EXPLANATORY STATEMENT
Defence Force (Superannuation) (Productivity Benefit) Amendment determination 2009 (N0.1)
ISSUED BY THE AUTHORITY OF THE MINISTER FOR DEFENCE INDUSTRY, SCIENCE AND PERSONNEL
Section 52 of the Defence Act 1903 empowers the Minister to make determinations providing a superannuation productivity benefit in respect of continuous full time service by members of the Defence Force after 1 January 1988.
The Defence Force (Superannuation) (Productivity Benefit) Determination (the Principal Determination), made under section 52, makes provision for a 3% productivity benefit in line with the Conciliation and Arbitration Commission's June 1986 National Wage decision. Amendments are required to set the factor used to calculate interest for this calendar year and to remove dated provisions.
Superannuation surcharge
The Defence Force Retirement and Death Benefits Act 1973 (the DFRDB Act) generally provides for the payment of retirement benefits to certain defence force employees. The payment of a surcharge liability in respect of such employees’ superannuation contributions is deferred until a benefit is paid. When a benefit becomes payable the trustee of the fund is liable to pay the deferred surcharge liability plus accumulated interest.
With the abolition of the surcharge from 1 July 2005, it was necessary to adjust the reduction in benefits of members of the Defence Force Retirement and Death Benefits scheme, to exclude employer benefits accruing in the 2005-06 and later financial years from the calculation. The reduction in the Defence (Superannuation)(Productivity Benefit) Determination (Principal Determination) did not reflect the specific legislative requirements, although the administrator, ComSuper, has been making any reductions in a productivity benefit in line with the legislative requirement.
Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations)
Clause 6 of the Principal Determination deals with the situation where a member is entitled to be paid the productivity benefit because the member has satisfied a condition of release set out in the SIS Regulations. However, the clause does not address all relevant conditions of release (for example, it does not list attaining age 60 and changing employment or attaining age 65).
Clause 6 also deals with the requirement to roll over the benefit if a condition of release has not been satisfied. These clauses now make reference to SIS regulations. Reference to the continuing role of the Authority after the benefit has been rolled over has been removed
Factor used in the calculation of interest
The Principal Determination credits notional interest on the 3% productivity contribution and SG top-up in accordance with factors set out in the schedule to the Principal Determination. It is necessary to amend the Principal Determination to add the factor concerned in the calculation of interest applicable in respect of the period 1 January 2009 to 31 December 2009. The factor taken into account is the 10 year Treasury Bond yield, declared on 31 December 2008 by the Reserve Bank of Australia.
Although this instrument relates to the service of members of the Australian Defence Force and so may not of necessity require consultation for the purposes of paragraph 18(2)(g) of the Legislative Instruments Act 2003 (LIA), Commonwealth Superannuation Administration and the Australian Government Actuary were consulted in the development of this instrument.
This is a legislative instrument for the purpose of section 44(2) of the Legislative Instruments Act 2003 (LIA) and is not subject to disallowance in accordance with item 39 of the table in subsection 44(2) or sunsetting in accordance with item 42 of the table in subsection 54(2) of the LIA.
Individual amendments
Clause 1 – Name of Determination
This clause is formal.
Clause 2 - Commencement
The instrument commences the day after registration on the Federal Register. Item 9 in Schedule 1 provides the factor for the purposes of calculating notional interest and commences on 1 January 2009.
Clause 3 - Amendment of Defence Force (Superannuation)(Productivity Benefit) Determination
This clause is formal.
Schedule 1 Amendments
This schedule amends the Defence Force (Superannuation)(Productivity Benefit) Determination made under the Defence Act 1903 to reflect the appropriate calculation of any surcharge reduction amount, to more adequately reflect the operation of the SIS Regulations and to provide a factor to be used for the calculation of notional interest.
Item 1 Name of Determination
The Determination is now known as the Defence Force (Superannuation) (productivity Benefit) Determination 1988. Amending the citation brings it in line with current drafting standards for naming instruments.
Item 2 Subclause 3(1), before definition of member
This item inserts a definition of legal personal representative.
Item 3 Subclause 3(1), after definition of payment split
This item inserts a definition of preservation age.
Item 4 Subclause 3 (1), after definition of service offence
This item inserts a definition of severe financial hardship.
Item 5 Subclause 3A(3)
This item more accurately reflects what the Defence Force Retirement and Death Benefits Authority (the Authority) must take into account when determining any surcharge deduction amount from productivity benefits. The amendment reflects the same requirements that are in the DFRDB Act.
Item 6 Clause 6 When benefit is payable in respect of a member and Preserving a productivity benefit
This item amends clause 6 to reflect preservation requirements in the SIS Regulations, to allow for the Authority to determine whether part of a productivity benefit can be accessed on the grounds of severe financial hardship or whether it is appropriate to pay the whole or part of a productivity benefit after the Australian Prudential Regulation Authority determines that the member satisfies a condition of release on a compassionate ground.
This item also provides for a productivity benefit that must be preserved because it is not payable in accordance with subclauses 6(2) or (4). The benefit must be paid to a superannuation fund or an approved deposit fund or a deferred annuity.
Item 7 Subclause 11(1)
This item amends the subclause to change a reference to reflect the change at item 6.
Item 8 Clause 13
This item amends the subclause to change a reference to reflect the change at item 6.
Item 9 Schedule
This item adds the factor to apply for calculating interest for the calendar year ending on 31 December 2009.