BILLS DIGEST NO. 105, 2019–20              12 June 2020

Superannuation Amendment (PSSAP Membership) Bill 2020

Robert Anderson
Economic Policy Section

Date introduced: 13 February 2020

House:  House of Representatives

Portfolio: Finance

Commencement: The earlier of a day to be fixed by Proclamation or six months after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at June 2020.

Purpose of the Bill

The purpose of the Superannuation Amendment (PSSAP Membership) Bill 2020 (the Bill) is to amend the Superannuation Act 2005 (the Act) to:

•       extend membership of the Public Sector Superannuation Accumulation Plan (PSSAP) to certain former Commonwealth employees who are not otherwise eligible to access this fund and

•       expand the circumstances in which a former or current member of the PSSAP can make contributions to the fund.

Structure of the Bill

The Bill is divided into two Schedules: Schedule 1 proposes several amendments to the Act, whilst Schedule 2 proposes a single transitionary measure to address eligibility as the Bill comes into effect.

Background

The PSSAP was established on 1 July 2005 and is an open accumulation scheme (also referred to as a defined contribution scheme). The PSSAP is the default fund for Australian Public Service (APS) employees, and is generally available to persons who commenced as Commonwealth employees and persons who were appointed to a statutory office on or after that date.[1]

The PSSAP replaced the Public Sector Superannuation Scheme (PSS) which itself replaced the Commonwealth Superannuation Scheme (CSS).[2] Both of these previous funds are defined benefit superannuation schemes that are closed to new members (although the PSS included an accumulation component that contributed to the final defined benefit). The PSSAP, CSS and PSS are all administered by the Commonwealth Superannuation Corporation (CSC), which is the trustee for all three funds.[3]

Who can be a member of the PSSAP?

Section 13 of the Act sets out eligibility requirements (subject to specific exclusions) for PSSAP membership—generally, a person is eligible to become a member if they are:

•       a Commonwealth public sector employee who starts work on or after 1 July 2005

•       an Australian government superannuation scheme member or

•       a former Australian government superannuation scheme member.[4]

The second category refers to PSS and CSS members currently employed by the Australian Government, and other eligible employers, who can join the PSSAP as ‘Ancillary Members’ to make salary sacrifice and other eligible contributions, and roll in amounts held in other superannuation accounts—such members cannot have superannuation guarantee contributions paid into their PSSAP account.[5] The third category refers to ‘a person who has a preserved benefit under the PSS that has not yet been paid, or a person who has a deferred benefit under the CSS’.[6]

A person is entitled to remain a member until their superannuation benefit has been paid out or upon the death of the person, whichever occurs earlier.[7]

Who can make contributions to the PSSAP?

The PSSAP is unable to receive contributions in respect of a member unless they are an ordinary employer-sponsored member (OESM) at a particular point in time—section 18 of the Act sets out the four situations in which a person is an OESM of the PSSAP.[8] The first three categories are:

•       the PSSAP is the person’s nominated fund (subsection 18(2) of the Act)

•       the PSSAP is the employer’s default fund (subsection 18(3) of the Act) or

•       the person is not covered by the Superannuation Guarantee (SG) requirements (subsection 18(5) of the Act).

In the above three circumstances, the person must be a member or eligible to have been a member of the PSSAP at the time.[9]

Prior to 4 December 2017, Commonwealth public servants who left the APS were no longer able to contribute to the PSSAP. The Superannuation Amendment (PSSAP Membership) Act 2017 amended the Act in a number of ways to allow former APS employees to continue contributing into a PSSAP account after ceasing employment with the APS. This was primarily given legislative effect by introducing subsection 18(7), which created the fourth category of ordinary employer-sponsored members called ‘former Commonwealth ordinary employer-sponsored members’ (FCOESM).

Whilst the introduction of the FCOESM category allows former APS employees to continue contributing to their existing PSSAP account, the requirements of current subsection 18(7) require the former employee to have been employed for at least twelve continuous months by the Commonwealth Public Service, and they must also have a current employer who is required to make employer-based Superannuation Guarantee (SG) contributions.[10] This may limit former APS employees who are now self-employed or contractors from utilising their PSSAP account in regards to those new types of income.

