of purchasers.
Increasing the maximum guarantee period for complying lifetime income streams
will not disadvantage providers as they will have the choice of whether to
offer the longer guarantee period or not. In any case, providers of lifetime
pensions will tend to offset the impact of longer guarantee periods through
lower income payments. The change should allow lifetime income streams to
compete more effectively with life expectancy products (including the MLIS) by
offering annuitants a similar level of protection against loss of capital in
the event of early death (life expectancy income stream products allow a return
of remaining capital to the recipient's estate if they die before the term of
the product has expired).
Retirees
Because MLIS will be supported by higher yielding diversified assets rather
than low yielding fixed interest assets, investment returns from market linked
income streams will tend to be higher on average than for existing complying
income streams. However, in any one year investment returns from a MLIS could
fall below those from existing complying products, and in some years could be
negative.
Compared with existing complying products, market linked income streams involve
a transfer of investment risk from the product provider to the retiree.
Purchasers can choose whether to accept this higher risk as a trade off for
potentially higher investment returns over time.
The risk profile of a MLIS will depend, as it does with allocated income
streams, on the composition of the underlying asset portfolio. Providers of
allocated income streams generally offer a range of different asset
compositions with different risk profiles. It is expected that similar choices
will be offered in respect of the MLIS. Purchasers should therefore be able to
choose an asset mix which is best suited to their individual circumstances and
risk tolerance.
Currently, individuals entering retirement can be forced to sell out of
diversified assets when markets are low if they choose to move into a complying
income stream. Where this occurs, retirees may not benefit from any subsequent
gains when the investment market recovers. Market linked income streams will
allow retirees to maintain their allocation of investments between asset
classes when moving from the accumulation phase to the drawdown phase of
superannuation.
Under the current rules, the maximum term available for complying life
expectancy products is the purchaser's life expectancy at age of purchase.
Aligning the term rules for existing complying life expectancy income stream
with those of the new market linked income stream will give retirees the option
of choosing a longer term. Given that 50 per cent of people on average will
outlive their statistically estimated life expectancy, the option of a longer
term will offer a greater degree of income certainty for retirees who expect to
live longer than the average.
Aligning the term rules for the guaranteed and market linked life expectancy
products will also enable retirees to more readily compare the two products on
the basis of their fundamental characteristics.
Increasing the maximum guarantee period for lifetime products will benefit
consumers by allowing them to choose a lifetime income stream which reduces the
potential for forfeiture of capital in the event of early death.
Government
Compared with existing complying income stream products, market linked income
streams will involve some degree of volatility in income. Through the
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operation of the social security income test this will tend to translate into
some volatility in age pension payments at the margin. This volatility already
occurs to some extent with allocated pensions as income can fluctuate according
to the market value of the investments making up the account balance.
The changes to retirement income streams outlined above, in conjunction with
the changes to the social security assets test treatment of complying income
streams, are expected to lead to an overall budgetary saving.
Consultation
Targeted confidential consultation with the superannuation industry on
implementation issues associated with this measure has taken place following
its announcement.
Issues relating to the MLIS were canvassed in the Senate Select Committee on
Superannuation's report "Superannuation and standards of living in retirement"
and "Planning for Retirement". A number of submissions to these inquiries
called for an extension of complying status to a MLIS type product.
Conclusion and recommended option
The measures relating to retirement income streams are designed to improve the
operation of the complying income streams market, including by removing a
specific distortion which prevents pension investments from being allocated in
an efficient way across asset classes and restricts competition among income
stream providers. Option 1 is considered to be the only suitable method
for achieving this objective.
Details of the Retirement Savings Accounts
Amendment Regulations 2004 (No. 2)
Regulation 1 specifies the name of the regulations as the Retirement
Savings Accounts Amendment Regulations 2004 (No. 2).
Regulation 2 provides that regulations 1 to 3 and Schedule 1 commence on
1 July 2004, Schedule 2 commences on 1 September 2004 and Schedule 3
commences on 20 September 2004. The commencement dates for Schedules 1 and 3
reflect the Government's announcement of 25 February 2004. The commencement
date for Schedule 2 will provide for a period of time in which RSA institutions
can issue new child accounts before they are superseded by the removal of the
work test for superannuation contributions before age 65.
Regulation 3 provides that Schedule 1, Schedule 2 and Schedule 3 amend
the Retirement Savings Accounts Regulations 1997 (the RSA
Regulations).
Schedule 1 - Amendments commencing you on 1 July 2004
Removing the work test for superannuation contributions before age
65
Items 1, 2, 9, 10 and 11
Subregulation 5.03(1) of the RSA Regulations sets out the rules under which an
RSA institution may accept contributions made in respect of an RSA holder under
the age of 65. Generally an RSA holder under the age of 65 must have worked at
least 10 hours in a week sometime in the past two years in order to make
superannuation contributions.
The Regulations will remove the work test rules thereby allowing anyone under
the age of 65 to make a superannuation contribution. This will mean that the
exemptions to the work test rules are no longer necessary. These include
eligible spouse contributions; child contributions; and contributions for
people on authorised leave.
The Regulations will amend subregulation 1.03(1) to insert a definition of a
'child' and a definition of 'child contributions' (Items 1 and 2).
Definitions of a 'child' and 'child contributions' will still be necessary
during the period that child accounts are withdrawn from the market place. The
existing definition of 'child contributions' refers to the definition of 'child
contributions' in paragraph 5.03(1)(d). The definition of 'child' is in
existing subregulation 5.03(6). These provisions will also be amended to remove
these definitions.
The Regulations will insert a new subregulation 5.03(1) into the RSA
Regulations allowing anyone under the age of 65 to contribute to
superannuation (Item 9).
The Regulations will omit subregulation 5.03(2) because as a consequence of the
new subregulation 5.03(1) a definition of 'authorised leave' will no longer be
necessary (Item 10).
The Regulations will remove the reference to paragraph 5.03(1)(d) in
subregulation 5.03(2A) as a consequence of new subregulation 5.03(1) (Item
11).
Simplifying the work test and cashing rules for those aged 65 to
74
Items 4, 6, 8, 12, 13 and 14
The Regulations will simplify the rules relating to contributions made by RSA
holders aged 65 to 74 and the cashing of their benefits from an RSA
institution. The amendments reflect the changing work arrangements for people
in this age group.
Currently, an individual aged 65 to 74 must work at least 10 hours in a week to
be eligible to make contributions. Where an RSA holder fails this test the RSA
institution must pay out the individual's benefits. This is considered too
stringent and does not accommodate flexible working arrangements, which are
likely to be preferred by mature workers.
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The Regulations will amend subparagraphs 4.24(1)(a)(ii) and 4.24(2)(a)(ii)
(Items 4 and 6) to simplify the cashing rules for
individuals aged 65 to 74. An individual will only be required to
have worked on a part-time equivalent level in order to prevent both the
member-financed benefit and the employer-financed benefit from being cashed out
from the Retirement Savings Account (RSA).
The Regulations will insert a new definition of 'part-time equivalent level'
into the RSA Regulations (Item 8). To be gainfully employed on a
part-time equivalent level an individual must work at least 240 hours during
the most recent financial year.
