With the legislation commencing on 27 March 2006, several different situations need to be considered.
In the case of individual employers whether trading as a sole proprietor or in partnership the workplace legislation does not apply, if you carry on business in New South Wales, Queensland, South Australia, Tasmania or Western Australia. There is no change to current superannuation fund choice obligations.
In the case of individual employers carrying on business in Victoria, the Northern Territory or the Australian Capital Territory, the federal superannuation fund choice provisions already apply. Again, there is no change.
In the case of corporate employers whether trading as a company or as the trustee of a trust, the new legislation applies. If employees are employed under a State award, Fund choice will apply from 1 June 2006. In the case of employees employed under a State registered agreement specifying the superannuation fund to which contributions are to be made, fund choice does not apply. If employees are employed under a federal award, the federal superannuation fund choice provisions already apply. Again there is no change.
In the case of employees employed under a federal registered agreement that specifies the fund to which contributions are made – there is no change. Fund choice does not apply.
Common law agreements involve no change. Fund choice already applies.
Superannuation as an award entitlement is to cease on 30 June 2008. Superannuation can remain as an employment entitlement in an industrial agreement. Thus provisions specifying the fund to which contributions are to be made continue and new industrial agreements can specify the fund to which contributions are to be made. Where the fund to which contributions are to be made is specified in the agreement, then fund choice does not apply.
The Workplace legislation applies to an employer as defined in S4AB. The main categories of employer are constitutional corporations - foreign, trading and financial corporations.
Federal awards and agreements
In the case of the award provisions, the superannuation provisions can only continue until 30 June 2008. Thereafter superannuation will be purely a voluntary employer act. Fund choice already applies to a federal award.
Certified Agreements are replaced by Collective Agreements. Australian Workplace Agreements (AWAs) continue. Each of these types of agreement becomes a form of Workplace Agreement. Workplace Agreements may contain anything that relates to the employment relationship unless it is a prohibited content matter. Prohibited content is specified in the Regulations – renumbered section 356 (previously Section 101D). Superannuation is not prohibited content. This means superannuation terms including the fund to which contributions are to be made can be made a term of employment rather than a voluntary payment by the employer. The fund can continue to be specified in a Workplace Agreement.
The Superannuation guarantee legislation has been amended by the Workplace Relations Amendment (Work Choices) (Consequential Amendments) Regulations 2006 (No 1) to exclude such agreements from fund choice – new section 32C(6).
In the case of existing Certified Agreements, these are the subject of transitional provisions in renumbered Schedule 7 (previously Schedule 14). These agreements continue until terminated. There is no express provision as to superannuation. New section 32C(6) also applies to these agreements to exclude such an agreement from fund choice where it specifies the fund to which contributions are to be made.
State awards and agreements
In the case of employees employed by a corporate employer previously employed under State law, their terms of employment are transferred to the Federal system.
In the case of industrial agreements and awards, the transitional provisions in renumbered Schedule 8 (previously Schedule 15) apply.
State industrial awards become 'notional agreements preserving State awards' and are dealt with in Division 3 of Schedule 8.
State individual industrial agreements that prevail over State awards become 'preserved individual State agreements' and are dealt with in Division 1 of Schedule 8.
Collective State agreements become 'preserved collective State agreements' and are dealt with in Division 2 of Schedule 8.
In the case of former State awards, clause 45 of Division 3 of Schedule 8 provides for superannuation. Clause 45(3) provides that superannuation obligations are to cease to have effect at the end of 30 June 2008.
New section 32C(6A) applies to 'notional agreements preserving State awards' to exclude payments under such an agreement from fund choice up until 30 June 2006 where the award specifies the fund to which contributions are to be made. Superannuation contributions in respect of salary paid after 1 July 2006 are subject to fund choice. Choice notices will need to be given in terms of the legislation. The choice notice obligation applies to new employees and employees requesting a notice. No notice obligation applies where a choice notice was given under State award S32NA(10).
