Bills Digest no. 2 2007–08
Superannuation Legislation Amendment Bill
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
Contact Officer & Copyright Details
Legislation Amendment Bill 2007
21 June 2007
House: House of Representatives
Portfolio: Finance and
Sections 1 to 3 and
Schedules 4 and 5, Part 2 on Royal Assent, Schedules 1 and 2 on 1
July 2008, Schedule 3 on the latter of two dates either Royal
Assent or 1 January 2008, Schedule 5, Part 1 on a date fixed by
proclamation or 1 July 2008, Schedule 6 on a date fixed by
proclamation or on the 1st day after a 6 month period
after Royal Assent.
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
The Bill contains the legislative provisions
necessary for the changes to the Commonwealth s civilian and
military superannuation schemes announced in the 2007 08 budget
measures as well as some changes first announced as part of the
Government s Better Super package (also known as the
Simplified Superannuation measures). 
There are changes giving members of the
Commonwealth s existing civilian defined benefit superannuation
schemes increased flexibility in dealing with their retirement
savings arrangements. Further, the Bill makes reversionary benefits
paid by the Commonwealth s two older military superannuation
schemes more accessible.
The Bill proposes to amend the following
Superannuation Act 1922
Superannuation Act 1976
Superannuation Act 1990
Superannuation Act 2005
Defence Forces Retirement Benefits Act
Defence Forces Retirement and Death
Benefits Act 1973.
Increasing the flexibility and choice for
individuals participating in Australia s retirement income system
has been a core policy of the Coalition government since first
taking office in 1996.  Indeed, one of the Coalition s stated policy aims in
1996 was to:
Review vesting and portability issues which
inhibit movement [of superannuation benefits] between Federal and
State public services and the private sector. 
During the intervening years various Coalition
governments have increased the degree of choice and flexibility in
the retirement income system, particularly by the introduction of
portability of benefits regime, where from 1
July 2004 most superannuation fund members may direct a
superannuation fund trustee to transfer their benefits to a
superannuation fund of their choice
choice of superannuation funds regime, where,
from 1 July 2005, an employee may choose the fund into which their
employer pays superannuation guarantee payments made on the
contributions splitting regime, where from 1
July 2006 a superannuation fund member can direct that up to 85 per
cent of his tax deductible contributions and up to 100 per cent of
his after tax contributions for the previous financial year may be
sent to a spouses superannuation account in the same, or a
different, superannuation fund of the sending member, and
simplified superannuation regime, where from 1
July 2007 the tax arrangements on the payment of superannuation
benefits, and the options for the payment of those benefits, have
been greatly simplified, leading to a highly flexible
superannuation system in retirement.
The proposed changes to public sector
superannuation contained in this Bill are a continuation of the
policy first announced in 1996 and enacted by the above
The 2007 08 Budget announced a number of
measures relating to the Commonwealth Superannuation Scheme (CSS)
and the Public Sector Superannuation Scheme (PSS):
removal of the current mandatory requirement
for CSS and PSS members to contribute a set minimum percentage of
their after tax salary to these schemes
CSS and PSS members to be able to withdraw
amounts from the scheme on either financial hardship or
PSS members to be able to choose their own
superannuation arrangements. Previously, PSS members were not able
to choose to have contributions made to a scheme other than the
spouse pensions cancelled upon remarriage
before 1976 in some civilian schemes and 1997 in certain military
schemes will be reinstated
requirements for the payment of spouse pensions
from the Defence Force Retirement and Death Benefits Scheme (DFRDB)
and the Military Superannuation and Benefits Scheme (MSBS), where
the marital relationship commenced after the retired service
pensioner turned 60, are eased, and
an anomaly in the Family Law provisions of the
Defence Force Retirement and Death Benefits Act 1973
to be corrected. 
The CSS was closed to new members on 30 June
1990. The DFRDB was closed to new members on 30 June 1991 and the
PSS was closed to new members on 30 June 2005. The MSBS remains
open to new members; however military superannuation arrangements
are currently under review.  All these schemes are defined benefit or hybrid schemes,
where the final benefit is either partly, or fully, determined by a
set formula applied to a person s years of service and their final
salary on retirement.
