Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION (ADDITIONAL PENSION) REGULATIONS 2004 2004 NO. 300

The Superannuation Act 1976 (the Act) makes provision for, and in relation to, the Commonwealth Superannuation Scheme (CSS) which is an occupational Superannuation scheme for Australian Government employees and for certain other persons. The CSS was closed to new entrants from 1990, and currently has approximately 35,000 contributors. Subsection 168(1) of the Act provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The purpose of the Regulations is to update the existing Superannuation (Additional Pension) Regulations (comprising Statutory Rules 1976 No. 158 and 1978 No. 141) (the Principal Regulations) in order to reflect new benefit options introduced by the Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Act (No. 1) 2003 (the Repeal and Amendment Act).

The Regulations also repeal and remake the Principal Regulations in their entirety so that they are cast in the modern drafting style.

The Principal Regulations are concerned with the following categories of additional pensions payable under the Act:

•       additional age pension;

•       additional pension for the spouse of a deceased contributor (a contributor is described in the Act as an eligible employee); and

•       additional early retirement pension.

An additional pension is a pension that arises from the funded components (a person's own contributions to the scheme, plus fortnightly productivity contributions made by the person's employer) of a person's total benefit in the CSS. Where a person elects to receive a maximum pension benefit on age or early retirement, this pension would be paid in addition to the standard age or early age retirement pension that is based on the person's age at retirement, final salary and length of contributory membership in the scheme. The spouse of a deceased contributor could also elect a maximum pension benefit option on the death of the contributor, and would similarly become entitled to an additional pension that would be paid in addition to the spouse's standard pension.

The Principal Regulations currently prescribe the factors to be used in calculating superannuation benefits where a person elects to receive an additional age or additional early retirement benefit, or the widowed spouse of a contributor elects to receive an additional pension, under the Act. The Principal Regulations also prescribe percentages for arriving at a 'notional annual rate of salary' for a benefit on early retirement.

Further detail on the relevant legislative provisions concerning the categories of pension covered by the Principal Regulations are set out in Attachment A.

The Act was amended by the Repeal and Amendment Act to, amongst other things, insert new provisions to provide an option for age and early retirees entitled to pensions under the Act to reduce their initial pension entitlements and increase reversionary benefits payable to their spouse, or to any children, after their death.

The new provisions in the Act are sections 57AA and 61AB. Section 57AA allows a retiring member to elect, within a period of three months before or after retirement, for a reduced rate of benefit on age retirement. The reduced rate is 93 per cent of the benefit that otherwise would have been payable. Where a person is entitled to an additional age retirement pension, the reduced annual rate of that pension is calculated using the factors prescribed for that purpose in the Regulations. The maximum annual amount of an additional pension is 20 per cent of the person's final rate of salary. If when calculated, the reduced annual rate of pension exceeds 20 percent of the person's final rate of salary, the person is, in addition, paid a lump sum benefit which is calculated using the factor applicable to the person. Section 61AB operates similarly for reduced rates of benefit on early retirement. Subsection 61AB(6) defines the term 'notional final annual rate of salary' for the purposes of calculating an early retirement benefit, and the Regulations prescribe percentages for arriving at that 'notional final annual rate of salary'.

The Regulations therefore prescribe the factors to be applied where a person elects to receive an additional age or early retirement benefit at a reduced rate as provided for by the Repeal and Amendment Act. The Regulations also prescribe the percentages in relation to the 'notional annual rate of salary' for such an early retirement benefit.

Subsection 168(13) of the Act requires that the CSS Board give consent to the making of regulations, subject to certain specific exemptions. For the purposes of this subsection, the CSS Board consented to the making of the proposed Regulations on 22 July 2004.

Details of the proposed Regulations are set out in Attachment B.

The Regulations commence on the date of their notification in the Gazette.

ATTACHMENT A

DETAILS ON THE LEGISLATIVE PROVISIONS IN RELATION TO THE CATEGORIES OF PENSION COVERED BY THE PRINCIPAL REGULATIONS

Additional Age Pension

Paragraph 57(1)(a) of the Superannuation Act 1976 (the Act) sets out the method of calculation for the annual rate of additional age pension for a former contributor who has an entitlement under section 55 of the Act. The calculation is carried out by multiplying the person's accumulated contributions by a factor applicable to the person. The paragraph provides that the applicable factor is provided for in regulations made for the purposes of the paragraph. The factor is determined by reference to the person's age at his or her last day of service, and to any other matters (if any) that are prescribed in the regulations.

