EXPLANATORY STATEMENT
Safety, Rehabilitation and Compensation Act 1988
Issued by the Minister for Tertiary Education Skills, Jobs and Workplace Relations
Notice of a Disallowable Instrument
Safety, Rehabilitation and Compensation
(Weekly Interest on the Lump Sum) Notice 2011 (1)
The purpose of this instrument is to invite the Minister to specify the rate of weekly interest deemed to accrue on superannuation lump sums of retired employees in receipt of compensation. That rate is then used in a legislated formula to calculate the incapacity benefits payable under sections 21 or 21A of the Safety, Rehabilitation and Compensation Act 1988 (the SRC Act).
Section 21 of the SRC Act applies when the injured employee has received a superannuation lump sum benefit. Section 21A of the SRC Act applies when the injured employee has received both a superannuation lump sum benefit and superannuation pension. In both cases, the weekly amount of the incapacity benefit is reduced by the weekly interest on the lump sum. That weekly interest is calculated by multiplying the value of the superannuation lump sum benefit by the rate specified by the Minister and dividing the result by 52.
The instrument is a legislative instrument subject to the Legislative Instruments Act 2003.
This rate is derived by obtaining the daily 10 year Government Bond rates from the Reserve Bank of Australia, averaging them for the period 1 April 2010 to 31 March 2011 and rounding to two decimal places.
The instrument specifies a rate of 5.35% (rounded from 5.352%) for the period 1 July 2011 to 30 June 2012.
The rate specified for the period 1 July 2010 to 30 June 2011 was 5.38%.
LEGISLATIVE REQUIREMENTS
● Sections 21 and 21A of the SRC Act require the weekly benefits payable to a retired and incapacitated employee to be reduced by the deemed weekly interest on the employer funded component of the superannuation lump sum.
● Subsections 21(3) and 21A(3) of the SRC Act specify the formulae required.
21(3):
21A(3):
● Subsection 21(5) enables the Minister to specify by legislative instrument the applicable rate for the 12 months commencing on 1 July each year
CALCULATION DETAILS
- The Safety, Rehabilitation and Compensation and Other Legislation Amendment Act 2007 introduced, from 27 April 2007, a requirement for a flexible and more representative annual rate of interest when deeming the earning rate for superannuation lump sums. Previously a constant rate of 10% per annum was applied.
- Since 2007 Comcare has recommended to the Minister the 10-year Government Bond Rate (obtained from the Reserve Bank of Australia) as the specified rate to apply for the 12 months that commenced on 1 July in 2007, 2008, 2009 and 2010. [A transitional rate was specified by the Minister for the period 27 April 2007 to 30 June 2007. The Government Bond Rate is considered to conservatively reflect interest rates able to be earned on long term investments and is recommended for the purposes of establishing the specified rate to apply from 1 July 2011.
- The specified rate is derived by averaging the daily Government Bond Rates published over the twelve month period ending 31 March each year. The superannuation lump sum is multiplied by the specified rate and the result is divided by 52 to derive the ‘Weekly interest on the lump sum’, as prescribed in the formulae for subsections 21(3) and 21A(3). That sum is then deducted from the amount of compensation payable under subsections 21(3) and 21A(3).
- The current Instrument provides the specified rate of 5.38% and expires after 30 June 2011. The average daily rate for the period 1 April 2010 to 31 March 2011 is 5.35% per annum which is the specified rate recommended to apply from 1 July 2011 to 30 June 2012.
- Applying the 5.35% specified rate in subsections 21(3) and 21A(3) results in a deduction from weekly incapacity payments of $102.88 per week for each $100,000 of superannuation lump sum. The deduction from weekly incapacity rates for the 12 months ending 30 June 2011 was $103.46 per $100,000 of superannuation lump sum. The minimal movement between the two rates is most likely reflective of Australia’s interest rates.