Those joining the Commonwealth public service on
or after 1 July 2005 may become members of the Public Sector
Superannuation Accumulation Plan (PSSAP) or choose to have the
government s superannuation contributions put into another
superannuation fund of their choice. The PSSAP is an accumulation
scheme, where the final benefit is determined by the contributions
made and the investment returns on those contributions over the
period of membership. The overwhelming majority of superannuation
funds in Australia are accumulation schemes. 
The measures contained in this Bill were first
announced in a number of ways, as follows:
Press commentary generally restricted itself
to describing the proposed changes, not expressing an opinion on
One industry commentator has suggested that
the proposed changes would provide an incentive for Commonwealth
public servants to cease contributing to the CSS and PSS and
accumulate their superannuation benefits in alternative
accumulation schemes.  However, other commentators point out that the benefits
provided by the PSS and CSS are very generous and it may be to a
member s advantage to stay in these schemes. 
To date the non-government parliamentary
political parties have not expressed an opinion on this Bill.
Generally, the above changes allow CSS, and
particularly PSS, members enhanced flexibility and choice in their
superannuation arrangements. Consequently, these measures will give
these members many of the same rights and advantages enjoyed by
those public servants in the other government superannuation funds
and private sector workers. 
In particular, these will allow members of the
PSS to place their superannuation benefits in an accumulation fund.
Such funds are taxed funds; that is, funds that have been subject
of full rate of the superannuation fund income tax (15 per cent tax
on all tax deductible contributions and 15 per cent tax on
investment earnings). The benefits paid by a taxed fund are tax
free if taken by the person upon reaching 60 years of age.
CSS members will be able to direct their
contributions to a taxed fund. However, they will not be able to
transfer their accumulated CSS superannuation benefits into such a
The government expects that the additional
flexibility given to public servants by these changes will result
in a significant proportion opting out of their membership in the
PSS and CSS. The exit of these members is expected to slightly
reduce the long term cost of these schemes (see further comments on
financial implications below). 
The restoration of spouse military pensions
cancelled upon remarriage is an overdue equity measure; as are the
changes to make access to reversionary military service pensions
easier where the marriage relationship commenced after the primary
pensioner reached 60 years of age.
There are no adverse effects of the proposed
changes. However as noted above, it may not always be to a CSS or
PSS member s advantage to cease contributions to these schemes and
join an accumulation fund. Such decisions must be made on a case by
The Explanatory Memorandum notes that the
changes to CSS and PSS will cost approximately $160m over 4 years.
 This cost is
to be offset by the expected savings of $200.2m over the same
period arising from the expected exit of members from the PSS and
the reduction in CSS expenses. These would arise if members of
these schemes chose to accumulate benefits in an accumulation
These changes are expected to produce a
reduction in the standing appropriation for CSS and PSS expenses of
approximately $200.2m over the 4 year period from 1 July 2007.
In view of the financial advantages of
continuing to contribute to the Commonwealth s civilian
superannuation schemes it is possible that the expected savings may
not be realised.
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Item 5 of Schedule
1 amends section 46 of the
Superannuation Act 1976 (the CSS Act). The effect of this
particular amendment is to allow a CSS member to cease making the
basic contributions to the scheme.
A person s basic contributions are 5 per cent
of their basic fortnightly salary after tax.
Item 7 inserts new
section 51AA into the CSS Act. The effect of the
new section is to require that a CSS member continue to make the
required basic contributions to the scheme, if they are on extended
leave without pay (longer than 12 weeks) due to sick leave,
compensation leave, leave due to injury sustained during service
with the military reserves or leave due to undertaking employment
outside the Australian Public Service (APS).
This requirement applies even if the CSS
member has made an election to not make the required basic
contributions under the provisions of item 5 above.
Normally, individuals who are on extended
leave due to injury or sickness will have their superannuation paid
for by Comcare (or some other organisation) or from their wages for
employment outside the APS. Where this does not occur new
subsection 51AA(4) allows regulations to be made
to modify the operation of the provisions of this item. The
Explanatory Memorandum notes that the purpose of this particular
subsection is to avoid a potentially harsh outcome from the
operation of these provisions. 
Item 10 repeals current
section 51B of the CSS Act. Under this section CSS
members, whose period of service is 40 years or greater, may
request that they cease making the basic contribution. The repeal
of this section will require CSS members whose period of service is
40 years or greater to continue making the required basic
contributions to the CSS.
