Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
1998-1999-2000
THE
PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
SUPERANNUATION LEGISLATION AMENDMENT
(POST-RETIREMENT COMMUTATIONS) BILL 2000
EXPLANATORY
MEMORANDUM
(Circulated by authority of the Minister for Finance
and Administration, the Honourable John Fahey MP)
ISBN: 0642
463670
SUPERANNUATION LEGISLATION AMENDMENT (POST-RETIREMENT COMMUTATIONS) BILL 2000
This Bill amends three Commonwealth Acts to provide for certain matters
relating to the application of the superannuation contributions surcharge to the
Parliamentary Contributory Superannuation Scheme (PCSS), the Commonwealth
Superannuation Scheme (CSS) and the Public Sector Superannuation Scheme
(PSS).
Amendments are proposed to the Parliamentary Contributory
Superannuation Act 1948, the Superannuation Act 1976 and the
Superannuation Act 1990.
Changes were made in 1999 to the
Income Tax Assessment Act 1936 (Tax Act) and the regulations under
the Superannuation Industry (Supervision) Act 1993 to ensure that schemes
would continue to comply with the general superannuation supervisory
requirements where a pension is commuted to meet any post–retirement
surcharge assessment. In addition, the lump sum resulting from the commutation
of the pension in those circumstances is not an eligible termination
payment.
The amendments proposed by the Bill will allow these
arrangements to apply to, and in respect of, members and former members of the
PCSS and the CSS and will support the making of changes to the PSS Rules to
provide this option for PSS members.
The changes will allow a former
member of the PCSS or CSS to commute all or part of his or her scheme pension to
a lump sum to meet all or part of the outstanding surcharge assessment. A
former member to whom the Australian Taxation Office (ATO) has issued an
assessment after his or her cessation or membership of the relevant scheme could
use these provisions.
The changes proposed by this Bill will also allow
reversionary beneficiaries to commute all or part of a pension for these
purposes where they become liable to pay an outstanding surcharge assessment. A
reversionary beneficiary could use these provisions when the ATO has issued a
surcharge assessment in respect of a member or former member after his or her
death.
Where an election to commute a pension is received from a
person, the lump sum amount resulting from the commutation is forwarded to the
ATO to pay the surcharge assessment and the person’s pension is reduced
sufficiently to recover the amount of that lump sum over the period of the
payment of the pension.
Amendments to the 1990 Act included in the Bill
will facilitate the introduction of similar arrangements for the PSS. Changes
to the PSS Rules included in the Trust Deed will be necessary to introduce these
changes.
Existing arrangements in the PCSS, CSS and PSS provide for the
payment of surcharge assessments to the ATO in respect of a member through the
reduction of member benefits where those assessments are issued by the ATO
before the member ceases scheme membership. However, the surcharge assessment
process could mean that a surcharge assessment relating to a member is issued by
the ATO after a member’s retirement or death. The Bill will ensure that
scheme members, or reversionary beneficiaries, will also be able to commute
their pensions to cover the payment of surcharge assessments that are issued
after the member’s retirement or death.
The Bill also proposes the provision of a special appropriation for payments
by the Parliamentary Retiring Allowances Trust of surcharge assessments in
respect of a member before the member ceases scheme membership. Currently these
amounts are paid from an annual appropriation. Changing to a special
appropriation is consistent with the equivalent provisions in relation to the
CSS and the PSS and with other payments from the PCSS. Members of the PCSS will
continue to have their benefits reduced on retirement to take account of the
surcharge assessments.
The proposal has a small negative financial impact on the underlying cash balance of up to approximately $0.7 million per year. There may also be a small positive impact on the operating result and fiscal balance of $0.05 million per year.
Payment of the PCSS surcharge assessments from a special appropriation from 1 July 2001 has no impact on the Budget.
