Bills Digest No. 130   1997-98 Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Bill 1997


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background

Main Provisions

Endnotes

Contact Officer and Copyright Details

Passage History

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.

Purpose

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.

Background

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).

Main Provisions

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.

Endnotes

  1. CSS Board Annual Report 1996-97, p. 32.

  2. PSS Board Annual Report 1996-97, p. 32.

Contact Officer and Copyright Details

Chris Field
18 February 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.



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