The Regulations will amend paragraphs 5.03(3)(b) and 5.03(4)(b)
(Items 12 and 13) to simplify the contribution rules for
contributions made into RSA institutions in respect of an RSA holder aged 65 to
69 and 70 to 74 respectively.
The Regulations will amend paragraph 5.03(3)(b) (Item 12) so that an RSA
institution may accept contributions in respect of an RSA holder aged
65 to 69 years if the RSA holder has been gainfully employed on
at least a part-time basis during the financial year in which the contribution
is made.
The Regulations will amend paragraph 5.03(4)(b) (Item 13) so that
an RSA institution may accept contributions made by an RSA holder aged 70 to 74
years for their benefit if the RSA holder has been gainfully employed on a
part-time basis in the financial year in which the contribution is made.
The Regulations will insert a new definition of 'part-time basis' into the RSA
Regulations (Item 14) in relation the Regulations and remove the
definition of 'child' contained in subregulation 5.03(6) of the RSA
Regulations.
An individual will be gainfully employed on a part-time basis where they work
at least 40 hours in a period of not more than 30 consecutive days in that
financial year. For example, a person who works 40 hours in a fortnight will be
able to make superannuation contributions for the rest of the financial year.
Changes to cashing superannuation benefits for people aged over
75
Items 5 and 7
Substantial tax concessions are provided to superannuation to encourage people
to save for their retirement. In order to ensure that superannuation is not
specifically used for estate planning the Regulations will require RSA
institutions to commence paying benefits to an RSA holder as soon as
practicable after the RSA holder reaches the age of 75. RSA institutions will
not need to pay post-65 employer-financed benefits to RSA holders over the age
of 75 who still receive superannuation contributions under an industrial award.
The Regulations will substitute paragraphs 4.24(1)(b) and (c), and insert a new
paragraph (d) to require the cashing of an RSA holder's benefits, not including
post-65 employer-financed benefits where any of the following events occur
(Item 5):
- the RSA holder reached age 75 on 30 June 2004 and
has not been gainfully employed at least 30 hours per week since 1 July 2004;
- the RSA holder reached age 75 and the previous
condition does not apply;
- the RSA holder dies.
The Regulations will omit subparagraph 4.24(2)(b)(ii) of the RSA Regulations
(Item 7). An RSA institution will have to cash a member's post-65
employer-financed benefit irrespective of the RSA holder's employment status
unless the employment results in mandated employment contributions.
Preservation of rolled-over employer eligible termination payment
benefits
Item 3
Regulation 4.13 specifies the benefits in an RSA which are classified as
unrestricted non-preserved benefits. These benefits are not preserved and can
be withdrawn from the superannuation system at any time.
The definition of unrestricted non-preserved benefits includes employer
eligible termination payments (ETPs) that are rolled over into an RSA. The
Regulations will amend this definition so that only employer ETPs that are
received by an RSA institution before 1 July 2004 are unrestricted
non-preserved benefits. Employer ETPs which are received by an RSA institution
after this date will be preserved.
Schedule 2 - Amendments commencing on 1 September 2004
Items 1 to 3
The Regulations will remove the decision making provisions, transitional
provisions and application provisions specific to child superannuation
accounts.
The Regulations will allow anyone under the age of 65 to contribute to
superannuation from 1 July 2004. It will therefore no longer be necessary to
specifically allow for the issuing of new child superannuation accounts.
The Regulations will remove all of the provisions in the RSA Regulations which
give effect to child superannuation accounts. These provisions include limits
on the amount of the contribution that can be made on behalf of a child,
decision making rules, issue of child accounts and applications to open a child
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superannuation account.
The changes will commence on 1 September 2004. This is consistent with the
transitional rules in the Corporations Amendment Regulations 2004 (No.
), which allow funds to issue child accounts until 31 August 2004.
The Regulations will omit the definition of 'child', 'child account' and 'child
contributions' from subregulation 1.03(1) of the RSA Regulations (Item
1). Contributions on behalf of a child into an RSA will not be treated any
differently to other contributions made by those under the age of 65. These
definitions are no longer necessary as a result of the Regulation to omit Part
2A from the RSA Regulations.
The Regulations will omit Part 2A from the RSA Regulations (Item 2).
This part sets out the decision making provisions, application provisions and
issue of child superannuation accounts.
The Regulations will omit subregulation 5.03(2A) (Item 3). Subregulation
5.03(2A) restricts the amount of a superannuation contributions which can be
made into an RSA on behalf of a child in a three year period. There will no
longer be restrictions on the amount of superannuation contributions which can
be made on behalf of a child.
Schedule 3 - Amendments commencing on 20 September 2004
The Government is introducing a new class of market linked complying income
stream with effect from 20 September 2004. Complying income streams are
those products which meet the pension and annuity standards contained in the
Income Tax Regulations 1936. The Regulations contained in this Schedule
will expand the definition of pension in the RSA Regulations to include the new
product and to enable it to be offered by RSA providers.
Items 1 and 2
The Regulations will add a definition of life expectancy and a definition of a
market linked pension to the RSA Regulations. A definition of life expectancy
is needed for the purpose of determining the term over which the new market
linked pension will be payable.
Item 3
The Regulations will insert a reference to new subregulation 1.07(3A) (see Item
4, below) to specify that a benefit in the form of a market linked pension
meets the definition of a pension for purposes of the Retirement Savings
Accounts Act 1997.
Item 4
This item will insert a new subregulation 1.07(3A) to set out the minimum
requirements which will need to be satisfied for a pension to meet the
standards of a market linked pension. These requirements include the term of
the pension, the payment rules and the restrictions placed on the commutation
and transfer of the pension.
Individuals who purchase a market linked pension will be able to choose the
term of the pension from within a specified range. The term will need to be a
period of whole years no less than the primary beneficiary's life expectancy on
the commencement day of the pension (rounded up to the next whole number) and
no greater than the primary beneficiary's life expectancy on the commencement
day calculated as if they were 5 years younger (rounded up to the next
whole number). For example, a male aged 65 could choose a term of a whole
number of years no less than their life expectancy at age 65 and no greater
than their life expectancy at age 60.
In the case of a pension that reverts to a spouse on the death of the primary
beneficiary, there will be a further option to base the term on the longer of
the two spouses' life expectancies. For example, a 65 year old male with
a 60 year old spouse will have the option of basing the term of the
pension on the younger spouse's life expectancy. Under this option, the term
will need to be a period of whole years no less than the spouse's life
expectancy on the commencement day of the pension (rounded up to the next whole
number) and no greater than the spouse's life expectancy on the commencement
day calculated as if the spouse were 5 years younger (rounded up to the
next whole number).
Payments from a market linked pension will need to be made at least annually
and in accordance with the payment rules contained in Schedule 4 of the
Regulations. However, where the pension commences on or after 1 June in a
financial year, a payment will not have to be made in the first year. The
payment rules for market linked pensions are described under Item 12.
The Regulations will stipulate that a market linked pension can only be
commuted in specified circumstances. One of the conditions will allow
commutation of a market linked pension on the death of the primary or
reversionary beneficiary where a lump sum is paid to either person's legal
personal representative, to one or more of their dependants or, where
reasonable enquiries have failed to identify either a legal personal
representative or a dependant, to another individual. This commutation
condition will also allow payment of a new pension on the death of the primary
or reversionary beneficiary to a dependant of either person. This will mean
that, on the death of the recipient of a market linked pension, the remaining
account balance can be paid out in lump sum or pension form.