TERMS USED IN THE NOTES ON CLAUSES
“1976 Act” means the Superannuation Act 1976;
“1990 Act” means the Superannuation Act 1990;
“ATO” means the Australian Taxation Office;
“CSS” means the Commonwealth Superannuation Scheme;
“CSS member” is used to describe a person who makes personal contributions to the CSS (the 1976 Act uses the term “eligible employee” for such a person);
“PCS Act” means the Parliamentary Contributory Superannuation Act 1948;
“PCSS” means the Parliamentary Contributory Superannuation Scheme;
“PSS” means the Public Sector Superannuation Scheme;
“PSS Rules” means the rules for the administration of the PSS which are part of the Trust Deed;
“SIS” means the Superannuation Industry (Supervision) Act 1993 and the regulations under that Act;
“the Trust” means the Parliamentary Retiring Allowances Trust;
“Trust Deed” means the Trust Deed provided for by Part 2 of the 1990 Act.
NOTES ON CLAUSES
Clause 1: Short Title
Clause 1 provides for the short title of the Act to be the Superannuation Legislation Amendment (Post-retirement Commutations) Act 2000.
Clause 2: Commencement
2. This Act will commence on the day it receives Royal Assent.
Clause 3: Schedule(s)
3. Clause 3 provides that the Acts as specified in the Schedules are to be amended or repealed according to the applicable items set out in each of the Schedules.
4. Because the PCSS is an unfunded defined benefits scheme, surcharge debts may be accumulated along with interest during a person's period of membership of the scheme. When benefits become payable the Trust, as the superannuation provider, is required to pay the amount of any surcharge debt to the ATO. The Trust may then reduce benefits to recover the liability in a fair and equitable manner. Where a benefit is payable as a retiring allowance (ie pension), the Trust may determine an annual reduction of that pension to recover the surcharge over the period during which the pension is expected to be paid.
5. However, after a person leaves the Parliament and a benefit has become payable under the PCSS, there could be at least one surcharge assessment issued after the benefit has commenced to be paid. In this case the responsibility for payment of the surcharge debt to the ATO is transferred from the Trust to the former member.
6. Similarly, a surcharge assessment may be made after the payment of a reversionary benefit has commenced to be paid on the death of a member or former member. This may happen after the death of a person while still a PCSS member or after the death of a former member to whom benefits have already commenced to be paid. The reversionary beneficiary could become personally liable under the general surcharge legislation to pay an outstanding surcharge assessment.
7. The proposed amendments in this Schedule will provide a facility to allow a former member or reversionary beneficiary under the PCSS to commute their pension to a lump sum to pay all or part of the outstanding surcharge assessment or assessments to the ATO. The pension is then reduced to recover the commutation amount over the life of the pension. The use of the commutation facility is purely voluntary.
8. The items in this schedule amend the various provisions of the Act under which pensions and annuities are calculated, insert some new provisions to provide for the reduction of rates of pension and annuities and make consequential amendments to certain other provisions.
9. Items 1 to 3 insert new definitions in subsection 4(1) of the Act to define the terms assessment, surcharge and surchargeable contributions. These terms are defined as in the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (ie the main surcharge Act) and are used in the new sections 18A (item 13), 19AAA (item 16) and 19ABA (item 18). The definition of surchargeable contributions makes it clear that for the purposes of this Act only they relate to a surcharge liability arising from entitlements under this Act.
10. Section 18 of the Act sets out the lump sum and retiring allowance (ie pension) benefits payable to members on their retirement from Parliament, including on invalidity. The rate of basic retiring allowance is fixed as a percentage of the parliamentary allowance (ie basic salary) payable to serving members from time to time. Subsection 18(8A) provides for a retiring allowance to be reduced by a surcharge adjustment, calculated in accordance with a formula, that takes account of the pre-retirement surcharge assessments. Where a former member entitled to a retiring allowance is re-elected to Parliament, the formula in subsection 18(8A) takes account of any previous surcharge adjustment by adding that adjustment to the surcharge adjustment resulting since re-election.