Generally, a CSS member s pension benefits
reached their upper limit once they had served for 40 years. That
is, after 40 years service, if the member resigns after reaching
age 55, they are entitled to a pension equal to 52.5 per cent of a
member s final average salary at age 65.  In addition, upon retirement the
member receives a lump sum equal to their basic contributions and
the associated investment earnings.
The removal of this option to cease
contributing to the CSS after 40 years service will not increase a
member s pension benefits. However, continued contributions past
this stage will increase a member s lump sum benefits.
Very few CSS members actually accumulate 40
years service with the APS. However, with increased rates of
workforce participation by older workers there may be an increasing
number of CSS members who do so.
Under clause 2 of the Bill
the above provision commences on 1 July 2008.
Items 1 and
2 of the Bill amend section 6 of
the Superannuation Act 1990 (the PSS Act). The effect of
these amendments is to deny a former PSS member access to the
scheme at a later date, once they have made an election under new
section 6B of this Act (see below).
Where a PSS member has a preserved benefit in
the scheme, as a result of ceasing employment in the APS, they may
again become contributing members of this scheme if they again
resume employment in the APS. This feature of the PSS is not
altered by the proposed changes noted above.
Item 3 of Schedule
2 inserts new section 6B into the PSS
Act. This new section allows a PSS member to cease their membership
of the scheme and become a member of another superannuation fund
(providing it is a complying superannuation fund and their employer
agrees to contribute to this fund).
Prior to this amendment the only way a person
could cease to be a contributing member of the PSS was if they
ceased employment in the APS and either received, or transferred,
their benefit. Item 3 allows the ending of PSS
membership while the person is still employed in the APS.
As noted above, once this election is made it
cannot be reversed. They cannot resume contributing membership of
the PSS, even if they retain a preserved benefit in the PSS. The
Rules of the PSS fund will further define this particular matter.
3 Early release of benefits
Item 1 of Schedule
3 inserts new Division 4A (the early
release of benefits) into the CSS Act. This Division allows for the
early release of superannuation benefits from the CSS on either
financial hardship or compassionate grounds.
Generally, superannuation benefits are
preserved inside a superannuation fund until the member has
permanently retired from the workforce. Normally, retirement occurs
after the person s preservation age (55 for those born before 1
July 1960, 55 to 60 for those born after that date).
However, if a person is suffering severe
financial hardship, or requires finance to meet a compassionate
need (such as an urgent medical expense that they cannot reasonably
meet in any other way) they may withdraw the required amounts from
their superannuation fund. What may constitute financial hardship
or compassionate grounds are defined in the Superannuation
Industry (Supervision) Act 1992 and its associated
The facility has been available to most
Australian superannuation fund members, but it has not been
available to CSS and PSS members.
Item 1 inserts new
section 79B into the CSS Act. This section does
not require the payment of these amounts. It simply says that the
amounts may be paid . The Explanatory Memorandum notes that this is
to allow for the possibility that the member s financial
circumstances may have dramatically improved between the time the
application for such a withdrawal is made and the time at which the
payment is actually made. 
Further, the new section allows for amounts
withdrawn under financial hardship or compassionate grounds to be
paid for the benefit of the member . This means that the amounts
are not paid directly to the member. Rather, the CSS s manager, the
Australian Reward Investment Alliance (ARIA), may pay these amounts
to a third party, depending on the circumstances. For example, a
third party may be the mortgagee of a member s residence for the
repayment of an overdue mortgage payment if the amount is withdrawn
under financial hardship grounds. Another example of these
circumstances is where it is appropriate to pay this amount to a
dependent, such as where the dependent s medical expenses are being
paid, and a better tax outcome for the member is achieved by doing
so.  This said,
the new section does not prevent the payment of the benefit
directly to the member if circumstances so require it.
4 Restoration of pensions to remarried widows and widowers
Item 1 of Schedule
4 inserts new section 44 into the Defence Force
Retirement and Death Benefits Act 1973 (DFRDB Act). This new
section requires the Defence Force Retirement and Death Benefits
Authority (the Authority) to grant the pension to either widows or
widowers who had lost their pension entitlements upon their
remarriage where it is satisfied that the person is entitled to
such a pension.