The changes made by the Superannuation Amendment (PSSAP Membership) Act 2017 are discussed in more detail in the Library’s Bills Digest.[11]

Committee consideration

The Bill has been neither referred nor selected by any committees.[12]

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills had no comments on the Bill.[13]

Policy position of non-government parties/independents

No non-government parties or independents have made comments on the Bill.

Position of major interest groups

No interest groups have made comments on the Bill.

Financial implications

The Explanatory Memorandum to the Bill indicates that the amendments do not present any financial impact on the Commonwealth.[14]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[15]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights had no comment on the Bill.[16]

Key issues and provisions

The measures introduced by the Bill seek to address two key issues.

Firstly, the Bill aims to allow existing and former PSSAP contributory members to make contributions in a greater number of circumstances, thereby preventing the need for those members to establish another superannuation account for contributions which are currently not permitted by the Act.[17]

Secondly, the Bill intends to allow CSS and PSS members who have or previously had superannuation monies managed by CSC (in their CSS or PSS accounts) to have any future superannuation contributions also managed by the same trustee.[18]

Taken collectively, these measures align with the Government’s broader superannuation platform of seeking to provide Australian superannuation members:

•       greater choice of who is administrating and managing their superannuation and

•       reduced administration costs from having multiple superannuation accounts.[19]

The Explanatory Memorandum to the Bill contains a summary of each of the items included in the Bill and readers are referred to pages 6–13 for an explanation of each provision, as well as several examples of how the proposed provisions apply under different circumstances. The following section of the Digest summarises particularly important provisions.

Who will be entitled to join the PSSAP?

Item 4 of Schedule 1 inserts proposed paragraph 13(1)(d) to provide a new category of persons who can elect to become a PSSAP member, namely, a person who was a PSS member or eligible employee for the purposes of the Superannuation Act 1976 at the time the Bill commences but ceases to be a member after that time. This addresses the second goal of the Bill, to allow PSS or CSS members who commence later non-government employment to keep their superannuation interests managed by CSC in the PSSAP.

Who will be entitled to make contributions to PSSAP?

Item 8 of Schedule 1 proposes to repeal current subsections 18(7) and 18(8) and replace them with proposed subsections 18(7), 18(8), 18(8A) and 18(8B). In short, these sections replace the fourth category of OESM (‘former Commonwealth ordinary employer-sponsored members’) with two new categories known as:

•       eligible PSSAP member and

•       eligible CSS/PSS member or former member.             

The Explanatory Memorandum to the Bill sets out the types of contributions members will be able to make under the proposed changes and is replicated below (Table 1).

Table 1 – Current and new arrangements for extended PSSAP membership

Circumstances

New Arrangements

Existing Arrangements

Person is a former contributory PSSAP member (that is, has a preserved benefit)— eligible PSSAP member

The person will be able to use their PSSAP account for non-Commonwealth employment (regardless of whether or not it triggers a Superannuation Guarantee obligation) and/or for other contributions, such as non-concessional contributions.

The person can only use their PSSAP account if they take up non-Commonwealth employment that triggers a Superannuation Guarantee obligation for their employer.

Person is an existing PSSAP contributory member—eligible PSSAP member

The person will be able to use their existing PSSAP account for contributions in respect of concurrent non-Commonwealth employment.

The person cannot use their existing PSSAP account for contributions in respect of concurrent non-Commonwealth employment.

Person is a CSS eligible employee or PSS member—eligible CSS/PSS member or former member

The person will be able to establish a PSSAP account for concessional contributions in respect of concurrent non-Commonwealth employment.

The person cannot establish a PSSAP account for concessional contributions in respect of concurrent non-Commonwealth employment.

Person has a CSS deferred benefit or a PSS preserved benefit member at commencement of the Act—eligible CSS/PSS member or former member

The person will be able to establish a PSSAP account for concessional contributions in respect of non-Commonwealth employment and/or if they wish to make non-concessional contributions.

The person cannot establish a PSSAP account for concessional contributions in respect of non-Commonwealth employment and/or if they wish to make non-concessional contributions.

Person ceased to be a CSS eligible employee or PSS member on or after commencement of the Act—eligible CSS/PSS member or former member

The person will be able to establish a PSSAP account for concessional contributions in respect of non-Commonwealth employment and/or for other contributions, such as non-concessional contributions.

The person cannot establish a PSSAP account for concessional contributions in respect of non-Commonwealth employment and/or for other contributions, such as non-concessional contributions.