11. Item 4 inserts new subsection 18(1AA) into the Act. That subsection introduces the concept of the "most recent benefit start-up time" to distinguish between the different times that a retiring allowance may become payable in circumstances where a member retires, becomes entitled to a retiring allowance, at some future time is re-elected to Parliament and subsequently becomes entitled to a retiring allowance again. The concept will allow the focus to be on the most recent retirement from Parliament resulting in an entitlement to a retiring allowance before any surcharge adjustments are applied.
12. Items 5 and 6 make consequential amendments to subsections 18(1A), (1B), (2) and (2A) to recognise new provisions inserted in section 18 by item 12.
13. Items 7 to 11 amend subsection 18(8A) of the Act which provides for the rate of retiring allowance for a member who has a surcharge deduction amount for pre-retirement surcharge assessments not paid at the time of retirement.
14. Subsection 18(8A) is updated by items 7 to 11 to reflect the possibility that earlier post-retirement surcharge commutations have been made and to insert a new definition for surcharge adjustment. That subsection as amended will ensure that the basic retiring allowance is reduced to take account of all surcharge adjustments calculated up to the time of the most recent retirement, including any adjustments from any previous retirement from the Parliament and any previous commutation of the retiring allowance to pay a post-retirement surcharge assessment before the most recent retirement. Subsection 18(8A) continues to operate until a former member makes a post-retirement surcharge commutation election under section 18A (see item 13) after which time the retiring allowance is calculated under new subsection 18(8AC) (see item 12).
15. These various components of the surcharge adjustment in the reduction formula are worked out under the new subsections 18 (8AA) and (8AB) inserted in the Act by item 12 and the new subsection 18A(6) inserted by item 13.
16. Item 12 inserts three new subsections in section 18.
17. New subsections 18(8AA) and (8AB) describe certain notional adjustment debits for the purposes of working out the surcharge adjustment for a retiring allowance calculated under subsection 18(8A) or new subsection 18(8AC) for a person whose retiring allowance has been adjusted or is to be adjusted in respect of surcharge assessments.
18. The notional adjustment debit for the purposes of the surcharge adjustment described in new subsection 18(8AA) is based on the surcharge deduction amount determined by the Trust as relating to surcharge assessments still existing as a debt at the time the retiring allowance becomes payable. The notional adjustment debit is calculated by dividing the surcharge deduction amount by a conversion factor determined by the Trust under section 22A after receiving actuarial advice.
19. New subsection 18(8AB) describes as a notional adjustment debit any surcharge adjustment that was taken into account to reduce a retiring allowance under subsection 18(8A), before the commencement of the Bill. This is a drafting change made necessary by the revised approach to describing surcharge adjustments under subsection 18(8A) as amended by items 7 to 11 but is also applicable to the calculation of the surcharge adjustment under the new subsection 18(8AC).
20. New subsection 18(8AC) is inserted in the Act as a consequence of the amendment made by item 13 to insert new section 18A into the Act to allow former PCSS members to commute all or a part of their retiring allowance to pay a post-retirement surcharge assessment. New subsection 18(8AC) provides for the calculation of the rate of retiring allowance where an election is made under section 18A. The basic retiring allowance otherwise payable under section 18 (following the most recent retirement) is reduced, by recalculating the percentage of parliamentary allowance which would otherwise be payable, to take account of all surcharge adjustments calculated up to the day of the election under section 18A.
21. These surcharge adjustments (comprising all the person’s notional adjustment debits) will include the adjustment arising as a consequence of the election to commute a part of the retiring allowance to pay a post-retirement surcharge assessment and any adjustment as a consequence of the former member having elected to commute a part of the retiring allowance under the general commutation provisions contained in section 18B of the Act following the most recent retirement (see item 14).
22. Item 13 inserts new section 18A into the Act to allow a former member who receives a post-retirement surcharge assessment to elect to commute all or a part of their retiring allowance to a lump sum for the purpose only of paying the assessment. The former member may make an election in respect of each surcharge assessment received.