The ability to commute a market linked pension on death will be restricted in
cases where the term of the pension is based on the longer of two spouses' life
expectancies. In such cases, the Regulations will allow commutation on death
(whether to pay a lump sum or a pension) only after the death of both spouses.
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Commutation will also be permitted: within six months of the market linked
pension commencing (provided that it was not funded from the commutation of
another complying income stream); to purchase another complying income stream;
to pay a superannuation contributions surcharge; or to give effect to a payment
split under family law.
The Regulations will include a rule preventing a market linked pension from
having a residual capital value. This rule will not interfere with the ability
to commute a market linked pension on the death of the primary beneficiary or a
reversionary beneficiary.
A market linked pension cannot be transferred to another person except on the
death of the primary beneficiary or a reversionary beneficiary to one of the
dependants of the deceased person or to the deceased person's legal personal
representative.
Under the Income Tax Regulations 1936, the life tables which are used
for pensions and annuities commencing after 1 July 1993 are the Australian
Life Tables that are most recently published before the year in which the
income stream first commences to be payable. The life tables which are
currently in use are the Australian Life Tables 1995-97. While new life tables
are expected to be published by the Australian Government Actuary before
20 September 2004, these tables will therefore only come into effect on 1
January 2005.
The Regulations will insert a transitional provision which will give RSA
institutions the choice of using either the most recently published life tables
or the 1995-97 life tables for pensions which commence between 20 September
2004 and 31 December 2004.
The Regulations will require that the terms and conditions of an RSA market
linked pension must also meet the conditions for commutation set out in
Regulation 1.08. These conditions are discussed under Item 5, below.
Item 5
The Regulations will insert a new regulation 1.08 which will set out a minimum
payment condition that must be satisfied prior to the commutation of a market
linked pension. The condition will require that the pension must pay an amount,
in the financial year in which the commutation is to take place, of at least
the pro-rata of the annual payment amount that will be required under Schedule
4 of the Regulations.
The minimum payment condition in Regulation 1.08 will not apply to a
commutation resulting from the death of a pensioner or a reversionary
pensioner. Similarly, it will not apply to a commutation for the sole purpose
of paying a superannuation contributions surcharge, giving effect to an
entitlement of a non member spouse under a payment split or meeting the
rights of a client to return a financial product under the cooling-off period
provisions in the Corporations Act 2001.
The formula for calculating the pro-rata minimum amount will be as follows.
annual amount × days in payment period ÷ days in financial
year
The annual amount for the pro-rata calculation will be worked out in accordance
with the formula for determining annual payment amounts in clause 1 of Schedule
4 of the Regulations and rounded to the nearest ten dollars.
For market linked pensions that commence in the year in which they are
commuted, the pro-rata amount will be calculated using the number of days in
the payment period from the commencement day of the pension until the day on
which the commutation takes place. For commutations in subsequent years, the
pro-rata amount will be calculated using the number of days in the payment
period from 1 July in the financial year in which the commutation is to take
place until the day on which the commutation takes place. The financial year
used for the purposes of the pro-rata calculation will be the year in which the
commutation takes place.
Example: Market linked pension commuted in a financial year subsequent
to the year in which the pension commences.
Stephanie commences a market linked pension on 1 July 2005 at age 63. The term
of the pension is 23 years. On 1 July 2010, the remaining term of the pension
is 18 years and the pension account balance is $150,000. On 1 October
2010, after making a pension payment of $2,000, Stephanie decides to commute
the pension in order to purchase another market linked product with a different
provider. The pro-rata calculation is as follows:
The annual payment amount calculated under Schedule 4 is
($150,000 ÷ 13.19) = $11,370. There are 93 days between 1 July
and 1 October (inclusive) and 2010 is not a leap year, so the pro-rata
minimum amount is $11,370 × 93 ÷ 365 = $2,897.01. Subtracting the
$2,000 payment already made, the pension would still need to pay Stephanie an
amount of $897.01 before the commutation.
Items 6 to 11
Family law provides for couples to split their superannuation in the event of a
marriage breakdown. The RSA Regulations contain operating standards for
providers in relation to family law superannuation splitting. Given that
market linked pensions and allocated pensions are both account based products,
the Regulations will ensure that market linked pensions receive the same
treatment as allocated pensions in this regard.
Item 12
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The Regulations will require that annual payments from a market linked pension
be determined in accordance with the payment rules set down in Schedule 4 to
the RSA Regulations. This item will insert new Schedule 4.
The annual payment amount from a market linked pension will be determined under
the formula contained in clause 1 of Schedule 4. Under this formula, the
payment amount will be calculated by dividing the account balance of the
pension on 1 July of the relevant year (or the commencement day in the case of
the first year of the pension where that is a day other than 1 July) by the
payment factor in Column 3 of the Table that corresponds to the remaining term
of the pension expressed in whole years in Column 2.
Clause 5 will contain a rounding rule for determining the number of whole years
remaining on the term of a pension. Under this rule, the remaining term of a
pension on each 1 July will be rounded to a whole number of years according to
whether the pension commenced before 1 January, or on or after 1 January in a
financial year.
• For pensions commencing before 1 January, the
remaining term on each 1 July will be rounded down to the nearest whole
number of years. Where the remaining term rounds to zero, a payment factor of
1 will be used to calculate the final payment from the pension.
• For pensions commencing on or after 1 January, the
remaining term on each 1 July will be rounded up to the nearest whole
number of years.
The effect of this rule is shown in the following example.
Monica commences a market linked pension on 1 April 2005 with a term of
23 years. On 1 July 2005 (the next occurring 1 July), the remaining term
of the pension is 22 years and 9 months. Because the pension commenced after
1 January in the financial year, the remaining term for purposes of Column
2 is rounded up to 23 years. For each subsequent 1 July, the remaining term of
the pension is also rounded up to the nearest whole number of years.
Under clause 4, the annual payment amount calculated under clause 1 will be
rounded to the nearest ten dollars. Where the calculation results in a figure
divisible by five, the normal mathematical convention of rounding up will
apply.
For example, the account balance of the pension on 1 July 2005 in the
preceding example is $200,000. The payment factor corresponding to the
remaining term (in whole years) of 23 years is 15.62. (This is the same
payment factor that would be used to calculate the pro rata payment for the
first year of the pension.) The required annual payment for the financial year
2005-06 is therefore $200,000 ÷ 15.62 = $12,800.
In cases where a market linked pension commences on a day other than 1 July,
clause 6 will require the annual payment amount for the first year of the
pension to be applied proportionately to the number of days remaining in the
financial year that include and follow the commencement day.
For pensions commencing on a day other than 1 July, the rules in clause 7 will
provide some payment flexibility towards the end of the term of a pension to
avoid any lumpiness in payments that would otherwise arise. These rules will
apply where a payment factor of 1 is required to be used for the first time in
the annual payment calculation, and the actual remaining term of the pension on
1 July of that year is a period other than one year. In these cases, the
payment rules in clause 1 can be varied to allow the remaining account balance
to be paid out over a period of either:
• the remaining term of the pension (where that is
greater than 12 months); or
• 12 months.