Person ceased to be a CSS eligible employee or PSS member before commencement of the Act and does not have a CSS deferred benefit or a PSS preserved benefit (that is, they took their whole benefit as a pension and/or lump).

The person cannot establish a PSSAP account for concessional contributions for non-Commonwealth employment and/or if they wish to make non-concessional contributions.

The person cannot establish a PSSAP account for concessional contributions for non-Commonwealth employment and/or if they wish to make non-concessional contributions.

Source: Explanatory Memorandum, Superannuation Amendment (PSSAP Membership) Bill 2020, p. 5.

Who is an eligible PSSAP member?

Proposed subsection 18(7) sets out the circumstances in which a person can become an eligible PSSAP member. The circumstances are:

•       at a particular time, the person is a member of the PSSAP

•       the person is, or previously was, an OESM under subsections 18(2), (3) and/or (5) of the Act (that is, the PSSAP was the person’s nominated or default or fund or the SG Guarantee did not apply) and

•       the person is, or previously would have been eligible to become, a member of PSSAP because of particular employment or holding one or more particular offices, where the periods of any such employment, and the periods of holding any such office, taken together constitute or constituted a continuous period of at least 12 months.

The consequence of being an eligible PSSAP member is that superannuation contributions may be made in respect of the member to their PSSAP account. A person may also be an eligible PSSAP member whilst at the same time being an OESM under subsections 18(2), (3) or (5) of the Act—for example, because the person is employed by the Commonwealth and is concurrently employed or otherwise engaged in non-Commonwealth employment.

Who is an eligible CSS/PSS member or former member?

Proposed subsection 18(8A) sets out the circumstances in which a person can become an OESM of the PSSAP as an eligible CSS/PSS member or former member. The circumstances are:

•       at a particular time a person is a member of the PSSAP

•       the person is, or previously would have been able to become, a member of the PSS or the CSS because of particular employment or holding one or more particular offices, where the periods of any such employment, and the periods of holding any such office, taken together constitute or constituted a continuous period of at least 12 months and either:

–      the person was a former Australian government superannuation scheme member at the time the Superannuation Amendment (PSSAP Membership) Act 2020 commences or

–      the person is a member of the PSS or CSS at any time on or after the day the Superannuation Amendment (PSSAP Membership) Act 2020 commences.

Exceptions

Proposed subsections 18(7) and 18(8A) are each respectively paired with proposed subsection 18(8) and proposed subsection 18(8B), which create the following exemptions:

•       a person who is otherwise categorised as an eligible PSSAP member is not categorised as an eligible PSSAP member in respect of employment that subsections (2), (3) and/or (5) would apply to (proposed subsection 18(8)) and

•       a person who is otherwise categorised as an eligible CSS/PSS member or former member is not categorised as an eligible CSS/PSS member or former member in respect of employment:

–      that subsections 18(2), (3) and/or (5) would apply to, or 

–      in relation to which the person is, or would be eligible to become, a PSS or CSS member (proposed subsection 18(8B))

These proposed provisions ensure that employment that would have been previously covered by the Act is not adversely impacted by the inclusion of the new eligible PSSAP member and eligible CSS/PSS member or former member categories.

Proposed subsection 18(8) ensures that employer contributions made by Commonwealth employers are paid at the rate of 15.4 per cent of their superannuation salary, even when a person would otherwise be categorised as an eligible PSSAP member under proposed subsection 18(7). As noted in the Explanatory Memorandum, the rate of superannuation for an eligible PSSAP member (for example, where a current APS employee takes up concurrent employment with a non-Commonwealth employer) is a matter of the employment arrangement between the person and their employer.[20] Example 10 in the Explanatory Memorandum provides a parallel explanation for how proposed subsection 18(8B) applies to a person who would otherwise be an eligible CSS/PSS member or former member.

Example 10

Robert has a PSS preserved benefit. Robert has over 12 months continuous Commonwealth employment.

Robert becomes employed by Department ST on a part-time basis.

Subsection 18(8B) applies to Robert as he is able to become a PSS member in respect of his employment with Department ST. Therefore, Robert cannot become an eligible CSS/PSS member or former member in respect of that employment under subsection 18(8A).

If Robert takes up concurrent private sector employment, then he would be eligible to become an eligible CSS/PSS member or former member in respect of that employment.

