GOVERNMENT RESPONDS TO PRODUCTIVITY COMMISSION REPORT ON SUPERANNUATION
LEGISLATION
The Federal Government's final response to the Productivity Commission's
review of the Superannuation Industry (Supervision) Act 1993 and other
superannuation legislation was released today by the Minister for Revenue
and Assistant Treasurer, Senator Helen Coonan.
"The Government has agreed to a number of the Productivity Commission's
recommendations, highlighting the Government's commitment to improving Australia's
superannuation system," Senator Coonan said.
In its interim response, the Government noted that it did not want to pre-empt
the outcome of other examinations of superannuation that were under way at
the time, including the activities of the Superannuation Working Group (SWG).
The Government is already implementing a number of the Commission's recommendations
through its response to the SWG's report on Options for Improving the Safety
of Superannuation and through its superannuation election commitments.
"The Commission recommended that all trustees of super funds be licensed
and that trustees be required to prepare and submit a risk management plan
to APRA," Senator Coonan said.
"Similar proposals were put forward by the SWG and exposure draft legislation
has already been released for industry consultation which includes proposals
to implement these important reforms".
The Commission also looked at improving the accessibility of superannuation
by raising the maximum age limit for personal superannuation contributions.
This measure was part of the Government's election commitments and from 1
July 2002, the maximum age limit for personal superannuation contributions
was lifted from 70 to 75.
Similarly, recommendations to allow temporary residents to access their superannuation
benefits upon permanent departure from Australia formed part of the Government's
election commitments and commenced from 1 July 2002.
In addition, in its response to the Commission's report, the Government has
committed to examining the current requirements around compliance audits and
the feasibility of repealing the Occupational Superannuation Standards
Regulations Application Act 1992.
The final Government response is attached.
(An interim response was released on 17 April 2002.)
THE GOVERNMENT'S RESPONSE TO THE RECOMMENDATIONS
CONTAINED IN THE PRODUCTIVITY COMMISSION REPORT INTO SUPERANNUATION INDUSTRY
(SUPERVISION) ACT 1993 AND CERTAIN OTHER SUPERANNUATION LEGISLATION
Recommendation 4.1
The net tangible assets requirement for approved trustees should be strengthened
through legislative amendment. All approved trustees which use an external
custodian should be required to have an amount of net tangible assets (or
approved guarantee or combination thereof) that is related to the value of
assets under trusteeship, subject to specified minimum and maximum amounts
in a manner similar to that required under the Managed Investments Act. Approved
trustees who do not use custodians should continue to be required to have
$5 million net tangible assets (or equivalent) in their own right.
Response
Not supported
On 28 October 2002, the Government announced a range of reforms to the prudential
framework for superannuation following the work undertaken by the Superannuation
Working Group (SWG). However, the SWG did not recommend changes to the net
tangible assets requirement for approved trustees.
As noted in the Government's response to the report of the SWG, the Government
supports, in principle, a risk-sensitive framework for the holding of
capital to address operational risk. However, it considers that the combination
of requirements that each trustee be licensed by the Australian Prudential
Regulation Authority (APRA), and prepare a risk management plan, will substantially
address concerns relating to operational risk.
The Government agrees that for approved trustees the holding of net tangible
assets is seen as a commitment to deal with matters for which the trustee
is responsible. However, it notes that the other reforms recently announced
also add to the obligations for trustees to address areas of concern. As such,
the Government will revisit the net tangible assets requirement for approved
trustees should the other reforms not adequately address prudential concerns
that the net tangible assets requirement is principally designed to address.
Recommendation 4.2
The eligible and liquid assets requirements for approved trustees should
be revised so as to require all approved trustees to have sufficient liquidity.
The requirement could be cast in terms similar to that required of responsible
entities under the Managed Investments Act.
Response
Not supported
The Government has decided not to amend requirements for net tangible assets
at this time. The Government believes that, as a prudential tool, the existing
provisions for approved trustees should be retained until other reforms recently
announced can be assessed. Should these reforms not adequately address prudential
concerns, net tangible asset requirements will be revisited.
Recommendation 4.3
All trustees of superannuation entities regulated by APRA should be required
to prepare a risk management strategy which addresses the various risk faced
in management of funds, such as operational, investment and governance risk.
Trustees should be required to obtain approval of these strategies from APRA
and have them audited each year as part of their compliance audits.
Response
Agreed
On 28 October 2002, the Government announced a number of reforms to the superannuation
framework, including the requirement that all trustees of APRA regulated funds
prepare risk management plans (RMPs).
