Supplementary Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)Benefit Certificates
Summary of the proposed amendments
The amendments make a number of technical changes in relation to benefit certificates required for defined benefit superannuation schemes, including the following:
- •
- a benefit certificate which is issued on or before 14 August may have effect from the date specified on the certificate and that date may be as early as 1 July of the preceding year; and
- •
- a reduction in the charge percentage for an employer in respect of an employee (under clause 22) will only be allowed in relation to that part of the contribution period in which a benefit certificate is effective.
Explanation of proposed amendments
Description of the notional employer contribution rate
The proposed amendment will amend the description of the notional employer contribution rate in subclause 10(2). The notional employer contribution rate in relation to a class of employees will be re-defined to mean the contribution rate required to meet the expected long-term cost to the employer of the minimum benefits accruing to all employees in that class from the date of effect of the benefit certificate onwards.
Subclause 10(6) will provide that regulations may make provisions about the way in which 'the contribution rate', 'the expected long-term cost to an employer of benefits accruing to all employees' and 'the minimum benefit accruing to all employees' are to be calculated.
The notional employer contribution rate is used to work out an employer's actual level of superannuation support provided in a defined benefit superannuation scheme. This rate needs to be specified by an actuary in a benefit certificate.
The minimum benefits accruing to all employees in a class is the lowest benefit available to any employee in the class. For example, if the lowest employer provided benefit to an employee in the class is nil then the notional employer contribution rate in relation to that class is nil. This is the case even if other employees in the class receive an employer provided benefit.
Period that the benefit certificate has effect
A further amendment will provide that a benefit certificate which is issued on or before 14 August in a year (or within such further time as the Commissioner allows) may have effect from a date specified on the certificate earlier than the date of issue. The date specified on the certificate may be as early as 1 July of the previous year. (For example, a benefit certificate may be issued on 14 August 1993 and be specified to have effect from 1 July 1992.) [New subclauses 10(4) and (5)]
A benefit certificate will cease to have effect when:
- •
- the superannuation scheme to which the benefit certificate relates is amended in a way which affects (or may affect) the level or method of calculation of benefits provided under the scheme for the class of employees;
- •
- another benefit certificate is issued; or
- •
- a period of 5 years expires from the time of issue;
whichever occurs first. [Subclause 10(3)]
Calculation of the reduction of the charge percentage
The calculation of the reduction of the employer's charge percentage under clause 22 will be amended so that the notional employer contribution rate shown on a benefit certificate only operates to reduce the employer's charge percentage in respect of an employee during any part of a contribution period in which the benefit certificate is effective.
If a benefit certificate is only effective for part of the period that an employee is employed during the contribution period, the notional employer contribution rate is reduced by the fraction calculated as follows:
period during which the benefit certificate has effect / period of employment in the contribution period
Example
Assume an employee was employed by the employer for 3 months of the first contribution period in the 1992-93 year (ie 92 days) and a benefit certificate was effective for 2 of those months (ie. 61 days). The benefit certificate has a notional employer contribution rate of 6%. The employer's level of superannuation support provided under the scheme for the 1992-93 year for the employee will be:
6% x (61 / 92) = 3.98%
[Note:Other adjustments may be made where the employee is a member of the superannuation scheme for less than his or her employment period]