EXPLANATORY STATEMENT
Superannuation (Productivity Benefit) Act 1988
Issued by the authority of the Minister for Finance and Administration
DETERMINATION UNDER SECTION 4G
SUPERANNUATION (PRODUCTIVITY BENEFIT) (PENALTY INTEREST) AMENDMENT DETERMINATION 2006 (NO. 1)
PENALTY INTEREST
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 employer of an employee who has joined a fund is required to pay penalty interest in respect of any period of delay between the date when an amount should have been paid into a fund and the date when it was paid. Such a payment takes into account the loss of interest since the contributions became payable on behalf of the employee and also penalises the employer for having failed to meet its obligations.
Section 4G of the PB Act provides that the interest fixed under it for the purposes of sections 4E, 4EA and 4F is calculated in a way determined by the Minister. These determinations are included in the Superannuation (Productivity Benefit) (Penalty Interest) Determination 1995 (the Principal Determination).
Paragraph 4E(b) of the PB Act provides for interest to be paid on the amount accrued as a benefit under section 8A where the amount was not paid into a fund on the day on which the employee became a member of that fund. Interest is payable in respect of the period commencing on the day on which payment should have been made and ending on the day before payment was made.
Section 4EA of the PB Act provides for interest to be paid on the amount accrued as a benefit under section 8A where the amount was not paid on the day on which the employee became a member of the superannuation scheme established under the Superannuation Act 1976 or the Superannuation Act 1990. Interest is payable in respect of the period commencing on the day on which payment should have been made and ending on the day before payment was made.
Paragraph 4F(1)(b) of the PB Act provides for interest to be paid on an instalment of contributions under the PB Act which was not paid into a fund on the day on which it was payable (either the employee’s pay day or a day agreed between the employer and the fund trustees). Interest is payable in respect of the period commencing on the day on which payment should have been made and ending on the day before the payment was made.
This Determination, cited as the Superannuation (Productivity Benefit) (Penalty Interest) Amendment Determination 2006 (No. 1), amends the Principal Determination to provide for interest to be calculated on all amounts which should have been paid on a given day but were not paid on that day in respect of the period of delay for the 2006-2007 financial year. The interest rate for the 2006-2007 financial year is 7.71 per cent per annum. This is 2 per cent per annum higher than the rate used to establish the first and second interest factors used for benefit calculation purposes under the PB Act. The formula to be used to calculate penalty interest to be applied for each day during the 2006-2007 financial year until the payment is made is specified in the Principal Determination.
The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
No consultation was undertaken in relation to this Determination. Consultation was considered to be unnecessary because the instrument is minor or machinery in nature.
The Determination commences on the day after it is registered on the Federal Register of Legislative Instruments.
Overview
The Superannuation (Productivity Benefit) Act 1988 was enacted by the Australian Parliament to provide a mechanism for the Superannuation Guarantee minimum employer superannuation contributions for Australian Government employees and other specific individuals who lack other employer-sponsored superannuation cover. This legislation was introduced to address the gap in superannuation coverage for these particular employees, ensuring they received a basic level of retirement savings. The Act was subsequently amended by the Superannuation (Consequential Amendments) Act 2005 to cease the superannuation arrangements under the Act for new employees from 1 July 2006. However, it continues to apply to existing employees until they no longer qualify for coverage. The Superannuation (Productivity Benefit) (Penalty Interest) Amendment Determination 2006 (No. 1) was made under section 4G of the PB Act to adjust the penalty interest calculation for contributions and benefits not paid on the due date for the 2006-2007 financial year, setting the interest rate at 7.71 per cent per annum.
Scope and Application
The Superannuation (Productivity Benefit) Act 1988 applies to employers who are required to make superannuation contributions for Australian Government employees and certain other persons who have no other employer-sponsored superannuation cover. These employers include designated entities mandated to contribute to a superannuation fund on behalf of eligible employees, as per the Act and the Superannuation (Productivity Benefit) (Penalty Interest) Amendment Determination 2006 (No. 1). This legislation has a national reach, applying across Australia and governed by Commonwealth laws. It does not apply to new employees who joined after 1 July 2006, but continues to cover those who were eligible as of 30 June 2006 until they no longer qualify under the Act. Employers must also pay penalty interest for delayed contributions, calculated using a formula specified in the Principal Determination, with the rate for the 2006-2007 financial year set at 7.71 per cent per annum. The Determination itself, which modifies the penalty interest calculation for the specified financial year, is a legislative instrument under the Legislative Instruments Act 2003 and took effect the day after its registration on the Federal Register of Legislative Instruments.
Key Provisions
The Superannuation (Productivity Benefit) (Penalty Interest) Amendment Determination 2006 (No. 1) (the Determination) is a legislative instrument that amends the calculation of penalty interest under the Superannuation (Productivity Benefit) Act 1988 (PB Act) for the 2006-2007 financial year. The PB Act provides for a minimum employer superannuation contribution known as the Superannuation Guarantee (SG) for Australian Government employees and certain other employees without employer-sponsored superannuation cover. The Determination amends the Principal Determination, which sets the penalty interest rates for unpaid contributions and entitlements under the PB Act. Under section 4G of the PB Act, the interest fixed for the purposes of sections 4E, 4EA, and 4F is calculated in a manner determined by the Minister. The Determination sets the penalty interest rate at 7.71 per cent per annum for the 2006-2007 financial year, which is two per cent per annum higher than the rate used for the first and second interest factors under the PB Act. This amendment applies to all amounts that should have been paid on a given day but were not paid on that day in respect of the period of delay until the payment is made.
The Determination imposes obligations on employers to pay periodic contributions on behalf of employees covered by the PB Act. These contributions are to be made 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. Employers are required to pay penalty interest in respect of any delay in making these contributions. The penalty interest is calculated based on the loss of interest since the contributions became payable and also penalises the employer for failing to meet its obligations. 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.
The Determination does not impose any new offences, penalties, or civil or criminal consequences for breach. However, failure to comply with the requirements of the PB Act and the Determination may result in the employer being liable to pay penalty interest on any unpaid contributions or entitlements. The penalty interest is calculated based on the loss of interest since the contributions became payable and also penalises the employer for failing to meet its obligations. The maximum penalty for breach of the PB Act is not specified in the Determination, but it may be specified in other legislation or regulations.
In summary, the Superannuation (Productivity Benefit) (Penalty Interest) Amendment Determination 2006 (No. 1) amends the calculation of penalty interest under the PB Act for the 2006-2007 financial year. It imposes obligations on employers to pay periodic contributions on behalf of employees covered by the PB Act and to pay penalty interest in respect of any delay in making these contributions. Failure to comply with the requirements of the PB Act and the Determination may result in the employer being liable to pay penalty interest on any unpaid contributions or entitlements.