explanatory statement
ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE AND ADMINISTRATION
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
DECLARATION UNDER PARAGRAPH 3E(1)(a)
SUPERANNUATION (PRODUCTIVITY BENEFIT) (2007-2008 FIRST INTEREST FACTOR) DECLARATION 2007
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 as at 30 June 2006 until they no longer meet the qualifications for PB Act coverage (i.e. because they cease 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) (2007-2008 First Interest Factor) Declaration 2007, specifies the first interest factor to be used for the 2007‑2008 financial year. The first interest factor has been updated to apply the 10 year Treasury Bond rate for April 2007, as published by the Reserve Bank of Australia, of 5.88% 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 2007 to 30 June 2008 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 (LI Act).
No consultation was undertaken in relation to this Declaration. In accordance with paragraph 18(2)(a) of the LI Act, consultation was considered to be unnecessary because the instrument is of a minor or machinery nature.
The Declaration commences on the day after it is registered on the Federal Register of Legislative Instruments.