Superannuation Update June 2008 – General update

Freehills update

Peggy Haines has just returned from Washington DC where, on 10 May 2008, she was a panellist discussing cross-border mergers and acquisitions employee benefits issues at a conference presented jointly by the American Bar Association and the International Pension and Employees Benefits Lawyers Association.

Natalie Gullifer has written an article for the May 2008 Australian Superannuation Law Bulletin, entitled ‘Changes to the calculation of minimum SG contributions’, which discusses the amendments to superannuation guarantee commencing on 1 July 2008.

Budget

The Treasurer, the Hon Wayne Swan MP, handed down the 2008–09 Federal Budget on 13 May 2008—the first Budget of the Rudd Government. While there weren’t many substantive changes regarding superannuation, the Budget included the following superannuation-related announcements:

1. the government announced a comprehensive review of Australia’s tax system with a commitment ‘to preserve the tax-free status of superannuation payments for those aged over 60’
2. the First Home Saver Accounts will proceed as detailed in our Superannuation Update February 2008 newsletter but with the following proposed changes resulting from industry consultation:
   
   • the commencement date has been delayed until 1 October 2008
   • the use of salary sacrifice contributions has been dropped
   • the government contribution will be 17 per cent of the first $5,000 contributed annually for all eligible individuals
   • removal of the requirements of a $1,000 upfront contribution and Australian residency to open an Account (although the government contribution will only apply to Australian residents for tax purposes), and
   • the proposed $10,000 annual contributions cap is to be replaced with one overall account balance cap of $75,000, which will be indexed. No further contributions will be possible after this limit has been reached
     
     There remains a requirement for RSE licensees who offer First Home Saver Accounts to establish the accounts under a separate trust structure and not through any existing superannuation fund.
     
3. funding has been announced for the establishment of the proposed optional contributions clearing house which will assist businesses that are required to make compulsory contributions to many different superannuation funds. It is proposed that the clearing house be offered free to businesses with less than 20 employees
4.  salary sacrifice contributions to superannuation will, from 1 July 2009, be assessed as income for all relevant tax and welfare programs, including certain income support payments, family assistance, child support and a range of other government assistance delivered through the tax system, and
5. from late in 2008, there are proposed changes to superannuation arrangements for temporary residents. Employer contributions can be paid to a superannuation fund or to the ATO but, if paid to a superannuation fund, the superannuation entitlements must be transferred to the ATO on an annual basis. No interest will be paid by the ATO and the entitlement of the temporary resident will be forfeited to the Commonwealth if not claimed within five years of permanently leaving Australia. The government accepted submissions on this proposal until 26 May 2008 and, given the strength of the objections in many areas of the industry, we expect the government to announce changes to the proposal in the future.

Same-sex discrimination

The Rudd Government has announced its intention to remove same-sex discrimination by providing for equality of treatment for same-sex and opposite-sex de facto couples under a range of Commonwealth laws, including tax, superannuation, social security, health, aged care, veterans’ entitlements, workers’ compensation and employment entitlements. The changes are expected to be implemented by mid-2009.

Further to this announcement, the Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Bill was introduced into the House of Representatives on 28 May 2008 and passed by the House of Representatives on 4 June 2008. The Bill has now moved to the Senate and is discussed below.

Bills

Federal Parliament resumed on 13 May 2008. The following superannuation-related Bills were introduced to the House of Representatives on 28 May 2008:

• Same-Sex Relationships (Equal Treatment in Commonwealth Laws - Superannuation) Bill, which proposes to amend the following definitions under the SIS Act:
  
  • ‘spouse’ to include a person who is in a relationship with another person as a couple (whether or not the persons are of the same or different sexes), and
  • ‘child’ to include a child who is the product of a person’s relationship in a couple which means that the child must be either the biological child of one person in the relationship or is born to a woman in the relationship.

The government intends for these amendments to commence from 1 July 2008.

If this Bill is passed, trustees will need to review the terms of their trust deed in the light of these amendments. Trustees will also need to assess the impact of the amendments on payment of death benefits from the fund, including a review of all communication material, PDSs and the fund’s procedures and documents in relation to death benefits and contribution splitting.

• First Home Saver Accounts Bill, which implements the Government’s First Home Saver Account Program, was passed by the House of Representatives on 2 June 2008.

The Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (Cth) (Act) received Royal Assent on 26 May 2008. This Act seeks to improve the:

• efficiency, transparency and consistency of the process for disqualifying individuals from financial sector entities, and
• accountability of regulators, such as APRA, regarding the disqualification of individuals.

APRA research on superannuation fund governance

In APRA Insight Issue 1 2008, APRA has published the findings from a detailed study of superannuation fund trustees, including the following:

• service providers are widely used in the superannuation industry and trustees are generally outsourcing well
• the average fund uses more than 13 service providers
• most boards have independent audits and regular self-assessments to review compliance with SIS
• directors are generally well trained and qualified, and
• there are some systematic differences in trustee governance between different types of superannuation funds.

Overall, the study’s findings reflected positively on the industry.

More information

For information regarding possible implications for your business, contact a member of the Financial Services team.