Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Minister for Finance and Administration Senator the Hon Nick Minchin)

Schedule 3 - Amendment of the rules for the administration of the Public Sector Superannuation Scheme

207. Schedule 3 amends the Rules for the Administration of the Public Sector Superannuation Scheme (the PSS Rules).

208. The PSS Rules currently provide that, where a person has ceased to be a PSS member in circumstances connected with the sale of an asset or the transfer or outsourcing of a function, that person will not be taken to have been involuntarily retired if he or she had accepted an offer of employment or rejected an offer of equivalent employment in connection with that sale or transfer. This has the effect of restricting the options available to the person on cessation of membership.

209. Under new PSS redundancy arrangements announced by the Government in 1997, employees made redundant before 1 July 2000 in this situation, who were previously treated as having resigned, have access to a cash lump sum benefit, including the employer-financed component, as one of the benefit options, subject to preservation of the portion required by SIS to be preserved. Previously all the employer component of a PSS resignation benefit payable in those circumstances usually had to be preserved. From 1 July 2000 the employer-financed component of all redundancy benefits has to be preserved.

210. The new arrangements also allow employees who cease membership as a result of outsourcing or sale but are not made redundant to choose to rollover their superannuation entitlements to a superannuation fund or RSA of their choice. If this option is chosen, the employer component must be preserved in the receiving fund or RSA.

211. Schedule 3 takes effect from 27 June 1997, the date of announcement of the changes.

212. Amendments to the 1976 Act included in Part 6 of Schedule 1 to the Bill provide similar options to CSS members who cease membership in circumstances connected with the sale of an asset or the transfer or outsourcing of a function.

Interpretation

213. Division 2 of Part 1 of the Rules defines special terms and phrases and some concepts used in the Rules.

214. The definition of "involuntary retirement" in Rule 1.2.1 currently excludes all members who cease membership in sale or outsourcing situations. This approach was used because the PSS Rules need provisions that only apply in sale or outsourcing situations (Divisions 6 and 7 of Part 6) and separate provisions that apply in all other situations involving involuntary retirement, for example, downsizing (Division 3 of Part 6). However, some people find this approach confusing as they would usually include sale or transfer situations under the term "involuntary retirement".

215. Item 1 deletes the definition of "equivalent employment" as this concept is no longer needed under the new rules relating to PSS benefits on sale or outsourcing. Under these new rules employees are no longer prevented from accessing redundancy benefits when they reject an offer of equivalent employment.

216. With the introduction of the new rules relating to PSS benefits on sale or transfer, the definition of "involuntary retirement" has been simplified by including sale or transfer situations in the definition. To achieve this item 2 deletes the tenth dot point of the definition of "involuntary retirement", which excludes sale or transfer situations from the definition. To ensure that separate provisions continue to apply in sale or transfer situations, schedule 3 also excludes sale or transfer situations from Division 3 of Part 6, which deals with all other situations involving involuntary retirement (see below).

Benefit Options

217. Part 6 of the Rules sets out the form of, and those conditions under which, members' benefits can be taken. The forms and conditions vary according to the reason membership ceased.

Benefit options - involuntary retirement

218. Division 3 of Part 6 details the benefit options available on involuntary retirement, other than in sale or transfer situations.

219. Item 3 replaces Division 3 of Part 6 in order to implement the new PSS redundancy arrangements. The new rule 6.3.2 should also be easier to understand as it spells out all of the benefit options that apply on or after 1 July 2000 instead of referring to rule 6.3.1. This approach also allows rule 6.3.2 to include the requirement that the employer-financed component is to be treated as a preserved benefit for the purposes of the SIS.

220. The new rules 6.3.1, 6.3.2 and 6.3.3 also make it clear that they do not apply in sale or transfer situations (see paragraph (A)). This change follows the broadening of the definition of "involuntary retirement" to include sale or transfer situations.

Benefit options - sale or transfer of an asset or function

221. Divisions 6 and 7 of Part 6 currently describe the benefit options on the sale or transfer of an asset or function, with Division 6 applying where a person continues in employment with the new owner or transferee, and Division 7 applying where a person does not continue in employment.

222. As a result of the Government's decisions on PSS redundancy benefits in sale or transfer situations, members will receive the same benefits whether or not they remain in employment with the new owner or transferee. Accordingly, item 4 replaces Division 6 of Part 6 with a new Division that covers all sale or outsourcing situations, and item 5 deletes the now redundant Division 7 of Part 6.

223. Rule 6.6.1 describes the benefit options for members who continue their PSS membership after sale or transfer and rule 6.6.2 describes the benefit options for members who could have continued their PSS membership. These rules are unchanged from the current Division 6 of Part 6.

224. Rule 6.6.3 describes the benefit options for members who cease their PSS membership but continue in employment, without changing employer. In this situation SIS does not permit any amounts to be paid to the member, so rule 6.6.3 specifies that a member's benefits must be rolled-over or combined with a benefit accrual from another current period of PSS membership. The rollover option includes the requirement that the employer-financed component is to be treated as a preserved benefit for the purposes of SIS. Apart from the addition of the rollover option, rule 6.6.3 is the same as the current rule 6.6.4.

225. Rule 6.6.4 describes the benefit options for members who cease membership on involuntary retirement before 1 July 2000. Rule 6.6.5 describes the benefit options for members who cease membership on involuntary retirement on or after 1 July 2000 as well as for members who cease membership in circumstances other than on involuntary retirement.

226. Rules 6.6.4 and 6.6.5 contain the same benefit options, with the only difference being the amount of lump sum that can be paid to a member. Under rule 6.6.4 members can obtain the maximum lump sum allowable under the SIS in all circumstances, whereas rule 6.6.5 limits this lump sum to the member's accumulated member contributions, with the rule including the requirement that the employer-financed component is to be treated as a preserved benefit for the purposes of SIS. Under rule 6.6.5 members can only obtain a lump sum of the employer-financed component when the release requirements of SIS have been met.

Preserved Benefits

227. Part 8 of the Rules sets out the conditions for access to preserved benefits.

Early access to preserved benefit on involuntary retirement after sale or transfer of assets

228. Division 4 of Part 8 details the different benefit options for certain preserved benefit members who ceased membership in a sale or transfer situation and are subsequently retrenched by the new owner or transferee.

229. Item 6 replaces Division 4 of Part 8 in order to implement the new PSS redundancy arrangements. The new rule 8.4.3 should be easier to understand as it spells out all of the benefit options that apply on or after 1 July 2000, which means that rule 8.4.1 can refer directly to 8.4.3 instead of modifying the options under rule 8.4.2. This approach allows rule 8.4.3 to include the requirement that the employer-financed component is to be treated as a preserved benefit for the purposes of the SIS. The current rule 8.4.3 has been renumbered as 8.4.4, to allow for the insertion of the new rule 8.4.3. Current rule 8.4.4 has been deleted as this saving provision is no longer needed.

230. Item 7 provides that the Minister may, under section 5 of the 1990 Act, amend the Schedule to the Trust Deed in relation to the alterations made by this Schedule.