Senate

Explanatory Memorandum

Circulated by authority of the Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry

OUTLINE

The main purpose of the Superannuation Legislation Amendment (Trustee Board and Other Measures ) ( Consequential Amendments) Bill 2008 (the Bill) is to make amendments to a range of legislation as a consequence of:

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the introduction, on 1 July 2005, of the Public Sector Superannuation Accumulation Plan (PSSAP);

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the establishment, on 1 July 2006, of a single Superannuation Board, named the Australian Reward Investment Alliance (ARIA), to administer the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) and the PSSAP;

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introduction of the new regime for managing legislative instruments provided for under the Legislative Instruments Act 2003 (LI Act); and

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the requirement to use ordinary time earnings (OTE) to calculate employer Superannuation Guarantee (SG) obligations from 1 July 2008.

The Bill also proposes to remove the requirement in the Superannuation Act 1976 (the 1976 Act) that interest determinations be gazetted and make some minor technical amendments.

Introduction of the PSSAP

On 1 July 2005 the Superannuation Act 2005 (2005 Act) provided for the establishment, by Trust Deed, of the PSSAP, which replaced the CSS and the PSS as the main Australian Government civilian superannuation scheme for new employees.

The 2005 Act contains provisions relating to benefit entitlements arising from invalidity that mirror provisions in the 1976 Act and the Superannuation Act 1990 (1990 Act). However, unlike the 1976 Act and 1990 Act, the provisions have not been recognised in a number of Acts. To ensure consistency and transparency with arrangements for the 1976 Act and the 1990 Act, it is desirable to include in these Acts equivalent provisions to recognise the invalidity requirements of the 2005 Act.

Single Superannuation Board

On 1 July 2006 the Superannuation Legislation Amendment (Trustee Board and Other Measures) Act 2006 consolidated the governance arrangements for the CSS, the PSS and the PSSAP under one trustee board, called ARIA.

There are some 27 Commonwealth Acts that make references to the previous CSS and PSS Boards. Schedule 1 to the Bill includes consequential amendments to those Acts to recognise ARIA by replacing the references to the previous CSS and PSS Boards with ARIA.

Legislative Instruments Act

The LI Act introduced a comprehensive regime for the making, registration, parliamentary scrutiny and sun-setting of Commonwealth delegated legislation from 1 July 2005. It replaced provisions in the Acts Interpretation Act 1901 (AI Act) that dealt with the making and parliamentary scrutiny of instruments.

As a result, amendments to the superannuation Acts are required to remove out-of-date references to the AI Act and concepts under that Act. Amendments are also required to clarify that those instruments that were disallowable under the AI Act before these amendments are made continue to be subject to disallowance.

The Bill makes a number of technical amendments to the Parliamentary Contributory Superannuation Act 1948 , the Superannuation Act 1922 , the 1976 Act, the 1990 Act and the Superannuation (Productivity Benefit) Act 1988 (PB Act) as a consequence of the LI Act.

Removal of requirement to gazette interest determinations

ARIA makes periodic determinations of interest on investment earnings that apply to members' accounts. Those rates are published on the scheme websites (generally on the business day immediately after the rates become effective).

Interest determinations for the CSS, PSS and the PSSAP have been exempted from the requirements of the LI Act because of the undue burden of registering the instruments, and because they are published on the scheme websites.

However, the 1976 Act still contains an outdated requirement to gazette CSS interest determinations, which does not exist in relation to the PSS and the PSSAP. In these circumstances, compliance with the requirement that each CSS interest determination must be gazetted would be both onerous and expensive.

The Bill, therefore, proposes that the requirement for gazettal be removed from the 1976 Act. ARIA has given undertakings that it will continue to publish the interest rates on the scheme websites.

Amendments to replace an incorrect reference

An amendment to the 1976 Act is required to replace an incorrect reference to the Minister in section 110C with a reference to the Board. That section refers to a declaration by the Minister under section 110D. The amendment is required because only the Board is able to make a declaration under section 110D.

Amendment to remove a redundant provision

Subsection 4(2) of the 1990 Act provides for the establishment of the PSS by trust deed in the form set out in the Schedule to the Act. However, retaining the original form of the trust deed as a Schedule to the 1990 Act is unnecessary and can be misleading as it does not reflect any changes made to the Trust Deed since 1990.

The amendments propose to remove the Schedule to the 1990 Act by repealing section 4 of that Act which requires the Trust Deed to be in the form of a Schedule of the Act.

Requirement to use ordinary time earnings when calculating SG obligations

From 1 July 2008, the Superannuation Guarantee (Administration) Act 1992 (SG Act) will require employers to use OTE when calculating their SG obligations in all cases.

For a defined benefit scheme like CSS, the employer SG obligation is reflected through the minimum benefit payable by an employer in respect of an employee. The minimum benefit under the CSS is calculated based on superannuation salary defined under the 1976 Act, which varies and can be lower than the amount calculated using OTE.

The Bill proposes amendments to the 1976 Act that will enable the Minister for Finance and Deregulation to make Regulations under that Act, when necessary, to ensure that the CSS complies with requirements under the SG Act, including complying with the OTE method from 1 July 2008. No changes are required to the 1990 Act as these will be made by amending the PSS Rules.

Amendments are also proposed to the PB Act to allow, where necessary, an additional contribution to be paid by an employer to avoid an individual SG shortfall in respect of the employee covered by that Act.

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This will ensure that employers contributing under the PB Act can meet their SG obligations from 1 July 2008.

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The proposed amendment will also ensure that employees whose superannuation is provided under the PB Act will not be disadvantaged in circumstances where the current method of calculating benefits under the PB Act would result in higher benefits than if the OTE method was used.

Financial Implications

The amendments relating to the SG will not have a material Budget impact because the change from the current PB Act salary base to the SG earnings base to apply from 1 July 2008 is not significant. There are no costs associated with the other amendments contained in the Bill.