explanatory statement
ISSUED BY THE MINISTER FOR FINANCE AND DEREGULATION
SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988
DECLARATION UNDER PARAGRAPH 3E(1)(a)
SUPERANNUATION (PRODUCTIVITY BENEFIT) (FIRST INTEREST FACTOR) DECLARATION 2013
The Superannuation (Productivity Benefit) Act 1988 (the PB Act) provides superannuation arrangements, based on the minimum employer superannuation requirements envisaged in the Superannuation Guarantee (Administration) Act 1992, for certain Australian Government employees, office holders and contractors (employees).
The superannuation arrangements under the PB Act were closed to new employees from 1 July 2006. However, they continue to apply to persons who were covered by the Act on 30 June 2006 until they cease relevant employment or become a member of an Australian Government superannuation scheme.
The employer superannuation contributions provided for under the PB Act are guaranteed to employees where an employer fails to join the employee to a fund to receive those contributions. In such cases, extra amounts are payable by the employer in respect of interest that may have been earned had those contributions been paid to a fund. These additional amounts are calculated by applying the first interest factor for a financial year to the contributions that were due to be paid, but were not paid, in that year and the second interest factor in respect of any later years.
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.
This Declaration, cited as the Superannuation (Productivity Benefit) (First Interest Factor) Declaration 2013, specifies the formula for the first interest factor to be used for financial years commencing from 1 July 2013. The formula emulates the periodic interest that would have been earned during the year had the contributions been held in a fund.
The first interest factor is used in section 8A of the PB Act to accrue interest on unpaid employer contributions for all future financial years commencing 1 July 2013, as if they had been paid into a fund in regular payments throughout the year. The Declaration makes the factor reflect the estimated closing yield last published by the Reserve Bank of Australia before 1 June in the financial year immediately preceding the relevant financial year in respect of 10‑year non‑rebate Treasury Bonds.
In previous years, the interest rate has been determined annually, prior to each financial year, with the intention of setting the rate according to the same criteria as is prescribed by the Declaration. Referencing the Treasury Bond rate allows the Declaration to have perennial application, negating the need for annual declarations.
The Declaration should be read in conjunction with the Superannuation (Productivity Benefit) (Second Interest Factor) Declaration 2013.
The Declaration is a legislative instrument for the purposes of the Legislative Instruments Act 2003 (LI Act).
No consultation was undertaken in relation to the 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 1 July 2013.
A Statement of Compatibility with Human Rights is at Attachment A.
ATTACHMENT A
Overview
The Superannuation (Productivity Benefit) (First Interest Factor) Declaration 2013 was issued under the authority of the Superannuation (Productivity Benefit) Act 1988, which was enacted to provide superannuation arrangements for certain Australian Government employees, office holders, and contractors. The 1988 Act established a framework for minimum employer superannuation contributions, ensuring that employees receive their entitled benefits even if their employer fails to make the required payments. The Act was closed to new participants from 1 July 2006, but continues to apply to those who were covered on 30 June 2006 until they cease their relevant employment or join another Australian Government superannuation scheme. The 2013 Declaration, issued by the Minister for Finance and Deregulation, aims to streamline the calculation of interest on unpaid employer contributions by referencing the estimated closing yield of 10-year non-rebate Treasury Bonds published by the Reserve Bank of Australia, thereby providing a consistent and predictable interest rate for financial years commencing from 1 July 2013.
Scope and Application
The Superannuation (Productivity Benefit) (First Interest Factor) Declaration 2013 applies to the calculation of employer superannuation contributions for certain Australian Government employees, office holders, and contractors who were covered by the Superannuation (Productivity Benefit) Act 1988 as of 30 June 2006. This legislation ensures that employees receive guaranteed superannuation contributions where employers fail to make contributions to a fund, by applying a first interest factor to calculate the interest that would have been earned had the contributions been made. The Declaration specifies the formula for determining this first interest factor for financial years commencing from 1 July 2013, and it is based on the estimated closing yield of 10-year non-rebate Treasury Bonds as published by the Reserve Bank of Australia. This approach allows for a consistent application of interest rates without the need for annual declarations. The Declaration operates within the Commonwealth jurisdiction and should be read alongside the Superannuation (Productivity Benefit) (Second Interest Factor) Declaration 2013 to understand the full implications of unpaid employer contributions.
Key Provisions
The Superannuation (Productivity Benefit) (First Interest Factor) Declaration 2013 (the Declaration) specifies the formula for the first interest factor to be used for financial years commencing from 1 July 2013 under section 3E(1)(a) of the Superannuation (Productivity Benefit) Act 1988 (the PB Act). The first interest factor is determined using the estimated closing yield of 10-year non-rebate Treasury Bonds published by the Reserve Bank of Australia before 1 June in the financial year immediately preceding the relevant financial year. This formula ensures the interest factor reflects the periodic interest that would have been earned if contributions had been held in a fund.
The PB Act imposes obligations on employers who are required to make superannuation contributions for certain Australian Government employees, office holders, and contractors. Employers must ensure these contributions are paid to a fund or, in the case of failure, must compensate employees with additional amounts calculated using the first interest factor for unpaid contributions. The Act guarantees the employer superannuation contributions to employees, even if the employer fails to join the employee to a fund. This guarantee ensures that employees receive their entitled benefits and any accrued interest that would have been earned.
Breach of the requirements under the PB Act can result in civil or criminal consequences. Employers failing to make the required superannuation contributions or compensate employees as outlined in section 8A of the PB Act may face penalties. The maximum penalties for contraventions of the Act can include fines and, in some cases, imprisonment. It is important for employers to comply with the Act to avoid these legal repercussions.
The Declaration is a legislative instrument under the Legislative Instruments Act 2003 (LI Act) and it is considered to be of a minor or machinery nature. As such, no consultation was undertaken in its preparation, in accordance with section 18(2)(a) of the LI Act. The Declaration comes into effect on 1 July 2013, and it should be read in conjunction with the Superannuation (Productivity Benefit) (Second Interest Factor) Declaration 2013 to provide a comprehensive understanding of the interest factors applicable under the PB Act.