This legislative measure will be giving effect
to the established policy of the Authority. The guide to the
Defence Force Retirement and Death Benefit scheme notes:
It is a common misconception that spouses loses
their eligibility and have their benefits stopped if their
circumstances change. However, you can be assured that once the
Authority decides that your spouse is eligible to receive a
benefit, then he/she will get that benefit for life and it will not
be stopped under any normal circumstances (e.g. in the
event of your spouse s remarriage)
Item 6 inserts new
sections 64A into the Defence Force Retirement
Benefits Act 1948 (DFRB Act). The effect of this section is to
require the authority to grant a pension to a widow or widower who
lost their entitlement to a pension and where the Authority is
satisfied that they are entitled to that pension.
The DFRB Act governs the military
superannuation scheme (DFRB) that predates the DFRDB scheme. The
DFRB scheme was closed to new members in 1972. The majority of its
members transferred to the DFRB.
Item 7 repeals
section 48AA of the Superannuation Act
1922 (the 1922 Act) and substitutes a new section of the same
number. The effect of this new section is to require the
Commissioner for Superannuation to pay a pension to either a widow
or widower who ceased to receive these payments due to their
remarriage. The Commissioner must be satisfied that such
individuals are eligible to claim this payment.
The 1922 Act governed the operation of the
Commonwealth civilian superannuation scheme that preceded the CSS.
This scheme was closed to new members in 1976.
Under Section 2 of this Bill
the changes in Schedule 4 commence operation from
Item 8 requires that any
pension payable to a claimant under the provisions of
Schedule 4 do not have to be paid at the full rate
before 1 January 2008. That said, nothing stops the Authority from
paying pensions at the full rate before this date. Any pensions
claimed under the provisions of this Schedule must be paid at the
full rate after this date. These pensions will not be paid
5 Amendments relating to better superannuation
Schedule 5 makes necessary
changes to the 1976 Act arising from the recently implemented
Simplified Superannuation arrangements. 
Part 1 makes the necessary
changes to ensure that the CSS can continue to accept productivity
benefit payments made on a member s behalf, even where that member
has not quoted their Tax File Number to ARIA, or had it quoted on
their behalf by the Australian Tax Office. This change gives
members the same rights to have payments made to their
superannuation funds in these circumstances as are enjoyed by
members of private sector superannuation funds.
The payments for the productivity benefit are
equal to about 3 per cent of the member s salary, payable each
fortnight. It is paid under the Superannuation (Productivity
Benefit) Act 1988 to Commonwealth public sector workers. It is
paid on a before tax basis and is subject to the 15 per cent
The amendments in Part 1 of
this schedule commence on a date to be proclaimed, or on 1 July
2008 if this proclamation has not been made earlier.
Part 2 alters the 1976 Act to
allow payment of superannuation excess contributions tax from the
funded component of the CSS, in the event that a member s
contributions breach the annual limits on contributions applying
from 1 July 2007. This tax applies to excess contributions made to
all private sector superannuation funds.
The funded component of a CSS benefit is the
amount made up of the member s own after tax contributions plus the
associated investment earnings. Briefly, from 1 July 2007 the
annual limits on contributions to superannuation funds are:
$50 000 in pre tax contributions
$150 000 in post tax contributions, or
$450 000 over 3 years in post tax
These limits are subject to annual indexation by
increases in the Average Weekly Ordinary Time Earnings calculated
by the Australian Bureau of Statistics.
It is unlikely that the majority of CSS
members will be in a position to exceed the annual contribution
Item 10 requires that the
amendments in Part 2 of the schedule commence on
the date of Royal Assent.
Part 3 makes consequential
amendments arising from the Simplified Superannuation changes.
Item 12 requires that the changes in Part
3 take effect from 1 July 2007.
6 Military superannuation
Part 1 of Schedule
6 amends the DFRDB Act to allow spouses, who have married
a DFRDB pensioner after age 60, to receive superannuation benefits
after the DFRDB pensioner s death.
Items 1 and
2 remove the requirement that a spouse be married
to a DFRDB pensioner for at least five years, if they married after
that pensioner reached 60 years of age, to receive superannuation
benefit after the DFRDB pensioner s death.
