EXPLANATORY STATEMENT
STATUTORY RULES 1990 NO. 174
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
ISSUED BY AUTHORITY OF THE MINISTER FOR FINANCE
DECLARATION UNDER PARAGRAPH 3E(1)(b)
SECOND INTEREST FACTOR
The Superannuation (Productivity Benefit) Act 1988 provides the mechanism by which a 3 per cent superannuation benefit is made available to Australian Government employees without other superannuation coverage.
The designated employers of such employees are required to pay to either the superannuation fund nominated by the Minister for Finance or another fund approved by the Minister periodic contributions based on the salary of the employee. The amount to be contributed is calculated using a Table set out in a Schedule to the Act. The Table is structured so that a proportionally greater benefit is provided to lower paid wage earners. The amount to be contributed is adjusted where the employee is not employed full-time.
Employers are required as well to pay to the same fund, on a once-only basis, an amount being the entitlement accrued by the employee under the former 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 the once-only payment and on any contributions which were not made. The employer is also required to pay penalty interest in respect of any period of delay between the date when an amount should have been paid to a fund and the date when it was paid.
The Act also provides a mechanism for the continued payment of a benefit directly by the employer where the employee does not become a member of a fund before becoming entitled to a benefit.
Paragraph 3E(1)(b) of the Superannuation (Productivity Benefit) Act requires the Minister to declare before each financial year “the factor ascertained using a specified formula that is to be declared second interest factor for that year”. Subsection 3E(2) 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 of interest 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 as continuing contributions in financial years commencing on or after 1 July 1990 but before the year in which payment is made; and
• amounts which would have accumulated as interest on continuing contributions in 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 is 0.1355, which is the rate expressed as a decimal per annum that is the assessed secondary market yield last published by the Reserve bank before 1 June 1990 in respect of 10-year non-rebate Treasury Bonds.
The declaration specifies that the formula to be used to ascertain the declared second interest factor is:
Interest x Days
365
where Interest is the interest rate and Days is the number of days between the day following the last day of the last pay period before 1 July 1990 and:
• in the case of an employee who becomes a member of a fund, the day when an amount became payable under section 4E (initial contribution) or 4F (continuing contributions) of the Act;
• in the case of an employee who becomes entitled under section 6 to receive an interim benefit, the day when the employee became entitled to receive the benefit;
• in the case of an employee who neither joins a fund nor becomes entitled to a receive a benefit, 30 June 1991.
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.
Overview
The Superannuation (Productivity Benefit) Act 1988 was enacted to address the gap in superannuation coverage for Australian Government employees who were not otherwise covered under a superannuation scheme. This Act provides a structured mechanism for the payment of a 3 per cent superannuation benefit to eligible employees, ensuring that they receive a form of retirement savings irrespective of their employment circumstances. The Australian Parliament enacted this legislation to safeguard the retirement benefits of these employees. The policy objective of the Act is to ensure that all Australian Government employees have access to a minimum level of superannuation contributions, particularly benefiting those on lower incomes, and to facilitate the payment of accrued benefits and interest to eligible employees.
Scope and Application
The Superannuation (Productivity Benefit) Act 1988 applies to Australian Government employees who are not covered by other superannuation arrangements. It mandates that designated employers of these employees must contribute a 3% superannuation benefit to a superannuation fund approved by the Minister for Finance. The contributions are calculated based on the employee's salary, with a structured table in the Act ensuring a proportionally greater benefit for lower-paid wage earners. Employers must also make a once-only payment to the fund, which includes the employee's accrued entitlement under the former Superannuation Benefit (Interim Arrangement) Act 1988 and contributions that would have been made if the employee had joined a fund on 1 July 1990. Additionally, employers are required to pay interest on these amounts and penalty interest for any delays in payments. The Act provides for continued payment of benefits directly by employers if employees do not join a fund before becoming entitled to a benefit. The Minister for Finance must declare the second interest factor each financial year, using a specified formula that determines interest accrual on certain amounts. This declaration is critical for calculating the interest on amounts accrued under the Superannuation Benefit (Interim Arrangement) Act 1988 and for contributions and interest that should have been made and accrued between specific dates.
Key Provisions
The Superannuation (Productivity Benefit) Act 1988 (referred to as the Act) outlines the framework for providing a 3% superannuation benefit to Australian Government employees who are not covered by other superannuation arrangements. Key provisions of the Act include the requirement for designated employers to make periodic contributions to a superannuation fund on behalf of their employees (section 4). These contributions are calculated based on the employee's salary and are adjusted if the employee is not employed full-time. Employers must also make a once-only payment to cover the employee's entitlement under the Superannuation Benefit (Interim Arrangement) Act 1988, as well as any contributions that should have been made after 1 July 1990 (section 4A). The employer is further obligated to pay interest on these amounts, including penalty interest for any delays in payment (section 8A).
The Act imposes several obligations on employers, including the timely calculation and payment of contributions and interest to the nominated superannuation fund or another approved fund. Employers must also ensure that any accrued entitlements and interest from the former Superannuation Benefit (Interim Arrangement) Act 1988 are accurately accounted for and paid. Additionally, employers must make a declaration under paragraph 3E(1)(b) each financial year, determining the second interest factor using a specified formula (section 3E). This factor is crucial for calculating the interest that accrues on the amounts mentioned above until the employee becomes a fund member or is entitled to a benefit.
Breaches of the Act may result in various consequences. Employers who fail to make the required contributions or interest payments may be subject to penalties, which can include financial penalties and, in severe cases, criminal charges. The specific penalties are not detailed in the Act but would typically be outlined in related regulations or administrative guidelines. Employers must comply with the Act to avoid legal repercussions and ensure the proper administration of superannuation benefits for their employees. Failure to adhere to these obligations can lead to financial liabilities and potential legal actions against the employer.