New section 32C(6B) applies to 'preserved State agreements' to exclude such an agreement from fund choice where it specifies the fund to which contributions are to be made. Preserved State agreements are preserved individual agreements and preserved collective State agreements. Thus fund choice remains unchanged for individual industrial agreements and collective State agreements where that agreement specifies the fund to which contributions are to be made.
Where that agreement's superannuation provisions are by incorporation of State award superannuation provisions, these will continue to apply as they are preserved terms under clause 5 (3) in the case of individual agreements and clause 13(2) in the case of collective agreements.
Thus individual agreements can provide for Superannuation as a term of employment and where it specifies the fund to which contributions are to be made, will not be subject to Fund choice. All other Superannuation arrangements are voluntary, unless the employer chooses to make it a term of employment. Fund choice applies to all arrangements after the provisional period other than Workplace Agreements and preserved State agreements.
Improvements to superannuation pensions
The SIS Regulations were amended on 15 December 2005 (SIS Amendment Regulations 2005 (No7)) mainly to update the allocated pension payment valuation factors (PVF) and provide longer terms for market linked income streams (ie term allocated pensions).
The maximum and minimum PVFs used to determine the amounts that can be withdrawn annually from an allocated pension have been updated to allow for the increase in life expectancy contained in the latest life tables. These apply from 1 January 2006.
The transitional provisions permit a pension with a commencement date between 1 January 2006 and 30 June 2006 to use either the new or old PVFs for pension payments made between 1 January 2006 and 30 June 2006 – reg 1.06(4)(f)(i).
All allocated pensions with a commencement date on or after 1 January 2006 must use the new PVFs in respect of all pension payments made on or after 1 July 2006 – reg 1.06(4)(f)(ii).
A pension with a commencement day before 1 January 2006 must continue to use the pre 1 January 2006 PVFs – reg 1.06(4)(e).
A person who commenced a pension before 1 January 2006 who wants to take advantage of the new rules, will need to commute the existing pension and commence a new pension.
Term allocated pensions
Extension of term up to age 100 and beyond
The Regs extend the maximum permitted term for term allocated pensions (TAPs) that commence on or after 1 January 2006. Payments can continue until the primary beneficiary reaches age 100. If the spouse is a reversionary pensioner and the spouse has a longer life expectancy, then payment can continue until the spouse reaches age 100 – reg 1.06(7)(iii)(F).
A person can still choose the term of a TAP based on the primary beneficiary's life expectancy (or that of a reversionary spouse) or their life expectancy as if the primary beneficiary (or reversionary spouse) was up to five years younger. This alternative makes the terms of the TAP and the disclosure documentation complex. There is no obligation to offer these terms, as they are permissive maximums. The only obligation is the minimum term – the person's life expectancy. However, before omitting those terms, age discrimination needs to be considered. Life expectancy, especially when age is reduced by up to five years, opens up the possibility of pensions extending beyond 100 years.
Like allocated pensions, a person who commenced a TAP before 1 January 2006 must commute and commence a new pension if they want the new rules to apply.
The amendments also allow some varying of payments from TAPs. A pensioner can vary their annual pension payment between 90% and 110% (ie plus or minus 10%) of the standard annual payment for the year. This applies regardless of when the TAP first commenced.
Transition to retirement pensions
The Regs have also been amended to make it clear that investment earnings on benefits in a non commutable pension commenced under the 'transition to retirement' condition of release are classified as 'preserved benefits': SIS reg 6.15A.
It is to be noted there are no restrictions on work requirements that apply to a person taking such a pension. It is thus open to both salary sacrifice and take a transition pension at the same time. This requires a weighing up of the differentials in the tax rates that apply to the individual.
Super contributions splitting between spouses – Regulations
On 20 December 2005 amendments to the SIS Regulations (SIS Amendment Regulation 2005 (No. 8)), and the Income Tax Regulations were made to allow spouses to split their superannuation contributions.
A superannuation fund member with an accumulation interest is able to split with their spouse up to 85% of taxable contributions and 100% of untaxed contributions made each year from 1 January 2006. As a result, each spouse can access her or his own ETP low rate threshold and RBL.
A member may apply to the trustee of the fund to roll over, transfer or allot for the benefit of the member's spouse an amount of the member's contributions made in the previous financial year before the application: SIS reg 6.44.
