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
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ISSN 1328-8091
© Commonwealth of Australia 2005
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Published by the Parliamentary Library, 2005.
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