Revised Explanatory Memorandum
(Circulated by the authority of the Minister for Financial Services and Superannuation, the Hon Bill Shorten)Chapter 2 - Sustaining the superannuation contribution concession - consequential amendments: Defence force superannuation
Outline of chapter
2.1 Schedule 2 amends the Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act) to give effect to changes that are necessary as a result of implementing the sustaining the superannuation contribution concession contained in Schedule 3 of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013.
2.2 The amendments allow a lump sum to be paid from a superannuation interest in the Defence Force Retirement and Death Benefits (DFRDB) scheme to meet a debt account discharge liability for Australian Defence Force members of the scheme who are very high income earners. As a result a member's superannuation benefits, including any reversionary pension to be paid to the surviving spouse of a deceased member, is reduced.
Context of amendments
2.3 The changes are required to enable amounts to be released from the DFRDB scheme. This is required as a result of implementing the sustaining the superannuation contribution concession contained in Schedule 3 of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 which imposes tax on concessional contributions of Australian Defence Force members of the DFRDB scheme who are very high income earners.
2.4 The sustaining the superannuation contribution concession was announced in the Minister for Financial Services and Superannuation's Media Release No. 024 of 8 May 2012.
Summary of new law
2.5 The amendments allow a lump sum to be paid from a superannuation interest in the DFRDB scheme to meet a debt account discharge liability for Australian Defence Force members of the scheme who are very high income earners. As a result a member's superannuation benefits, including any reversionary pension to be paid to the surviving spouse of a deceased member, is reduced.
Detailed explanation of new law
2.6 The Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act) is amended to enable a lump sum to be paid from a superannuation interest in the DFRDB scheme to meet a liability for debt account discharge liability for Australian Defence Force members of the DFRDB scheme who are very high income earners. This results in the member's superannuation benefits, including any reversionary pension to be paid to the surviving spouse of a deceased member, being reduced.
2.7 The existing definition of 'benefit' in section 3(1) of the DFRDB Act is repealed and replaced with a new definition of 'benefit' to expressly include a release authority lump sum as a part of the benefit that is payable under the DFRDB scheme. The new definition enables release authority lump sums to fall within the appropriation included in subsection 125(3) of the DFRDB Act. [Schedule 2, item 1, definition of 'benefit' in subsection 3(1) of the DFRDB Act]
2.8 A definition of 'release authority lump sum' is included in subsection 3(1) of the DFRDB Act and refers to section 49K which sets out what a release authority lump sum is. [Schedule 2, item 2, definition of 'release authority lump sum' in subsection 3(1) of the DFRDB Act]
2.9 A note is inserted after subsections 24(2A) and 32A(4) of the DFRDB Act to make it clear that any lump sum to be paid as a result of an election to commute retirement pay or Class C invalidity pay respectively is calculated after a release authority lump sum has been paid (that is, if the member gives a release authority to the Commonwealth Superannuation Corporation (CSC) and a lump sum has not been paid as a result of an election to commute under section 24 or 32A). [Schedule 2, items 3 and 4, note in subsections 24(2A) and 32A(4) of the DFRBD Act]
2.10 The existing subsection 48(5) of the DFRDB Act is repealed and replaced with a new provision to ensure that an amount payable to the personal representative of the member (or to such persons that CSC determines) in respect of a contributing or recipient member who dies without leaving dependants is adjusted to reflect any retirement or invalidity pay or a release authority lump sum amount paid to the member while still alive. [Schedule 2, item 5, subsection 48(5) of the DFRBD Act]
2.11 The amendments introduced in new Part VIB of the DFRDB Act allow a release authority lump sum to be paid by CSC if:
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- a person presents a release authority issued under item 3 of the table in subsection 135-10(1) in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) introduced by Schedule 3 of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013; and
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- at the time they provide a release authority to CSC, no benefit has been paid.