The Government believes RMPs will strengthen monitoring by trustees and help
ensure that risks are adequately identified, considered and addressed.
The SIS Act will be amended to require all trustees to prepare a risk management
strategy (RMS) for itself and an RMP for each fund under its trusteeship.
The RMS and RMP will demonstrate arrangements trustees have in place to mitigate
relevant risks including risks relating to investment, outsourcing, governance
and risk management more broadly (including a requirement for a fraud control
plan), as well as compliance with the legislation. As a pre-condition for
fund registration, trustees must certify that the RMP meets APRA's requirements.
Other requirements will include that the RMS and RMP be signed off by the
trustee; changes of a material nature to be advised to the regulator and members;
an annual independent audit of both the RMS and the RMP, the RMP to be available
to fund members; and other issues as considered necessary.
Trustees will be required to comply with the conditions of both the RMS and
RMP on an ongoing basis, both for the trustee and the fund. This would include
reviewing both when significant events or circumstances require them to be
altered.
Recommendation 4.4
APRA, in conjunction with relevant parties, should review the need to
confine the responsibility for a compliance audit to an approved financial
auditor.
Response
Agreed
The Government will review current requirements for approved financial auditors
to perform compliance audits.
The Government is committed to ensuring that auditing, be it compliance or
financial auditing, satisfies the highest acceptable standards. It is noted
that approved auditors are registered company auditors and will be subject
to proposed changes to the Corporations Act 2001 under the forthcoming
package of reforms under the Corporate Law Economic Reform Program No.9 -
Corporate Disclosure.
Recommendation 4.5
APRA, in conjunction with relevant parties, should review the need to
confine certain tasks in respect of accumulation funds to Members or Fellows
of the Institute of Actuaries of Australia.
Response
Agreed
The Government will review current requirements for Members or Fellows of
the Institute of Actuaries of Australia to perform certain tasks in relation
to accumulation funds.
The Government supports measures to minimise compliance costs, subject to
appropriate standards being maintained.
Recommendation 5.1
Age and employment requirements governing contributor status and compulsory
cashing of benefits should be simplified. The most effective means of doing
so would be removal of the employment tests, while limiting any adverse implications
for taxation revenue by measures such as reasonable benefit limits and age-based
deductible limits. Consideration should also be given to raising the age at
which benefits must be compulsorily cashed.
Response
Noted
On 1 July 2002, the Government raised the maximum age limit for personal
superannuation contributions from 70 to 75. Furthermore, the Government eased
from 30 hours per week to 10 hours per week the work test requirement
for people aged above 70 but less than 75 to avoid compulsory cashing of superannuation
benefits. The Government continues to monitor the operation of Australia's
retirement income system with a view to ensuring that it provides positive
outcomes for all Australians in an efficient manner.
In this context, the Government has asked Treasury to review the monitoring
requirements for superannuation funds in respect of the 10 hours per week
gainful employment test for people aged between 65 and 75 years.
Recommendation 5.2
The present requirement on trustees to verify the addresses of all lost
members should be removed. Protection of lost member accounts with balances
in excess of $1,000 should also be removed.
Response
Noted
The Government supports the retention of address verification requirements
for lost members and recommends industry make greater use of the ATO's `SuperMatch'
system to reunite lost members with their accounts.
The Government removed member protection for lost member accounts with balances
in excess of $1,000 with effect from 29 August 2002.
Recommendation 5.3
Superannuation benefits of bona fide non-resident employees below a specified
small limit should be available to non-residents on permanent departure from
Australia. Amounts above that limit should be subject to a taxation adjustment
to offset Australian taxation concessions accorded to superannuation.
Response
Agreed
In its 2001 election statement, A Better Superannuation System, the
Government announced its commitment to allow temporary residents to access
their superannuation benefits upon permanent departure from Australia. The
measure commenced on 1 July 2002 and provides departing temporary residents
with access to superannuation benefits subject to withholding tax arrangements
to retain tax concessions provided to the benefits.
The measure does not apply to departing residents who retain the option of
retiring in Australia and accessing the Age Pension.
Recommendation 5.4
Requirements governing the content of risk management statements related
in investment in derivatives should be simplified in order to reduce compliance
costs and to sharpen the prudent management focus of trustees. The present
requirements that such statements be prepared by both investment managers
and trustees for compliance audit purposes should be reviewed in order to
remove any unnecessary duplication.
Response
Agreed
The Government will review current requirements regarding risk management
statements in the context of harmonising existing risk management requirements
with the reforms outlined in the response to recommendation 4.3.
