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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
Superannuation Legislation
(Commonwealth Employment) Repeal and Amendment Bill
1997
Date Introduced: 3 December 1997
House: House of Representatives
Portfolio: Finance and Administration
Commencement: Except as
otherwise noted in the Main Provisions section, Royal Assent. The
main amendments relating to choice of fund for new employees and
the closure of the Public Sector Superannuation Scheme will apply
from 1 July 1998.
To amend the various
superannuation schemes applicable to Commonwealth employees to
provide for choice of fund and to terminate eligibility to enter
the current Commonwealth employment superannuation scheme. The Bill
also makes a number of relative minor amendments to the former
Commonwealth superannuation scheme.
For information on the choice of fund in general
and how the proposed rules will apply to the private sector, which
are substantially the same as those applicable to Commonwealth
employees, refer to the Digest for the Taxation Laws Amendment Bill
(No. 7) 1997.
Current Commonwealth employees in both the
general public service and in a number of Commonwealth authorities
may be covered by either the Commonwealth Superannuation Scheme
(CSS) or the Public Sector Superannuation Scheme (PSS). For new
employees, entrance to the CSS was terminated on the introduction
of the PSS in 1 July 1990, however as at 30 June 1997 there were 68
549 members of the CSS.(1) PSS has a larger
membership which reflects not only the closure of the CSS but also
the transfer of members from the CSS to the PSS. As at 30 June
1997, there were 114 123 members of the PSS.(2)
Both CSS and PSS are defined benefit schemes so
that the benefits a member will receive, other than interest on
their own contributions, is not dependent on the earnings of the
fund but is defined in the legislation and trust deeds that created
the funds. The CSS and PSS are also unfunded schemes, which means
that the final, defined benefit from notional employer
contributions is payable from the Consolidated Revenue Fund rather
than from the earnings on employer contributions.
The choice of fund scheme for Commonwealth
employees was announced by the Minister for Finance and
Administration in an initial Press Release dated 23 September 1997
and more detail was provided in another Press Release dated 20
November 1997. The main features of the new scheme announced in
those Press Releases was that:
- PSS would be closed to new entrants from 1 July 1988;
- new employees from 1 July 1988 will have the same choice of
fund that applies to the private sector (ie. they will be able to
chose between complying superannuation funds and Retirement Savings
Accounts (RSA));
- from 1 July 2000 existing employees will have a choice of
selecting a new fund/RSA or remaining in their existing
scheme;
- the government would continue to fund agencies at the existing
cost level of the current schemes to ensure that choice of fund
'will not reduce the remuneration package available to current or
future employees'(it should be noted that this refers to existing
remuneration levels and does not mean that future superannuation
benefits will be equal to those available under the current defined
benefits schemes);
- workplace agreements would not be able to overrule the right to
remain in the CSS/PSS; and
- the CSS and PSS Boards would be amalgamated into a single
Board.
If a member of CSS or PSS choses to join another
fund, their existing benefits will be preserved in CSS/PSS until
they reach minimum retirement age or permanently leave the
workforce unless they decide to receive immediate benefits which
are generally available on involuntary retirement. The calculation
of the value of the benefits will be adjusted to reflect the
member's age when benefits become payable.
The closure of the unfunded PSS scheme for new
employees after 1 July 1998 will require the Commonwealth to
contribute to the chosen fund. This will result in the bringing
forward of expenditure that would otherwise have been made when the
person became entitled to their superannuation benefits on
retirement/invalidity or redundancy. The explanatory memorandum to
the Bill estimates that the measures relating to the bringing
forward of entitlements will result in additional expenditure of
$12 million in 1998-99, $40 million in 1999-2000 and $290 million
in 2000-01.
The CSS is established under the
Superannuation Act 1976 (SA76), which replaced the
Superannuation Act 1922 (SA22), while the PSS is
established under the Superannuation Act 1990 (SA90).
Provisions
Schedule 1 of the Bill will amend the SA76. To
be covered by SA76, a person must be an eligible employee as
defined under section 3 of that Act. The definition includes
permanent employees and certain temporary employees and statutory
office holders. The definition will be altered to exclude people in
a class determined by the Minister not to be an eligible employee
(proposed paragraph (i) in the definition of eligible employee) and
also to exclude people who have made a choice under proposed
section 3E (see below)(proposed paragraph (n) in the definition of
eligible employee).
