explanatory statement
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE AND ADMINISTRATION
DECLARATION UNDER PARAGRAPH 3E(1)(a)
SUPERANNUATION (PRODUCTIVITY BENEFIT) (2005-2006 FIRST INTEREST FACTOR) DECLARATION 2005
FIRST INTEREST FACTOR
The Superannuation (Productivity Benefit) Act 1988 (the PB Act) provides the mechanism by which the Superannuation Guarantee (SG) minimum employer superannuation contribution is made for Australian Government employees (and certain other employees) who have no other employer-sponsored superannuation cover. Prior to 1 July 1992, the PB Act provided productivity superannuation to these employees.
Since 1 July 1990, the designated employers of employees covered by the PB Act arrangements have been required to pay periodic contributions in respect of those employees to a superannuation fund nominated or approved by the Minister for Finance and Administration. More recently, where the employee is eligible, employers have been able to pay contributions to another regulated superannuation fund as defined by the Superannuation Industry (Supervision) Act 1993. The contribution rates are set down in the PB Act or in instruments under the PB Act.
Employers are also required to pay to the same fund, on a once only basis, any entitlement accrued by the employee under the then Superannuation Benefit (Interim Arrangement) Act 1988 in respect of employment with that employer before 1 July 1990.
The contributions provided for under the PB Act are guaranteed to employees where an employer fails to join an employee to a fund. The employer is required to pay extra amounts as interest on those contributions, to take account of loss of interest arising because contributions have not been paid to a fund on behalf of the employee.
Paragraph 3E(1)(a) 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 first interest factor for that year. Subsection 3E(2) of the PB 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 first interest factor is used in subsection 8A(2) of the PB Act to determine the interest that is to accrue during all or part of a financial year on amounts which should have been paid to a superannuation fund as contributions in that year but were not paid.
This Declaration, cited as the Superannuation (Productivity Benefit) (2005-2006 First Interest Factor) Declaration 2005, specifies the first interest factor to be used for the 2005-2006 financial year. The first interest factor has been updated to apply the 10 year Treasury Bond rate for April 2005, as provided by the Reserve Bank of Australia, of 5.35% expressed as a decimal.
The effect of the first interest factor is to accrue interest in a manner similar to that which would have applied if the contributions had been paid into a fund in regular payments throughout the year based on the 10 year Treasury Bond rate for April of the preceding financial year. The first interest factor provides for interest to accrue on a daily basis on each amount which should have been paid (but was not) to a fund during the period 1 July 2005 to 30 June 2006 at half the rate set out in the declaration. The halving of the interest rate recognises that the full interest rate only applies for a full year, and applies for progressively shorter periods to moneys which would have been payable late in the year.
The Declaration is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Office of Regulation Review has advised that a Regulation Impact Statement is not necessary for this Declaration because the declaration will not have a direct or substantial indirect effect on business or competition, as it is minor or machinery in nature and does not substantially alter existing arrangements.
No consultation was undertaken in relation to this Declaration. Consultation was considered to be unnecessary because the instrument is minor or machinery in nature.
The Declaration commences on the day after it is registered on the Federal Register of Legislative Instruments.
Overview
The Superannuation (Productivity Benefit) (2005-2006 First Interest Factor) Declaration 2005 was issued by the authority of the Minister for Finance and Administration under the Superannuation (Productivity Benefit) Act 1988 (PB Act). This declaration specifies the first interest factor to be applied for the 2005-2006 financial year, which is crucial for determining the interest accruing on superannuation contributions that were not paid on time. The 2005-2006 Declaration sets the first interest factor at 5.35%, reflecting the 10-year Treasury Bond rate for April 2005, as provided by the Reserve Bank of Australia. This rate ensures that interest is accrued in a manner consistent with regular annual payments, albeit at half the rate to account for shorter periods of non-payment towards the end of the financial year. The declaration is a legislative instrument under the Legislative Instruments Act 2003, and it was determined that a Regulation Impact Statement was not necessary due to its minor and machinery nature. The declaration commences the day after it is registered on the Federal Register of Legislative Instruments.
Scope and Application
The Superannuation (Productivity Benefit) (2005-2006 First Interest Factor) Declaration 2005 applies to employers who are required to make periodic contributions to superannuation funds for employees under the Superannuation (Productivity Benefit) Act 1988, as well as employees who are eligible for such contributions. This Act pertains specifically to Australian Government employees and certain other employees without other employer-sponsored superannuation cover. The legislation operates nationally within the Commonwealth jurisdiction. The Declaration sets out the first interest factor to be used for calculating interest on superannuation contributions that were not paid on time for the 2005-2006 financial year, ensuring that interest accrues in a manner that reflects the potential investment return on the contributions. The application of this interest factor is determined by the specified formula and the 10 year Treasury Bond rate for April 2005. The Declaration is a legislative instrument under the Legislative Instruments Act 2003, and it does not require a Regulation Impact Statement as it is considered minor or machinery in nature and does not substantially alter existing arrangements.
Key Provisions
The Superannuation (Productivity Benefit) (2005-2006 First Interest Factor) Declaration 2005 specifies the first interest factor for the 2005-2006 financial year as set out in subsection 3E(2) of the Superannuation (Productivity Benefit) Act 1988 (the PB Act). This factor, determined by the Minister for Finance and Administration, is based on the 10-year Treasury Bond rate for April 2005, which is 5.35% expressed as a decimal. This rate is used in subsection 8A(2) of the PB Act to calculate the interest accruing on amounts that should have been paid as contributions to a superannuation fund but were not paid. The declared factor applies to interest that accrues daily on contributions that should have been paid during the financial year from 1 July 2005 to 30 June 2006, with the interest rate halved to account for the shorter periods over which it applies.
Under the PB Act, employers are obligated to make periodic contributions to a superannuation fund for employees who have no other employer-sponsored superannuation cover. Employers must pay contributions to a fund nominated or approved by the Minister for Finance and Administration or, if the employee is eligible, to another regulated superannuation fund as defined by the Superannuation Industry (Supervision) Act 1993. Additionally, employers are required to make a once-only payment to the same fund of any entitlement accrued by the employee under the Superannuation Benefit (Interim Arrangement) Act 1988 in respect of employment before 1 July 1990. Employers must also pay extra amounts as interest on contributions to compensate for the loss of interest due to late payments.
Breach of the obligations outlined in the PB Act can lead to various consequences. While specific penalties are not outlined in the explanatory statement, it is reasonable to infer that non-compliance with the Act's requirements could result in financial penalties or other civil or criminal consequences, as is typical for breaches of legislative requirements in Australia. The precise nature and extent of these penalties would depend on the specifics of the breach and the relevant statutory provisions. Employers who fail to make the required contributions or to pay the appropriate interest may face legal action, financial penalties, or other enforcement actions by the relevant authorities.
The Superannuation (Productivity Benefit) (2005-2006 First Interest Factor) Declaration 2005 is a legislative instrument under the Legislative Instruments Act 2003. The Office of Regulation Review has determined that a Regulation Impact Statement is not necessary for this declaration, as it is minor or machinery in nature and does not substantially alter existing arrangements or have a significant effect on business or competition. As such, no consultation was undertaken in relation to this declaration. The declaration takes effect on the day after it is registered on the Federal Register of Legislative Instruments.