If a period under clause 7 is chosen, there will be no requirement to calculate
a payment on 1 July of the subsequent financial year.
Example 1: A pension commences on 1 October 2004 with a term of
17 years. On 1 July 2020, the remaining term of the pension in whole
years will be 1 year, and the actual remaining term will be 15 months.
This will mean that a payment factor of 1 will be applied for the payment
calculation on that date, requiring the full account balance to be paid out
over the following 12 months, notwithstanding that the pension would run for a
further 3 months after the account had been exhausted. The first of the above
options will allow payment of the account balance on 1 July 2020 to be
spread over the next 15 months. The second option will allow the account
balance to be paid out fully in the 12 months to 30 June 2021, effectively
shortening the term of the pension by 3 months. Under both options, there will
be no requirement to calculate a payment on 1 July 2021.
Example 2: A pension commences on 1 April 2005 with a term of
17 years. On 1 July 2021, the remaining term of the pension in whole
years will be 1 year, and the actual remaining term will be 9 months.
This will mean that a payment factor of 1 will be applied for the payment
calculation on that date, requiring the full account balance of the pension to
be paid out over the following 9 months. The second of the above options will
allow payment of the account balance to be spread over the 12 month period to
30 June 2022, effectively extending the term of the pension by 3 months.
A period chosen under clause 7 will not cause a breach of the requirement to
pay a market linked pension over a term of a whole number of years in
accordance with subregulation 1.07(3A).
Because annual payments from a market linked pension will be based on the
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account balance at the start of the financial year, some flexibility is also
needed in the final year to allow investment earnings accruing after the start
of the year to be fully paid out of the account. For this purpose, clause 3
will provide for an additional income payment in the final year of a market
linked pension (up to 28 days after the end of the term or
the end of a period chosen under clause 7) in order to exhaust the account
balance.
Similar flexibility is needed in situations where, due to negative investment
returns, the account balance at any time during the year is insufficient to
meet the remaining required payment in that year (this will typically only
arise in the final year of a pension). In these situations, clause 2 will
allow the remaining account balance to be paid out in satisfaction of the
annual payment requirement.
ATTACHMENT B
Details of the Superannuation Industry (Supervision) Amendment
Regulations 2004 (No. 4)
Regulation 1 specifies the name of the regulations as the
Superannuation Industry (Supervision) Amendment Regulations 2004 (No.
4).
Regulation 2 provides that regulations 1 to 3 and Schedule 1 commence on
1 July 2004, Schedule 2 commences on 1 September 2004 and Schedule 3
commences on 20 September 2004. The commencement dates for Schedules 1 and 3
reflect the Government's announcement of 25 February 2004. The commencement
date for Schedule 2 will provide for a period of time in which superannuation
funds can issue new child accounts before they are superseded by the removal of
the work test for superannuation contributions before age 65.
Regulation 3 provides that Schedules 1, 2 and 3 amend the
Superannuation Industry (Supervision) Regulations 1994 (the SIS
Regulations).
Schedule 1 - Amendments commencing on 1 July 2004
Removing the work test for superannuation contributions before age
65
Items 1, 10, 11, 14, 15 and 16
Subregulations 7.04(1) and 7.05(1) of the SIS Regulations set out the rules
under which a complying superannuation fund may accept contributions made in
respect of a fund member under the age of 65. Generally a member under the age
of 65 must have been gainfully employed at least 10 hours in a week
sometime in the past two years in order to make superannuation contributions.
The Regulations will remove the work test rules thereby allowing anyone under
the age of 65 to make a superannuation contribution. This will mean that the
current exceptions to the work test rules are no longer necessary. These
include eligible spouse contributions; child contributions; contributions for
people on authorised leave.
The Regulations will amend subregulation 1.03(1) (Item 1) to insert a
definition of 'child contributions'. The existing definition of a 'child
contribution' refers to the definition of a 'child contribution' in paragraph
7.04(1)(e). A definition of 'child contributions' will still be necessary for
the purposes of regulation 3.01 (Public Offer Funds).
The Regulations will substitute a new subregulation 7.04(1) (Item 10)
in the SIS Regulations allowing anyone under the age of 65 in an
accumulation fund to contribute to superannuation. This new subregulation does
not include a definition of a 'child contributions'.
The Regulations will omit subregulation 7.04(1A) (Item 11) as a
consequence of new subregulation 7.04(1), because a definition of 'authorised
leave' will no longer be necessary.
The Regulations will remove the reference to paragraph 7.04(1)(e) in
subregulation 7.04(1E) as a consequence of new subregulation 7.04(1)
(Item 14).
The Regulations will substitute a new subregulation 7.05(1) (Item 15) to
enable a defined benefit fund to accrue benefits in respect of any member under
the age of 65.
The Regulations will omit subregulation 7.05(1A) (Item 16) as a
consequence of new subregulation 7.05(1), because a definition of 'authorised
leave' will no longer be necessary.
Simplifying the work test and cashing rules for those aged 65 to
74
Items 4, 6, 8, 9, 12, 13, 17, 18
The Regulations will simplify rules relating to contributions made by members
to complying superannuation funds aged 65 to 74 and the cashing of their
benefits. The amendments reflect the changing work arrangements for people in
this age group.
Currently, an individual aged 65 to 74 must work at least 10 hours in a week to
be eligible to make contributions. Where a member fails this test the complying
superannuation fund must also pay out the member's benefits. This is considered
too stringent and does not accommodate flexible working arrangements, which are
likely to be preferred by mature workers.
The Regulations will amend subparagraphs 6.21(1)(a)(ii) and 6.21(1A)(a)(ii)
(Items 4 and 6) to simplify the cashing rules for individuals
aged 65 to 74. An individual will only be required to have been gainfully
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employed on a part-time equivalent level in order to prevent both the
member-financed benefit and the employer-financed benefit from being cashed out
from their account in a complying superannuation fund.
The Regulations will insert a new definition of 'part-time equivalent level'
into the SIS Regulations (Item 8) in relation to the Regulations.
To be gainfully employed at a part-time equivalent level an individual will
have to have been gainfully employed for at least 240 hours during the
most recent financial year.
The Regulations will amend paragraphs 7.04(1B)(b) and 7.04(1C)(b)
(Items 12 and 13) to simplify the
contribution rules for contributions made into an accumulation fund by an
individual aged 65 to 69 and aged 70 to 74 respectively.
The Regulations will amend paragraph 7.04(1B)(b) (Item 12) so that an
accumulation fund may accept contributions in respect of a member aged
65 to 69 years if the member is gainfully employed on at least a part-time
basis during the financial year in which the contribution is made.
The Regulations will amend paragraph 7.04(1C)(b) (Item 13) so that an
accumulation fund may accept contributions made by a member aged
70 to 74 years for their benefit if the member is gainfully employed
on a part-time basis in the financial year in which the contribution is made.
The Regulations will amend paragraphs 7.05(1B)(b) and 7.05(1C)(b)
(Items 17 and 18) to simplify the accrual of
benefits by a defined benefit fund in respect of a member aged 65 to 69 and
aged 70 to 74 respectively.
The Regulations will amend paragraph 7.05(1B)(b) so that a defined benefit fund
may
accrue benefits in respect of a member aged 65 to 69 years if the
member is gainfully employed on at least a part-time basis during the financial
year in which the contribution is made.
