The Government will be modifying aspects of its Budget proposals regarding the early release of superannuation benefits. This decision follows extensive negotiations with Labor and the minor parties who were determined to defeat this Budget measure.
The Government still believes that, on the whole, the original Budget announcement provided necessary enhancements to Australias retirement income policy, ensuring a financially secure retirement for all Australians. These changes were designed to improve the administration of the system by the Insurance and Superannuation Commission and fund trustees, and also to address some of the abuses of the arrangements by safeguarding against excessive leakage from superannuation funds prior to genuine retirement.
In response to concerns, the Government has decided to reduce the preservation threshold for superannuation accounts from $500 to $200, rather than the proposed total abolition.
However, it became apparent during Senate negotiations that Labor and the Senate minor parties would vote down the necessary regulations, unless there were further significant amendments.
The Government will be introducing amended regulations which will represent the change to the preservation threshold, and the position of the parties in the Senate, at the first available opportunity.
In addition to the new preservation threshold, the changes from the original Budget announcement will include:
- a reduction of the period for which an applicant must be in continuous receipt of Commonwealth support payments for the purpose of receiving early access to benefits in the case of severe financial hardship from 12 to 6 months;
- more flexibility in the criteria for early release on compassionate grounds; and
- an extension to the transition provisions for release of benefits in the case of permanent departure from Australia which will allow individuals who lodge a written request with their fund trustees and leave Australia on or before 30 June 1998 to have their benefits released.
A more detailed outline of the changes is attached.
CANBERRA
17 November 1997
Contact:
Richard King
02 6277 7360 or 0419 683 586
ATTACHMENT
$500 Preservation Threshold
The preservation threshold will be reduced from $500 to $200 rather than the proposed total abolition. This should address concerns regarding potential increases in the number of accounts with small balances, while still reducing leakage from the superannuation system and encouraging consolidation of superannuation accounts with relatively small balances.
Severe Financial Hardship
The period for which an applicant must be in continuous receipt of Commonwealth support payments in order to gain early access to superannuation benefits in the case of severe financial hardship will be reduced from 12 to 6 months.
The objective test of severe financial hardship for early release of benefits will also be tightened by requiring applicants to satisfy their funds trustee that they are unable to meet reasonable and immediate family living expenses. Official guidelines in applying this test will be circulated to trustees.
Compassionate Grounds
Some flexibility will be introduced around the criteria for compassionate release introduced in the Budget. The Insurance and Superannuation Commissioner will be given flexibility in approving early release where an application strictly satisfies the spirit of the compassionate grounds criteria.
Permanent Departure From Australia
The legislative amendments to remove permanent departure from Australia as a condition of release for superannuation benefits includes a transitional provision which allows individuals who lodged a written request with their fund trustees on or before 30 June 1997 to have their benefits released under the old rules. This transitional provision will be extended so that individuals permanently departing Australia on or before 30 June 1998 will be able to access their preserved superannuation benefits upon permanent departure - providing they have lodged a written request with their fund trustee before departure.
The Government considers that allowing temporary residents early access to superannuation benefits on permanent departure after this time would severely compromise the Department of Social Securitys negotiating position in respect to bilateral social security agreements. It would also result in labour market distortions, making temporary residents cheaper to employ than permanent residents. Favouring temporary residents this way would not conform with the Government's job creation priorities for Australians.