The maximum annual rate of an additional age pension under paragraph 57(1)(a) is 20 per cent of the person's final annual rate of salary. Where the calculated rate of pension exceeds that amount, the annual rate of that pension is the maximum annual rate, and the factor applicable to the person is used in the calculation of any residual lump sum benefit that is paid to the person under subsection 57(2).

Additional Pension for the Spouse of a Deceased Contributor

Paragraph 91(1)(a) of the Act sets out the method of calculation for the annual rate of additional pension for the spouse of a deceased contributor who has an entitlement under section 89 of the Act. The calculation is carried out by multiplying the accumulated contributions of the deceased contributor by a factor applicable to the spouse. The paragraph provides that the applicable factor is provided for in regulations made for the purposes of that paragraph. The factor is determined by reference to the gender of the spouse, and to the age of the spouse at the contributor's death.

The maximum annual rate of an additional spouse's pension under paragraph 91(1)(a) is 13.4 per cent of the deceased contributor's final annual rate of salary. Where the calculated rate of the spouse's pension exceeds that amount, the annual rate of that spouse's pension is the maximum annual rate, and the factor applicable to the spouse is used in the calculation of any residual lump sum benefit that is paid to the spouse under subsection 91(2).

Additional Early Retirement Pension

Subsection 61(1) of the Act sets out the method of calculation for the annual rate of additional early retirement pension for a former contributor who has an entitlement under section 59 of the Act. An entitlement under that section will arise where a person under the age of 60 ceases to be a contributor by reason of early retirement. The calculation is carried out by multiplying the person's accumulated contributions by a factor applicable to the person.

The maximum annual rate of additional early retirement pension under subsection 61(1) is 20 per cent of the person's notional final annual rate of salary. Where the calculated rate of pension exceeds that amount, the annual rate of that pension is the maximum annual rate, and the factor applicable to the person is used in the calculation of any lump sum benefit paid to the person under subsection 61(2).

Subsection 61(3) of the Act provides that the factor applicable to a person, for the purposes of subsections 61(1) and (2) of the Act, is in accordance with regulations made for the purposes of those subsections. The factor is determined by reference to the person's age at his or her last day of service, and to any other matters (if any) that are prescribed in the regulations.

The term "notional final annual rate of salary" is defined in subsection 61(4) of the Act to mean the annual rate of a person's final annual rate of salary, reduced by a percentage applicable to the person. The notional final annual rate of salary is used in the calculation of the annual rate of additional early retirement pension, and lump sum benefit (if any), in subsections 61(1) and 61(2) of the Act. Subsection 61(4) provides that the percentage applicable to a person is provided for in regulations made for the purposes of that definition. The percentage is determined by reference to the person's age at his or her last day of service, and to any other matters (if any) that are prescribed in the regulations.

ATTACHMENT B

DETAILS OF THE PROPOSED SUPERANNUATION (ADDITIONAL PENSION) REGULATIONS 2004

Regulation 1 - Name of Regulations

Regulation 1 provides that the Regulations are called the Superannuation (Additional Pension) Regulations 2004.

Regulation 2 - Commencement

Regulation 2 provides for the commencement of the Regulations on the date of their notification in the Gazette.

Regulation 3 - Superannuation (Additional Pension) Regulations 1976 - reveal

Regulation 3 repeals Statutory Rules 1976 No. 158 and 1978 No.^, 141. These are the existing Statutory Rules that provide the factors and percentages necessary to calculate additional pensions and residual lump sums under paragraphs 57(1)(a) and 91(1)(a) and subsections 61(3) and (4) of the Superannuation Act 1976 (the Act). They are repealed for the purposes of being remade, by these Regulations, in the modern drafting style.

Regulation 4 - Definition

Regulation 4 defines "Act" to mean the Superannuation Act 1976.

