Bills Digest No. 162 2004–05
Superannuation Bill 2005
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
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Superannuation
Bill 2005
Date
Introduced: 12 May
2005
House: House of Representatives
Portfolio: Finance and
Administration
Commencement:
Sections 1 and 2 of
the Bill commence on Royal Assent. However, sections 3 to 46 only
commence once Royal Assent has been received for both this Bill and
the Superannuation (Consequential Amendments) Bill 2005. Sections 3
to 46 will not commence at all if the later Bill does not receive
Royal Assent.
This Bill provides for:
-
the establishment of the Public Sector Superannuation
Accumulation Plan (PSSAP) as a separate superannuation scheme from
the Public Sector Superannuation Scheme (PSS)
-
those entering Australian Government employment on or after 1
July 2005 to participate in the Choice of Funds regime under the
provisions of the Superannuation Guarantee (Administration) Act
1992 (SG Act)
-
the PSSAP to be the employer (default) fund for the purposes of
the Choice of Funds regime under the SG Act for persons employed
under the Public Service Act 1999 and other persons
prescribed by the Minister for Finance and Administration, and
-
PSSAP membership arrangements that are consistent with the
arrangements in place before the commencement of this Bill.
This Bill should be considered in conjunction with the
Superannuation (Consequential Amendments) Bill 2005 (the
Consequential Bill). The latter Bill is the subject of a separate
Bills digest due to the complex set of amendments with which it
deals.
This initiative has its origin in the Government s long campaign
to introduce the Choice of Superannuation Fund regime. Since 1996
the Government has sought to give all employees the right to choose
which superannuation fund receives their Superannuation Guarantee,
or other, superannuation contributions. Under the
Superannuation Legislation Amendment (Choice of Superannuation
Funds) Act 2004 the Choice of Funds regime commences on 1 July
2005.
This Act effectively excluded Commonwealth Public Servants from
the choice regime. The Government had sought to extend this right
to Commonwealth employees. To do so, it needed to close membership
of the PSS to new employees and replace it with a fully funded
accumulation superannuation scheme.
Efforts to close membership to the PSS came to a head with the
Senate s consideration of the Superannuation Legislation
(Commonwealth Employment) Repeal and Amendment Bill 1998 and its
associated Bills. These Bills were voted down by the Senate on 8
August 2001.(1)
At that time the Government did not reopen the matter in
Parliament, choosing instead to close the PSS to new entrants from
1 July 2005 by the 20th Amending Deed(2) to
the PSS Trust Deed and rules, under the Superannuation Act
1990, on 23 March 2004. The same amendments effectively close
membership of the PSS Defined Benefits scheme to new members from 1
July 2005.(3)
The 20th Amending Deed also established the PSSAP as
a sub-plan of the PSS with effect on 1 July 2005. The PSSAP will be
a fully funded accumulation scheme. An accumulation scheme is one
where the final benefit paid is made up of the contributions plus
the associated investment returns. Fully funded means that the
Government s contributions to the scheme fully meet its
superannuation obligations to the relevant employees.
By comparison, the PSS is a defined benefit scheme. A defined
benefit scheme is one where the final benefit is calculated with
reference to a combination of years of service, final salary and,
in some schemes such as the PSS, the level of contributions.
Investment returns on the monies invested do not generally
determine the size of the final benefit. It provides only partly
funded superannuation benefits to government employees, which means
that a substantial part of the employees final benefit is
effectively drawn from the Commonwealth s consolidated revenue
fund.
Government employers contributions to the PSSAP will be 15.4 per
cent of salary.(4) This compares favourably with the
minimum required Superannuation Guarantee contribution rate of 9
per cent of salary applying to private sector employees.
As noted in the recent Budget these changes to the Commonwealth
s superannuation arrangements are part of the Government s efforts
to restrict the growth of un-funded superannuation liabilities,
currently amounting to more than $91 billion, and estimated to
about $140 billion by 2020.(5) They also allow those who
commence Commonwealth employment after 1 July 2005 to participate
in the Choice of Funds regime.
