Commonwealth Numbered Regulations - Explanatory Statements

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SUPERANNUATION (PRODUCTIVITY BENEFIT) (2004-2005 FIRST INTEREST FACTOR) DECLARATION 2004 2004 NO. 199

EXPLANATORY STATEMENT

STATUTORY RULES 2004 No. 199

SUPERANNUATION (PRODUCTIVITY BENEFIT) ACT 1988

ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE AND ADMINISTRATION

DECLARATION UNDER PARAGRAPH 3E(1)(a)

SUPERANNUATION (PRODUCTIVITY BENEFIT) (2004-2005 FIRST INTEREST FACTOR) DECLARATION 2004

FIRST INTEREST FACTOR

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 Commonwealth employees (and certain other employees) who have no other employer-sponsored superannuation cover. Prior to 1 July 1992, the PB Act provided productivity superannuation to these employees.

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 contributions provided for under the PB Act are guaranteed to employees where an employer fails to join an employee to a fund. The employer is required to pay extra amounts as interest on those contributions, to take account of loss of interest arising because contributions have not been paid to a fund on behalf of the employee.

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. Subsection 3E(2) of the PB Act provides that the formula is to involve the use of a rate specified in the declaration and may contain a variable that depends on the period, or another aspect, of the employment of the person in relation to whom the factor is to apply.

The first interest factor is used in subsection 8A(2) of the PB Act to determine the interest that is to accrue during all or part of a financial year on amounts which should have been paid to a superannuation fund as contributions in that year but were not paid.

This Declaration, cited as the Superannuation (Productivity Benefit) (2004-2005 First Interest Factor) Declaration 2004 specifies the first interest factor to be used for the 2004-2005 financial year. The first interest factor has been updated to apply the 10 year Treasury Bond rate as at April 2004, as provided by the Reserve Bank of Australia, of 5.94% expressed as a decimal.

The effect of the first interest factor is to accrue interest in a manner similar to that which would have applied if the contributions had been paid into a fund in regular payments throughout the year based on the 10 year Treasury Bond rate for April of the preceding financial year. The first interest factor provides for interest to accrue on a daily basis on each amount which should have been paid (but was not) to a fund during the period 1 July 2004 to 30 June 2005 at half the rate set out in the declaration. The halving of the interest rate recognises that the full interest rate only applies for a full year, and applies for progressively shorter periods to moneys which would have been payable late in the year.

The Declaration commences on gazettal.


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