In the 2004-05 Budget the Government announced a number of measures to improve the integrity of the superannuation system that impacted on self managed superannuation funds (SMSFs) and other small superannuation funds (Appendix A).
The measures included new regulations that took effect from 12 May 2004 for defined benefit pensions (Appendix B). Under these new rules defined benefit funds and funds providing defined benefit pensions must have at least 50 members. The Government introduced these new rules to address tax avoidance arrangements, and to strengthen the prudential standards, relating to these funds.
After the integrity measures were announced, the superannuation industry broadly supported the need to limit abuse of superannuation schemes for tax avoidance or other non-retirement income purposes. Nevertheless, the superannuation industry and representatives of small superannuation funds argued that the defined benefit pension integrity measures reduce the range of income stream choices available from small funds. They also argued that the measures are not well targeted, and that the Government’s concerns can be addressed through other means.
The Government put in place the following transitional arrangements to address any unintended consequences arising out of the Budget measures:
- the introduction of the new complying market linked income stream from 20 September 2004;
- a transition period to allow those people, who on 11 May 2004 were members of a fund with fewer than 50 members and who retire, the ability to commence a complying lifetime or life expectancy pension until at least 30 June 2005; and
- the establishment of the review of the provision of pensions in small superannuation funds.
The key tasks of the review are set out in the terms of reference.
Next: Review processes
© Commonwealth of Australia 2005
ISBN 0 642 74275 8