EXPLANATORY STATEMENT
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE AND ADMINISTRATION
DECLARATION UNDER PARAGRAPH 3E(1)(b)
SUPERANNUATION (PRODUCTIVITY BENEFIT) (2005-2006 SECOND INTEREST FACTOR) DECLARATION 2005
SECOND 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 available 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)(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 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 second interest factor is used in subsection 8A(2) of the PB Act to determine the interest that is to accrue on past accumulations (from preceding financial years) during all or part of a financial year including:
- the amount accrued under the Superannuation Benefit (Interim Arrangement) Act 1988 up to 30 June 1990;
- contributions which should have been paid (but were not) under the PB Act to a superannuation fund from 1 July 1990; and
- amounts which would have accumulated as interest on contributions which were due to be paid under the PB Act in financial years following 1 July 1990 up to the end of the financial year in which the payment is made.
This Declaration, cited as the Superannuation (Productivity Benefit) (2005-2006 Second Interest Factor) Declaration 2005, specifies the second interest factor to be used for the 2005-2006 financial year. The second 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 second interest factor provides for interest to accrue 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 became entitled to a benefit under the PB Act.
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) Act 1988 was enacted to address the gap in superannuation coverage for Australian Government employees and certain other employees who do not have employer-sponsored superannuation cover. This Act ensures that these employees are provided with a minimum level of superannuation contributions through a mechanism known as the productivity benefit. The Act requires designated employers to make periodic contributions to a superannuation fund on behalf of eligible employees, and also mandates the payment of interest on past accumulations in the event that contributions are not made as required. The Superannuation (Productivity Benefit) (2005-2006 Second Interest Factor) Declaration 2005 was issued under the authority of the Minister for Finance and Administration to specify the second interest factor for the 2005-2006 financial year, which was determined based on the 10-year Treasury Bond rate for April 2005. This legislative instrument was deemed minor and machinery in nature, hence no consultation was undertaken, and a Regulation Impact Statement was not considered necessary. The declaration serves to provide a clear and updated interest factor for the specified financial year, ensuring that interest accrues correctly on past superannuation accumulations.
Scope and Application
The Superannuation (Productivity Benefit) (2005-2006 Second Interest Factor) Declaration 2005 applies to employers who are designated under the Superannuation (Productivity Benefit) Act 1988 and who are responsible for making contributions to superannuation funds on behalf of employees, including Australian Government employees and certain other employees who do not have other employer-sponsored superannuation cover. This Act provides for the calculation of interest on unpaid superannuation contributions and accrued benefits. The Declaration is a legislative instrument under the Legislative Instruments Act 2003, and it sets the second interest factor for the 2005-2006 financial year at 5.35% based on the 10-year Treasury Bond rate for April 2005, as provided by the Reserve Bank of Australia. The interest is calculated on a daily basis on amounts that had accrued prior to the date the person became a member of a fund or became entitled to a benefit under the PB Act. The Declaration does not apply to any other entities or industries outside of those specified under the PB Act and does not create any exclusions, exemptions, or thresholds beyond those specified in the Act. The Declaration operates nationally and is subject to the PB Act's provisions, which may be extended or restricted through subordinate instruments.
Key Provisions
The Superannuation (Productivity Benefit) (2005-2006 Second Interest Factor) Declaration 2005 sets out the second interest factor for the 2005-2006 financial year under the Superannuation (Productivity Benefit) Act 1988 (PB Act). This declaration is a legislative instrument that specifies the second interest factor to be used for that financial year, which is determined by the 10-year Treasury Bond rate for April 2005, as provided by the Reserve Bank of Australia, of 5.35% expressed as a decimal (Paragraph 3E(1)(b) and Subsection 3E(2) of the PB Act). This factor is used to calculate the interest that accrues on past accumulations during all or part of a financial year, including amounts accrued under the Superannuation Benefit (Interim Arrangement) Act 1988 up to 30 June 1990, contributions that should have been paid under the PB Act to a superannuation fund from 1 July 1990, and amounts that would have accumulated as interest on contributions due to be paid under the PB Act in financial years following 1 July 1990 up to the end of the financial year in which the payment is made (Subsection 8A(2) of the PB Act).
The obligations imposed by the Act on employers include making periodic contributions to a superannuation fund nominated or approved by the Minister for Finance and Administration or to another regulated superannuation fund as defined by the Superannuation Industry (Supervision) Act 1993 (Section 8A of the PB Act). Employers are also required to pay 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 to the same fund on a once-only basis (Section 8A(3) of the PB Act). The contributions are guaranteed to employees in the event of an employer's failure to join them to a fund. Additionally, employers are required to pay extra amounts as interest on those contributions to account for the loss of interest arising because contributions have not been paid to a fund on behalf of the employee (Section 8A(4) of the PB Act).
There are no specific offences, penalties, or civil/criminal consequences outlined in this declaration for breach. However, the PB Act and related regulations may contain provisions for penalties and enforcement actions in the event of non-compliance with the requirements of the Act. Employers who fail to make the required contributions or who fail to join employees to a fund may be subject to financial penalties or other enforcement actions under the relevant legislation. Additionally, employees who are not properly joined to a fund or who do not receive the guaranteed contributions and interest may be entitled to seek redress under the relevant legislation or through the courts. The maximum penalties for breach of the PB Act and related regulations may vary depending on the specific provision and the nature and extent of the breach.