B52/1993 AMENDMENT TO DEPARTMENTAL INSTRUCTION B20/93 OF 2 APRIL 1993 RELATING TO SUPERANNUATION FUND INVESTMENTS

DATE OF ISSUE: 29 SEPTEMBER 1993

AMENDMENT TO DEPARTMENTAL INSTRUCTION B20/93 OF 2 APRIL 1993 RELATING TO SUPERANNUATION FUND INVESTMENTS

PURPOSE

The purpose of this Departmental Instruction (DI) is to inform you of a necessary amendment to DI B20/93 of 2 April 1993.  It is important that this DI be read in conjunction with DI B20/93 when processing superannuation fund cases.

BACKGROUND

2.On 31 May 1993, this Department received advice from the Department of Social Security that the definition of "assessable period" for post-pension age withdrawals had been amended (see attachment A).

3.It is important to note that the policy change does not affect pre-pension age withdrawals which will continue to be assessed in accordance with the rules set out in paragraph 49 of DI B20/93.

CURRENT SITUATION

4.The definition of "assessable period" set out in paragraph 52 of DI B20/93 included reference to 1 April 1993 as one of four possible dates to apply when assessing the profit component on post-pension age withdrawals from superannuation fund investments.

CHANGE

5.Following the change to the policy, paragraph 52 (DI B20/93) should be amended by deleting 1 April 1993 from the definition of "assessable period" on withdrawals from post-pension age withdrawals.  The revised paragraph 52 should read as follows:

For post-pension age withdrawals from superannuation/rollover investments assessed on realisation, irrespective of whether an amount was considered preserved, the commencement date of the "assessable period" will be the later of:

• the date of investment; or

• the date of commencement of pension payment (disregarding any period that occurs before a continuous period of at least 2 years during which the person did not receive a pension, allowance or benefit); or

• the relevant pension age of the investor.

IMPACT ON CLIENTS

6.The original policy regarding the 1 April 1993 rule was not widely publicised in the media by either Department however the policy was included in Departmental Instructions which are available to ex-service organisations.

7.In addition, officers within Branches may have advised individual clients of the
1 April 1993 rule.

8.The number of post-pension age service pensioners who make withdrawals from affected investments, based on the advice that profit accrued prior to 1 April 1993 will be ignored, is likely to be very low and can be dealt with on an individual basis.  Proposed procedures are set out below .

PROCEDURES

9.Proposed procedures for dealing with cases are as follows:

• Unless it is clear that the individual made the withdrawal based on advice that the earliest possible accrual date would be 1 April 1993, the commencement date for calculation of profit will be the latter of:

.the date of investment;

.the date of commencement of payment of pension, (disregarding any period that occurs before a continuous period of at least 2 years during which time the person did not receive a pension, allowance or benefit; or

.the relevant age of the investor.

• If it is clear that the individual was given advice based on the previous policy, i.e. that the earliest possible accrual date would be 1 April 1993, the Department should concede and assess the case based on that earliest possible accrual date of 1 April 1993.

MANAGED INVESTMENT WITHDRAWAL WORKSHEET

10.Amendments to the managed investment withdrawal worksheet (MIWW), form D2702 have been arranged.  All stocks of form D2702 with a print date of Mar 93 (see bottom of form at left hand side) or earlier should be disposed of as soon as the new forms become available.

11.Investment Policy Officers (IPOs) in each Branch will be advised when the new forms are available.

12.In the meantime (iv) of the Superannuation Investment column, Section 1 of the form should only be used when calculating pre-pension age withdrawals.

CONTACT OFFICERS

13.If Branch officers require further assistance concerning these changes to superannuation they should firstly contact their Branch IPO.  If the IPO is unable to answer the query then contact Oona O'Beirne on (02) 213 7771 or Scott Carpenter on (06) 289 6368.

NATIONAL PROGRAM DIRECTOR

(BENEFITS)

ATTACHMENT

Manager

II&APS

Assessable Period on Withdrawal from Superannuation/Rollover Investments

- Effect of 25 March 1993 Changes

This not amends the position advised in the note of 26 February 1993 regarding post pension age withdrawals.  I had initially decided that the 25 March 1993 limitation should be introduced for both pre and post pension age withdrawals.  However, on reflection it is apparent that as the 25 March 1993 changes related only to pre pension age investments, the necessary administrative simplicity is achieved by introducing the limitation only for pre pension age withdrawals.  The position for pre pension age withdrawals therefore remains as advised in the note of 26 February 1993.

The Guide amendments incorporating the March changes will include the amended position.

