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1
Superannuation Legislation Amendment
SUPERANNUATION LEGISLATION
AMENDMENT BILL 1999
EXPLANATORY NOTES
GENERAL OUTLINE
Objectives of the Legislation
The Bill will provide for the amendment of the Superannuation (State
Public Sector) Act 1990, the Parliamentary Contributory Superannuation
Act 1970, the Judges (Pensions and Long Leave) Act 1957 and the
Governors' Pensions Act 1977 to provide for the implementation of the
Commonwealth Government's Superannuation Contributions Tax
("surcharge").
Reasons for the Bill
In August 1996, the Commonwealth Government announced that a
surcharge would apply on employer contributions paid to a superannuation
fund on behalf of high income earners.
The Queensland Government operates two superannuation funds, the
State Public Sector Superannuation Fund (QSuper), the Parliamentary
Contributory Superannuation Fund (Parliamentary Fund), as well as the
Judges' and the Governors' Pensions Schemes. Both QSuper and the
Parliamentary Fund are assessable for taxation and as such the surcharge
applies directly to these funds. The Judges' and Governors' Pension
Schemes are "constitutionally protected" from taxation, therefore, the
surcharge is a personal taxation matter for members of these Schemes.
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Superannuation Legislation Amendment
Achievement of Objectives
The amendments to the superannuation legislation provide for the
application of the Commonwealth Government's Superannuation
Contribution Tax ("surcharge") to members of QSuper, the Parliamentary
Fund, the Judges' Pension Scheme and the Governors' Pension Scheme by
amending the relevant legislation (with the amendments in relation to the
latter two Schemes having effect from a date to be proclaimed).
The objectives of the legislation are as follows:
· Pass the cost of the surcharge to members of the QSuper and
Parliamentary Scheme to ensure that the State is not burdened
with the tax liability;
· Ensure that the surcharge applies at a maximum of the announced
rate of 15% in those State schemes where, due to their peculiar
benefit design, the surcharge would apply at a significantly higher
rate; and
· Provide for the commutation of pension benefits from the
Judges' and Governors' Schemes to meet the cost of the
surcharge.
The amendments provided for in the attached Bill are necessary to ensure
that the surcharge is passed onto members of the QSuper and Parliamentary
Funds and that the surcharge applies from its commencement date of 20
August 1996. As the QSuper and Parliamentary Funds are assessable for
fund taxation, the surcharge will be imposed directly upon these funds. In
such funds there must be a conscious decision to pass the cost on to
members otherwise the State would be required to meet the liability. It
would be difficult to argue that it would be reasonable for the State to accept
the surcharge liability on either cost or equity grounds.
The Judges' and Governors' Pension Schemes however are not funds
and thus are constitutionally protected from Commonwealth Government
taxation. As a result, the Commonwealth Government does not have the
ability to impose the surcharge upon those Schemes. To counter this, the
Commonwealth Government passed specific legislation that imposes the
surcharge directly upon members of schemes of this nature.
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Superannuation Legislation Amendment
Estimated Cost for Government Implementation
The administration of the surcharge is extremely onerous, requiring
funds to collect tax file numbers and to report substantial information on all
members who have received employer contributions (whether or not
high-income earners). Estimates reveal that the cost of implementing the
required systems to administer the surcharge in Queensland will be
approximately $1 million. On an ongoing basis, the compliance and
administration costs have been estimated at $365,000. This is consistent
with proportionate costs throughout the industry.
Fundamental Legislative Principles
The Bill complies with fundamental legislative principles.
Consultation
· QSuper Board of Trustees (which includes representatives from
key employee associations);
· Trustees of the Parliamentary Fund;
· Treasury Department (including the Government Superannuation
Office and State Actuary);
· Department of Premier and Cabinet
· Department of Employment, Training and Industrial Relations
· Department of Environment and Heritage and Natural Resources;
· Department of Attorney-General and Justice
· Office of Parliamentary Counsel; and
· Crown Solicitor.
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Superannuation Legislation Amendment
NOTES ON PROVISIONS
PART 1--PRELIMINARY
Clause 1 specifies the short title of the Act.
Clause 2 outlines that parts 2 and 3 of the Bill are to commence on a day
to be fixed by proclamation and that the automatic commencement
provisions of the Acts Interpretation Act 1954 do not apply to parts 2 and 3.
PART 2--AMENDMENT OF GOVERNORS' PENSIONS
ACT 1977
Clause 3 provides for the amendment of the Governors' Pensions Act
1977.
Clause 4 amends the section to provide that the rate of pension payable to
a former Governor is subject to any adjustments in relation to a Governor's
surcharge liability.
Clause 5 inserts a new provision which will enable a former Governor,
or the surviving spouse of a former Governor, to take part of the pension
payable under this Act as a lump sum to meet the former Governor's
surcharge liability.