23. Subsection 18A(1) provides that, if a former member who is entitled to a retiring allowance has received a surcharge assessment from the ATO based on surchargeable contributions attributable to membership of the PCSS, the person may elect to commute all or part of their retiring allowance within 3 months from the date the assessment was made, or such longer period as the Trust allows.
24. To ensure that the whole of the commutation lump sum is applied only to discharge the surcharge liability, subsection 18A(2) provides that the commutation election must be accompanied by the surcharge assessment and a notice from the former member requesting that the commutation amount be paid to the Commissioner of Taxation to discharge the liability.
25. Subsection 18A(3) provides that the commutation lump sum (ie the surcharge commutation amount) must be equal to, or less than, the amount of the surcharge assessment, but must not have the effect of reducing the person's retiring allowance below zero.
26. Subsections 18A(4) and (5) provide that the former member is entitled to the surcharge commutation amount, but the liability to pay the benefit must be discharged by paying the amount to the ATO and informing the ATO that it is to be wholly applied in payment of the surcharge.
27. Where a former member becomes entitled to a lump sum benefit under this section the person's retiring allowance will be reduced under subsection 18(8AC) (see item 12). For this purpose, subsection 18A(6) provides that a notional adjustment debit (ie a surcharge adjustment) will be calculated, to take effect from the day of the election, by dividing the surcharge commutation amount by a conversion factor determined by the Trust under section 22B on the advice of the Australian Government Actuary (see item 25). The day of the election is the day when the election under subsection 18A(1) is signed.
28. Subsection 18A(7) provides that the former member is entitled to make only one election to commute a retiring allowance in relation to any one post-retirement surcharge assessment.
29. It should be noted that section 24C of the Act allows any election made under the Act to be revoked before any payment is made under the election.
30. Section 18B of the Act allows a person entitled to a retiring allowance to commute up to 50% of the retiring allowance to a lump sum benefit (ie a general commutation). To calculate the retiring allowance payable to a former member who makes a general commutation election a member's retiring allowance is first reduced to take account of any surcharge adjustments under new subsection 18(8A) of the Act. The retiring allowance is then further reduced under subsection 18B(6) of the Act because of the general commutation.
31. Item 14 inserts new subsections 18B(15), (16) and (17) into the Act as a consequence of the amendments made by items 12 and 13. This is to ensure that the reduction of the retiring allowance to take account of any general commutation of the retiring allowance at retirement is factored into the reduction formula in the correct sequence where a former member makes a subsequent surcharge commutation election under new section 18A (item 13).
32. New subsection 18B(15) provides that, where a former member who has made a general commutation under section 18B makes a surcharge commutation election under new section 18A, after the first such election a notional adjustment debit will be calculated for the purpose of reducing the retiring allowance under new subsection 18(8AC) (item 12). The reduction will have the same effect as the reduction in retiring allowance under existing paragraph 18B(6)(a) of the Act.
33. New subsection 18B(16) provides that paragraph 18B(6)(a) ceases to operate where a former member makes a surcharge commutation election under new section 18A. This is to ensure that the reduction due to a general commutation election under section 18B at retirement is counted only once.
34. New subsection 18B(17) is inserted to ensure that, where a former member is intending to make a general commutation election under subsection 18B(3) of the Act, such an election will be made before a surcharge commutation election under new section 18A. This will allow the retiring allowance reduction provisions to work as intended, while maintaining the level of retiring allowance that may be commuted (ie up to 50% of the retiring allowance at the time of the most recent retirement).
35. Section 19 of the PCS Act provides for an annuity to become payable to an eligible spouse on the death of a member or former member.
36. Item 15 amends subsection 19(2) of the PCS Act as a consequence of the amendment made by item 16.
37. Item 16 inserts new section 19AAA into the PCS Act to allow a spouse who becomes personally liable under the general surcharge legislation to pay an outstanding surcharge assessment in respect of the former member (and based on surchargeable contributions attributable to membership of the PCSS) to elect to commute a part or all of their annuity for the purpose only of paying the assessment. Such assessments may be issued by the ATO following the death of a member or former member. A commutation election can be made more than once if more than one such surcharge assessment is issued which the spouse is liable to pay, but only one election will be permitted per assessment.