While the Government notes that the existing requirements for auditing procedures
relating to derivative contracts require both internal and external audits,
there are significant risks in undertaking derivatives transactions, even
with the existing restrictions on such transactions. Any amendments to the
content of the current requirements will need to take account of such risks.
Recommendation 5.5
The requirements for actuarial certificates should be simplified by APRA,
in consultation with the Institute of Actuaries of Australia, DFACS and the
ATO.
Response
Noted
The Government supports measures to simplify the superannuation legislative
framework where it provides better outcomes for participants and supports
APRA reviewing whether actuarial certificates can be simplified. APRA has
indicated that it will undertake such a review.
Recommendation 6.1
There should be no expansion of the current list of exempt public sector
superannuation schemes. Consideration should be given by Commonwealth, State
and Territory governments to the feasibility of closing exempt schemes which
are open to new members and electing to make any new schemes subject to the
SIS legislation.
Response
Not supported
The existing Heads of Government Agreement (HOGA) for Exempt Public Sector
Superannuation Schemes (EPSSS) has resulted in a high degree of compliance
with the principles of the Commonwealth's retirement income policy by EPSSS.
Recommendation 7.1
The SIS legislation should be amended to simplify certain complex requirements
which impose significant compliance costs, to increase competition amongst
providers of certain services to superannuation entities, and to enhance the
effectiveness of capital adequacy and other requirements imposed on trustees.
Specific proposals for change are contained in the recommendations given above
and in chapters 4 and 5.
Response
Agreed
The Government will continue to monitor the operation of the SIS legislation
and the retirement income framework with a view to greater simplification
where it provides better outcomes for participants.
Recommendation 7.2
The SIS legislation should be amended to require that trustees of superannuation
entities be licensed by APRA subject to specific conditions pertaining to
such matters as trustee capacity and the provision of a risk management strategy.
The Government and APRA should consult widely on the details of such a licensing
arrangement.
Response
Agreed
On 28 October 2002, the Government announced its intention to introduce a
licensing regime for all APRA regulated trustees. The licence will require
that all superannuation trustees are competent and have adequate systems to
look after the interests of superannuation fund members.
Trustees will have to meet licence conditions on an ongoing basis. These
conditions will include requirements for trustees to meet minimum standards
of competency, have adequate resources, a risk management plan and adequate
risk management systems (including a fraud control plan), systems to manage
outsourcing, as well as any other conditions that APRA considers appropriate
to operate the proposed business.
Either the trustee corporation or a `notional entity' of individual trustees
would be licensed. Trustees would also be able to `buy-in' expertise to demonstrate
competence and other licence conditions.
To ensure compliance with the new licensing framework, APRA will be given
appropriate powers, including to issue directions, disqualify trustees, vary
conditions and suspend or revoke the licence, subject to appropriate safeguards
and review processes.
The Government and APRA will consult further with industry and other key
stakeholders to develop the detail of the licensing regime.
Recommendation 7.3
Duplication between the SIS legislation and the Managed Investments Act
should be reviewed jointly by APRA and ASIC. The aim of such a review should
be to achieve consistency between the two regimes for their application to
providers of retail investment products.
Response
Noted
A review of the Managed Investments Act 1998 has been completed. The
Parliamentary Joint Committee (PJC) on Corporations and Financial Services
has undertaken an inquiry into the review and released a report on its findings
in December 2002. The Government is considering the findings of the PJC, together
with the SWG findings, before deciding what action, if any, to take in respect
of this recommendation.
Recommendation 7.4
APRA should review the possibility of removing the need for life insurance
companies which write superannuation business in their statutory funds to
comply with the prudential requirements of the SIS legislation.
Response
Noted
Since the completion of the Productivity Commission's report, APRA has further
considered the issues and the views put by industry. The Government will work
with APRA in considering the need for such a review.
Recommendation 8.1
Trustees should provide members with information about the categories
of complaints that are excluded by legislation from consideration by the Superannuation
Complaints Tribunal.
Response
Noted
The Government intends to consider this issue more closely in consultation
with the Superannuation Complaints Tribunal (SCT).
Recommendation 8.2
The Superannuation (Resolution of Complaints) Act 1993 should be
repealed, subject to some transitional arrangements.
All superannuation entities regulated by APRA should be required to join
a disputes resolution scheme approved by ASIC. This should be mandated as
part of the compliance requirements of those superannuation entities.
Response
Not supported
The Government supports the retention of the SCT. There is widespread industry
support for the Tribunal, in particular its ongoing role as a statutory body.
Recommendation 8.3
Alternatively, the Superannuation (Resolution of Complaints) Act 1993
should be amended for the following purposes: