EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO 33
ISSUED BY AUTHORITY OF THE MINISTER FOR FINANCE
SUPERANNUATION ACT 1976
SUPERANNUATION (INTEREST) REGULATIONS (AMENDMENT)
LEGISLATIVE BASIS FOR THE REGULATIONS
Section 168 of the Superannuation Act 1976 (the Act) provides that the Governor-General may make Regulations, not inconsistent with the Act, prescribing matters which the Act requires or permits to be prescribed or which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.
Subsection 3(1) of the Act defines “accumulated basic contributions” and “accumulated supplementary contributions” in relation to a person who has ceased to be a contributor as:
(a) an amount equal to the sum of the relevant contributions paid by the person and the amount of any interest that, in accordance with the Regulations, is payable in respect of those contributions; and
(b) in the case of a person who has ceased to be a contributor, any amount that, under section 7A of the Act, is to be added to the amount of the person’s accumulated contributions.
(Section 7A ensures that, where a contributor’s period of contributory service has not been continuous because the person was at some stage an invalidity pensioner receiving both standard and additional invalidity pension or a person to whom deferred benefits were applicable, the person’s accumulated contributions on again ceasing to be a contributor will include the contributions made by the person prior to the break in service, together with interest calculated in accordance with the Regulations.)
Section 145 of the Act provides that, where a contributor was previously a member of a superannuation scheme based on life assurance policies, such policies may be assigned to the Commissioner for Superannuation who will arrange for them to be maintained on behalf of the contributor. In certain circumstances, e.g., upon the policies maturing while the person is still a contributor or upon the contributor attaining the minimum retiring age applicable to such a person, the policies cease to be available to the contributor. In these circumstances the Commissioner is required, in accordance with subsections 145(8) and 145(9), to pay to the Fund, out of the
proceeds of the policies, the amount of the contributor’s share of the surrender value of the policies as at the date of cessation of membership from the previous scheme together with the amount of any interest that, in accordance with the Regulations, is payable in respect of that amount.
BACKGROUND
Prior to the making of the Statutory Rule, the Superannuation (Interest) Regulations (the Principal Regulations) prescribed the rates of interest payable on accumulated basic contributions and accumulated supplementary contributions, and interest payable into the Superannuation Fund out of the proceeds on maturity or surrender of life assurance policies, for the financial years 1976-77 to 1986-87, the rate for 1986-87 being 22.676% per annum. The Principal Regulations also prescribed the rate of interest to apply from 1 July 1987, which was zero per cent.
To establish interest rates in respect of particular financial years the Superannuation Fund Investment Trust (the Trust), after the financial statements for the Trust for a particular year have been reported upon by the Auditor-General, advises the Commissioner for Superannuation of the amount of income available for allocation to contributors in respect of that year. The Commissioner then calculates the rate of interest that, when applied to the opening balances of contributors’ accumulations according to his records and to net contributions to the Fund during the year, will apportion amongst contributors to the Fund in that year the total amount of income available for allocation. As noted above the income allocation for the year 1986-87 resulted in an annual interest rate of 22.676%.
So that benefits of contributors leaving the Fund can be determined it is also necessary to prescribe a rate of interest to apply from 1 July 1987. Following losses in October 1987 as a result of the share market crash, the Trust advised in November 1987 that its estimates indicated that the rate for the four months to October would be zero or less (in fact it proved to be approximately -7%).
As a more precise figure was not available at that time, and as the legislation does not permit a negative rate of interest, a rate of zero per cent per annum applicable from 1 July 1987 was prescribed on 27 November 1987. Since then the Fund’s performance has recovered. In the light of performance projections for the second half of 1987-88 it was considered that a positive exit rate could be struck. Based on the actual performance of the Fund to 31 December 1987 and available reserves, an interest rate of 6% per annum has been prescribed to apply in respect of the period commencing on 1 July 1987 in lieu of the former rate of zero per cent.
The new interest rate applies to contributors under the Act who cease Commonwealth employment on or after the date of gazettal of the Regulations. The new rate also applies to those persons to whom deferred benefits become payable after the date of gazettal of the Regulations.