Regulation 5 - Factor applicable for paragraph 57(1)(a) of the Act

Regulation 5 prescribes factors to be used in calculating the annual rate of an additional age pension for the purposes of paragraph 57(1)(a) of the Act. This Regulation applies to a person entitled to such a pension under section 55 of the Act, who does not make an election under subsection 57AA(1) of the Act, and therefore does not wish to receive the additional age pension at a reduced rate. The factor applicable to a person is the factor in column 2 of Schedule 1 that corresponds with the person's age, on his or her last day of service, in column 1 of Schedule 1.

Regulation 6 - Factor applicable for subparagraph 57AA(4)(b)(i) of the Act

Regulation 6 prescribe factors to be used in calculating the annual rate of an additional age pension for the purposes of subparagraph 57AA(4)(b)(i) of the Act. This Regulation applies to a person entitled to such a pension under section 55 of the Act, who makes an election under subsection 57AA(1) of the Act to receive the additional age pension at a reduced rate. The factor applicable to a person is the factor in column 3 of Schedule 1 that corresponds with the person's age, on his or her last date of service, in column 1 of Schedule 1.

Regulation 7 - Factor applicable for paragraph 91(1)(a) of the Act

Regulation 7 prescribes factors to be used in calculating the annual rate of an additional spouse's pension for the purposes of paragraph 91(1)(a) of the Act. This Regulation applies to the spouse of a deceased contributor who is entitled to a spouse's pension under section 89 of the Act. The factors are set out in separate columns in Schedule 2 depending on whether the spouse is male or female. If the spouse is male then the factor applicable to the spouse is the factor in column 2 that corresponds with the spouse's age at the eligible employee's death, in column 1. If the spouse is female, the factors are similarly set out in column 3.

Regulation 8 - Factor applicable for subsections 61(1) and (2) of the Act

Regulation 8 prescribes factors applicable for calculating the annual rate of an additional early retirement pension, and the amount of any lump sum benefit, for the purposes of subsections 61(1) and (2) of the Act. This Regulation applies to a person who is entitled to such a pension under section 59 of the Act, who does not make an election under subsection 61AB(1) of the Act, and therefore does not wish to receive the additional early retirement pension at a reduced rate. The factor applicable to the person is the factor in column 2 of Schedule 3 that corresponds with the person's age, on his or her last date of service, in column 1 of Schedule 3.

Regulation 9 - Factor applicable for subsection 61AB(5) of the Act

Regulation 9 prescribes factors applicable for calculating the annual rate of an additional early retirement pension, and the amount of any lump sum benefit, for the purposes of subsection 61AB(5) of the Act. This Regulation applies to a person who is entitled to such a pension under section 59 of the Act, who makes an election under subsection 61AB(1) of the Act to receive the additional early retirement pension at a reduced rate. The factor applicable to the person is the factor in column 3 of

Schedule 3 that corresponds with the person's age, on his or her last date of service, in column 1 of Schedule 3.

Regulation 10 - Percentage applicable for definition of notional final annual rate of salary in subsections 61(4) and 61AB(6) of the Act

Regulation 10 prescribes the percentage applicable to a person for the purposes of the definition of notional final annual rate of salary in subsections 61(4) and 61AB(6) of the Act. The applicable percentage is the percentage in column 4 of Schedule 3 that corresponds with the person's age, on his or her last day of service, in column 1 of Schedule 3.

Schedule 1 - Factors applicable to person entitled to additional age retirement pension

Schedule 1 relates to regulations 5 and 6, and is a table setting out the age of an eligible employee on their last day of service, and the corresponding factors where that person does not, and does, make an election under subsection 57AA(1) of the Act to receive the additional age retirement pension at a reduced rate.

Schedule 2 - Factors applicable in relation to spouse of deceased eligible employee

Schedule 2 relates to regulation 7, and is a table setting out the age of a spouse at the contributor's death and the corresponding factors applicable for male and female spouses.

Schedule 3 - Factors and percentages applicable to person entitled to additional early retirement pension

Schedule 3 relates to regulations 8, 9 and 10, and is a table setting out the age of an eligible employee on their last day of service, and the corresponding factors where that person does not, and does, make an election under subsection 61AB(1) of the Act to receive the early retirement pension at a reduced rate. This table also sets out the percentages applicable to the definition of notional final annual rate of salary in subsections 61(4) and 61AB(6) of the Act.