MILITARY SUPERANNUATION AND BENEFITS ACT 1991
MILITARY SUPERANNUATION AND BENEFITS TRUST DEED AMENDMENT 2008 (No.2)
EXPLANATORY STATEMENT
Issued by the authority of the Minister for Defence Science and Personnel
The Schedule to the Trust Deed made by the Minister for Defence Science and Personnel under section 5 of the Military Superannuation and Benefits Act 1991 (the MSB Act) contains Rules (the MSB Rules) which deal with the benefits to be provided to members of the MSB Scheme upon retirement, or to dependants of deceased members of the scheme. The Scheme benefits include both a member benefit (based on member contributions and accrued MSB Fund earnings) and an employer benefit (which includes employer contributions).
Section 5 of the MSB Act provides that the Minister may amend the Trust Deed (including the MSB Rules) by a signed instrument.
From 1 July 2008 defined benefit schemes, which had what are known as protected earnings bases for the purposes of assessing Superannuation Guarantee obligations, were required to assess their Superannuation Guarantee obligations against ordinary time earnings (OTE). In the case of the Defence Force Retirement and Death Benefits Scheme (DFRDB) and MSBS, the protected earnings bases were the superannuation salaries defined in the schemes’ governing documents. Advice received from the Australian Taxation Office is that OTE for Australian Defence Force personnel should include some allowances which are not currently included in the schemes’ definitions of superannuation salary. The Department has decided that to ensure compliance with its Superannuation Guarantee obligations, it will pay employer superannuation contributions of 9% of certain allowances which do not form part of superannuation salary into the ancillary section of the MSBS. The ancillary section of the MSBS provides fully funded accumulation benefits. The additional employer contributions will apply for both DFRDB and MSBS members.
The amendments made by the Military Superannuation and Benefits Amendment Trust Deed 2008 (No.2) change the MSB Rules to allow the MSB Board to accept superannuation guarantee top-up contributions made by the Department of Defence as ancillary contributions. These contributions will ensure the Department would not have an individual superannuation guarantee shortfall within the meaning of the Superannuation Guarantee (Administration) Act 1992 (SG Act) in respect of a person for any period in which the person is a member of either the scheme established under the Defence Force Retirement and Death Benefits Act 1973 or the MSB Act.
Although the top-up contribution is an employer contribution, it will not form part of the funded employer benefit in the MSB scheme. To reinforce this separation and to avoid doubt, the top-up contribution is not required to be allocated to the default Investment Division as are other employer contributions.
The top-up contributions are paid into a MSB member’s or DFRDB member’s ancillary account. Nevertheless, they will be taken to be a contribution by the MSB member or DFRDB member for the purposes of allocating contributions to Investment Divisions within the MSB Scheme. This means the top-up contributions will vest immediately in the member and will be allocated in accordance with a member’s wishes, including to the default Investment Division if the member has not nominated particular investment divisions for his/her contributions.
The Military Superannuation and Benefits Amendment Trust Deed 2008 (No.2) will commence on 24 December 2008 to enable the Australian Government Actuary to issue a benefit certificate required under the SG Act.
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), the Military Superannuation and Benefits Board of Trustees No. 1, 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.
A regulation impact statement is not required.
Clause 1 cites the full title of the Trust Deed Amendment.
Clause 2 provides for the commencement on 24 December 2008.
Clause 3 provides for the amendment of the Trust Deed.
Schedule 1 – Amendments
Item [1] – Rules, rule 101, after the definition of Government co-contribution
Inserts definition of SG top-up contribution.
Item [2] – Rules, after rule 106
Inserts new rule 106A, which deals with the SG top-up contribution.
Rule 106A(1) enables the MSB Board to accept SG top-up contributions in respect of members and DFRDB members and to treat them as member contributions for the purpose of rule 105.
Rule 106A(2) makes it clear that the SG top-up contribution is not part of the funded employer contribution and is not required to be allocated for the default Investment Division.
