EXPLANATORY STATEMENT

Issued by authority of the Minister for Finance and Deregulation

Superannuation Act 1990

Thirty-fourth Amending Deed to the Trust Deed to establish an occupational superannuation scheme for Australian Government employees and certain other persons pursuant to section 5 of the Superannuation Act 1990 (1990 Act).

An occupational superannuation scheme to provide benefits for certain of the Commonwealth’s employees and for certain other people was established by Trust Deed dated 21 June 1990, under section 4 of the 1990 Act. The occupational superannuation scheme is called the Public Sector Superannuation Scheme (PSS).

Section 5 of the 1990 Act provides that the Minister may amend the Trust Deed by signed instrument, subject to obtaining the consent of the Board (the Australian Reward Investment Alliance (ARIA)) to the amendment, where necessary, as required under subsection 5(1A) of that Act. ARIA is the trustee for the PSS.

Thirty-fourth Amending Deed

On 17 May 2011 the Minister for Finance and Deregulation amended the Rules for the PSS set out in the Schedule to the Trust Deed by signed instrument. That instrument is called the Thirty-fourth Amending Deed in this statement.

The purpose of the Thirty-fourth Amending Deed is to implement a measure announced in the Mid-Year Economic and Fiscal Outlook, to allow PSS members who continue in employment between ages 70 and 75 to continue to accrue employer benefits in the scheme. Currently, members are unable to accrue further employer benefits after they reach age 70.

The Superannuation Industry (Supervision) Regulations 1994 allow defined benefit funds to accrue benefits to their members between ages 70 and 75, provided they meet a work test requirement (gainfully employed for at least 10 hours per week).

The Thirty-fourth Amending Deed also:

·         Provides for the default rates of contribution to apply to members over age 70 when the changed arrangements commence on 1 July 2011.

·         Removes the option, from 1 July 2011, for PSS members between ages 70 and 75 to voluntarily contribute member contributions that have no effect on the member’s defined benefit.

·         Updates references to the Minister responsible for the Trust Deed, to reflect the changed Ministerial title, and to cater for future changes.

Background information on the changes and the details of the Thirty-fourth Amending Deed are set out in the Attachment.

ARIA Approval

Although subsection 5(1) of the Act allows the Minister to amend the PSS Trust Deed, subsection 5(1A) of the Act requires ARIA to consent to the amendments in most circumstances.

ARIA has consented to the amendments included in the Thirty-fourth Amending Deed, except the amendments to allow PSS members between ages 70 and 75 to accrue employer benefits. ARIA consent is not required for these amendments, as they relate to payments by an employer-sponsor (see subparagraph 5(1A)(b)(i) of the Act).

The amendments to update references to the Minister have no effect on the operation or administration of the Trust Deed and do not require ARIA consent.

Legislative Instruments Act 2003

The Thirty-fourth Amending Deed is a legislative instrument for the purposes of the Legislative Instruments Act 2003 (LIA). Although section 44 of the LIA exempts superannuation instruments from disallowance, the Thirty-fourth Amending Deed is subject to disallowance in accordance with section 45 of the 1990 Act.

Consultation was undertaken with the ARIA Executive and ComSuper in relation to the amendments to be made to the Trust Deed.

Commencement

The amendments in the Thirty-Fourth Amending Deed come into effect on 1 July 2011.

ATTACHMENT

BACKGROUND TO AND DETAILS OF THE THIRTY-FOURTH AMENDING DEED

Commencement

Clause 1 specifies the commencement date for the amendments to the PSS Trust Deed and the PSS Rules made by the Thirty-fourth Amending Deed (the Amending Deed) to be 1 July 2011.

Context

2.                      Clause 2 indicates that, unless a contrary intention appears, a word or phrase in the Amending Deed has the same meaning that it has in the Trust Deed and the Rules.

Application of the amendments – contributions after age 70

3.                      Clause 3 provides that the amendments to the Rules made by clause 5 of the Amending Deed only apply in relation to contribution days (a defined term in the Rules) occurring on or after 1 July 2011.

Amendments to the Trust Deed

References to the Minister for Finance and Administration

4.                      The Trust Deed contains several references to the “Minister for Finance and Administration”. The appropriate Minister is now called the “Minister for Finance and Deregulation”.

5.                      Subclause 4.2 inserts a definition of “Finance Minister” into the Trust Deed, meaning the Minister administering the Financial Management and Accountability Act 1997. This definition allows the ministerial title to change without requiring consequential amendments to the Trust Deed.

6.                      Subclauses 4.1, 4.3 and 4.4 updates instances of the term “Minister for Finance and Administration” with the newly defined term “Finance Minister”.