The proposed changes do not affect those who first entered
Commonwealth employment on or before 30 June 2005 and are members
of existing Commonwealth defined benefit superannuation
schemes.
These changes were announced in a press release by the Minister
for Finance and Administration on 17 October 2003.
Section 5 of the Superannuation Act 1990 provides that
the Minister for Finance and Administration may amend the PSS Trust
Deed by signed instrument, subject to obtaining the PSS Board s
consent to the amendment where necessary. As noted above, on 23
March 2004 the Minister for Finance and Administration amended the
Trust Deed, and the Rules for the administration of the PSS set out
in the Schedule to the Trust Deed, by signed instrument. That
instrument is called the Twentieth Amending Deed. The PSS Board has
consented to those amendments.(6)
After initial opposition to these changes the Community and
Public Sector Union has welcomed the creation of a modern
superannuation scheme for public servants.(7)
Under the current rules (taking effect on 1 July 2005 if these
Bills were not passed) the PSSAP will operate inside the defined
benefit PSS scheme. This may impose upon the PSSAP restrictions on
the assets in which it invests. Further, the PSSAP may have to pay
part of the costs of running a largely unrelated defined benefit
scheme. The creation of a separate accumulation superannuation
scheme for public servants avoids these problems.
The Commonwealth currently runs an accumulation superannuation
scheme, the Australian Government Employees Superannuation Scheme
(AGEST). Creation of a separate accumulation scheme may be seen as
duplicating what is already in existence.
The Explanatory Memorandum notes that this Bill contains a
number of features that are due to commence from as early as 1 July
2005. The Explanatory Memorandum suggests that this commencement
date is necessary to avoid a number of technical difficulties that
would arise if the PSSAP was separated from the PSS at a later
date.(8) It is not clear what these technical
difficulties may be.
New Section 5 defines who is a public sector
employee for the purposes of the PSSAP. Unlike the definition of
member for the PSS, this definition does not distinguish between
temporary and permanent Commonwealth employees. Amongst other
things the definition notes that a public sector employee is a
person who is employed by the Commonwealth or an approved
authority.
Previously, those employed by various incorporated bodies, such
as Telstra, tended to have their own, in house, superannuation
schemes. This clause allows the employees of any incorporated body
to become members of the PSSAS. Under new Section
8 an extremely broad range of entities can be designated
as approved authorities .
New Section 6 extends the meaning of the term
employed for the purposes of this Bill. Under this clause a person
may be a public sector employee if they are a director of a company
incorporated under either a State, Territory or Commonwealth law,
and the company is also an approved authority within the meaning of
that term in new Section 5. As such they can
become members of the PSSAP. Normally directors are not regarded as
employees of an incorporated body.
New Section 10 requires that the Minister
(effectively the Minister for Finance and Administration) must
execute the PSSAP trust deed before 1 July 2005. This clause, in
combination with the provisions governing the commencement of
various sections of the Bill in new Section 2,
means that the trust deed will be established if, and only if, the
proposed Superannuation (Consequential Amendments) Bill 2005 has
received Royal Assent. As noted above the operation of this Bill,
once passed, is largely dependent on the Consequential Bill
receiving Royal Assent.
New Section 11 enables the Minister to amend
the PSSAP s trust deed in writing. However, any such change will be
invalid if it has the effect that the PSSAP would cease to be a
regulated superannuation fund within the meaning of the
Superannuation Industry (Supervision) Act 1993 (SIS Act)
or if the amended trust deed would not comply with that Act.
Currently, the PSS and Commonwealth Superannuation Scheme (CSS)
are not formally subject to the SIS Act. This has created
difficulties in respect of the application of the new
interdependency provisions governing the payment of tax free death
benefits to dependents. In particular, the PSS and CSS rules do not
allow the payment of a tax free death benefit to the surviving
partner of a same sex couple. The commitment in this Bill for the
PSSAP to be subject to the provisions of the SIS Act removes this
difficulty with respect to the PSSAP.
