Chapter 5 - Government Senators' View
5.1 A comparative examination of federal award provisions concerning
superannuation and the SG requirements shows a distinct lack of compatibility
between the two systems.
5.2 Government Senators are of the view that there is scope for confusion
amongst employers as to what their obligations are and which obligation
should prevail - SG or the award. This is particularly so for those with
employees on a range of awards. It is therefore difficult to escape the
conclusion that there is a need to simplify these provisions.
5.3 It is possible that in some limited situations, simplification may
disadvantage some people who currently enjoy greater benefits of superannuation
by virtue of some awards.
5.4 Some employees may be disadvantaged to some extent if superannuation
is removed from the awards system. The size of this group is difficult
to determine. Further, there are very limited options available for compensating
for this disadvantage.
5.5 In many awards, the contributions required have not been updated
in line with increases in SG (currently 6 per cent, rising to 7 per cent
on 1 July 1998). Commonly, the contribution required is 3 per cent. Where
an individual is earning less than $450 per month and is only entitled
to the three percent specified in the award, the contributions involved
are small. Indeed, it must be asked whether the same arguments advanced
in respect of implementing a $450 SG threshold should not apply to these
amounts.
5.6 However, at the low income levels in question, the amounts forgone
may still be considered significant. The loss is not necessarily confined
to superannuation contributions but may also include insurance cover associated
with the superannuation fund membership.
5.7 One mechanism for compensating for the loss of contributions might
be to cash out the lost benefits. However, both ASFA and the employee
representatives indicated their opposition to making a cash top-up for
those employees affected. It is probable that employers would also oppose
such a move. This solution could also encounter difficulties in respect
of AIRC orders.
5.8 A further option would be to lower the SG threshold to a level more
in line with prevailing awards. While this option is superficially attractive,
Government Senators do not consider there has been sufficient consideration
of the issues associated with lowering the threshold for it to make a
recommendation.
5.9 Government Senators consider there is also a case for requiring SG
payments to be made quarterly. While this may inconvenience a small group
of employers, the evidence available suggests that the impact should be
minimal, as frequency of payment is generally determined by other factors
such as employer-fund deeds, which require payment on a quarterly or monthly
basis.
5.10 These proposed solutions have some shortcomings as they may increase
the administrative burden on those employers currently required to make
contributions under SG only. There are, however, compensating factors.
The trade-off is that employers should no longer be required to meet the
compliance costs associated with award superannuation obligations. For
many employers with significant numbers of award employees in high turnover
industries, this initiative would simplify their administrative burden
considerably.
5.11 While small amounts involved in quarterly payments may increase
costs, it must be remembered that most small employers are required in
any case to remit group tax payments quarterly. Government Senators consider
that costs of making small contributions may be reduced through electronic
funds transfer, and funds and financial institutions should investigate
methods of facilitating such transfers.
5.12 Government Senators do not accept arguments that the award system
is conceptually simpler than SG. While employees may well understand their
award entitlements, they also have entitlements under SG, which they also
need to be aware of and understand. In many cases, particularly the level
of payment, SG provides a superior benefit as many awards have not been
updated and reflect a lower level of contributions than required under
SG.
5.13 Consequently, removing superannuation from the awards system may
well have the effect of making superannuation entitlements easier for
employees to understand as well as simplifying administrative complexity
for employers.
5.14 Government Senators are, however, concerned that there will be no
effective dispute resolution mechanism available to employees in respect
of disputes with employers about superannuation. While such disputes will
hopefully be rare and resolved at the workplace level, a fallback dispute
resolution mechanism may be needed. Government Senators suggest that the
Government closely monitor whether there will be a future need for such
a dispute resolution mechanism.
Recommendation
5.15 Government Senators recommend that the bill be passed, to take
effect following implementation of the Government's Choice of Fund legislation.
5.16 Government Senators further recommend that the Government give
consideration to introducing a requirement that SG contributions be remitted
on not less than a quarterly basis.
5.17 Government Senators further recommend that the Government give
consideration to introducing a dispute resolution mechanism, within a
reconstituted Superannuation Complaints Tribunal or other body, to deal
with potential disputes concerning superannuation between employers and
employees.
(signed)
Senator John Watson, Chairman
Senator Alan Ferguson
Senator Julian McGauran
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