The Regulations will amend paragraph 7.05(1C)(b) so that a defined
benefit fund may accrue benefits in respect of contributions made by a member
aged 70 to 74 years if the member is gainfully employed on a part-time basis in
the financial year in which the contribution is made.
The Regulations will insert a new definition of 'part-time basis' into
the SIS Regulations (Item 9) in relation to the
regulations. An individual will be gainfully employed on a part-time
basis where they have worked at least 40 hours in a period of not more than 30
consecutive days in that financial year. For example, a person who has worked
40 hours in a fortnight will be able to make superannuation contributions for
the rest of the financial year.
Changes to cashing superannuation benefits for people aged over
75
Items 5 and 7
Substantial tax concessions are provided to superannuation to encourage people
to save for their retirement. In order to ensure that superannuation is not
specifically used for estate planning the Regulations will require complying
superannuation funds to commence paying benefits to a member as soon as
practicable after the member reaches the age of 75. Complying superannuation
funds will not need to payout a member's post-65 employer-financed benefits
where the member is over the age of 75 but is still receiving superannuation
contributions under an industrial award.
The Regulations will substitute paragraph 6.21(1)(b) and (c), and insert a new
paragraph 6.21(1)(d) (Item 5) to require the cashing of a member's
benefits, not including post-65 employer-financed benefits where any of the
following events occur:
- the member has reached age 75 on 30 June 2004 and
has not been gainfully employed for at least 30 hours per week since 1 July
2004;
- the member has reached age 75 and the previous
condition does not apply;
- the member dies.
The Regulations will omit subparagraph 6.21(1A)(b)(ii) of the SIS
Regulations (Item 7). A complying superannuation fund will be
required to cash a member's post-65 employer-financed benefit irrespective of
the member's employment status unless the employment results in mandated
employment contributions.
Preservation of rolled-over employer eligible termination payment
benefits
Items 2 and 3
Regulations 6.10 and 6.11 specify the benefits in a regulated superannuation
fund or regulated approved deposit fund which are classified as unrestricted
non-preserved benefits. These benefits are not preserved and can be withdrawn
from the superannuation system at any time.
The definition of unrestricted non-preserved benefits includes employer
eligible termination payments (ETPs) that are rolled over into a superannuation
fund or approved deposit fund.
The Regulations will amend this definition so that only employer ETPs that are
received by a superannuation fund or approved deposit fund before 1 July
2004 are unrestricted non-preserved benefits. Employer ETPs which are rolled
over into the superannuation system after this date will be preserved.
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Schedule 2 - Amendments commencing on 1 September 2004
Child Superannuation Accounts
Items 1, 2 and 3
The Regulations will remove the decision making provisions, transitional
provisions and application provisions specific to child superannuation
accounts.
The Regulations will allow anyone under the age of 65 to contribute to
superannuation from 1 July 2004 (Item 10 of Schedule 1). It will
therefore no longer be necessary to specifically allow for child superannuation
accounts.
The Regulations will remove the provisions in the SIS Regulations which give
effect to child superannuation accounts. These provisions include limits on the
amount of the contribution that can be made on behalf of a child, decision
making rules, transitional provisions and the provisions relating to
applications for child superannuation accounts.
The Regulations will remove the definition of a child account in subregulation
1.03(1) (Item 1). Contributions on behalf of a child into a
superannuation fund will not be treated any differently to other contributions
made by those under the age of 65. This definition is no longer necessary as a
result of the Regulation to omit Part 4A from the SIS Regulations.
The Regulations will omit Part 4A from the SIS Regulations (Item 2).
This part sets out the decision making provisions, application provisions and
issue of child superannuation accounts.
The Regulations will omit subregulation
7.04(1E)
(Item 3). Subregulation 7.04(1E) restricts the amount of superannuation
contributions which can be made into a complying superannuation fund on behalf
of a child in a three year period. There will no longer be restrictions on the
amount of superannuation contributions which can be made on behalf of a
child.
The changes commence on 1 September 2004. This is consistent with the
transitional rules in Corporations Amendment Regulations 2004 (No. ),
which allow funds to issue child accounts until 31 August 2004.
Schedule 3 - Amendments commencing on 20 September 2004
The Government is introducing a new class of market linked complying income
stream with effect from 20 September 2004. Complying income streams are
those which meet the pension and annuity standards contained in the Income
Tax Regulations 1936. The Regulations contained in this Schedule will
expand the definitions of pension and annuity in the SIS Regulations to include
the new product and to enable it to be offered by annuity providers and
superannuation funds. The Regulations will also: amend the rules for complying
life expectancy income streams to provide the same term options for these
products as would be available to the new market linked income stream; and
increase the commutation and guarantee period for complying lifetime income
streams.
Item 1
The Regulations will insert definitions of market linked annuity, market linked
income stream and market linked pension into the SIS Regulations.
Item 3
The Regulations will insert a reference to new subregulation 1.05(10) (see Item
13, below) to specify that a benefit provided in the form of a market linked
annuity meets the definition of an annuity for the purposes of the
Superannuation Industry (Supervision) Act 1993.
Items 4 and 5
The Regulations will require that a contract for the provision of an annuity
benefit that meets the standards of subregulation 1.05(10) must also meet the
conditions for commutation set out in Regulation 1.07C. These conditions will
require that a minimum payment be made prior to the commutation of a market
linked annuity or pension.
Items 6 to 11
The rules for complying lifetime income streams contained in the SIS
Regulations allow the income stream to be commuted on the death of the primary
beneficiary within 10 years of the income stream commencing. This rule
allows some capital to be returned to a reversionary beneficiary or to the
primary beneficiary's estate where the primary beneficiary dies within this
period.
Where the income stream is commuted in these circumstances, the rules also
allow a commutation payment to be limited to the payments that the primary
beneficiary would have received over the remainder of the 10 year period had
they not died.
The Regulations will increase this 10 year period to a period equal to the
lesser of the primary beneficiary's life expectancy or 20 years. The period
will apply for both of the purposes outlined above.
Item 12
The Regulations will amend the rules relating to complying life expectancy
annuities contained in Regulation 1.05(9). The Regulations will remove the
restriction which prevents a complying life expectancy annuity from being
purchased before age pension age and, for products purchased on or after 20
September 2004, align the term options for complying life expectancy annuities
with those which will apply to the new market linked annuity. These term
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options are discussed below under Item 13.
Complying life expectancy annuities can only be commuted in specified
circumstances. These circumstances include on the death of the primary
beneficiary where a payment is made to a reversionary beneficiary or to the
primary beneficiary's estate, or on the death of the reversionary beneficiary
where a payment is made to another reversionary beneficiary or to the
reversionary beneficiary's estate. In cases where the annuity recipient
chooses to base the term of the annuity on the longer of two spouses' life
expectancies, the Regulations will allow commutation in these circumstances
only after the death of both spouses.
Commutation of a life expectancy annuity is also permitted if the eligible
termination payment resulting from the commutation is applied directly to
purchase another complying pension or annuity. The Regulations will ensure that
a complying life expectancy annuity can be commuted to purchase a market linked
annuity or market linked pension (paid from either a superannuation fund or an
RSA provider).