Currently, no portion of a former Governor's pension may be commuted
to a lump sum. However, given that a lump sum surcharge debt will be
applied personally to members of the Governors' Pension Scheme,
allowing a portion of the pension to be taken as a lump sum will assist the
recipient to fund the cost of the surcharge.
In order to ensure that the original intention of the Act (ie. to provide
pension entitlements to former Governors and spouses) remains intact, the
amendments restrict the amount of the pension which can be commuted in
respect of a former Governor to that required to meet the surcharge liability.
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Superannuation Legislation Amendment
Before a portion of a former Governors' pension can be commuted to a
lump sum for the purposes of extinguishing a Governors' surcharge
liability, a written application must be made to the Minister accompanied by
the notice issued by the Commissioner of Taxation stating the amount of
the former Governor's surcharge liability. Upon receipt of the written
application accompanied by the notice the Minister can authorise the
commutation of that part of the pension (on a basis determined by the
Queensland Government Actuary) required to extinguish the former
Governor's surcharge liability.
The provision also inserts a number of definitions essential for the
operation of the proposed amendments. The definitions derive their
meaning from the Commonwealth Government's Superannuation
Contributions Tax (Members of Constitutionally Protected Superannuation
Funds) Assessment and Collection Act 1997.
Clause 6 inserts a new provision which ensures that where part of a
pension is commuted to a lump sum to meet the former Governor's
surcharge liability the amount shall be paid from the consolidated fund.
PART 3--AMENDMENT OF JUDGES' (PENSIONS
AND LONG LEAVE) ACT 1957
Clause 7 provides for the amendment of the Judges' (Pensions and
Long Leave) Act 1957.
Clause 8 inserts a number of definitions essential for the operation of the
proposed amendments. The definitions derive their meaning from the
Commonwealth Government's Superannuation Contributions Tax
(Members of Constitutionally Protected Superannuation Funds)
Assessment and Collection Act 1997.
Clause 9 inserts a new provision which will enable a former judge or a
judge's dependant, to commute part of the pension payable under this Act to
a lump sum to meet the judge's surcharge liability. Under the
Commonwealth Government's legislation the surcharge applies to judges
appointed after 7 December 1997 and from 20 August 1996 for other
recipients of entitlements under this Act.
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Superannuation Legislation Amendment
Currently, no portion of a judge's pension may be commuted to a lump
sum. However, given that a lump sum surcharge debt will be applied
personally to members of the Judges' Pension Scheme, allowing a portion
of the pension to be taken as a lump sum will assist the recipient to fund the
cost of the surcharge.
In order to ensure that the original intention of the Act (ie. to provide
pension entitlements to judges and their dependants) remains intact, the
amendments restrict the amount of the pension which can be commuted in
respect of a judge to that required to meet the surcharge liability.
Before a portion of a judge's pension can be commuted to a lump sum
for the purposes of extinguishing a judge's surcharge liability, a written
application must be made to the Minister accompanied by the notice issued
by the Commissioner of Taxation stating the amount of the judge's
surcharge liability. Upon receipt of the written application accompanied by
the notice the Minister can authorise the commutation of that part of the
pension (on a basis determined by the Queensland Government Actuary)
required to extinguish the judge's surcharge liability.
PART 4 -AMENDMENT OF PARLIAMENTARY
CONTRIBUTORY SUPERANNUATION ACT 1970
Clause 10 provides for the amendment of the Parliamentary
Contributory Superannuation Act 1970.
Clause 11 inserts a new section 25C which specifies that the section has
application when a benefit becomes payable to a member or some other
person (such as a member's spouse) who has an entitlement to a benefit
under the Fund.
The proposed amendments ensure that the surcharge applies to members
of the Parliamentary Fund in a manner provided for in the Commonwealth
Government's Superannuation Contributions Tax (Assessment and
Collection) Act 1997. Under the Commonwealth's legislation, for
superannuation funds such as the Parliamentary Fund, the surcharge is a
liability on the Fund and a conscious decision must be made by the Trustees
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Superannuation Legislation Amendment
to recoup the liability from members. So as to ensure that the Fund is not
burdened with the additional liability of meeting an individual's surcharge
debt, the proposed amendments provide for the Trustees to deduct the
amount standing in that member's surcharge debt account from a member's
end benefit prior to payment.
The proposed provision ensures that the surcharge applies to all members
who have a surcharge debt account at the time they receive a benefit from
the Scheme. It is possible under the benefit design of the Parliamentary
Fund, for the final surcharge amount to exceed the announced maximum of
15%. The amendments work to ensure that the surcharge applies in a
manner consistent with the announced intention of the Commonwealth's
legislation by imposing the surcharge at a maximum of 15% of the
State-financed portion of the benefit that has accrued since the date of
commencement of the surcharge initiative. The phrase "State-financed
component of that part of the benefit that accrued after 20 August 1996" is a
term consistent with that used in legislation enacted in other jurisdictions to
describe the increase in the employer part of a member's benefit since the
date of commencement of the surcharge policy.