Summary:

For pre pension age withdrawals from superannuation/rollover investments, the assessable period is to commence from the later of::

25 March 1993

date of investment

date of commencement of pension/benefit (as usually calculated)

For post pension age withdrawals from superannuation/rollover investments assessed on realisation, the assessable period is to commence from the later of:

date of investment

date of commencement of pension/benefit (as usually calculated)

age pension age

The contact for this is Gary Seeto on (06) 2445608.

ANDREW WHITECROSS

Director

Income and Assets Policy Section

Assessment of Superannuation Investments

Legislative Changes Effective From 25 March 1993

The legislative changes to the Department's treatment of superannuation and rollover investments effective from 25 March 1993 provided for the exemption of all amounts in superannuation and rollover investments from the assets and income tests until age pension age.  The aim of the changes was to standardise the treatment of amounts in superannuation and rollover investments, regardless of preservation status, to further the Government's retirement incomes objective of encouraging recipients of lump sum superannuation payments to preserve their lump sums until retirement.

Rules on and From 25 March 1993

From 25 March 1993 all amounts in rollover funds, regardless of preservation status, are exempt from assessment until age pension age.  Withdrawals before age pension age continue to attract assessment of growth while the client has been in receipt of pension or allowance.  However, residual amounts continue to be exempt from assessment until age pension age.  The new rules thus remove the former distinction between 'preserved' and 'non-preserved' amounts and also remove the incentive to voluntarily preserve 'non-preserved' amounts to gain exemption from assets and income assessment.

While the new rules greatly simplify procedures for clients who join the system after 25 March 1993, procedures in resepct of existing clients with superannuation and rollover investments are less straightforward.  This is because such investments may include:

.'saved' investments for which growth is assessable only on realisation, ie., certain accruing return investments made prior to 1 January 1988 and market linked investments made prior to 9 September 1988;

.investments retained by clients past age pension age which may be either 'saved' or 'ongoing assessment' products (eg., certain DA's purchased before 12 January 1987; clients who continue part time work after age pension age and contribute part time work after age pension age and contribute to superannuation schemes); and

.investments owned by non-client spouses both below and above age pension age.

Treatment of 'Ongoing Assessment' Investments.  From 25 March 1993 asset and income assessments in respect of existing non-preserved amounts in rollovers were discontinued until age pension age.  Early withdrawal results in the assessment of income in respect of growth while in receipt of pension or allowance unless the amount withdrawn is rolled over into another rollover, superannuation, or immediate annuity (IA) investment.  The assessable period commences from the latest of 25 March 1993, the date of investment, and the date of commencement of pension or allowance.  Where only partial withdrawals are made, residual amounts remain exempt from assessment until age pension age.  If the investment is retained after age pension age the rules for assessment of managed investments apply.

'Saved' (On Realisation) Investments.  From 25 March 1993 asset assessments in respect of existing saved investments were discontinued until age pension age.  Early withdrawal results in the assessment of income in respect of growth while in receipt of pension or allowance unless the amount withdrawn is rolled over into another roller, superannuation, or immediate annuity (IA) investment.  The assessable period commences from the latest of 25 march 1993, the date of investment, and the date of commencement of pension or allowance.  Where only partial withdrawals are made, residual amounts remain exempt from assessment until age pension age.

Saved investments After Age Pension Age.  After age pension age the rules for assessment of managed investments apply.  For saved investments, this means that the asset value is held and income is assessed on realisation.  When the investment is partly or wholly realised, the assessable period commences from the latest of the date of investment, the date of commencement of pension or allowance, and age pension age.

Non-Client Spouse Superannuation/Rollover Investments.

Treatment Prior To The Non-Client's Age Pension Age.  Superannuation and rollover investments solely owned by a non-client spouse are not assessable in respect of the partner's entitlement until the non-client reaches age pension age.  Withdrawals before age pension age do not result in assessment of growth while the partner has been in receipt of pension or allowance.

Treatment After the Non-Client's Age Pension Age.  From age pension age a non-client's spouse's investments are taken into account in the determination of the partner's entitlement.  There may of course be circumstances in which the date of commencement of the partner's entitlement or the date of investment occur after the non-client spouse attains age pension age.  The assessment therefore commences from the latest of the non-client's age pension age, the date of investment, and the date of commencement of the partner's entitlement.  For saved investments, only the asset value in assessable until realisation .  On realisation , the assessable period in respect of growth commences from the date the asset value became assessable.

Note:The above information reflects the Department's policy at the date of issue (28 may 1993).