Govt Actuary plans to get tough on super funds
The Government Actuary has said he will deregister super funds which are being used for purposes other than retirement.
Tuesday, March 21st 2000, 12:00AM
Last year he deregistered two small schemes and this year he is already in the process of deregistering two retail funds and one employer sponsored scheme.
Under the act a fund can only qualify as a super scheme if its purpose is "principally for the purpose of providing retirement benefits."
Rashbrooke says that some funds are now pushing "the edge of the envelope" and he has been forced to take firmer action.
Added to this problem is impending increase in the top personal tax rate to 39 cents for income over $60,000.
Rashbrooke says professionals are showing a high level of interest in super funds as they can be used to minimise the impact of the tax increase.
Rashbrooke says the definition of the "principally for the purpose of providing retirement benefits" phrase has never been seriously tested in court, and the legislation does not spell out an adequate definition.
Consequently he has released a discussion document outlining his views on the phrase's meaning and is prepared to take action to make sure super schemes comply with the law.
In the past the actuary's office has tended to enforce its view by "jawboning" scheme operators and trustees.
Rashbrooke says one of the problems he faces in enforcing the super schemes laws is that more and more super funds are being used just like other managed funds. That is a significant proportion of the payouts being made are non-retirement benefits.
In his discussion paper Rashbrooke proposes taking a much tougher stance on what is a super scheme.
He suggests that non-retirement benefits should form a relatively small proportion of the benefit payment from a scheme.
"In numerical terms something of the order of at least 15 per cent would appear to be an absolute maximum, and a reasonable expectation would be something of the order of 5-10 per cent, at most."
Under the proposals the Government Actuary will seriously considering deregistering a scheme where:
- The level of non-retirement benefits being paid or provided indicates that the scheme is paying, or likely to pay, more than 5 to 10 per cent of assets being accumulated in respect of members under the age of 55 as non-retirement benefits
- Non-retirement benefits are being paid or provided to more than 15 to 20 per cent of the membership;
- The level of non-retirement benefits being paid or provided is greater than 5 to 10 per cent of contributions towards, or the accrual of, retirement benefits in the same period, and where provision of these non-retirement benefits can not be explained to my reasonable satisfaction by some particular circumstance.
This view worries the Association of Superannuation Funds of New Zealand.
"There appears to be some far-reaching implications for employment-related superannuation schemes in the content of this discussion document," executive director David Stevens says.
He also says the submission timeframe is far too short.
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