CHAPTER 1
RETIREMENT SAVINGS ACCOUNTS
Introduction
1.1 On Budget night, 20 August 1996, the Treasurer, the Hon. Peter Costello
MP, announced that the Government would introduce Retirement Savings Accounts
(RSAs) to "enhance competition and choice in superannuation".
Mr Costello indicated that these would be a "simple, low cost product".
[1] The Government considered that RSAs
will give employees "greater scope to control the management of their
superannuation savings". [2]
1.2 Giving effect to this decision, on 4 December 1996, the Government
introduced the Retirement Savings Accounts Bill 1996, the Retirement Savings
Accounts (Consequential Amendments) Bill 1996 and the Retirement Savings
Accounts Supervisory Levy Bill 1996 into the House of Representatives.
The provisions of these Bills are to take effect on 1 July 1997.
Conduct of the Inquiry
1.3 On 12 December 1996 the Senate referred the provisions of the Bills
to the Senate Select Committee on Superannuation for examination and report
by 27 February 1997.
1.4 The Committee wrote to selected organisations inviting submissions.
It also advertised this reference in The Australian Financial Review on
Tuesday 11 February 1997 and received a number of inquiries from other
persons who were provided with information about the inquiry. As a result
the Committee received 20 submissions from those persons listed in Appendix
1, and held three public hearings, two in Canberra on 11 and 25 of February
and one in Melbourne on 21 February 1997.
1.5 A list of witnesses who appeared at those hearings is at Appendix
2.
Retirement Savings Accounts Bill
1.6 Provisions of the Retirement Savings Accounts Bill (RSA Bill) allow
banks, building societies, credit unions, life insurance companies and
prescribed financial institutions to provide superannuation accounts that
do not require the trustee structure presently required for superannuation
providers to receive concessional taxation treatment. Subsequent to foreshadowed
Government amendments to this Bill, certain friendly societies will be
included as approved financial institutions, where the Australian Financial
Institutions Codes (AFIC codes) apply to them. Details of the new structure
will be contained in the regulations.
1.7 The RSA Bill provides for the functional supervision of RSAs by the
Insurance and Superannuation Commission (ISC). The Bill is based on the
regulatory regime currently in place for superannuation entities under
the Superannuation Industry (Supervision) Act 1993. 'This will ensure
that the treatment for RSAs is as consistent as possible with that which
applies to existing superannuation products.' [3]
1.8 Provision is made for:
- the approval of RSA institutions and the capacity for that approval
to be suspended or revoked;
- annual reporting to the ISC by RSA providers;
- the clear delineation of basic duties and responsibilities of RSA
providers;
- rules relating to the opening of RSAs and disclosure by RSA providers;
- a mechanism to deal with benefits in respect of members that have
left employment or who are lost, and unclaimed benefits;
- the collection and use of tax file numbers;
- certain disclosure obligations on auditors of RSA providers; and
- powers for the ISC to enable effective enforcement of the retirement
income and other standards on RSA providers. [4]
1.9 It is important to note that by establishing the role of the ISC
as functional regulator of RSA providers, the legislation effectively
imposes a dual regulation regime, as prudential regulation of providers
remains with "home" regulators. For example, prudential supervision
of banks marketing RSAs will remain with the Reserve Bank of Australia,
while functional supervision will fall to the ISC.
Retirement Savings Accounts (Consequential Amendments) Bill
1.10 The Retirement Savings Accounts (Consequential Amendments) Bill
(CA Bill) contains provisions amending a number of Acts to create a similar
environment to that currently applying to existing superannuation products
such as superannuation funds and approved deposit funds by:
- putting in place an equivalent taxation regime of RSAs as applying
to existing superannuation products;
- allowing employers to make Superannuation Guarantee contributions
to an RSA;
- allowing the Superannuation Complaints Tribunal to deal with complaints
concerning RSAs;
- allowing RSAs to be used as a rollover vehicle for preserved superannuation
benefits; and
- providing for a mechanism for the calculation and collection of the
RSA supervisory levy. [5]
Retirement Savings Accounts Supervisory Levy Bill
1.11 Provisions of the Retirement Savings Accounts Supervisory Levy Bill
(Levy Bill) create a levy to be paid by entities providing RSAs. The purpose
of this levy is to recover the costs of supervision by the Insurance and
Superannuation Commission (ISC) in monitoring the compliance with retirement
income and other superannuation standards. [6]
1.12 The Levy Bill proposes to effect full recovery of the ISC's supervision
of RSAs. It does this by imposing a levy on RSA providers (banks, building
societies, credit unions and life insurance companies) that offer RSAs
and who lodge an annual return with the ISC.
1.13 This Bill makes provision for the application of:
- a retirement savings account levy on RSA providers consisting of two
components - the basic levy amount and the late lodgement amount;
- the basic levy amount to be prescribed by regulation based principally
on the amount of assets and/or the amount of RSA money they hold - to
not exceed $30,000;
- a late lodgement amount calculated monthly and added to the basic
levy - intended to encourage timely lodgement and cover additional costs
of processing late annual returns; and
- the total late lodgement amount being the sum of the monthly amounts
calculated. [7]
The current trustee system
1.14 At present superannuation products are issued under a trust structure.
This requires trustees to be responsible for the actions of the trust
according to trust law, and to observe various prudential and other regulations
mainly contained in the Superannuation (Supervision) Act 1993 (SIS) and
the regulations made under that Act.
1.15 The incentive to comply with SIS is the 15 per cent concessional
rate of tax which applies to complying superannuation funds. Non-complying
funds are subject to the normal taxation regime for companies and trusts
which would normally mean the company tax rate.
1.16 The trustee structure reflects that superannuation monies are held
by the funds on behalf of their members. Any net earnings on investments
are credited to members' accounts, rather than to the investment entity.
Financial institutions such as life offices, banks, credit unions and
building societies are not prohibited now from the provision of superannuation
services, as they can establish subsidiaries with a trustee structure
so as to construct complying funds. A number of such subsidiaries now
exist.
What RSAs will do
1.17 The proposed RSAs are seen to address three problems arising from
superannuation arrangements, namely lack of choice, small balances and
proliferation of accounts. In the words of the Treasurer's press release
of 20 August 1996:
RSAs will be a simple, low cost, low risk product especially
suited to those with small amounts of superannuation, such as itinerant
and casual workers, those wishing to amalgamate several small superannuation
accounts and those nearing retirement (wishing to minimise risk). Their
introduction will complement existing arrangements by increasing competition
and choice in the superannuation industry, thereby putting downward
pressure on fees and charges, and encouraging better standards of service.
1.18 There has been general agreement that the returns on RSAs will be
less than other superannuation accounts. This reflects in part the capital
guaranteed structure of RSAs where the amount invested cannot be reduced
by negative investment returns. The proposal for a maximum limit for RSAs
was rejected by the Government. Instead it was decided to require RSA
providers to inform holders of their investment options when the limit
is reached. This will allow RSA holders to remain with their RSA if they
wish.
[Return to Table of Contents]
Footnotes
[1] 1996/97 Budget Speech, House of Representatives
Hansard, p. 3269.
[2] Second Reading Speech on the RSA Bill
[3] Retirement Savings Accounts Bill 1996, Explanatory
Memorandum, p 1.
[4] Retirement Savings Accounts Bill 1996, Explanatory
Memorandum, pp 1-2.
[5] Retirement Savings Accounts (Consequential
Amendments) Bill 1996, Explanatory Memorandum, p 1.
[6] Second Reading Speech on the Levy Bill
[7] Retirement Savings Accounts Supervisory
Levy Bill 1996, Explanatory Memorandum, p 1.
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