Item 13
The Regulations will insert a new subregulation 1.05(10) to set out the minimum
requirements which will need to be satisfied for an annuity to meet the
standards of a market linked annuity. These requirements include the term of
the annuity, the payment rules and the restrictions placed on the commutation
and transfer of the annuity.
Individuals who purchase a market linked annuity will be able to choose the
term of the annuity from within a specified range. The term will need to be a
period of whole years no less than the primary beneficiary's life expectancy on
the commencement day of the annuity (rounded up to the next whole number) and
no greater than the primary beneficiary's life expectancy on the commencement
day calculated as if they were 5 years younger (rounded up to the next
whole number). For example, a male aged 65 can choose a term of a whole number
of years no less than their life expectancy at age 65 and no greater than their
life expectancy at age 60.
In the case of an annuity that reverts to a spouse on the death of the primary
beneficiary, there will be a further option to base the term on the longer of
the two spouses' life expectancies. For example, a 65 year old male with
a 60 year old spouse will have the option of basing the term of the
annuity on the younger spouse's life expectancy. Under this option, the term
will need to be a period of whole years no less than the spouse's life
expectancy on the commencement day of the annuity (rounded up to the next whole
number) and no greater than the spouse's life expectancy on the commencement
day calculated as if the spouse were 5 years younger (rounded up to the
next whole number).
Payments from a market linked annuity will need to be made at least annually
and in accordance with the payment rules contained in Schedule 6 of the
Regulations. However, where the annuity commences on or after 1 June in a
financial year, a payment will not have to be made in the first year. The
payment rules for market linked annuities are described under Item 39.
The Regulations will stipulate that a market linked annuity can only be
commuted in specified circumstances. One of the conditions will allow
commutation of a market linked annuity on the death of the primary or
reversionary beneficiary where a lump sum is paid to either person's legal
personal representative, to one or more of their dependants or, where
reasonable enquiries have failed to identify either a legal personal
representative or a dependant, to another individual. This commutation
condition will also allow payment of a new annuity on the death of the primary
or reversionary beneficiary to a dependant of either person. This will mean
that, on the death of the recipient of a market linked annuity, the remaining
account balance can be paid out in lump sum or annuity form.
The ability to commute a market linked annuity on death will be restricted in
cases where the term of the annuity is based on the longer of two spouses' life
expectancies. In such cases, the Regulations will allow commutation on death
(whether to pay a lump sum or an annuity) only after the death of both spouses.
Commutation will also be permitted: within six months of the market linked
annuity commencing (provided that it was not funded from the commutation of
another complying income stream); to purchase another complying income stream;
or to pay a superannuation contributions surcharge.
The Regulations will include a rule preventing a market linked annuity from
having a residual capital value. This rule will not interfere with the ability
to commute a market linked annuity on the death of the primary beneficiary or a
reversionary beneficiary.
A market linked annuity cannot be transferred to another person except on the
death of the primary beneficiary or a reversionary beneficiary to one of the
dependants of the deceased person or to the deceased person's legal personal
representative.
Under the Income Tax Regulations 1936, the life tables which are used
for pensions and annuities commencing after 1 July 1993 are the Australian
Life Tables that are most recently published before the year in which the
income stream first commences to be payable. The life tables which are
currently in use are the Australian Life Tables 1995-97. While new life tables
are expected to be published by the Australian Government Actuary before
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20 September 2004, these tables will therefore only come into effect on 1
January 2005.
The Regulations will insert a transitional provision which will give annuity
providers the choice of using either the most recently published life tables or
the 1995-97 life tables for annuities which commence between 20 September 2004
and 31 December 2004.
Item 14
The Regulations will insert a reference to new subregulation 1.06(8) (see Item
24, below) to specify that a benefit provided in the form of a market linked
pension meets the definition of a pension for purposes of the SIS Act.
Items 15 and 16
The Regulations will require that the rules of a superannuation fund that
provides a benefit in the form of a market linked pension that meets the
standards of new subregulation 1.06(8) must also meet the conditions for
commutation set out in Regulation 1.07C. These conditions will require that a
minimum payment be made prior to the commutation of a market linked annuity or
pension.
Items 17 to 22
The rules for complying lifetime income streams contained in the SIS
Regulations allow the income stream to be commuted on the death of the primary
beneficiary within 10 years of the income stream commencing. This rule
allows some capital to be returned to a reversionary beneficiary or to the
primary beneficiary's estate where the primary beneficiary dies within this
period.
Where the income stream is commuted in these circumstances, the rules allow a
commutation payment to be limited to the payments that the primary beneficiary
would have received over the remainder of the 10 year period had they not
died.
The Regulations will increase this 10 year period to a period equal to the
lesser of the primary beneficiary's life expectancy or 20 years. The new period
will apply for both of the purposes outlined above.
Item 23
The Regulations will amend the rules relating to complying life expectancy
pensions contained in subregulation 1.06(7). The Regulations will remove the
restriction which prevents a complying life expectancy pension from being
purchased before age pension age and, for products purchased on or after 20
September 2004, align the term options for complying life expectancy pensions
with those which will apply to the new market linked pension. These term
options are discussed under Item 24, below.
Complying life expectancy pensions can only be commuted in specified
circumstances. These circumstances include on the death of the primary
beneficiary where a payment is made to a reversionary beneficiary or to the
primary beneficiary's estate, or on the death of the reversionary beneficiary
where a payment is made to another reversionary beneficiary or to the
reversionary beneficiary's estate. In cases where the pension recipient
chooses to base the term of the pension on the longer of two spouses' life
expectancies, the Regulations would allow commutation in these circumstances
only after the death of both spouses.
Commutation of a life expectancy pension is also permitted if the eligible
termination payment resulting from the commutation is applied directly to
purchase another complying annuity or pension. The Regulations will ensure that
a complying life expectancy pension could be commuted to purchase a market
linked annuity or market linked pension (paid from a superannuation fund or an
RSA provider).
Item 24
The Regulations will insert a new subregulation 1.06(8) to set out the minimum
requirements which will need to be satisfied for a pension to meet the
standards of a market linked pension. These requirements include the term of
the pension, the payment rules and the restrictions placed on the commutation
and transfer of the pension.
Individuals who purchase a market linked pension will be able to choose the
term of the pension from within a specified range. The term will need to be a
period of whole years no less than the primary beneficiary's life expectancy on
the commencement day of the pension (rounded up to the next whole number) and
no greater than the primary beneficiary's life expectancy on the commencement
day calculated as if they were 5 years younger (rounded up to the next
whole number). For example, a male aged 65 can choose a term of a whole number
of years no less than their life expectancy at age 65 and no greater than their
life expectancy at age 60.
In the case of a pension that reverts to a spouse on the death of the primary
beneficiary, there will be a further option to base the term on the longer of
the two spouses' life expectancies. For example, a 65 year old male with
a 60 year old spouse will have the option of basing the term of the
pension on the younger spouse's life expectancy. Under this option, the term
will need to be a period of whole years no less than the spouse's life
expectancy on the commencement day of the pension (rounded up to the next whole
number) and no greater than the spouse's life expectancy on the commencement
day calculated as if the spouse were 5 years younger (rounded up to the
next whole number).
