Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION GUARANTEE (ADMINISTRATION) AMENDMENT REGULATIONS 2008 (NO. 1) (SLI NO 132 OF 2008)

EXPLANATORY STATEMENT Select Legislative Instrument 2008 No. 132

 

Issued by authority of the Minister for Superannuation and Corporate Affairs

Superannuation Guarantee (Administration) Act 1992

Superannuation Guarantee (Administration) Amendment Regulations 2008 (No. 1)

Section 80 of the Superannuation Guarantee (Administration) Act 1992 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The purpose of the Regulations is to amend the Superannuation Guarantee (Administration) Regulations 1993 to provide a framework for the use of ordinary time earnings as the earnings base for defined benefit superannuation schemes for the purposes of the superannuation guarantee.

The Superannuation Guarantee (Administration) Regulations 1993 are used by defined benefit superannuation schemes to calculate the notional employer contribution rate to be included in a benefit certificate. The notional employer contribution rate is expressed as a percentage of the scheme’s notional earnings base and represents the cost to the employer of providing the minimum benefits payable under the scheme to each class of employees covered by the benefit certificate. The superannuation guarantee charge percentage for the employer can then be reduced by the notional employer contribution rate specified in the benefit certificate.

The Regulations require ordinary time earnings to be used by defined benefit schemes as the notional earnings base to calculate the notional employer contribution rate in the benefit certificate. ‘Ordinary time earnings’ is defined in the Act as the total earnings in respect of ordinary hours of work (including over-award payments, shift loading or commission) but excluding certain other payments.

Before 1 July 2008, many defined benefit schemes have been allowed to use a ‘grandfathered’ notional earnings base under the Act, which might be less than ordinary time earnings for the purpose of calculating the notional employer contribution rate. Adjusting the notional earnings base to ordinary time earnings brings these defined benefit schemes onto the same footing as all other schemes for the purpose of reducing the superannuation guarantee charge percentage. It means that all employees now have their superannuation guarantee entitlements calculated against a consistent notional earnings base.

Amendments have already been made to apply the ordinary time earnings requirement to accumulation superannuation schemes, by the Superannuation Laws Amendment (2004 Measures No. 2) Act 2004, which received Royal Assent on 29 June 2004. The Regulations, which apply the requirement to defined benefit schemes, have been the subject of targeted consultation with industry.

Details of the Regulations are set out in the Attachment.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations commence on 1 July 2008, to coincide with the commencement of the Superannuation Laws Amendment (2004 Measures No. 2) Act 2004.

 

Delete RIS if not required.


ATTACHMENT

Details of Superannuation Guarantee (Administration) Amendment Regulations 2008 (No. 1)

Regulation 1 specifies the name of the Regulations as the Superannuation Guarantee (Administration) Amendment Regulations 2008 (No. 1).

Regulation 2 provides that the Regulations commence on 1 July 2008, to coincidence with the commencement date of items 5 to 7 of the Superannuation Laws Amendment (2004 Measures No. 2) Act 2004.

Regulation 3 provides that Schedule 1 amends the Superannuation Guarantee (Administration) Regulations 1993 (SGA Regulations).

Schedule 1 Amendments

Item [1] - regulation 2, definition of employer contribution rate

Regulation 2 of the SGA Regulations is the interpretation provision. This item amends the definition of ‘employer contribution rate’ by replacing the words ‘annual salary’ with ‘ordinary time earnings’. This reflects the move to ordinary time earnings as the minimum earnings base for the purpose of calculating the notional employer contribution rate from 1 July 2008.

Item [2] – regulation 2, definition of minimum requisite benefit

This item amends the definition of ‘minimum requisite benefit’ by replacing the words ‘Occupational Superannuation Standards Regulations’ with ‘Superannuation Industry (Supervision) Regulations 1994’. This is needed as the Occupational Superannuation Standards Regulations have been replaced by the Superannuation Industry (Supervision) Regulations 1994.

Item [3] – subregulation 3(1)

Subregulation 3(1) of the SGA Regulations sets out when a benefit certificate is required to be obtained by an employer from an actuary.

Item 3 amends paragraph subregulation 3(1) so it is consistent with the quarterly superannuation guarantee regime. Since 1 July 2003, employers have been required to make at least quarterly contributions on behalf of their eligible employees for the purpose of the superannuation guarantee. This item requires an employer who is required to lodge a superannuation guarantee statement for a quarter, to obtain a benefit certificate from an actuary by the day the superannuation guarantee statement is lodged. Subsection 33(1) of the Superannuation Guarantee (Administration) Act 1992 (the Act) sets out when a superannuation guarantee statement is to be lodged for each quarter.

Where an employer does not have to lodge a superannuation guarantee statement for a quarter, this item requires the employer to obtain a benefit certificate from an actuary within a time that accords with subsections 10(3) and 10(4) of the Act. Subsection 10(4) of the Act sets out when a benefit certificate can be expressed to have effect from, while subsection 10(3) sets out when a benefit certificate has effect until.

Subregulation 3(1) of the SGA Regulations continues to allow the Commissioner to extend the time that an employer must obtain a benefit certificate by.

Item [4] and Item [5] – paragraph 5(b) and paragraph 5(c)

Regulation 5 of the SGA Regulations sets out how to calculate the notional employer contribution rate with respect to a class of employees who belong to a defined benefit superannuation scheme, where the minimum requisite benefit in respect of each employee in the class is calculated as an accumulation of employer contributions.

