Judith Troeth (Victoria, Liberal Party) Share this | Hansard source

Pursuant to standing order 166, I present a government response to the report of the Select Committee on Superannuation and Financial Services which was presented to the President when the Senate adjourned on 16 June 2006. In accordance with the terms of the standing order, the publication of the document was authorised. In accordance with the usual practice and with the concurrence of the Senate I ask that the government response be incorporated in Hansard.

Leave granted.

The document read as follows—

Government response to The Recommendations made by the Senate Select Committee on Superannuation and Financial Services in their report entitled Early Access to Superannuation Benefits

Recommendation 1

The Committee recommends that the Government review the adequacy of current social security measures to provide relief in case of severe financial hardship as part of an overall review of the Government’s retirement incomes policy.

The Government’s response: Not supported

The Government does not support the recommendation to review the adequacy of current social security measures to provide relief in cases of severe financial hardship.

The Government provides a safety net via the social security system for people in financial need and believes that the present arrangements are appropriate. Aside from the general support measures such as income support payments and concession cards, there are also specific measures available for those in severe financial hardship including a special benefit payment, a crisis payment, lump sum advances and waiving of waiting periods.

More broadly, in 1999 the Government established a broad-ranging process of reform to Australia’s working age support system. The latest stage of this reform process is Welfare to Work measures that were announced in the 2005 Budget and will commence on 1 July 2006. The Welfare to Work measures will encourage greater levels of economic participation amongst people on income support payments, which in turn will reduce the likelihood of severe financial hardship.

On superannuation, the Government’s current priorities lie with the implementation, and bedding down, of its election commitments that were outlined in the policy documents A Better Superannuation System and Super for All and Understanding Money. These commitments include the generous Government superannuation co-contribution for low-income earners, the choice and portability policies, increasing the fully deductible amounts for the self-employed and allowing the splitting of contributions for couples. As well, the superannuation surcharge has been abolished from 1 July 2005. These policies combined reflect the Government’s commitment to making superannuation more flexible, attractive and secure for Australians.

Recommendation 2

The Committee recommends that information be collected annually on the total number, value and type of early release payments by superannuation funds, in order to allow for analysis of trends in those payments.

The Government’s response: Supported

The Australian Prudential Regulation Authority (APRA) has undertaken to collect data on early release payments, including data on the release of benefits on compassionate and severe financial hardship grounds.

New reporting arrangements generally require funds to report annually on the amount of superannuation released on both severe financial hardship and compassionate grounds.

The Government believes that this data will be helpful in analysing trends in the early release of superannuation benefits, and in determining the appropriateness of current policy settings.

Recommendation 3

The Committee recommends that the rules governing early access to superannuation benefits be consistent for all accumulated funds.

The Government’s response: Not supported

The Government does not support the recommendation that the rules governing early release of superannuation benefits be made consistent for all accumulation funds.

Traditionally, trustees have had discretion as to whether moneys may be released under severe financial hardship or compassionate grounds. Despite this discretion, the Government understands that the majority of superannuation funds do offer early release of superannuation benefits to members.

Requiring all funds to offer early release may result in a disproportionate administrative impact on funds, depending on the size and type of fund and administrative capability.

The introduction of choice and portability measures allows people to choose a fund that suits their requirements.

Recommendation 4

The Committee recommends that the Government examine how defined benefit funds, including Commonwealth civilian and defence force funds, could make the early release of benefits available to those members to whom it is not currently available.

The Government’s response: Not supported

The Commonwealth Superannuation Scheme (CSS) and the Public Sector Superannuation Scheme (PSS) are defined benefit schemes that provide superannuation arrangements for Australian Government civilian employees. However, the CSS and the PSS were closed to new members from 1 July 1990 and 1 July 2005 respectively. The new Public Sector Superannuation Accumulation Plan, which is available to most new employees who commence employment on or after 1 July 2005, permits the early release of benefits to the extent allowed by thelaw.

The Defence Force Retirement and Death Benefits Scheme (DFRDB) is a fully defined unfunded superannuation scheme for members of the Australian Defence Force (ADF) was closed to all new members on 1 October 1991. The Military Superannuation and Benefits Scheme, a defined contribution/defined benefit scheme, replaced DFRDB for new entrants to the ADF on 1 October 1991.

The Government does not support a broader review of how defined benefit funds could offer early release. Unlike accumulation schemes, it is not possible to extend access to the current provisions for early release in the abovementioned defined benefit schemes without affecting scheme costs and/or increasing the complexity of the schemes. Whether a fund, be it an accumulation or defined benefit fund, offers early release of benefits is a matter for the individual fund to decide, taking into account a range of considerations including potential benefits to members and administration costs.

Recommendation 5

The Committee recommends that all early release payments on the grounds of severe financial hardship and compassionate grounds (or specified criteria) be administered by a single government agency, which must be provided with adequate funding and staffing, and suggests Centrelink would appear to be the appropriate agency.

