EXPLANATORY STATEMENT
MILITARY SUPERANNUATION AND BENEFITS TRUST DEED (AMENDMENT) (NO. 2 OF 1998)
ISSUED BY THE AUTHORITY OF THE MINISTER FOR DEFENCE INDUSTRY, SCIENCE AND PERSONNEL
The Schedule to the Trust Deed made by the Minister for Defence Industry, 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 member of the scheme. The benefits payable are a member benefit based on member contributions and interest accrued and an employer benefit which includes employer contributions.
The Minister is empowered, by section 5 of the MSB Act, to amend the Trust Deed (including the MSB Rules), by an instrument which, by subsection 49(1) of the MSB Act, is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.
The amendments made by the Military Superannuation and Benefits Trust Deed (Amendment) (No 2 of 1998) change the MSB rules to allow for the adjustment of the employer benefit due to the Superannuation Contributions Tax and the early release of the employer benefit in limited circumstances as well as the removal of rule 15 as it is an obsolete provision.
Superannuation Contributions Tax - consequential amendments to the MSB Rules
The Superannuation Legislation Amendment (Superannuation Contributions Tax) Act 1997 (No 187 of 1997), which was assented to on 7 December 1997, applies a superannuation contributions tax to all employer contributions made to Commonwealth superannuation funds in respect of high income earners. The Act provides the mechanism that will enable superannuation providers to deduct the surcharge deduction amount from employer contributions. Amendments are required to the MSB Rules to allow for benefits to be adjusted where a member's surcharge debt account is in debit in accordance with the Act.
Superannuation Industry (Supervision) Regulations (Amendments) (" the SIS Regulations") - consequential amendments to the MSB Rules
Superannuation benefits provided by an employer are normally required to be preserved in the superannuation system until retirement on or after age 55. There are limited circumstances set out in the MSB Rules whereby a member can apply for the release of that benefit prior to age 55. Recent amendments to the SIS Regulations have changed the
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circumstances under which a person can apply for an early release of their preserved employer benefit. These circumstances include release due to permanent departure from Australia prior to 1 July 1998, financial hardship grounds and compassionate grounds. Amendments to the MSB Rules are required to ensure that the Military Superannuation and.Benefits Scheme ("the MSBS") continues to comply with the requirements of the Superannuation Industry (Supervision) Act 1993.
Clause 1 - Commencement
This clause provides for commencement from the date of gazettal.
Clause 2 - Amendment
This clause is formal.
Clause 3 - Schedule (Military Superannuation and Benefits Rules)
This clause provides for the MSB Rules to be amended consequential to the introduction of the Superannuation Legislation Amendment (Superannuation Contributions Tax) Act 1997 and the amendments to the SIS Regulations.
SCHEDULE
Item 1 - Rule 2 (Definitions and interpretation)
Rule 2 of the MSB Rules contains a list of the definitions set out in Schedule 1 to the Rules.
This item amends rule 2 by adding definitions of surcharge debt account and surcharge deduction amount consequent on amendments to rules 13, 14, 27, 28, 40, 52, 53 and 54 and the insertion of a new Schedule 12.
Item 2 - Rule 12 (Benefits on retirement before reaching 55 years of age or earlier retiring age, otherwise than for redundancy or retrenchment etc.)
Rule 12 of the MSB Rules describes the benefits payable to a member who, before reaching age 55 years of age or an earlier statutory retiring age, resigns, is retired on invalidity grounds but is not entitled to invalidity pension or is retired for disciplinary reasons or dismissed.
This item amends rule 12 by removing reference to rule 15 which has been deleted by item 5.
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Item 3 - Rule 13 (Benefits on retirement for redundancy or retrenchment or on completion of limited tenure appointment or on attaining retiring age of less than 55 years)
Rule 13 of the MSB Rules provides that the employer benefit, for members who retire due to redundancy or retrenchment or on attaining a statutory retiring age of less than 55 years, is to be paid as a pension or preserved in the Fund.
This item amends rule 13 to provide that where the member elects to take a pension the employer benefit is to be reduced by the surcharge deduction amount before it is converted to a pension. Where the employer benefit is preserved the benefit will be reduced by the surcharge deduction amount under rule 52. It also removes references to rule 15.
Item 4 - Rule 14 (Benefits on retirement on or after attaining age of 55 years)
Rule 14 of the MSB Rules describes the benefit payable to a member who retires on or after attaining the age of 55 years.