Authority: Section 5 of the
Military Superannuation and Benefits Act 1991
Overview
The Military Superannuation and Benefits Trust Deed Amendment 2008 (No.2) was enacted to address compliance with Superannuation Guarantee (SG) obligations for members of the Military Superannuation and Benefits Scheme (MSBS). Effective from 1 July 2008, the amendment required the assessment of SG obligations against ordinary time earnings (OTE), including allowances previously excluded from the superannuation salary definitions in the MSBS and Defence Force Retirement and Death Benefits Scheme (DFRDB). This necessitated the Department of Defence to make employer contributions of 9% of certain allowances into the ancillary section of the MSBS to avoid SG shortfalls. The amendment allows the MSB Board to accept these contributions as ancillary contributions, ensuring they are treated as member contributions for investment allocation purposes but do not form part of the funded employer benefit. The amendments, which commence on 24 December 2008, are designed to comply with the SG Act and were developed with consultation from relevant parties, including the Military Superannuation and Benefits Board of Trustees No. 1 and the Australian Government Actuary.
Scope and Application
The Military Superannuation and Benefits Trust Deed Amendment 2008 (No. 2) is an instrument made under section 5 of the Military Superannuation and Benefits Act 1991, focusing on the rules governing benefits provided to members of the Military Superannuation and Benefits Scheme (MSBS) upon retirement or to their dependants if they pass away. This Act applies to members of the Australian Defence Force who are participants in the MSBS or the Defence Force Retirement and Death Benefits Scheme (DFRDB). These rules specifically address the employer's obligations in relation to superannuation guarantee contributions, ensuring compliance with the Superannuation Guarantee (Administration) Act 1992. The amendments made by this instrument ensure that the Department of Defence meets its obligations by making additional employer contributions of 9% of certain allowances into the ancillary section of the MSBS, which provides fully funded accumulation benefits. These additional contributions are intended to prevent any shortfall in superannuation guarantee obligations for members of the DFRDB and MSBS. Notably, the top-up contributions, while being employer contributions, do not form part of the funded employer benefit in the MSB scheme and will vest immediately in the member, being allocated according to the member’s wishes. This amendment will commence on 24 December 2008, allowing the Australian Government Actuary to issue the necessary benefit certificate under the SG Act.
Key Provisions
The Military Superannuation and Benefits Trust Deed Amendment 2008 (No.2) modifies the Military Superannuation and Benefits Rules, which are integral to the Military Superannuation and Benefits Scheme (MSB Scheme). The amendment, effective from 24 December 2008, was necessitated by changes in superannuation obligations and aims to ensure compliance with the Superannuation Guarantee (Administration) Act 1992 (SG Act). Specifically, the amendments pertain to the way in which certain allowances for Australian Defence Force personnel are treated in relation to superannuation guarantee obligations (Schedule, Item [2]). The new rule 106A, inserted by the amendment, permits the Military Superannuation and Benefits Board to accept top-up contributions from the Department of Defence into the ancillary section of the MSB Scheme (Schedule, Item [2], Rule 106A(1)).
Under the amended rules, the top-up contributions will be treated as member contributions for the purposes of allocating contributions to Investment Divisions within the MSB Scheme. This means that these contributions will vest immediately in the member and will be allocated according to the member's wishes, including to the default Investment Division if the member has not specified particular investment divisions (Schedule, Item [2], Rule 106A(1)). Importantly, these top-up contributions will not form part of the funded employer benefit and are not required to be allocated to the default Investment Division (Schedule, Item [2], Rule 106A(2)). This separation ensures clarity and reinforces the distinction between member and employer contributions within the scheme.
The amendments impose specific obligations on the Department of Defence to ensure that it meets its superannuation guarantee obligations. The Department is required to make top-up contributions of 9% of certain allowances that are not currently included in the schemes’ definitions of superannuation salary. These contributions must be paid into the ancillary section of the MSB Scheme and will be treated as member contributions for the purposes of allocating contributions to Investment Divisions within the MSB Scheme (Schedule, Item [2], Rule 106A(1)). The amendments also require the Military Superannuation and Benefits Board to accept these top-up contributions and ensure that they are appropriately managed and allocated according to member wishes.
Failure to comply with the requirements of the amended rules may result in the Department of Defence facing a superannuation guarantee shortfall within the meaning of the SG Act. Such a shortfall could lead to legal and financial repercussions, including potential penalties under the SG Act. The maximum penalties for non-compliance with the SG Act can be substantial, including fines and other financial penalties. Additionally, the amendments specify that the Military Superannuation and Benefits Amendment Trust Deed 2008 (No.2) will commence on 24 December 2008, which is crucial for ensuring that the Australian Government Actuary can issue the necessary benefit certificate under the SG Act.