Defined benefit interest

There are separate arrangements for calculating employer contributions for defined benefit super interests. This is necessary because employer contributions to these funds are not always attributable to individual members.

Section 292-175External Link states a defined benefit interest exists if all or part of the super benefits payable are defined by reference to the salary of the person (or another person) at a particular date or averaged over a period, a specified amount or specified conversion factors.

However, a person's super interest is not a defined benefit interest if the above factors solely apply to death or disability benefits, or temporary disability payments (that is, if this is the only type of benefit they are receiving).

The employer contributions amount for defined benefit interests are referred to as notional taxed contributions. The method for their calculation is set out in the regulations. If only part of a person's super interest is a defined benefit interest, their concessional contributions include both their notional taxed contributions and their normal concessional contributions.

Grandfathering arrangements

Due to the unique nature of defined benefit interests and the difficulty for members to reduce the contributions in some circumstances, certain arrangements have been grandfathered in section 292-170External Link so that members with defined benefit interests are not unfairly taxed.

Some employers were able to pay lower SG contributions for their employees as a result of pre-21 August 1991 earnings bases. Special arrangements apply to members with a defined benefit interest on 5 September 2006 with notional taxed contributions for that interest that exceeds the concessional contributions cap. The notional taxed contributions are equal to that person's concessional contributions cap for the financial year.

From 1 July 2008, employers cannot use pre-August 1991 earnings bases - they now use ordinary time earnings (OTE) to work out their SG liability.

If the member already had access to the defined benefit interest grandfathering provision, any increase in their benefit as a consequence of the changes will not result in them losing that access (to the defined benefit interest grandfathering provisions). The grandfathering arrangement ceases if the scheme amends their rules to increase the member's benefits. The regulations may allow for some changes to the rules without the loss of the grandfathering concession. For example, this might occur if the rules are amended to satisfy the requirements of other legislation.

The grandfathering arrangements will also continue to apply if the defined benefit interest is transferred to a successor super fund that retains equivalent rights for members.

    Last modified: 22 Nov 2013QC 34181