CHAPTER 3

RETIREMENT SAVINGS ACCOUNTS LEGISLATION
CONTENTS

CHAPTER 3

TECHNICAL ISSUES

Introduction

3.1 In its submission to the Committee the Australian Bankers' Association identified a number of problems it saw in the Bills. The more significant of these involved:

  • the need to consult with the prescribed regulatory authorities regarding action toward potential or existing RSA providers;
  • the need to notify an employer of suspension or revocation of an RSA provider's licence;
  • inconsistency with the SIS legislation with regard to operating standards;
  • problems in the application of the prohibition on interest off-setting arrangements;
  • the transfer of RSA balances;
  • the requirement on RSA providers to hold money on trust in certain circumstances
  • inconsistency with SIS regarding complaints against RSA providers; and
  • a number of matters relating to the taxation arrangements.

3.2 Also, the Committee particularly noted the problems in the Bills identified in the submission from the Life Investment and Superannuation Association of Australia (LISA). Significant among these were:

  • doubts about the relevant prudential supervisor of RSAs offered by life companies;
  • the double taxation of income and the relevant tax rate;
  • consultation with the relevant regulator;
  • consequences of suspension or revocation of RSA provider's approval for employers;
  • inconsistency of operating standards with SIS;
  • monies to be held on trust;
  • disclosure requirements;
  • refunding of employer contributions; and
  • death and disability cover.

3.3 Submissions made to the Committee by other organisations also raised technical issues similar to those referred to above.

 

The Government's amendments

3.4 On the afternoon of its final public hearing on this matter on 25 February 1997, the Committee received the amendments which the Government would be introducing into Parliament during the passage of these Bills.

3.5 The amendments to the RSA Bill are aimed at:

  • providing for the relevant prudential regulator to be consulted before the ISC makes decisions affecting RSA institutions;
  • removing the requirement that certain money be held on trust; and
  • making miscellaneous technical drafting improvements.

3.6 Amendments to the Consequential Amendments Bill seeks to:

  • limit the scope of who is regarded as a 'representative of an RSA provider' for the purposes of the Superannuation (Resolution of Complaints) Act 1993;
  • enable the Superannuation Complaints Tribunal to be constituted by any three Tribunal Members;
  • modify the tax regime on RSA providers by:

      • - removing concerns that the provisions could result in the double taxation of amounts credited to RSAs;

      - ensuring that the RSA component of an RSA provider's income is not reduced by tax paid in relation to an RSA that is withdrawn by the RSA provider from the RSA; and

      - ensuring the RSA providers cannot offset losses against RSA income.

  • ensure that the intercorporate dividend rebate applies appropriately to life assurance company RSAs; and
  • ensure that tax file number provisions applying to ordinary bank accounts do not apply to RSAs.

3.7 As the Committee did not receive the amendments until shortly before its final hearing, it has not been able to examine in detail whether the amendments to be moved by the Government to these bills adequately address the technical issues and anomalies identified by the ABA, LISA and other organisations. The Committee sought information from the ISC about the extent to which the amendments addressed these problems.

3.8 The Committee also independently examined the amendments. The Government members of the Committee are satisfied that they appear to resolve what it found to be the main difficulties with this legislation arising out of the submissions and oral evidence.

 

Conclusions and Recommendations

3.9 The market for RSA products may be somewhat limited, as it is likely that the interest paid on deposits in RSAs will probably be significantly less in the longer term than the rates paid by most superannuation funds. Nonetheless, risk aversive investors such as those approaching retirement and persons who prefer a simpler product than conventional superannuation will find RSAs attractive.

3.10 While proponents and opponents of this legislation have given the concept of RSAs a mixed reception, the Government members of the Committee consider that on balance, RSAs will be a useful addition to the range of retirement savings products and add to the choices that are available.

 

Recommendation

The Government members of the Committee recommend that the Bills be passed with the Government amendments as presented to the Committee.

 

Senator John Watson (Chairman) Senator Alan Ferguson Senator Julian McGauran