Amendments to the Rules

Contributions after age 70

7.                      Under current arrangements, accrual of PSS employer benefits cease when a contributor reaches age 70. Part 5 of the Rules provide that employer benefits accrue when a member makes or is required to make fortnightly contributions. Rule 4.1.1 provides that a member must make contributions (though they may choose to contribute at a rate of zero per cent) on every contribution due day, except on or after the date they reach age 70. Rule 4.1.5 provides that members are not permitted to pay contributions (under that Part) on or after the date they reach age 70.

8.                      Subclauses 5.1 and 5.4 amend Rules 4.1.1 and 4.1.5 respectively, so that members are required and permitted to make contributions up to the age of 75. This allows members who continue to work between ages 70 to 75 to continue to make contributions (including at a rate of zero per cent) and accrue employer benefits (for all contributions days on or after 1 July 2011).

9.                      The ability of members to make contributions and accrue employer benefits between ages 70 and 75 is subject to the Superannuation Industry (Supervision) Act 1993 and the regulations under that Act (SIS Act). Rule 4.1.5(b) provides that a member is not permitted to make contributions if the PSS Fund is prohibited by the SIS Act from receiving those contributions. Additionally, Rule 5.1.2 provides that benefits do not accrue to members if the accrual is prohibited by the SIS Act. For a defined benefit fund to grant an accrual of benefits, the Superannuation Industry (Supervisions) Regulations 1994 require a person to be gainfully employed for at least 10 hours each week.

Contributions after age 70 – default transitional arrangements

10.                  Subclause 5.2 amends Rule 4.1.2 as a consequence of the new paragraph 4.1.2(d) inserted by subclause 5.3. The amendment changes the syntax of paragraph 4.1.2(c) to reflect that it is no longer the last paragraph of Rule 4.1.2.

11.                  Rule 4.1.2 provides that members may choose to pay member contributions at 0% or at any whole percentage rate between 2% and 10%. This rule also provides for a default contribution rate of 5%, except in the circumstances listed in the paragraphs to the rule. For members who reach age 70 on or after 1 July 2011, their contribution rate will continue at the rate that was applicable immediately prior to their turning age 70.

12.                  Subclauses 5.3 and 5.5 provides for the default contribution rate for members who have reached age 70 prior to 1 July 2011.

13.                  Subclause 5.3 amends Rule 4.1.2 by inserting a new paragraph (d) and note. The amendment excludes members who reached age 70 before 1 July 2011 from the default contribution rate of 5% that would otherwise be applied. The note inserted after the new paragraph (d) explains the default contribution rates applicable to members who reached age 70 prior to 1 July 2011, which are provided for by the new Rules 4.1.10 and 4.1.11 inserted by subclause 5.5.

14.                  New Rule 4.1.10 provides that members who were paying additional contributions prior to 1 July 2011 will contribute at the same rate as they were contributing additional contributions. As the option to pay additional contributions ceases from 1 July 2011, the default transitional arrangement results in the member paying the same rate that they have previously chosen, but receiving the benefit of an equivalent employer accrual that was previously unavailable. Rule 4.1.3 allows members to change their rate of contribution at any time.

15.                  New Rule 4.1.11 provides that members who were not paying additional contributions prior to 1 July 2011 will contribute at the rate of 0% of his/her fortnightly contribution salary. The default transitional arrangement ensures that these members do not pay contributions from their salary without consciously choosing to. A rate of 0% of fortnightly contribution salary does not preclude members from receiving the corresponding accrual of employer benefits. Rule 4.1.3 allows members to change their rate of contribution at any time.

Contributions after age 70 – additional contributions

16.                  Rules 4.1.1 and 4.1.5 do not allow members to make contributions after age 70 under Part 4 of the Rules. However, Rule 11.4.1 allows those over 70 to make additional (personal) contributions (subject the limitations imposed by Superannuation Industry (Supervision) Regulations 1994). Additional contributions do not accrue an employer benefit, but are a separate accumulation amount that grows in line with fund earnings.

17.                  Subclause 5.6 amends Rule 11.4.1 as a consequence of the changes to allow the accrual of employer benefits between ages 70 and 75. The option to make additional contributions will not be available to members for contribution days on or after 1 July 2011. This option was only available to members between ages 70 and 75, recognising the inability of these members to make members contributions under Part 4 of the Rules. As members between ages 70 and 75 are able to make contributions under Part 4 from 1 July 2011, the option to make additional contributions from 1 July 2011 is correspondingly removed.

References to the Minister for Finance and Administration

18.                  Clause 6 updates instances of the term “Minister for Finance and Administration” with the newly defined term “Finance Minister”.