Chapter 2
The Bills
Superannuation Legislation (Commonwealth Employment) Repeal and Amendment
Bill 1997
2.1 The Government has stated that the main purpose of the Bill is to
allow Commonwealth employees to participate in the Government's choice
of funds arrangements that are proposed in the Taxation Laws Amendment
Bill (No.7) 1997 as announced in the 1997 Budget. According to the government
this will provide Commonwealth employees with greater choice, flexibility
and control over their superannuation arrangements. [1]
2.2 The PSS will be closed to new members from 1 July 1998 although active
PSS membership may still be available for new employees who left the PSS
before that date and have a PSS preserved benefit (similar arrangements
may apply for new employees who have CSS preserved benefits).
2.3 Consequent to the closure of the PSS, Commonwealth departments and
agencies will be required to offer new employees a choice of fund in accordance
with the Government's Choice of Fund legislation.
2.4 From 1 July 2000, departments and agencies will be required to also
offer choice to continuing CSS and PSS members. CSS and PSS members will
have the choice of remaining in their scheme, with no change to existing
arrangements, or ceasing membership with future employer superannuation
paid to a superannuation fund or RSA offered to them by their employer.
The entitlements for members who exercise choice have been designed to
ensure no increase in unfunded liabilities.
2.5 Each Commonwealth Department and agency will be responsible for selecting
complying superannuation funds and Retirement Saving Accounts (RSAs) (including
the default fund) to be offered to their employees.
2.6 Departments or agencies must provide for a default fund regardless
of which choice arrangement they provide to their employees. If employees
do not make a choice within 28 days of commencing duty they are automatically
placed in the default fund.
2.7 Department and agencies must provide at least minimum superannuation
guarantee contributions for future employees. In respect of existing employees,
saving provisions will require that the employer continue the higher rate
for the duration of that employment to ensure employees are not disadvantaged
by the new arrangements.
2.8 Consistent with the Government's choice of fund legislation, Commonwealth
employers and employees will also have the option of using workplace agreements
to specify superannuation arrangements. Workplace agreements cannot be
used to require a member to cease CSS or PSS membership or to tie them
to the CSS/PSS after 30 June 2000.
2.9 From 1 July 1998, the Superannuation (Productivity Benefit) Act
1988 (PB Act) will be repealed. As a result the Australian Government
Employees Superannuation Trust (AGEST) will continue to remain open to
existing and new members, but will cease to be the legislated default
fund for new employees.
2.10 The Bill also includes a number of other changes. These are:
- Allow CSS members to transfer amounts held in AGEST or other funds
to the CSS Fund;
- Lift restriction so that reversionary benefits may be paid to a CSS
pensioner's spouse or child from a post-retirement relationship;
- Modify the superannuation redundancy entitlement arrangements for
employees who cease to be CSS members as result of a sale or outsourcing;
- Define the circumstances in which the CS Board may accept late elections
for preservation from former CSS members; and
- Simplify some of the provisions in the CSS and PSS to reduce complexity
both in administration and maintenance of the rules.
2.11 The Bill also proposes a number of minor amendments to the Parliamentary
Contributory Superannuation Act. These are:
i) Changes to access to spouse benefits where a retiring member, entitled
to a pension, commenced a post-retirement martial relationship after age
60;
ii) The payment of transfer values by new members of Parliament; and
iii) Other minor technical matters, including the payment of orphan benefits.
Financial Implications
2.12 There are three elements in the Bill that have financial implications.
These relate to post retirement reversionary benefits, the full funding
of future benefit accruals for new employees and those CSS and PSS members
who exercise choice and CSS late elections for preservation.
2.13 The changes to post retirement reversionary benefit arrangements
are estimated to increase outlays by $2.2 million per year. The increased
outlays arise from the expected increase in the number of reversionary
benefits that will be paid under the changed arrangements.
2.14 The Bill will result in the funding of future superannuation accruals
for new employees and for existing CSS and PSS members who elect to join
another complying superannuation fund or Retirement Savings Account. The
estimated additional outlays over the next three years are $12 million
in 1998-99, $40 million in 1999-00 and $290 million in 2000-01. However,
these increased cash flows do not represent any additional expense; they
in effect bring forward future cash flows in lieu of an increase in unfunded
liabilities.
2.15 Both the CSS and PSS are defined benefit schemes, which means they
are partly unfunded. The employee benefits are funded when they become
payable rather when the benefits accrue to them, resulting in the accumulation
of unfunded liabilities. As at 30 June 1997 the unfunded liability of
the CSS and PSS was $42.5 billion, with $15 billion of this amount relating
to current CSS and PSS members.
2.16 The government estimates that the closure of the PSS will result,
over the long term, in a decrease in the Commonwealth's level of unfunded
liabilities.
2.17 The amendments to restore the intention of the Superannuation
Act 1976 in relation to late elections for preservation are expected
to avoid a potential increase on outlays of around $10 million per year.
2.18 Departments and budget funded agencies are currently funded at the
existing rates for the CSS (21.9% of salaries) and the PSS (13.1% of salaries).
Funding for superannuation is a component of running costs or budget appropriation
and will be updated by the same indexation process as for other labour
costs.
2.19 According to the Department of Finance and Administration (DoFA)
there will be no change in funding levels for departments and agencies
for employer superannuation payments. However employees will be free to
negotiate with their employers whether all of this funding is paid in
the form of superannuation contributions or a proportion is paid as enhancements
to other employment conditions. The employer is required to have superannuation
provided at the Superannuation Guarantee safety net rate for all employees
as a minimum. From 1998/99 the rate is 7% increasing to 9% from 2002/03.
[2]
Commonwealth Superannuation Board Bill 1997
2.20 This Bill will establish a new Commonwealth Superannuation Board
to administer the closed Commonwealth superannuation schemes for current
and former employees. It will take over the responsibility of the CSS
Board and PSS Board and the Commissioner for Superannuation.
2.21 The board will comprise an independent Chair appointed by the Minister
for Finance and Administration after consultation with other Board members,
and an equal number of member and employer representatives. Scheme members
will elect member representatives.
Superannuation Legislation (Commonwealth Employment – Saving and
Transitional Provisions) Bill 1997
2.22 This Bill will put in place saving and transitional provisions as
a consequence of certain amendments to the Superannuation Act 1976 and
the subsequent repeal of the Superannuation Act 1976, Superannuation
Act 1990, Superannuation Act 1922, and Superannuation (Productivity
Benefit) Act 1988.
2.23 However, in most circumstances, the repeal legislation will continue
to operate through the application of this Bill, thus preserving the benefits
currently available to members of the various Commonwealth superannuation
schemes. The Minister for Finance and Administration or the new CS Board
will be able to amend the repealed legislation by disallowable instrument.
Footnotes
[1] Explanatory Memorandum, Superannuation Legislation
(Commonwealth Employment) Repeal and Amendment Bill 1997.
[2] Submission, Department of Finance
and Administration Submission, p. 11.
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