Overview
The Superannuation (Interest) Regulations (Amendment) Statutory Rules 1988 were enacted to address a gap in the Superannuation Act 1976 by prescribing interest rates applicable to accumulated basic and supplementary contributions, as well as the interest rates to apply to the proceeds of life assurance policies. The Superannuation Act 1976 was enacted to establish a framework for the provision of retirement benefits to Australian employees, and the interest rates are crucial in determining the benefits that contributors receive upon cessation of their employment. The Superannuation (Interest) Regulations (Amendment) Statutory Rules 1988 were issued under the authority of the Minister for Finance and were made by the Parliament of Australia. The policy objective of these regulations is to ensure that the interest rates prescribed are reflective of the actual performance of the Superannuation Fund, thereby providing an accurate and fair distribution of benefits to contributors.
Following the significant financial losses experienced by the Superannuation Fund due to the share market crash in October 1987, the regulations initially prescribed a zero interest rate applicable from 1 July 1987. However, as the Fund's performance improved during the latter part of the financial year, the regulations were amended to prescribe a positive interest rate of 6% per annum for the period commencing on 1 July 1987. This amendment aimed to reflect the improved financial situation of the Superannuation Fund and ensure that contributors receive appropriate benefits based on the Fund's actual performance.
Scope and Application
The Superannuation (Interest) Regulations (Amendment) Statutory Rule modifies the interest rates applicable to certain superannuation contributions under the Superannuation Act 1976. The legislation applies to individuals who have ceased to be contributors under the Act, including those who are no longer members of a superannuation scheme and those to whom deferred benefits are payable. This amendment particularly affects those who cease Commonwealth employment on or after the date of gazettal of the Regulations. The interest rates prescribed in the Regulations are intended to accurately reflect the income available for allocation to contributors in respect of a particular year, as determined by the Superannuation Fund Investment Trust and the Commissioner for Superannuation. These Regulations are national in scope, applying across Australia as they pertain to the Superannuation Act 1976, which is a Commonwealth Act. The amendment establishes a positive interest rate of 6% per annum, effective from 1 July 1987, replacing the previously prescribed zero rate following the share market crash of October 1987. The Regulations do not contain any specific exclusions or exemptions, and their application is extended through subordinate instruments as necessary to align with financial performance projections.
Key Provisions
The Superannuation (Interest) Regulations (Amendment) provide for the amendment of interest rates applicable to accumulated basic contributions and accumulated supplementary contributions. Under section 168 of the Superannuation Act 1976, these regulations are necessary to prescribe the matters required or permitted by the Act. Specifically, section 3(1) defines accumulated basic and supplementary contributions in relation to a person who has ceased to be a contributor, incorporating any relevant interest payable in accordance with the regulations. The regulations further clarify that when a contributor’s period of service was interrupted due to invalidity or deferred benefits, the accumulated contributions include contributions made before the break in service, with interest calculated as per the regulations. Section 145 of the Act allows for the assignment of life assurance policies to the Commissioner for Superannuation, who then pays the contributor’s share of the surrender value upon certain conditions, including interest as prescribed in the regulations.
These regulations impose specific obligations on the Commissioner for Superannuation and the Superannuation Fund Investment Trust. The Commissioner must ensure that interest is calculated and paid on accumulated contributions according to the prescribed rates. The Trust, upon advising the Commissioner of the income available for allocation to contributors, assists in calculating the interest rates to be applied. The Commissioner is also required to manage the assignment and surrender of life assurance policies, ensuring that contributors receive their share of the surrender value, including any applicable interest.
The regulations do not explicitly outline offences or penalties for non-compliance. However, failure to adhere to these provisions could result in contributors not receiving the correct interest on their contributions or the surrender value of their life assurance policies. This could lead to disputes and potential legal actions against the Commissioner for Superannuation or the Trust for non-compliance with their statutory duties under the Superannuation Act 1976. While specific penalties are not detailed in the regulations, non-compliance could be subject to the general enforcement mechanisms available under the Act, including court orders and fines.