The Government’s response: Not supported

It was announced in the 1997-98 Budget that the administration of claims for the early release of superannuation benefits based on severe financial hardship grounds was to move away from a government agency, the Insurance and Superannuation Commission’s (ISC), and rest with superannuation fund trustees. To return administration of these claims to a government agency now would be contrary to this move.

Trustees of superannuation funds have the sole responsibility of determining claims for early release on severe financial hardship grounds.

Although APRA, the ISC’s successor, continues to examine claims for early release of superannuation benefits on compassionate grounds, the final decision on whether benefits are released rests with the trustees of an applicant’s superannuation fund, subject to the fund’s governing rules.

Many of the issues identified in the Committee’s report centred on the cost to the fund in administering claims for early release, inconsistency between funds and the lack of expertise of fund staff. In addition, there were concerns about the interpretation of the $10,000 maximum withdrawal limit placed on severe financial hardship claims.

Available information suggests that the current processes for administering early release of superannuation benefits work relatively well. It is believed that, for the most part, the issues outlined above could be overcome by superannuation funds adopting improved decision-making processes and providing clearer information and instructions to members applying for the early release of their superannuation benefits.

APRA has produced a set of guidelines and suggested forms (use of which is voluntary) that provides trustees with assistance in administering financial hardship claims. In relation to the concerns about the withdrawal limit, APRA will ensure advice is available to fund trustees on how the provision works.

The Government will continue to monitor the appropriateness of the processes and make changes if and when required.

Recommendation 6

The Committee recommends that a single external review mechanism apply to the agency’s decision on early release applications, irrespective of the grounds on which the application was made.

The Government’s response: Not supported

Different bodies are responsible for reviewing decisions regarding early release of superannuation benefits on severe financial hardship and compassionate grounds.

Members who are not satisfied with trustees’ decisions on severe financial hardship grounds can appeal to the Superannuation Complaints Tribunal (SCT) which conducts merits review. Merits review involves a third party ‘stepping into the shoes’ of the original decision maker, and, where appropriate, substituting its own finding or affirming the original finding.

Members who are not satisfied with APRA’s decisions on compassionate grounds can request that the Commonwealth Ombudsman investigate to determine if correct processes were followed. Currently APRA’s decisions are not subject to merits review.

The Government is investigating the appropriateness of having merits review via the Administrative Appeals Tribunal (AAT) apply to decisions made by APRA in regards to the early release of superannuation benefits on compassionate grounds. This would ensure that all early release decisions are subject to equivalent external review processes, albeit administered by two separate bodies as neither the SCT nor the AAT have jurisdiction to review both.

Recommendation 7

The Committee recommends that the Government consider extending the criteria that govern early access to superannuation, given the evidence the Committee had received of widespread dissatisfaction with the rigidity of the current grounds for release.

The Government’s response: Not supported

The Government considers that the existing early release mechanisms strike an appropriate balance between allowing people access to superannuation benefits in cases of personal or financial difficulty, and the need to ensure that concessionally taxed superannuation is used for retirement income purposes. The current preservation arrangements (within which the early release provisions operate) assist in meeting Australia’s retirement income objectives.

The arrangements for early release were reformed to ‘tighten and streamline’ the administration of benefits in the 1997-98 Budget. They include:

• replacing the former ISC’s discretionary administration of early release on severe hardship grounds with a more objective test to be administered by fund trustees; and
• replacing the former ISC’s board’s discretion to approve the release of benefits on compassionate grounds with specified objective criteria, as set out in the Superannuation Industry (Supervision) Act 1993. This function has been carried out by APRA since it replaced the ISC on 1 July 1998.

Recommendation 8

The Committee recommends that where there is conclusive medical evidence of the existence of a prescribed terminal illness, claims be processed without delay.

The Government’s response: Supported in principle

The majority of superannuation funds that offer early release aim to release funds to successful applicants as quickly as practicable.

Where applicants of early release have been assessed, by APRA and/or their trustee, to be experiencing some form of personal or financial difficulty, and the Government believes that applicants should be provided with access to funds as expeditiously as possible. As such, the Government does not intend to prescribe that only those with specific illnesses should have their claim processed without delay.

Recommendation 9

The Committee recommends that trustees be required by law to release funds within a specified time of receiving notification of authorisation by the relevant government agency with responsibility for administering claims for the early release of superannuation benefits.

The Government’s response: Not supported

The Government understands that timeliness is important for genuine applicants of early release, as the applicants are people in financial difficulty.

That said, allowing superannuation funds to offer early release on a voluntary basis, on the one hand, whilst mandating timeframes for release of benefits on the other, may lead to a decline in the number of funds offering early release. That is, if trustees envisage that it will be difficult to adhere to the timeframe, they may stop offering early release to members.

The Government encourages superannuation funds to release benefits in a timely manner, and to assist members in ensuring that they understand the application process, including what information should be provided, in order to minimise delays.