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) (2006-2007 FIRST INTEREST FACTOR) DECLARATION 2006
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 persons (employees) who have no other employer-sponsored superannuation cover. Prior to 1 July 1992, the PB Act provided productivity superannuation to these employees.
The PB Act was amended by the Superannuation (Consequential Amendments) Act 2005 to close the superannuation arrangements under that Act to new employees from 1 July 2006. However, the PB Act will continue to apply to employees covered by the Act at 30 June 2006 until they no longer meet the qualifications for PB Act coverage (i.e. because they cease all relevant employment or, if eligible, become members of an Australian Government
superannuation scheme). The annual revision of instruments setting amounts payable by employers on behalf of employees will therefore need to continue until those employees no longer meet the qualifications for PB Act coverage.
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) (2006-2007 First Interest Factor) Declaration 2006, specifies the first interest factor to be used for the 2006-2007 financial year. The first interest factor has been updated to apply the 10 year Treasury Bond rate for April 2006, as provided by the Reserve Bank of Australia, of 5.71% 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 2006 to 30 June 2007 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.
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, enacted by the Parliament of Australia, was established to ensure that Australian Government employees and specific other individuals without employer-sponsored superannuation cover receive a minimum superannuation contribution, known as the Superannuation Guarantee (SG). The Act was introduced to address the gap in retirement savings for employees who were not covered by other employer-sponsored superannuation schemes. This legislation mandates employers to contribute to a superannuation fund on behalf of eligible employees, ensuring that these individuals receive a guaranteed retirement benefit. The Superannuation (Productivity Benefit) (2006-2007 First Interest Factor) Declaration 2006, issued under the authority of the Minister for Finance and Administration, updates the interest factor used to calculate the interest on superannuation contributions that are paid late. This declaration aims to reflect the economic conditions of the preceding financial year, ensuring that the interest accrued on late payments aligns with prevailing financial market rates. The policy objective of this legislative instrument is to maintain the integrity and fairness of superannuation contributions by accurately reflecting interest accruals based on current financial indicators.
Scope and Application
The Superannuation (Productivity Benefit) (2006-2007 First Interest Factor) Declaration 2006 applies to employers who are obligated under the Superannuation (Productivity Benefit) Act 1988 to make contributions to a superannuation fund on behalf of certain employees, specifically those Australian Government employees and other individuals without other employer-sponsored superannuation cover. This Act applies to the designated employers of employees covered by the productivity benefit arrangements under the PB Act, who are required to make periodic contributions to a superannuation fund for their employees, and to pay any accrued entitlements from before 1 July 1990. The geographic reach of the Act is national, applying across Australia, as it concerns employers operating within the Australian jurisdiction. The Act does not specify exclusions or exemptions; however, it was amended to cease new employees from being covered from 1 July 2006. The application of the Act is extended through subordinate instruments, such as the declaration of the first interest factor for determining the interest on unpaid contributions, which in this instance is set at 5.71% for the 2006-2007 financial year.
Key Provisions
The Superannuation (Productivity Benefit) Act 1988 (PB Act) provides a framework for employers to make minimum superannuation contributions for certain employees, primarily government employees and others without employer-sponsored superannuation cover. Employers are required to pay periodic contributions to a superannuation fund approved by the Minister for Finance and Administration (section 3D(1)). They can also pay contributions to another regulated fund as defined by the Superannuation Industry (Supervision) Act 1993 (section 3D(2)). The contribution rates are stipulated in the PB Act or in associated instruments (section 8). Employers must also pay any entitlements accrued by the employee under the Superannuation Benefit (Interim Arrangement) Act 1988 for employment prior to 1 July 1990 (section 10).
Section 3E(1)(a) of the PB Act mandates that the Minister must declare the first interest factor before each financial year, which is used to determine the interest accruing on unpaid contributions (subsection 3E(2)). This declaration specifies the rate to be applied, and it must be based on the 10-year Treasury Bond rate for April of the preceding financial year (subsection 8A(2)). The Superannuation (Productivity Benefit) (2006-2007 First Interest Factor) Declaration 2006 sets the first interest factor for the 2006-2007 financial year at 5.71%, reflecting the rate provided by the Reserve Bank of Australia. This rate is halved to account for the shorter periods during which contributions are unpaid.
Employers under the PB Act must adhere to these contribution and interest requirements to ensure employees receive their guaranteed superannuation benefits. Failure to make the required contributions or to accurately calculate interest may result in financial penalties or legal action. The PB Act imposes these obligations to protect the retirement savings of employees who would otherwise lack employer-sponsored superannuation cover.
Breaching the requirements set out in the PB Act can lead to significant consequences. Employers who fail to make the required contributions may be liable for the unpaid contributions and additional interest as stipulated by the Act (section 3E). Penalties for non-compliance may include fines, and in severe cases, criminal charges. The Act ensures that employers uphold their obligations to safeguard the superannuation benefits of their employees.