The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, has released draft superannuation income stream regulations and a draft explanatory statement for public consultation.
The regulations continue the implementation of the Government’s superannuation reforms and introduce a new set of design rules for lifetime superannuation income stream products that will enable retirees to better manage consumption and longevity risk in retirement. The regulations are intended to cover a range of innovative income stream products including deferred products, investment-linked pensions and annuities and group self-annuitised products.
Closing date for submissions: 12 April 2017
The purpose of Schedule 1 to the Regulations is to introduce a new set of design rules for lifetime superannuation income stream products that will enable retirees to better manage consumption and longevity risk in retirement. The new rules are intended to cover a range of innovative income stream products including deferred products, investment-linked pensions and annuities and group self-annuitised products. The overarching goal of the rules is to provide flexibility in the design of income stream products to meet consumer preferences while ensuring income is provided throughout retirement. Superannuation funds and life insurance companies will receive a tax exemption on income from assets supporting these new income stream products provided they are currently payable, or in the case of deferred products, held for an individual that has reached retirement.
A contract for the provision of an annuity benefit, or the rules for the provision of a pension benefit (the governing conditions) will need to meet four key elements of the standards in subregulation 1.06A(2). These elements are:
- A requirement that benefit payments not commence until a primary beneficiary has retired, has a terminal medical condition, is permanently incapacitated or has attained the age of 65.
- A requirement that benefit payments, of at least annual frequency, be made throughout a beneficiary’s lifetime following the cessation of any payment deferral period.
- A rule ensuring that, after benefit payments start, there is no unreasonable deferral of payments from the income stream.
- Restrictions on amounts that can be commuted to a lump sum or for rollover purposes based on a declining capital access schedule commencing from the retirement phase.
Item 18 of Schedule 1 inserts a formula that will restrict the maximum commutation amount that can be accessed after 14 days from the retirement phase start day, on a declining straight line basis over the primary beneficiary’s life expectancy. The maximum commutation amount will be worked out by dividing the ‘access amount’ by the primary beneficiary’s life expectancy on the retirement phase start day and then multiplying this by the remaining life expectancy less one year at time of commutation. Life expectancy will be rounded down to a whole number of years. The maximum commutation amount will also be reduced by the sum of all amounts previously commuted from the income stream prior to the time of the commutation.
Item 11 of Schedule 1 will insert a definition to determine the value of the ‘access amount’ on the retirement phase start day for the income stream or at a point in time after the retirement phase start day. The access amount will be the maximum amount payable on commutation of an interest on the retirement phase start day as determined by an annuity contract or pension rules. Any instalment amounts paid for an interest in a deferred superannuation income stream after the retirement phase start day will then be added to the access amount at the point in time that an instalment is paid.