Superannuation (Productivity Benefit) 1997-98 Second Interest Factor
Declaration 1997 No. 146
EXPLANATORY STATEMENT
STATUTORY RULES 1997 No. 146
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
ISSUES 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 1997-98 financial year is 0.0783, which is the rate expressed as a decimal per annum that is the estimated closing yield last published before 1 June 1997 in respect of 10-year non-rebate Treasury Bonds (ie 7.83 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 1997.
Overview
The Superannuation (Productivity Benefit) 1997-98 Second Interest Factor Declaration 1997 No. 146, made under the authority of the Minister for Finance, addresses the need to declare the second interest factor as required by the Superannuation (Productivity Benefit) Act 1988. This Act was enacted to provide a mechanism for the Superannuation Guarantee to be available to Australian government employees without other employer-sponsored superannuation coverage. Specifically, the declaration addresses the requirement under section 3E(1)(b) of the PB Act to specify the interest factor that applies for the 1997-98 financial year. The policy objective is to ensure that the interest is calculated correctly on superannuation contributions for government employees, which aids in maintaining the integrity and adequacy of their retirement savings.
Scope and Application
The Superannuation (Productivity Benefit) 1997-98 Second Interest Factor Declaration 1997 No. 146 pertains to the Superannuation (Productivity Benefit) Act 1988 and applies to employers designated under this legislation, specifically those responsible for Australian government employees who lack other employer-sponsored superannuation coverage. This Act serves to ensure that such employees receive superannuation guarantees by mandating employers to make periodic contributions to a superannuation fund nominated by the Minister for Finance, or an approved alternative. The application of the Act is national, as it is a Commonwealth Act. The Declaration under section 3E(1)(b) of the PB Act, which specifies the second interest factor for the 1997-98 financial year as 0.0783, is used to calculate interest accruing on amounts that should have been paid as contributions and interest on those contributions for financial years prior to the year of payment. The application of the Act may be extended or restricted through subordinate instruments, although no such extensions or restrictions are specified in the Declaration itself.
Key Provisions
The Superannuation (Productivity Benefit) 1997-98 Second Interest Factor Declaration 1997 No. 146 under the Superannuation (Productivity Benefit) Act 1988 (the PB Act) sets out the second interest factor for the financial year 1997-98. Section 3E(1)(b) of the PB Act mandates that the Minister for Finance must declare an interest factor each financial year, which is used to calculate the interest on superannuation contributions. For the financial year 1997-98, the declared interest factor is 0.0783, representing the estimated closing yield of 10-year non-rebate Treasury Bonds, last published before 1 June 1997.
The declaration under Section 3E(1)(b) and the accompanying formula in Section 3E(2) establish a clear method for calculating interest on superannuation contributions. This formula involves using the declared rate and may include variables that account for the duration or other aspects of the employee's employment. This interest factor applies to amounts accrued under the Superannuation Benefit (Interim Arrangement) Act 1988, as well as to continuing contributions and interest on those contributions, up until the point when the employee becomes a member of a fund or is entitled to a benefit.
The Act imposes specific obligations on designated employers. They are required to make periodic contributions to the superannuation fund nominated by the Minister for Finance or an approved fund. These contributions are based on the employee's salary and must include an amount for the entitlement accrued under the previous legislation and an amount for contributions that would have been made had the employee joined a fund on 1 July 1990. Additionally, employers must account for interest on contributions to compensate for any lost interest since contributions began to accumulate.
Breaches of the requirements set out in the PB Act can result in significant penalties. Employers who fail to make the mandated contributions or who do not correctly calculate the interest on superannuation contributions may face civil or criminal consequences. While the specific penalties are not detailed in the Declaration, under the broader framework of the Superannuation (Productivity Benefit) Act, non-compliance can lead to substantial fines and legal action, underscoring the importance of adhering to the prescribed obligations.