Source: Explanatory Memorandum, op. cit., p. 12.

Supporting measures

Items 2 to 7 and items 9 to 14 make various changes to the Act to support the new categories of OESM. The majority of these items do this by removing references to FCOESM, and conversely substituting in appropriate references to eligible PSSAP member and/or eligible CSS/PSS member or former member, as appropriate.

Transitionary arrangements

Item 1 of Schedule 2 ensures that a person who is an ordinary employer-sponsored member of the PSSAP under subsection 18(7) (that is, a FCOESM) of the Superannuation Act 2005 immediately prior to the commencement of the Superannuation Amendment (PSSAP Membership) Act 2020, continues to be an OESM under the amended subsection 18(7) introduced by this Bill. As explained in the Explanatory Memorandum to the Bill, this preserves the status of a person that had elected for subsection 18(7) to apply to them prior to the amendment of that subsection by the Act.[21]

As noted earlier, item 8 of Schedule 1 repeals the current subsection 18(8). The current subsection 18(8) excludes a member of the Defence Force from being an OESM of PSSAP, as the Commonwealth has specific military superannuation schemes. However, the Explanatory Memorandum indicates that the Government does not intend for members of the Defence Force to become OESM under the amended Act. Currently, the Minister is able to specify classes of persons to be excluded from section 18 by way of a disallowable instrument, made under subsection 18(10) of the Act. The Explanatory Memorandum indicates the Government’s intention is to amend the existing instrument to also exclude a member of the Defence Force.[22]

Concluding comments

The changes proposed by the Bill appear to be relatively uncontroversial given that the policy has attracted little commentary or discussion. The changes afforded to current and former PSSAP, PSS and CSS members align with Government efforts to allow individuals to minimise the number of their superannuation accounts.

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[1].              Department of Finance (DoF), ‘Public Sector Superannuation Accumulation Plan (PSSAP)’, DoF website, last updated 6 November 2019.

[2].              See: DoF, ‘Public Sector Superannuation Scheme (PSS)’ and ‘Commonwealth Superannuation Scheme (CSS)’, DoF website, last updated 6 November 2019.

[3].              Commonwealth Superannuation Corporation (CSC), ‘About CSC’, CSC website.

[4].              Superannuation Act 2005, subsection 5(1) and paragraph 13(1)(i).

[5].              CSC, Public Sector Superannuation Accumulation Plan: product disclosure statement, 15th edn, CSC, 6 December 2019, p. 2; CSC, ‘Ancillary membership’, CSC website.

[6].              Explanatory Memorandum, Superannuation Amendment (PSSAP Membership) Bill 2020, p. 10.

[7].              Superannuation Act 2005, subsection 15(1).

[8].              The consequence of being an OESM includes that the person’s employer is generally required to make contributions on behalf of the employee to the CSC and in the case of a former Commonwealth employee—the new employer may make such contributions if requested to do so by the employee (Superannuation Act 2005, subsection 17(2)).

[9].              Superannuation Act 2005, paragraphs 18(2(a) and (b); 18(3(a) and (b); 18(5)(a) and (b).

[10].              Ibid., paragraphs 18(7)(c) and (g).

[11].              K Swoboda, Superannuation Amendment (PSSAP Membership) Bill 2016, Bills digest, 65, 2016–17, Parliamentary Library, Canberra, 2017.

[12].              Senate Standing Committee for the Selection of Bills, Report, 3, 2020, The Senate, Canberra, 27 February 2020, [p. 3].

[13].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 3, 2020, 26 February 2020, p. 18.

[14].              Explanatory Memorandum, Superannuation Amendment (PSSAP Membership) Bill 2020, p. 3.

[15].              The Statement of Compatibility with Human Rights can be found at page 3 of the Explanatory Memorandum to the Bill.

[16].              Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 3, 2020, 26 February 2020, p. 19.

[17].              Superannuation Act 2005, proposed subsection 18(7) (as amended by item 8 of Schedule 1 to the Bill).

[18].              Ibid., proposed subsection 18(8A) (as inserted by item 8 of Schedule 1 to the Bill).

[19].              Explanatory Memorandum, op. cit., p. 3.

[20].              Explanatory Memorandum, op. cit., p. 9.

[21].              Ibid., p. 13.

[22].              Ibid.