As some benefits under the Scheme are payable as a pension, the
amendments provide for the Trustees to reduce the pension payable to a
member by the amount representing the member's surcharge liability. This
provision will ensure that a member's surcharge liability continues to rest
with the member and is not passed to the Scheme where benefits are paid as
a pension. The manner in which the pension will be reduced will be
determined by the Minister upon receiving advice from the Queensland
Government Actuary.
Under the Parliamentary Act, a pension is payable to the children of a
deceased member in certain circumstances. Where a member is survived
by a spouse, a pension is payable to the member's children at a rate
specified in this Act. There is no surcharge amount payable in relation to
this benefit as the required surcharge debt will be recouped from the benefit
payable to the spouse of the deceased member.
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Superannuation Legislation Amendment
However, where the member dies with a child or children but without a
spouse, a pension benefit is paid for the child or children. The amount of
the pension benefit payable varies depending on the childrens' ages, the
number of children and education undertaken. The Trustees also have
discretionary powers over the total benefit amount.
For these reasons, there is considerable difficulty in applying the
surcharge to such benefits, as the value of a child's pension cannot be
determined in advance. Attempts to estimate the likely benefit, which may
be received, may result in the child's benefit being significantly reduced to
fund the surcharge. Given these issues, and the expectation that there are
few potential cases, the Bill provides for childrens' benefits to be protected
from any decrease in respect of the surcharge.
The provision inserts a definition of surcharge debt account which is
essential for the operation of the amendments. The definition derives its
meaning from the Commonwealth Government's Superannuation
Contributions Tax (Members of Constitutionally Protected Superannuation
Funds) Assessment and Collection Act 1997.
PART 5--AMENDMENT OF SUPERANNUATION
(STATE PUBLIC SECTOR) ACT 1990
Clause 12 provides for the amendment of the Superannuation (State
Public Sector) Act 1990.
Clause 13 inserts a number of definitions essential for the operation of
the amendments. The definitions derive their meaning from the
Commonwealth Government's Superannuation Contributions Tax
(Assessment and Collection) Act 1997. Additionally, a definition has been
inserted to specifically identify police 74 and State 72 members for the
purposes of quarantining the impact of the surcharge where a particular
benefit is received.
Clause 14 inserts a new Part into the Act to cater for the application of the
Superannuation Contributions Tax Surcharge.
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Superannuation Legislation Amendment
New Section 15E acts to clarify that a reference to a benefit payable under
the deed to a member includes a reference to a benefit payable to someone
else who has derived an entitlement to the benefit through the member (eg. a
spouse or estate).
It is possible under the benefit design of the police 74 and State 72
categories of membership, for a member who receives a "refund of
contributions" upon resigning, for the final surcharge amount to exceed the
announced maximum of 15%. The amendments work to ensure that the
surcharge applies in a manner consistent with the announced intention of the
Commonwealth's legislation by imposing the surcharge at a maximum of
15% of the State-financed portion of the benefit that has accrued since the
date of commencement of the surcharge initiative. The phrase
"State-financed component of that part of the benefit that accrued after 20
August 1996" is a term consistent with that used in legislation enacted in
other jurisdictions to describe the increase in the employer part of a
member's benefit since the date of commencement of the surcharge policy.
To ensure that the liability for the surcharge is passed onto members
where a benefit is paid in the form of a pension, specific provision has been
made requiring the Trustee Board to reduce the pension payable by the
amount of member's surcharge debt account. The reduction is determined
by the Minister on the advice of the Queensland Government Actuary.
Under the Trust Deed of the State Public Sector Superannuation Scheme,
a pension is payable to the children of a deceased member in certain
circumstances. Where a member is survived by a spouse, a pension is
payable to the member's children at a rate specified in the Trust Deed.
There is no surcharge amount payable in relation to this benefit, as the
required surcharge debt will be recouped from the benefit payable to the
spouse of the deceased member.
However, where the member dies with a child or children but without a
spouse, a pension benefit is paid for the child or children. The amount of
the pension benefit payable varies depending on the childrens' ages, the
number of children and education undertaken. The Trustees also have
discretionary powers over the total benefit amount.
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Superannuation Legislation Amendment
For these reasons, there is considerable difficulty in applying the
surcharge to such benefits as the value of a child's pension cannot be
determined in advance. Attempts to estimate the likely benefit which may
be received may result in the child's benefit being significantly reduced to
fund the surcharge. Given these issues, and the expectation that there are
few potential cases, the Bill provides for childrens' benefits to be protected
from any decrease in respect of the surcharge.
© The State of Queensland 1999