This item amends rule 14 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is paid as a lump sum or converted to a pension. It also removes any reference to rule 15.
Item 5 - Rule 15 (Payment of benefits where rule 12, 13 or 14 applies and person has less than 12 months' eligible service) ·
Rule 15 of the MSB Rules made special provision for persons who resign, etc, with less than 12 months' eligible service and whose employer benefit consists wholly of funded benefits.
The introduction of the Superannuation Guarantee (Administration) Act 1992 ("the SGA Act"), which specified the minimum contribution rate for employer contributions, had the effect of rendering this provision obsolete. In order to meet the requirements as set out in the SGA Act the employer benefit will now always include an unfunded component for members with less than 12 months service. This item therefore removes rule 15.
Item 6 - Rule 27 (Invalidity benefits for person classified as Class A)
Rule 27 of the MSB Rules describes the benefit payable to a member who is entitled to an invalidity benefit and is classified as Class A.
This item amends rule 27 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is converted to a pension.
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Item 7 - Rule 28 (Invalidity benefits for person classified as Class B)
Rule 28 of the MSB Rules describes the benefit payable to a member who is entitled to an invalidity benefit and is classified as Class B.
This item amends rule 28 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is converted to a pension.
Item 8 • Rule 40 (Payment of deceased member's employer benefit)
Rule 40 of the MSB Rules provides for the disposal of the employer benefit of a serving member who dies.
This item amends rule 40 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is paid as a lump sum or converted to a pension.
Item 9 - Rule 51 (Payment of employer benefit etc included in preserved benefit before person attains 55 years of age)
Rule 51 of the MSB Rules permits the payment of an employer benefit as a lump sum, before the person attains the age of 55 years, in limited circumstances.
This item amends rule 51 to reflect recent amendments to the SIS Regulations in order that the MSBS may remain SIS compliant. These amendments include the basis for release of an employer benefit due to financial hardship or compassionate grounds. They also includes changes to the rules that apply to the release of an employer benefit due to permanent departure from Australia, which must occur prior to 1 July 1998. This item also amends rule 51 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is paid as a lump sum or converted to a pension.
Item 10 - Rule 52 (Payment of employer benefit included in preserved benefit to person who has attained 55 years of age)
Rule 52 of the MSB Rules provides a person with access to the employer benefit included in a preserved benefit on or after attaining 55 years of age.
This item amends rule 52 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is paid as a lump sum or converted to a pension.
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Item 11 - Rule 53 (Compulsory payment of preserved benefit)
Rule 53 of the MSB Rules requires that the balance of any preserved benefit be paid upon a person attaining 65 years of age.
This item amends rule 53 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is paid as a lump sum.
Item 12 - Rule 54 (Payment of deceased former member's preserved benefit)
Rule 54 of the MSB Rules provides for the disposal of the preserved employer benefit upon the death of a former member.
This item amends rule 54 to allow for the employer benefit to be reduced by the surcharge deduction amount before it is paid as a lump sum or converted to a pension.
Item 13 - Rule 65B (Prescribed minimum amount for conversion of lump sum to pension)
Rule 65B of the MSB Rules prescribes a minimum amount for the purposes of rules 14(4), 51(2) and 52(2). Members cannot choose the pension or part pension option available under these subrules if their employer benefit is less than the prescribed minimum amount, being $5000.
This item amends the factor to be taken into account to ensure that the prescribed minimum amount continues to be $5000.
Item 14 - Schedule 1 (Glossary)
This schedule contains definitions and interpretations of expressions used in the Rules. Item 14 inserts definitions of surcharge debt account and surcharge deduction amount. Item 15 - Schedule 6 (Calculation of eligible service)
This schedule defines eligible service for the purpose of calculating the employer benefit.
This item amends schedule 6 by removing reference to rule 15 which has been removed by item 5.
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Item 16 - New Schedule 12
1bis item inserts a new schedule which defines the surcharge deduction amount.
New Schedule 12 provides that where a member's surcharge debt account is in debit when benefits become payable to the member the MSB Board must determine the amount by which it considers it reasonable to adjust benefits. In making such determinations the Board is required to take into account the amount by which the member's surcharge debt account is in debit, the value of the employer-financed component of the member's benefits and the value of benefits which were assumed to be likely to be payable for the purposes of working out the notional surcharge able contributions factors under the superannuation contributions tax legislation. The amount determined by the Board may not be more than 15% of the employer-financed component of the member's benefit which accrued after 20 August 1996.
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