Changes in the PSSAP s trust deed will be subject to
disallowance procedures of the Legislative Instruments Act
2003.
New Section 14 provides for two methods by
which a public service employee may become a member of the PSSAS.
Firstly, if the employee is eligible to do so they may choose to
become a member of the fund. Alternatively, if the person does not
make any choice to have their superannuation contributions sent to
a superannuation fund then their contributions will be sent to the
PSSAP.
By this means (in combination with Schedule 2 of the
Consequential Bill and Section 16 of this Bill)
the PSSAP becomes the eligible choice fund for the purposes of
section 32C of the Superannuation Guarantee (Administration)
Act 1992 (SG Act). It thus becomes government employer
(default) fund for Choice Regime purposes.
New Section 16 requires that the PSSAP becomes
the sole eligible choice (or default) fund for those who are
eligible to become a PSSAP member. This means that a government
employer may only nominate the PSSAP as their default fund for the
purposes of the Choice of Superannuation Funds regime. However,
this new section does not require a person who is eligible to
become a PSSAP member to actually become a member of that fund.
They may still choose to have their contributions sent to another
complying superannuation fund under the provisions of the Choice of
Fund regime. Nor does this clause potentially affect Commonwealth
employees who are already members of the PSS or CSS or any other
Commonwealth superannuation scheme.
The remaining clauses outline the administrative arrangements
for the PSSAP. These clauses establish arrangement similar to those
governing the operation for the current Commonwealth superannuation
schemes, and as such appear to be unexceptional.
Concluding Comments
The changes in the Commonwealth s superannuation arrangements
outlined above do not affect the superannuation arrangements for
the Australian Defence Force. The Defence Force Retirement Benefits
Scheme (DFRDB) has been closed since 1990. The Military
Superannuation and Retirement Benefits Scheme (MSBS) is similar to
the PSS and like it commenced operation around 1990. The Government
has not announced any plans to create an accumulation sub-plan of
the MSBS similar to the PSSAP.
-
The Senate, Debates, 8 August 2001, p. 25935.
-
The 20th Amending Deed to the PSS Trust Deed and
Rules is at http://www.pss.gov.au/pss/legislation/20thdeed.pdf
(accessed 12 May 2005).
-
See Rule B2.1.1A of the 20th Amending Deed to the
PSS Trust Deed and Rules, p. 6.
-
Department of Finance and Administration web site, Information
Sheet, Public Sector Superannuation Scheme at
http://www.finance.gov.au/super/public_sector_superannuation_s.html
(accessed 12 May 2005).
-
The Hon. Peter Costello MP, Treasurer and Senator the Hon
Nicholas Minchin, Minister for Finance and Administration, The
Future Fund, Joint Press Release, 11 May 2005.
-
The Hon. Nicholas Minchin, Minister for Finance and
Administration, New Superannuation Arrangements for Australian
Government Employees, Press Release, 17 October 2003 at
http://www.finance.gov.au/media/mfa%5F03%5F29.html
(accessed 12 May 2005)and Explanatory Statement, Twentieth Amending
Deed to the Trust Deed to Establish an Occupational Superannuation
Scheme for Australian Government Employees and Certain Other
Persons Pursuant to Section 5 of the Superannuation Act
1990, at http://www.finance.gov.au/super/docs/ex_statement.pdf
(accessed 12 May 2005).
-
Marcus Priest, Government stems super scheme drain ,
Australian Financial Review, 25 March 2004. p. 4.
-
The Minister for Finance and Administration, Senator the Hon.
Nicholas Minchin, Explanatory Memorandum to the Superannuation
Bill 2005, p. 3.
Leslie Nielson
24 May 2005
Bills Digest Service
Information and Research Services
This paper has been prepared to support the work of the
Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
professional legal opinion.
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 2005
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Published by the Parliamentary Library, 2005.
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