Item 17 will introduce a
definition of 'approved authority'. This will basically be an
authority that is already an approved authority under the SA76; or
a body established for a public purpose where the body has agreed
to make payments to the Commonwealth in respect of the benefits due
under SA76. Specifically excluded from the definition of an
approved authority is a corporation in which any of the voting
shares are owned by an entity other than the Commonwealth, is
established for the purpose of competing with other businesses or
people or which received 70% or more of its finances from a source
other than the Commonwealth. However, the Minister will have power
to overrule the legislation by declaring that a body is, or is not,
an approved authority (which raises the question of the relevance
of the statutory definition when it can be overridden by a
Ministerial declaration).
Proposed section 3E provides that an eligible
employee may choose to cease to be an eligible employee on or after
1 July 2000 (this will enable existing members of the CSS to chose
a different fund after this date). However, the choice will have no
effect if the persons employer is not willing to contribute to
another complying superannuation fund or RSA on the employee's
behalf, which largely leaves the power of whether another fund can
be chosen in the hands of the employer rather than the
employee.
Section 5 of SA76 deals with the calculation of
the annual rate of salary which is used to calculate payments.
Item 24 will amend section 5 to provide that an
employer and employee may agree that the annual rate of salary is
that agreed between the parties.
Sections 11 to 13A provide for certain contract
and temporary employees to be eligible to join the scheme.
Items 26 to 28 will amend these sections so that
they will cease to apply to people who have not requested to be
members within 3 months after 1 July 1998.
Item 32 proposes to repeal
current section 15A of the SA76 and substitute a new section 15A.
The main effect of the new section will be to close entry to the
scheme for former members unless they were previous members of the
scheme, were eligible for certain benefits under the scheme and
have made an election to remain in the scheme within 3 months of
again becoming eligible to join the scheme.
Proposed Part VIC, which will be inserted into
SA76 by item 80, deals with the value of the
benefits to be preserved if a member choses under proposed section
3E to cease to be a member of CSS. Proposed Division 2 deals with
situations where the member elects to preserve their current
benefits within CSS and where they elect to have this amount paid
out immediately. When the former choice is made, the Bill provides
for the amount to be preserved in the fund and for the final
benefits payable to be adjusted to reflect the period of
contribution compared to retirement after remaining a member of the
fund. The calculation of the benefits is based on the 'choice
factor' contained in proposed Schedule 12, which is contained in
item 122 of the Bill. Such benefits will be payable on invalidity,
death, the person's 65th birthday or when due under
other provisions of SA76.
Proposed Division 3 deals with situations where
a member under retirement age makes a choice to receive their
benefits immediately. The proposed Division will apply where a
person ceases employment which is not due to death or invalidity
and would have continued to be eligible to be a member of the
scheme had they not made a choice of another fund. The benefits
that will be payable are:
- the member's accumulated contributions;
- productivity superannuation contributions (which are provided
for under the current award);
- any amount by which the employers contributions are less than
required under the superannuation guarantee scheme; and
- certain preserved benefits.
In the case of involuntary retirement, the
benefits that may be taken are similar to those available under the
current SA76 but are to be adjusted according to the 'choice
factor' to reflect any choice to leave the scheme (proposed section
110TO). The rules described above relating to the preservation of
benefits, or the immediate taking of the benefits will also apply
to cases of involuntary redundancy. Similarly, proposed Division 4
provides that where a person has reached minimum retirement age
they may elect to preserve their benefits or take them immediately
with the same factor being used when the person has previously made
a choice to cease to contribute to the CSS.
Proposed subdivision B provides for the transfer
of amounts to the CSS from other superannuation funds where the
employee remains eligible to be a member of CSS. Basically, the
rule will be that amounts paid relating to employment after 30 June
1998 will not be able to be transferred to the fund, reflecting the
choice of fund rules to operate from that date.
Currently, to receive a spouse benefit on the
death of a person receiving a retirement pension the spouse must be
a surviving spouse as defined in section 8B of SA76. The definition
excludes people who form a marital relationship with a retired
pensioner who is aged 60 or more unless the relationship has
existed for at least 5 years. Part 2 of Schedule 1
introduces the concept of a 'late short term marital relationship'.