2.12 Any lump sum paid by CSC in compliance with a release authority must be in accordance with Subdivision 135-B in Schedule 1 to the TAA 1953. [Schedule 2, item 6, section 49K of the DFRDB Act]
2.13 The amendments in Schedule 3 of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 include sections 135-85 and 135-95 of Schedule 1 to the TAA 1953 limit the amount that a superannuation provider can pay in respect of a release authority to the lesser of the following amounts:
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- the amount the release authority was issued for;
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- a lower amount specified, by the individual or the Commissioner of Taxation, than the amount for which the release authority was issued for; or
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- the total amount of all the superannuation lump sums of all the superannuation interests held by the superannuation provider for the person (this recognises that an amount cannot be paid to the extent it exceeds the sum held).
2.14 In addition to the limits contained in the amendments in Schedule 3, these amendments include a further limitation on the maximum amount that can be paid as a release authority lump sum under the DFRDB Act. The amendments specify that the amount of a release authority lump sum must not have the effect of reducing the person's benefit(s) specified in the election below zero, after first taking into account any reduction under another provision of the DFRDB Act, such as a person's surcharge deduction amount (if an election under section 124 is made before giving CSC the release authority) or a reduction as a result of a family law split. [Schedule 2, item 6, section 49L of the DFRDB Act and item 7, subsection 124(3) of the DFRDB Act]
2.15 The release authority lump sum amount is to be paid before any lump sum arising from the commutation of retirement pay or Class C invalidity pay is calculated, if a release authority is given to CSC before any commuted amount of retirement pay or Class C invalidity pay is paid. However, where a commuted amount has been paid, the reduced retirement pay or invalidity pay is further reduced to take account of a release authority lump sum. [Schedule 2, item 6, section 49M of the DFRDB Act]
2.16 The manner of calculating reduced retirement pay of Class C invalidity pay is set out in the following formula:
Pre-reduction rate - [Release authority lump sum / Conversion factor]
2.17 For the purposes of the formula, the 'pre-reduction rate' will be the actual rate of retirement pay or Class C invalidity pay otherwise payable to the person (noting that this includes any other provision in the DFRDB Act that affects the rate of pension). The conversion factor is to be determined by CSC and made by legislative instrument. [Schedule 2, item 6, section 49N of the DFRDB Act]
2.18 A DFRDB scheme member who effectively ceased to be an eligible member of the Defence Force in order to contest an election, who is unsuccessful at the election and who is not reinstated may be entitled to invalidity pay (or dependants may be entitled to death benefits) in circumstances where an amount of benefit is repaid to the Commonwealth within 90 days (or such further period as CSC determines) of the declaration of the poll. Paragraph 55(5)(a) of the DFRDB Act is modified to not require payment of a release authority amount that may have been paid when the member ceased to be an eligible member of the Defence Force. [Schedule 2, item 6, section 49P of the DFRDB Act]
2.19 The retirement pay of a recipient member of the DFRDB scheme who re-enters for a period of further service for 12 months or more and again becomes a DFRDB scheme contributing member is cancelled. Retirement pay is recalculated when the further period of service is completed based on the member's total period of service. The re-calculated retirement pay is required to be adjusted to reflect any release authority lump sum payment made when the member first claimed the retirement pay. [Schedule 2, item 6, section 49Q of the DFRDB Act]
Application and transitional provisions
2.20 The consequential amendments to the DFRDB Act apply from the later of Royal Assent of this Bill and immediately after Royal Assent of the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013.
2.21 This measure does not apply if the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 does not receive Royal Assent. The contingent commencement provision reflects that these consequential amendments are only required if the sustaining the superannuation contribution concession contained in the Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 is enacted.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Sustaining the superannuation contribution concession - consequential amendments: Defence force superannuation
2.22 Schedule 2 to this Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
2.23 Schedule 2 to this Bill amends the Defence Force Retirement and Death Benefits Act 1973 as a result of the sustaining the superannuation contribution concession.
2.24 The purpose of Schedule 2 to this Bill is to make consequential changes to enable the Commonwealth Superannuation Corporation to pay amounts under the Defence Force Retirement and Death Benefits scheme and adjust benefits under the scheme to reflect those payments.
Human rights implications
2.25 Schedule 2 to this Bill does not engage any of the applicable rights or freedoms.
Conclusion
2.26 Schedule 2 to this Bill is compatible with human rights as it does not raise any human rights issues.
Minister for Financial Services and Superannuation, the Hon Bill Shorten