Payments from a market linked pension will need to be made at least annually
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and in accordance with the payment rules contained in Schedule 6 of the
Regulations. However, where the pension commences on or after 1 June in a
financial year, a payment will not have to be made in the first year. The
payment rules for market linked pensions are described under Item 39,
below.
The Regulations will stipulate that a market linked pension can only be
commuted in specified circumstances. One of the conditions will allow
commutation of a market linked pension on the death of the primary or
reversionary beneficiary where a lump sum is paid to either person's legal
personal representative, to one or more of their dependants or, where
reasonable enquiries have failed to identify either a legal personal
representative or a dependant, to another individual.
This
commutation condition will also allow payment of a new pension on the death of
the primary or reversionary beneficiary to a dependant of either person. This
will mean that, on the death of the recipient of a market linked pension, the
remaining account balance can be paid out in lump sum or pension form.
The ability to commute a market linked pension on death will be restricted in
cases where the term of the pension is based on the longer of two spouses' life
expectancies. In such cases, the Regulations will allow commutation on death
(whether to pay a lump sum or a pension) only after the death of both spouses.
Commutation will also be permitted: within six months of the market linked
pension commencing (provided that it was not funded from the commutation of
another complying income stream); to purchase another complying income stream;
to pay a superannuation contributions surcharge; or to give effect to a payment
split under family law.
The Regulations will include a rule preventing a market linked pension from
having a residual capital value. This rule will not interfere with the ability
to commute a market linked pension on the death of the primary beneficiary or a
reversionary beneficiary.
A market linked pension cannot be transferred to another person except on the
death of the primary beneficiary or a reversionary beneficiary to one of the
dependants of the deceased person or to the deceased person's legal personal
representative.
Under the Income Tax Regulations 1936, the life tables which are used
for pensions and annuities commencing after 1 July 1993 are the Australian
Life Tables that are most recently published before the year in which the
income stream first commences to be payable. The life tables which are
currently in use are the Australian Life Tables 1995-97. While new life tables
are expected to be published by the Australian Government Actuary before
20 September 2004, these tables will therefore only come into effect on 1
January 2005.
The Regulations will insert a transitional provision which will give pension
providers the choice of using either the most recently published life tables or
the 1995-97 life tables for pensions which commence between 20 September 2004
and 31 December 2004.
Item 25
The Regulations will insert a new regulation 1.07C which will set out a minimum
payment condition that must be satisfied prior to the commutation of a market
linked annuity or a market linked pension. The condition will require that the
annuity or pension must pay an amount, in the financial year in which the
commutation is to take place, of at least the pro-rata of the annual payment
amount that will be required under Schedule 6 of the Regulations.
The minimum payment condition in Regulation 1.07C will not apply to a
commutation resulting from the death of an annuitant or pensioner or a
reversionary annuitant or pensioner. Similarly, it will not apply to a
commutation for the sole purpose of paying a superannuation contributions
surcharge, giving effect to an entitlement of a non member spouse under a
payment split or meeting the rights of a client to return a financial product
under the cooling-off period provisions in the Corporations Act 2001.
The formula for calculating the pro-rata minimum amount will be as follows.
annual amount × days in payment period ÷ days in financial
year
The annual amount for the pro-rata calculation will be worked out in accordance
with the formula for determining annual payment amounts in clause 1 of Schedule
6 of the Regulations and rounded to the nearest ten dollars.
For market linked annuities or pensions that commence in the year in which they
are commuted, the pro-rata amount will be calculated using the number of days
in the payment period from the commencement day of the annuity or pension until
the day on which the commutation takes place. For commutations in subsequent
years, the pro-rata amount will be calculated using the number of days in the
payment period from 1 July in the financial year in which the commutation is to
take place until the day on which the commutation takes place. The financial
year used for the purposes of the pro-rata calculation will be the year in
which the commutation takes place.
Example: Market linked pension commuted in a financial year subsequent
to the year in which the pension commences.
Stephanie commences a market linked pension on 1 July 2005 at age 63. The term
of the pension is 23 years. On 1 July 2010, the remaining term of the pension
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is 18 years and the pension account balance is $150,000. On 1 October
2010, after making a pension payment of $2,000, Stephanie decides to commute
the pension in order to purchase another market linked product with a different
provider. The pro-rata calculation is as follows:
The annual payment amount calculated under Schedule 6 is
($150,000 ÷ 13.19) = $11,370. There are 93 days between 1 July
and 1 October (inclusive) and 2010 is not a leap year, so the pro-rata
minimum amount is $11,370 × 93 ÷ 365 = $2,897.01. Subtracting the
$2,000 payment already made, the pension will still need to pay Stephanie an
amount of $897.01 before the commutation.
Items 2 and 26 to 37
Family law provides for couples to split their superannuation in the event of a
marriage breakdown. The SIS Regulations contain operating standards for
trustees in relation to family law superannuation splitting. Given that market
linked pensions and allocated pensions are both account based products, the
Regulations will ensure that market linked pensions receive the same treatment
as allocated pensions in this regard.
Item 38
The Regulations will insert a new paragraph 9.04E (c) to specify that a market
linked pension is excluded from the definition of a defined benefit pension for
the purposes of the SIS Act.
Item 39
The Regulations will require that annual payments from a market linked annuity
or market linked pension be determined in accordance with the payment rules set
down in Schedule 6 to the SIS Regulations. This item will insert new Schedule
6.
The annual payment amount from a market linked annuity or pension will be
determined under the formula contained in clause 1 of Schedule 6. Under this
formula, the payment amount will be calculated by dividing the account balance
of the annuity or pension on 1 July of the relevant year (or the commencement
day in the case of the first year of the annuity or pension where that is a day
other than 1 July) by the payment factor in Column 3 of the Table that
corresponds to the remaining term of the annuity or pension expressed in whole
years in Column 2.
Clause 5 will contain a rounding rule for determining the number of whole years
remaining on the term of an annuity or pension. Under this rule, the remaining
term of an annuity or pension on each 1 July will be rounded to a whole number
of years according to whether the annuity or pension commenced before 1
January, or on or after 1 January in a financial year.
• For annuities or pensions commencing before 1
January, the remaining term on each 1 July will be rounded down to the
nearest whole number of years. Where the remaining term rounds to zero, a
payment factor of 1 will be used to calculate the final payment from the
annuity or pension.
• For annuities or pensions commencing on or after 1
January, the remaining term on each 1 July will be rounded up to the
nearest whole number of years.
The effect of this rule is shown in the following example.
Monica commences a market linked pension on 1 April 2005 with a term of
23 years. On 1 July 2005 (the next occurring 1 July), the remaining term
of the pension is 22 years and 9 months. Because the pension commenced after
1 January in the financial year, the remaining term for purposes of Column
2 is rounded up to 23 years. For each subsequent 1 July, the remaining term of
the pension is also rounded up to the nearest whole number of years.
Under clause 4, the annual payment amount calculated under clause 1 will be
rounded to the nearest ten dollars. Where the calculation results in a figure
divisible by five, the normal mathematical convention of rounding up will
apply.
For example, the account balance of the pension on 1 July 2005 in the
preceding example is $200,000. The payment factor corresponding to the
remaining term (in whole years) of 23 years is 15.62. (This is the same
payment factor that will have been used to calculate the pro rata payment for
the first year of the pension.) The required annual payment for the financial
year 2005-06 is therefore $200,000 ÷ 15.62 = $12,800.
