Superannuation (Productivity Benefit) 1996-97 Second Interest Factor
Declaration 1996 No. 118
EXPLANATORY STATEMENT
STATUTORY RULES 1996 No. 118
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE
DECLARATION UNDER SECTION 3E(1)(b)
SECOND INTEREST FACTOR
The Superannuation (Productivity Benefit) Act 1988 (the PB Act) provides the mechanism by which the Superannuation Guarantee (SG) is made available to Australian Government employees who have no other employer sponsored superannuation coverage. Prior to 1 July 1992, the PB Act provided productivity superannuation to these employees.
Since 1 July 1990 the designated employers of such employees have been required to pay to the superannuation fund nominated by the Minister for Finance, or another superannuation fund approved by the Minister, or to a regulated fund under the Superannuation Industry Supervision legislation (where the employee is eligible), periodic contributions based on the salary of the employee.
Employers are required to pay to the same fund, on a once only basis, an amount being the entitlement accrued under the then Superannuation Benefit (Interim Arrangement) Act 1988 and an amount in respect of contributions which would have been paid after 1 July 1990 had the employee joined a fund on that date. The employer is required to pay extra amounts as interest on any contributions which are made to take account of loss of interest since contributions began to accumulate on behalf of the employee and before such contributions are paid into a fund.
Paragraph 3E(1)(b) of the PB Act requires the Minister to declare before each financial year "the factor ascertained using a specified formula that is to be the declared second interest factor for that year". Subsection, 3E(2) of the Act provides that the formula "is to involve the use of a rate specified in the Declaration" and "may contain a variable that depends on the period, or another aspect, of the employment of the person in relation to whom the factor is to apply".
The second interest factor is used in subsection 8A(2) of the Act to determine the amount that is to accrue during all or part of a financial year on:
* the amount accrued under the Superannuation Benefit (Interim Arrangement) Act 1988 up to 30 June 1990;
* amounts which should have been paid (but were not) as continuing contributions in financial years commencing on or after 1 July 1990 but before the year in which the payment is made; and
* amounts which would have accumulated as interest on continuing contributions in financial years following 1 July 1990 but before the year in which payment is made.
The declaration specifies that the rate to be used in the formula for the 1996-97 financial year is 0.0870, which is the rate expressed as a decimal per annum that is the estimated closing yield last published before 1 June 1996 in respect of 10-year non-rebate Treasury Bonds (ie 8.70 per cent per annum).
The effect of this formula is that interest accrues on a daily basis on each amount which had accrued prior to the date on which the person became a member of a fund or entitled to a benefit.
The Declaration commences on 1 July 1996.
Overview
The Superannuation (Productivity Benefit) Act 1988 was enacted to provide a mechanism for ensuring that Australian Government employees without other employer-sponsored superannuation coverage receive the Superannuation Guarantee (SG). The 1996-97 Second Interest Factor Declaration was issued by the Minister for Finance under section 3E(1)(b) of the PB Act, establishing the second interest factor for that financial year. This declaration was necessary to determine the interest accrual on amounts accrued under the Superannuation Benefit (Interim Arrangement) Act 1988 up to 30 June 1990, as well as on amounts that should have been paid as continuing contributions and interest on these contributions from 1 July 1990 onwards. The declared second interest factor for the 1996-97 financial year was 0.0870, calculated based on the estimated closing yield of 10-year non-rebate Treasury Bonds as of 1 June 1996. This interest rate ensures that the productivity benefit accounts for the loss of interest since contributions began to accumulate for employees, addressing the gap in interest accrual for superannuation contributions made on their behalf.
Scope and Application
The Superannuation (Productivity Benefit) 1996-97 Second Interest Factor Declaration 1996 No. 118 applies to designated employers who are obligated under the Superannuation (Productivity Benefit) Act 1988 to make contributions to superannuation funds for Australian Government employees without other employer-sponsored superannuation coverage. This Act is relevant to these employers and employees, focusing on the calculation of the interest on superannuation contributions. The Declaration, which comes into effect on 1 July 1996, sets out the specific interest rate for the financial year 1996-97 and is applicable on a national level, aligning with the jurisdiction of the Commonwealth of Australia. The Act does not explicitly state any exclusions or thresholds, but the applicability is limited to the context of employer contributions to superannuation funds for the specified employees. The interest factor is determined by a formula involving the rate specified in the Declaration, which in this instance is derived from the estimated closing yield of 10-year non-rebate Treasury Bonds published before 1 June 1996.
Key Provisions
The Superannuation (Productivity Benefit) 1996-97 Second Interest Factor Declaration 1996 No. 118 outlines the second interest factor for the 1996-97 financial year, as mandated by section 3E(1)(b) of the Superannuation (Productivity Benefit) Act 1988 (PB Act). This declaration specifies that the second interest factor to be used in calculating interest accruals for certain superannuation contributions is 0.0870, which equates to an estimated annual interest rate of 8.70% based on the closing yield of 10-year non-rebate Treasury Bonds published before 1 June 1996 (section 1(1)). This interest factor applies to the determination of amounts that accrue on the superannuation benefits of Australian Government employees without other employer-sponsored superannuation coverage, including those under the Superannuation Benefit (Interim Arrangement) Act 1988, and on contributions that would have been made between 1 July 1990 and the year of payment (section 1(2)).
Under the PB Act, designated employers of Australian Government employees without other employer-sponsored superannuation coverage are required to make periodic contributions to a superannuation fund. These contributions include the employee's salary and additional amounts to account for interest lost since contributions began to accumulate (section 3E(1)(a)). Employers must also make a one-off payment to the fund for any accrued amounts under the Superannuation Benefit (Interim Arrangement) Act 1988 and any contributions that should have been made since 1 July 1990 (section 3E(1)(a)). The PB Act further mandates that the Minister for Finance must declare the second interest factor before each financial year to ensure accurate interest calculations on these contributions (section 3E(1)(b)).
Failure to comply with the obligations set out in the PB Act and the Second Interest Factor Declaration may result in penalties and consequences. Employers who do not make the required contributions or fail to calculate interest correctly may face financial penalties, and in severe cases, legal action could be taken. The specific penalties are not detailed in the Declaration but would typically involve fines or other financial sanctions as outlined in the relevant sections of the PB Act. Furthermore, employees who are not adequately covered by the declared interest factor provisions may face financial disadvantages due to incorrect calculations, potentially impacting their retirement benefits.
In conclusion, the Superannuation (Productivity Benefit) 1996-97 Second Interest Factor Declaration 1996 No. 118 provides critical guidance for employers and employees under the PB Act by setting the second interest factor for the 1996-97 financial year. It ensures that superannuation contributions are accurately calculated and that interest accruals are properly managed, thereby safeguarding the retirement benefits of Australian Government employees without other employer-sponsored superannuation coverage.