Items 4 and 5 delete paragraph 5(c) of the SGA Regulations which makes references to annual salary as the notional earnings base, and to sections 13 and 14 of the Act. This amendment is required because from 1 July 2008, ordinary time earnings is the minimum earnings base for calculating the notional employer contribution rate and sections 13 and 14 of the Act are repealed.

Item [6] – subregulation 6(1), definition of F

Regulation 6 of the SGA Regulations sets out how to calculate the notional employer contribution rate with respect to a class of employees who belong to a defined benefit superannuation scheme, where the minimum requisite benefit in respect of each employee in the class is not calculated as an accumulation of employer contributions. Regulation 6 requires amending to ensure that for benefits which accrue from 1 July 2008, the notional employer contribution rate is calculated with reference to ordinary time earnings.

Subregulation 6(1) contains the definitions for regulation 6. This item removes the definition for F and inserts a definition for FOTE and FSAL.

FOTE is a standardising factor where a range of averaging periods are used in the governing rules of a superannuation scheme. This ensures that the calculated notional employer contribution rates are comparable across different averaging periods. The FOTE factor varies depending on whether the benefit for a period after 1 July 2008 in the governing rules is expressed as a multiple of annual ordinary time earnings or as a multiple of average annual ordinary time earnings.

FSAL is a standardising factor where a range of averaging periods are used in the governing rules of a superannuation scheme. This ensures that the calculated notional employer contribution rates are comparable across different averaging periods. The FSAL factor varies depending on whether annual salary or average annual salary was specified in the governing rules applicable as at 30 June 1992.

Item [7] – subregulation 6(1), definition of MCR

Subregulation 6(1) of the SGA Regulations contains the definitions for regulation 6. This item replaces the definition of MCR as well as inserts a definition for MRB.

MCR stands for the member contribution rate. This is the rate at which contributions are paid by the member into the scheme from 1 July 2008. This rate is expressed as a percentage of the member’s annual ordinary time earnings.

MRB stands for the minimum requisite benefit for the person.

Item [8] – subregulation 6(1), definition of NM

Subregulation 6(1) of the SGA Regulations contains the definitions for regulation 6. This item amends the definition of NM. NM relates to the number of months where contributions are made in respect of a member after 30 June 2008.

Item [9] – subregulation 6(1), after definition of NM

Subregulation 6(1) of the SGA Regulations contains the definitions for regulation 6. This item inserts definitions for NM1, PAB1, PAB2 and OTE.

NM1 relates to the number of months where contributions are made in respect of a member between 1 July 1992 and 30 June 2008.

PAB1 relates to that part of a member’s minimum requisite benefit that accrued prior to 1 July 1992. This is worked out by using the formula in subregulation 6(6) of the SGA Regulations.

PAB2 relates to that part of a member’s minimum requisite benefit that accrued between 1 July 1992 and 30 June 2008. This is worked out by using the formula in subregulation 6(7) of the SGA Regulations.

OTE relates to the annual rate or the average annual rate of ordinary time earnings of a member for the period after 1 July 2008, in accordance with the governing rules of the superannuation scheme.

Item [10] – subregulation 6(1), definition of SAL

Subregulation 6(1) of the SGA Regulations contains the definitions for regulation 6. This item replaces the definition of SAL as well as inserts a definition for SAL1.

SAL relates to the annual salary of a member on the day on which the member withdraws from the scheme, calculated in accordance with the governing rules of the superannuation scheme applicable as at 30 June 1992.

SAL1 relates to the annual salary of a member calculated in accordance with the definition for SAL, if the member had withdrawn from the scheme on 30 June 1992.

Item [11] – subregulation 6(2)

Regulation 6 of the SGA Regulations provides how to calculate the notional employer contribution rate with respect to a class of employees who belong to a defined benefit superannuation scheme, where the minimum requisite benefit in respect of each employee in the class is not calculated as an accumulation of employer contributions.

The conditions which need to be satisfied for regulation 6 to apply directly are set out under subregulation 6(2).

This item amends subregulation 6(2) to ensure that the notional employer contribution rate for benefits accrued after 1 July 2008 is calculated in a fair and reasonable manner and reflects the cost to the employer of the post 1 July 2008 component of the minimum requisite benefit. Item 11 also ensures that the notional employer contribution rate is expressed as a percentage of ordinary time earnings.

Item [12] – subregulations 6(4), (5) and (6)

Regulation 6 of the SGA Regulations provides how to calculate the notional employer contribution rate with respect to a class of employees who belong to a defined benefit superannuation scheme, where the minimum requisite benefit in respect of each employee in the class is not calculated as an accumulation of employer contributions.

Subregulation 6(4) contains the formula for calculating TCR which stands for the total contribution rate. This item substitutes a new formula for calculating TCR to ensure that the total contribution rate is a percentage of ordinary time earnings for benefits accrued from 1 July 2008.

Subregulation 6(5) of the SGA Regulations provides the formula for calculating MB. Item 13 substitutes a new formula for calculating MB so that MB is that part of a member’s minimum requisite benefit that relates to the period from 1 July 2008.

Subregulation 6(6) of the SGA Regulations provides the formula for calculating PAB. Item 13 replaces the formula for calculating PAB with a new formula for calculating PAB1 so that PAB1 is the value of that part of a member’s minimum requisite benefit that relates to the period prior to 1 July 1992.

Item 13 inserts a new formula for calculating PAB2 at subregulation 6(7) so that PAB2 is the value of that part of a member’s minimum requisite benefit calculated using the standard formula that relates to the period between 1 July 1992 and 30 June 2008.

 


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