CHAPTER FOUR
TECHNICAL ISSUES
Introduction
4.1 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.
4.2 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.
4.3 Submissions made to the Committee by other organisations also raised
technical issues similar to those referred to above.
The Government's amendments
4.4 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.
4.5 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.
4.6 Amendments to the Consequential Amendments Bill seek 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.
4.7 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.
4.8 The Committee has also independently examined the amendments. The
Opposition members of the Committee have a number of concerns with the
amendments to section 60 of the Retirement Savings Accounts Bill in
particular. These amendments remove the trust relationship in the situation
of a suspense account. Instead the relationship will be one of a debtor
and creditor. The Opposition members believe that it may be appropriate,
in the situation of a suspense account to maintain the trust relationship
instead of the debtor and creditor relationship.
4.9 Due to the time difficulties constraining the Committee's deliberations,
the Opposition members of the Committee cannot be fully confident in
approving the legislative package establishing the RSA regime. This
concern is emphatically reiterated due to the absence of the regulations
during the course of the Committee's examination of the RSA regime.
Conclusions and Recommendations
4.10 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
may find RSAs attractive.
4.11 While proponents and opponents of this legislation have given
the concept of RSAs a mixed reception, the Opposition members of the
Committee consider that RSAs may be a useful addition to the range of
retirement savings products and add to the choices that are available.
However the Opposition members consider it to be critically important
to the government's agenda to ensure that the RSA product originally
proposed and the product offered are akin to one another.
4.12 The Opposition members of the Committee consider that given the
forcefulness of some of the submissions received and the consistency
of opinion on a number of issues, it is entirely appropriate for it
to recommend to the Senate a number of amendments.
Recommendations
| The Opposition members of the Committee recommend
that the bills be amended so that employers must be able to
show that consent has been given by an employee to open an RSA
account. |
| The Opposition members of the Committee recommend
that the bills be amended to ensure that an employer must use
a different application form for each RSA that they open. |
| The Opposition members of the Committee believe
that it is critical to informed choice that any commercial relationship
in existence between the employer and the RSA provider is disclosed
to the employee. The Opposition members consider this point
to be fundamental, particularly in the event of the Senate refusing
to amend the bills in relation to the employer's ability to
open an RSA on behalf of an employee. |
| The Opposition members of the Committee also believe
the regime of disclosure to be critical to the issue of choice.
Disclosure should up front, before the RSA is opened. This information
should include fees and charges, interest rate, commercial relationship
between RSA provider and employer and cigarette style health
warning regarding the low growth, low return nature of the product.
|
| The Opposition members believe that due to the
low growth, low return nature of the RSA product RSA holders
must be notified regularly, at least annually through the health
warning of the dangers of using an RSA for long term financial
planning reasons. |
| The Opposition members of the Committee recommend
that when the RSA reaches the $10,000 the holder must be notified
separately, with a health warning a range of information indicating
alternative options. |
| The Opposition members of the Committee recommend
that the bills be amended to provide for a specific prohibition
on third line forcing, so that RSA holders are protected from
such behaviour. |
| The Opposition members of the Committee recommend
that the definition of capital guarantee be amended to reflect
the sentiment that accounts cannot be diminished by fees and
charges. |
| The Opposition members of the Committee recommend
to government the need for a government sponsored education
campaign. The Opposition members consider it to be exceptionally
vital if the government is going to meet its commitment to provide
expanded consumer choice in the superannuation product market.
|
| The Opposition members of the Committee recommend
that the Government amend the legislation to allow complying
superannuation funds to offer individual superannuation products
such as RSAs in order to remain consistent with its election
statements and Cabinet Submission regarding the provision of
RSAs. |
Senator the Hon. Nick Sherry
Deputy Chairman
Senator Stephen Conroy
Senator Chris Evans
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