In cases where a market linked annuity or pension commences on a day other than
1 July, clause 6 will require the annual payment amount for the first year
of the annuity or pension to be applied proportionately to the number of days
remaining in the financial year that include and follow the commencement day.
For annuities or pensions commencing on a day other than 1 July, the rules in
clause 7 will provide some payment flexibility towards the end of the term of
an annuity or pension to avoid any lumpiness in payments that will otherwise
arise. These rules will apply where a payment factor of 1 is required to be
used for the first time in the annual payment calculation, and the actual
remaining term of the annuity or pension on 1 July of that year is a period
other than one year. In these cases, the payment rules in clause 1 can be
varied to allow the remaining account balance to be paid out over a period of
either:
• the remaining term of the annuity or pension (where
that is greater than 12 months); or
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• 12 months.
If a period under clause 7 is chosen, there will be no requirement to calculate
a payment on 1 July of the subsequent financial year.
Example 1: A pension commences on 1 October 2004 with a term of
17 years. On 1 July 2020, the remaining term of the pension in whole
years will be 1 year, and the actual remaining term will be 15 months.
This will mean that a payment factor of 1 will be applied for the payment
calculation on that date, requiring the full account balance to be paid out
over the following 12 months, notwithstanding that the pension will run for a
further 3 months after the account had been exhausted. The first of the above
options will allow payment of the account balance on 1 July 2020 to be
spread over the next 15 months. The second option will allow the account
balance to be paid out fully in the 12 months to 30 June 2021, effectively
shortening the term of the pension by 3 months. Under both options, there will
be no requirement to calculate a payment on 1 July 2021.
Example 2: A pension commences on 1 April 2005 with a term of
17 years. On 1 July 2021, the remaining term of the pension in whole
years will be 1 year, and the actual remaining term will be 9 months.
This will mean that a payment factor of 1 will be applied for the payment
calculation on that date, requiring the full account balance of the pension to
be paid out over the following 9 months. The second of the above options will
allow payment of the account balance to be spread over the 12 month period to
30 June 2022, effectively extending the term of the pension by 3 months.
A period chosen under clause 7 will not cause a breach of the requirement to
pay a market linked annuity or pension over a term of a whole number of years
in accordance with subregulations 1.05(10) and 1.06(8).
Because annual payments from a market linked annuity or pension will be based
on the account balance at the start of the financial year, some flexibility is
also needed in the final year to allow investment earnings accruing after the
start of the year to be fully paid out of the account. For this purpose,
clause 3 will provide for an additional income payment in the final year of a
market linked annuity or pension (up to 28 days after the end of the term or
the end of a period chosen under clause 7) in order to exhaust the account
balance.
Similar flexibility is needed in situations where, due to negative investment
returns, the account balance at any time during the year is insufficient to
meet the remaining required payment in that year (this will typically only
arise in the final year of an annuity or pension). In these situations, clause
2 will allow the remaining account balance to be paid out in satisfaction of
the annual payment requirement.
ATTACHMENT C
Details of the Income Tax Amendment Regulations 2004 (No. 4)
Regulation 1 specifies the name of the regulations as the Income Tax
Amendment Regulations 2004 (No. 4).
Regulation 2 provides that the regulations commence on 20 September
2004.
Regulation 3 provides that Schedule 1 amends the Income Tax
Regulations 1936.
Schedule 1 - Amendments
The Government is introducing a new class of market linked income stream with
effect from 20 September 2004. The Regulations will ensure that the new
market linked income stream product meets the pension and annuity standards for
the purposes of the Income Tax Assessment Act 1936. This will mean that
market linked pensions and annuities will be eligible to be assessed for tax
purposes against the higher pension reasonable benefit limit.
Item 1
The Regulations will insert a reference to new subregulation 1.05(10) of the
Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations)
to specify that a market linked annuity meets the annuity standards.
Item 2
The Regulations will insert references to new subregulation 1.06(8) of the SIS
Regulations and new subregulation 1.07(3A) of the Retirement Savings
Accounts 1997 to specify that a market linked pension (paid from either a
superannuation fund or an RSA provider) meets the pension standards (the SIS
and RSA pension standards).
Item 3
The Regulations will replace "SIS pension standards" with "SIS and RSA pension
standards", as a consequence of amendments made by item 2, above.
ATTACHMENT D
Details of the Corporations Amendment Regulations 2004 (No. 5)
Regulation 1 specifies that the name of the regulations is the
Corporations Amendment Regulations 2004 (No. 5).
Regulation 2 provides that regulations 1 to 3 and Schedule 1 commence on
1 July 2004, and that regulation 4 and Schedule 2 commence on
1 October 2004.
Regulation 3 provides that Schedules 1 and 2 amend the Corporations
Regulations 2001.
Regulation 4 provides transitional provisions which apply to child
accounts issued before 1 October 2004, contributions made into a child account
before 1 October 2004 and the right of return in relation to a child
account issued before 1 October 2004.
Schedule 1 - Amendments commencing on 1 July 2004
Item 1
The Regulations will insert a new definition of 'child contributions' in
subregulation 7.9.01(1). The existing definition refers to the definition of
'child contributions' in the SIS Regulations and the RSA Regulations.
The removal of the work test from the Superannuation Industry (Supervision)
Regulations 1994 and the Retirement Savings Account Regulations 1997
means that it is no longer necessary to specifically allow for child
superannuation accounts as anyone under the age of 65 will be able to
contribute to a superannuation fund or RSA. Regulations will remove the
provisions in the SIS Regulations and RSA Regulations which give effect to
child superannuation accounts. As such these Regulations will insert the
definition of 'child contributions' in the Corporations Regulations for the
transitional period.
Item 2
The Regulations will insert a definition of an 'RSA institution' into
subregulation 7.9.01(1) as it is referred to in the newly inserted definition
of 'child contributions'.
Items 3 and 4
The Regulations will amend subregulation 7.9.12A(1) to provide that an eligible
application for a child account must be made before 31 July 2004 and the issue
or sale of a child account must be made prior to 31 August 2004.
The Regulations will allow for a period of time in which RSA institutions and
superannuation funds can issue new child accounts before they are superseded by
the removal of the work test for superannuation contributions before age 65.
People who are in the process of opening a child account would still be able to
apply for an account until 31 July 2004. A child would also be able to open an
account in his/her name during this time.
Item 5
The Regulations will insert a new subregulation 7.9.68A(4A) to provide a
transitional timeframe stipulating that the right of return in relation to a
product and any money paid to the product must be exercised on or before 30
September 2004.
Schedule 2 - Amendments commencing on 1 October 2004
Items 1, 2, 3, 4, 5
The Regulations will omit the provisions in the Corporations Regulations
2001 which relate to child superannuation accounts.
Subregulation 7.9.01(1) provides definitions specific to child accounts.
Subparagraph 7.9.04(1)(a)(i) and Subdivision 2.6 require the provision of
product disclosure statements in relation to child superannuation accounts.
Regulation 7.9.12A and subregulation 7.9.74(3) provide for applications to be
made by a third party for a child superannuation account.
Regulation 7.9.68A provides for the right of return in respect of a child
superannuation account.