Item 3 inserts new
section 6BA into the DFRDB Act. Under this new
section, if the marital relationship between the DFRDB pensioner
and their spouse begun after that pensioner was 60 years of age,
and has lasted for at least three years, the surviving spouse is
entitled to the full rate of benefits from the DFRDB scheme paid in
If the relationship had lasted less than three
years in these circumstances the surviving spouse will be entitled
to a pro-rata rate of pension, based on the length of time the
relationship lasted before the death of the DFRDB pensioner.
Further, the surviving spouse is entitled to a lump sum in certain
This schedule commences on a date to be
proclaimed. But if that date is more than 6 months after Royal
Assent, they commence on the first day after the 6 month period has
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The provisions of this Bill are minor in
nature and align the Commonwealth s superannuation arrangements
with the legislative provisions applying to superannuation in
The increased flexibility they afford
participants in the CSS and PSS is to be welcomed. However, those
wishing to take advantage of this new found flexibility should
first seek competent and qualified financial advice: for leaving
the PSS and ceasing contributions to the CSS may entail giving up
benefits that are very hard, if not impossible, to replicate
through private sector arrangements.
That said, the features of the CSS and PSS are
not necessarily the most appropriate for all public servants. For
example, those with a comparatively short life expectancy in
retirement will have little use for the pension paid by the CSS.
And those who desire to take an enhanced level of investment risk
in the accumulation of their retirement benefits will have little
use for the security of the PSS. These points simply underline the
need for Commonwealth public servants to seek appropriate advice
before taking advantage of the flexibility that these provisions
give them in respect to the CSS and PSS.
The author is a contributing member of the CSS
and has, as of the date of writing, a comparatively long life
 . Senator the Hon. Nick Minchin, Minister for Finance
and Administration, Increased choice for public service
superannuation contributions, media release, Parliament
House, Canberra, 8 May 2007 and the Hon Peter Costello MP,
Treasurer, Second reading speech: Appropriation Bill (No. 1) 2006
07 , House of Representatives, Debates, 9 May 2006, p.
 . The Australian Liberal Party and the Australian
National Party, Super for all Security and Flexibility in
Retirement: the Federal Coalition s superannuation and retirement
incomes policy, 19 February 1996, p. 4.
 The Hon. Peter Costello MP, Treasurer, Budget Paper
No. 2, 2007 08, p. 200 and Senator the Hon. Nick Minchin,
 . The Hon. Bruce Billson MP (Minister Assisting the
Minister for Defence), Review of Military Superannuation, media
release, Parliament House, Canberra, 27 February 2007.
 . The government has estimated that only 10 per cent of
superannuation fund members are members of defined benefit or
hybrid schemes, Australian Government, A Plan to Simplify and
Streamline Superannuation: Detailed Outline, May 2006, p.
 . The Hon. Peter Costello MP, Treasurer, op. cit.
 . Senator the Hon. Nick Minchin, op. cit.
 . Ian Davis, More changes for super ,
Superfunds, June 2007, p. 11.
 . John Wasiliev, Still pays to stay in public sector
plan , Australian Financial Review, 12 May 2007, p. 39 and
Daryl Dixon, Now for the July 2008 super changes Canberra
Times, 3 July 2007, p. 33.
 Other government superannuation funds include the
Public Sector Scheme Accumulation Plan and the Australian
Government Employees Superannuation Trust. Both are accumulation
style plans and operate in largely the same manner as private
sector accumulation style plans.
 . The Hon Peter Costello MP, Treasurer, Second Reading
Speech, op. cit.
 . Explanatory Memorandum, Superannuation Legislation
Amendment Bill 2007, 21 June 2007, p. 5.
 . The Hon Peter Costello MP, Treasurer, op. cit.
 . Explanatory Memorandum, op. cit., p. 11.
 If the benefit is taken before age 65 it is reduced by
a factor to allow for the additional time over which the pension
will be paid.
 . Explanatory Memorandum, op. cit., p. 13.
 . Amounts withdrawn under financial hardship or under
compassionate grounds are subject to tax in the hands of the
 . Australian Government, The Defence Force
Retirement and Death Benefits Scheme, September 2004, p.
 . See Leslie Nielson, Tax Laws Amendment (Simplified
Superannuation) Bill 2006, Bills Digest, no. 65,
Parliamentary Library, Canberra, 2006 07.
18 July 2007
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