EXPLANATORY STATEMENT
DETERMINATION NO 1 OF 2007 UNDER SECTION 52 OF THE DEFENCE ACT 1903
ISSUED BY THE AUTHORITY OF THE MINISTER ASSISTING THE MINISTER FOR DEFENCE
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 who are contributors to the Defence Force Retirement and Death Benefits (DFRDB) Scheme.
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. The Principal Determination was amended in February 1993 to provide a top-up to DFRDB Benefits to bring them in line with Superannuation Guarantee (SG) requirements.
The 10 year Treasury Bond yield has been sourced from the Reserve Bank of Australia’s website. Consultation has taken place with Commonwealth Superannuation Administration (the administrator of Defence superannuation) and the Australian Government Actuary.
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 2007 to 31 December 2007. The factor taken into account is the 10 year Treasury Bond yield, declared on 31 December 2006 by the Reserve Bank of Australia, reduced by 15% to take account of the prevailing superannuation fund tax rate.
Individual amendments
1. Amendment
This clause is formal.
2. Commencement
This clause provides for the amendments to have effect from 1 January 2007. No person, other than the Commonwealth, has been disadvantaged by this retrospective commencement.
3. Schedule (Factors Concerned in the Calculation of Interest Applicable in respect of Certain Calendar Years)
This clause amends the Principal Determination by adding the factor concerned in the calculation of interest applicable in respect of the period 1 January 2007 to 31 December 2007.
Overview
The Defence Force (Superannuation) (Productivity Benefit) Determination No 1 of 2007, issued under Section 52 of the Defence Act 1903, was enacted to provide a superannuation productivity benefit for members of the Defence Force contributing to the Defence Force Retirement and Death Benefits (DFRDB) Scheme. The legislation was issued by the authority of the Minister Assisting the Minister for Defence, aiming to align the DFRDB benefits with broader superannuation requirements. This determination specifically addresses the need to adjust the interest calculation factor to reflect the 10-year Treasury Bond yield for the period from 1 January 2007 to 31 December 2007, reducing it by 15% to account for the prevailing superannuation fund tax rate. This adjustment ensures that the benefits remain competitive and in line with economic conditions, providing a fair return on contributions made by Defence Force members.
Scope and Application
This Determination No 1 of 2007 under section 52 of the Defence Act 1903 applies to members of the Defence Force who are contributors to the Defence Force Retirement and Death Benefits (DFRDB) Scheme. It pertains to the calculation of a productivity benefit and a top-up to DFRDB benefits, ensuring that these align with the Superannuation Guarantee (SG) requirements. The geographic and jurisdictional reach of this legislation is limited to the Commonwealth, specifically targeting members of the Defence Force and their superannuation benefits. The amendments to the Defence Force (Superannuation) (Productivity Benefit) Determination are set to take effect from 1 January 2007, with no adverse effects on any parties other than the Commonwealth. The Determination includes a specific schedule that details the factor used in the calculation of interest for the period from 1 January 2007 to 31 December 2007, which is the 10 year Treasury Bond yield adjusted for the prevailing superannuation fund tax rate. This adjustment is formalised to ensure that the interest calculation aligns with the economic conditions specified by the Reserve Bank of Australia.
Key Provisions
The main operative sections of Determination No 1 of 2007 under Section 52 of the Defence Act 1903 (the Determination) involve updating the calculation of interest for the superannuation productivity benefit provided to Defence Force members. Section 1 of the Determination is formal, Section 2 outlines the commencement date of 1 January 2007, and Section 3 amends the Principal Determination by adding the factor used in the calculation of interest applicable for the period from 1 January 2007 to 31 December 2007. This factor is the 10 year Treasury Bond yield declared on 31 December 2006 by the Reserve Bank of Australia, reduced by 15% to account for the prevailing superannuation fund tax rate. This amendment ensures that the interest calculation aligns with current financial conditions.
The Determination imposes obligations on the Commonwealth to ensure that the superannuation benefits provided to Defence Force members are calculated accurately. It requires the application of the specified interest calculation factor to the 3% productivity contribution and the SG top-up, as detailed in the schedule to the Principal Determination. The Commonwealth, through the Defence Force Retirement and Death Benefits (DFRDB) Scheme, must ensure that these calculations are made in accordance with the updated provisions to maintain fairness and compliance with current financial standards.
The Determination does not explicitly state any offences or penalties for non-compliance. However, by failing to adhere to the updated interest calculation, the Commonwealth could potentially underpay or overpay superannuation benefits, leading to financial discrepancies for Defence Force members. While the Determination itself does not specify penalties, such discrepancies could result in legal challenges or financial corrections that would need to be addressed to rectify any errors. The impact of non-compliance could include financial instability for Defence Force members relying on these benefits.