Splitting with a spouse who is over 65 years or who is between the preservation age and 65 years and has retired is not permitted - reg 6.44(2)(c).
As a trustee will not know these facts (or indeed if they are over 65) reg 6.44(3) provides protection if the trustee obtains a statement from the spouse that the spouse is under the preservation age or is between the preservation age and 65 years and does not satisfy the retirement condition of release in item 101 of Sch 1.
Whilst the regs apply to contributions made from 1 January 2006, effectively, a member can only request a contributions split from 1 July 2006 as a splitting request can only be made in respect of contributions made in the 'previous financial year'. Thus, a member will have to wait until 1 July 2006 to split contributions made between 1 January 2006 and 30 June 2006.
However, where the entire benefit is to be rolled over or transferred, the member may make the splitting request in the financial year that the contributions were made. The request must be made before transfer or roll over as transfer and rollover amounts are excluded from splitting.
A member is limited to one valid application per financial year. It is not mandatory for a superannuation fund to offer a contributions splitting service for their members. However, a trustee that accepts a valid application must roll over, transfer or allot the amount of benefits in favour of the receiving spouse within 90 days after receiving the application.
Trustees will need to consider limits if member protection is an issue.
Both married and de facto couples are eligible to split contributions. However, those in other 'interdependency relationships' are not eligible.
Existing superannuation benefits and contributions made before 1 January 2006 are not eligible for splitting. In addition, rollover amounts such as employer ETPs and ETPs in respect of the CGT small business retirement concession are not eligible for splitting.
The measures cannot be used to transfer benefits out of a superannuation interest that is subject to a Family Law payment split or on which a payment flag is operating.
A spouse contributions splitting amount is a 'minimum benefit' deemed to be preserved unless and until the trustee is satisfied that they are not preserved benefits: SIS reg 6.15(2). It is the status of the recipient spouse that is considered.
FSR refinement regulations
Amendments to the Corporations Regulations (via Corporations Amendment Regulations 2005 No. 5) that were made on 15 December 2005 to refine Financial Services Regulation (FSR) are now law.
There are some changes to the FSG obligations that will sometimes be of use when making representations to employers.
Modified s941C(7A) provides that an FSG need not be given where there is provision or it is likely that a financial service will be provided in a recommendation, issue or sale situation. Instead a PDS and basic FSG information may be given.
Care is required in the context of employers. Unless advice is given, it does not apply – there will not necessarily be an issue or sale as an employer does not acquire an interest.
If a recommendation is given then the trustee must hold a suitable licence. See ASIC QFS 160 for a reminder of this.
Part 3 of the Regs introduce new Division 3A which introduces a 'short form PDS' (SFPDS).
Short form PDS may be of use for superannuation. However, the scope for reduction in content is limited. The SFPDS must contain a summary of the statements and information required by most of the sub-paragraphs of s1013D(1). As well, other provisions to be included in an SPDS include the Schedule 10 financial tables – modified s1017I.
There is no ability to simply identify a subject matter and refer the reader to another source to find out more about that subject matter.
Thus, if the summary does not properly summarise the statements and information, the trustee is exposed to breach of the provisions.
As well, it is probably prudent to include insurance information from a liability point of view.
On 10 November 2005 the SIS Regs were amended to provide in reg 1.04AAAA the matters to be taken into account in determining whether there is an 'interdependency relationship'. This reg provides for the following matters to be taken into account:
- all the circumstances of the relationship between the persons, including (where relevant):
- the duration of the relationship; and
- whether or not a sexual relationship exists; and
- the ownership, use and acquisition of property; and
- the degree of mutual commitment to a shared life; and
- the care and support of children; and
- the reputation and public aspects of the relationship; and
- the degree of emotional support; and
- the extent to which the relationship is one of mere convenience; and
- any evidence suggesting that the parties intend the relationship to be permanent;
Subparagraph (2) provides two persons have an interdependency relationship if they satisfy the above requirements of the Act and one or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.
Assessment procedures will nee to be reviewed to take into account these criteria.
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.