38. New subsections 19AAA(1), (2), (3), (4), (5) and (8) allow a spouse to make a commutation election and have the resulting lump sum benefit paid to the Commissioner of Taxation under arrangements that are the same as those in new section 18A (item 13) in relation to a former member.
39. New subsections 19AAA(6) and (7) provide for the spouse's annuity to be reduced, as a consequence of the commutation election, in accordance with a method determined by the Trust following consultation with the Australian Government Actuary. The Trust will determine a reduction method that will recover the amount commuted (ie the surcharge commutation amount) over the life of the annuity, having regard to the age of the spouse when the election is made and any other relevant factors (eg the life expectancy of the spouse). The reduction will take effect from the day of the election.
40. It should be noted that section 24C of the PCS Act allows any election made under the PCS Act to be revoked before any payment is made under the election.
41. Section 19AA of the PCS Act provides for an annuity to become payable to an eligible child of a deceased member or former member, provided the member or former member is not survived by a spouse who is the child's parent and who is entitled to an annuity. An annuity is also payable to an eligible child on the death of a spouse entitled to an annuity where the child was dependent on the spouse.
42. Item 17 amends subsection 19AA(2) of the PCS Act as a consequence of the amendment made by item 18.
43. Item 18 inserts new section 19ABA into the PCS Act to allow the guardian of the child (or the child if old enough) who becomes personally liable under the general surcharge legislation to pay an outstanding surcharge assessment in respect of the former member (and based on surchargeable contributions attributable to membership of the PCSS) to elect to commute all or a part of the annuity for the purpose only of paying the assessment. Such assessments may be issued by the ATO following the death of a member or former member. A commutation election can be made more than once if more than one surcharge assessment is issued which the guardian or child is liable to pay, but only one election will be permitted per assessment.
44. New subsections 19ABA(1), (2), (3), (4), (5) and (8) allow for the guardian or child to make a commutation election and have the resulting lump sum benefit paid to the Commissioner of Taxation under arrangements that are the same as those in new section 18A (item 13) in relation to a former member.
45. New subsections 19ABA(6) and (7) provide for the child's annuity to be reduced, as a consequence of the commutation election, in accordance with a method determined by the Trust following consultation with the Australian Government Actuary. The Trust will determine a reduction method that will recover the amount commuted (ie the surcharge commutation amount) over the life of the annuity, having regard to the age of the child when the election is made and any other relevant factors (eg the continuing eligibility of the child for an annuity). The reduction will take effect from the day of the election.
46. It should be noted that section 24C of the PCS Act allows any election made under the PCS Act to be revoked before any payment is made under the election.
47. Subsection 20(3) of the PCS Act provides that where a former member entitled to a retiring allowance is re-elected to Parliament, the retiring allowance is cancelled. Subsection 20(3A) provides that, on subsequent retirement, any retiring allowance to which the person becomes entitled is reduced by the dollar amount of retiring allowance previously commuted under section 18B.
48. Items 19 to 21 amend section 20 of the PCS Act as a consequence of the amendments made by items 12 and 13.
49. Item 20 inserts new subsection 20(3B) into the PCS Act to provide that subsection 20(3A) does not apply to a post-retirement surcharge commutation election under new section 18A. Any reduction in respect of a surcharge commutation will be covered under new subsection 18(8AC) (see item 12).
50. Item 21 inserts new subsection 20(3D) into the PCS Act to ensure that any notional adjustment debits (ie for the purpose of working out a person's surcharge adjustment) that had been calculated in respect of a member before the member was re-elected are not lost as a result of the retiring allowance being cancelled on re-election.