This will occur where there is a marital relationship between a
deceased retired pensioner (including a de-facto relationship) that
began less than 3 years before the death of the pensioner and also
began after the pensioner had retired and reached the age of 60. In
such a case, the rate of pension for the surviving spouse will be
determined under proposed section 96AB, which provides for the
pension to be reduced to reflect the proportion of the 5 year
period that couple were in a marital relationship.
If there is a child or children of the
relationship, the rate of pension is to be an amount between the
full spouse pension and the amount calculated above and 'as the
Board determines to be fair and equitable in all the circumstances
of the case'. Similarly, if the spouse would be entitled to an
extra amount of pension due to partially dependent children, this
amount will also be reduced to reflect the length of the
relationship. Similarly, if an orphan benefit is payable in respect
of a child of the deceased pensioner it will be reduced if the
child was the result of a late short term marital relationship.
Similar rules will also apply where other forms of pension are
payable, such as where there is a surviving spouse and child who is
not in the custody, care and control of the child, where the rate
of pension is to be determined by the Board. However, item
162 provides that the amendments are not to reduce any
other benefits payable under SA76.
Part 3 of Schedule 1 offers
those who are eligible for age retirement benefits or early
retirement benefits to elect to receive a lower rate of pension in
exchange for higher spouse benefits on the death of the retiree.
The reduced pension will be payable at the rate of 93% of the rate
that the retiree would be eligible to had they not made the
election, and an amount up to 20% of final salary if they are
entitled to additional aged pension. The higher rate of the spouse
benefit is detailed in the Part 3 and depends on the number of
dependent children. Without detailing all the possible increased
rates, it can be said that while all the applicable rates are
higher if such a choice is made the rates vary depending on the
nature of the pension payable and the difference between the rate
payable is not consistent.
Proposed Part IVAB, which will be inserted into
SA76 by item 217, deals with contributions made to
funds other than CSS or PSS when a proportion of performance pay
could be directed to funds other than CSS and PSS as superannuation
contributions. Performance pay is no longer available and the
proposed Part deals with minor amounts contained in those other
funds. The proposed Part will enable such amounts to be transferred
to CSS and oblige the funds currently holding the funds to pay such
money to CSS when requested to do so.
PSS
As noted above, PSS is established under SA90.
This Act differs substantially from SA76 in that the rules of the
fund are contained in the Trust Deed of the scheme, which is
contained in SA90, which provides greater flexibility than SA76
where benefits are prescribed in the legislation. This aspect of
SA76 resulted in the need for many of the amendments described
above while the amendments required to SA90 are considerably less,
which is also helped by SA90 being a more up to date scheme.
Item 14 of Schedule 3 will
amend section 6 of SA90 to close the scheme to people employed
after 30 June 1998 unless they were a member of CSS and elect to
join PSS or had preserved benefits in PSS before that date and
elect to become a member of PSS again.
Proposed section 6AA allows members on or after
1 July 2000 to cease contributing to PSS and join another complying
fund or contribute to a RSA (item 15).
Schedule 4 of the Bill will
repeal SA76 and will commence on 1 July 1998 (subsection 2(8)).
Schedule 5 will repeal SA22,
which is largely redundant, and will commence when the Bill
receives Royal Assent (section 2).
Schedule 8 will repeal the
Superannuation (Productivity Benefit) Act 1988 and will
commence on 1 July 1998 (subsection 2(9)).
The Parliamentary Superannuation scheme will be
amended by Schedule 11. The main change will be to
allow a short term late spouse to be eligible to receive benefits
after 3 years of a marital relationship in the same manner as
described above for CSS. It may be noted that the choice of fund
rules do not apply to members of this scheme.
N.B.: The effect of the repeal
of SA76 and SA22 is mitigated for members of those schemes by
savings provisions contained in the Superannuation Legislation
(Commonwealth Employment - Savings and Transitional Provisions)
Bill 1997 and in this regard readers should refer to the Digest for
that Bill.
-
- CSS Board Annual Report 1996-97, p. 32.
- PSS Board Annual Report 1996-97, p. 32.
Chris Field
18 February 1998
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1997
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