51. Section 21AA of the PCS Act provides that, where there is more than one spouse eligible for an annuity under the PCS Act, the Trust must apportion the benefit to the spouses and any orphaned children on a needs basis. The aggregate of the reversionary benefits must not exceed five-sixths of the rate of retiring allowance that would have been payable to the deceased member or former member if he or she had not died (ie, the normal rate of annuity where there is only one spouse).
52. Items 22 and 23 amend section 21AA of the PCS Act as a consequence of the amendments made by items 16 and 18.
53. Item 22 inserts new subsections 21AA(2A) and (2B) into the PCS Act to provide that the Trust will disregard any need resulting from a reduction in a spouse's or child's annuity, as a consequence of a surcharge commutation election, when re-apportioning benefits under section 21AA on a needs basis. Under subsection 21AA(2C) the Trust must not re-allocate the annuity that has been commuted to pay the surcharge.
54. Section 21B of the PCS Act provides that, where a former member entitled to a retiring allowance takes up an office of profit under the Crown, the retiring allowance is reduced. Subsection 21B(4) provides that the maximum reduction is 50% of the retiring allowance entitlement disregarding any commutation.
55. Item 24 amends subsection 21B(4), as a consequence of the amendments made by item 13, to also disregard any post-retirement surcharge commutation when working out the maximum reduction to the retiring allowance from taking up an office of profit.
56. Item 25 inserts new section 22B into the PCS Act to provide that the Trust, with the advice of the Australian Government Actuary, must determine the factors, having regard to a former member's age at the time a post-retirement surcharge election is made under new section 18A (item 13) and any other relevant factor (eg the life expectancy of the person) for the conversion of a surcharge commutation amount to a pension. This is required to recover the surcharge commutation amount over the life of the retiring allowance. These factors are intended to be unbiased to either the Commonwealth or the former member. Any determination made under this section must be published in the Gazette.
57. Section 22B is a mirror of section 22A of the PCS Act, except that that section applies to converting a surcharge deduction amount in respect of pre-retirement surcharge assessments to a pension for the purposes of reducing a retiring allowance at the time of the most recent retirement.
58. Item 26 inserts new section 24E into the PCS Act to enable the Trust to give a person who is contemplating making a surcharge commutation election under new sections 18A, 19AAA or 19ABA some appropriate advice about the consequences of such an election before the election is made.
59. Item 27 inserts new section 26D into the PCS Act to provide that, from 1 July 2001, payments to the ATO to discharge the Trust's surcharge liability at the time of a member's retirement will be paid out of a special appropriation, as are the PCSS benefits.
60. Item 28 provides that, if a former member was entitled to a reduced retiring allowance under subsection 18(8A) of the PCS Act at the commencement of the amendments to the PCS Act contained in Schedule 1, the amendments to that subsection do not apply to the former member unless the person makes a post-retirement surcharge commutation election under new section 18A or the person is re-elected to Parliament and subsequently retires.
61. Item 29 provides that, for the purposes of new sections 18A, 19AAA and 19ABA, a surcharge assessment may have been issued by the ATO at or before the commencement of these sections (ie on Royal Assent), as well as after they have commenced.
62. Item 30 provides that, for the purposes of new sections 19AAA and 19ABA, where a surcharge assessment has been issued by the ATO after the death of a member or former member and a spouse, the guardian of an orphaned child or an orphaned child is liable to pay that assessment, that death may have occurred before, at or after the commencement of this item (ie on Royal Assent).
63. Item 31 provides that the first set of factors determined by the Trust under section 22B (item 25) may take effect from the date of Royal Assent of the Bill.
64. Because the CSS is an unfunded defined benefits scheme, surcharge assessments may be accumulated along with interest during a person’s period of membership of the scheme. When benefits become payable, the CSS Board as the superannuation provider is required to pay the amount of any surcharge debt to the ATO. The Board may then reduce benefits to recover the liability. Where a benefit is payable as a pension, the Board may determine an annual reduction of that pension which results in the recovery of the amount of the surcharge debt over the period during which the pension is expected to be paid.
65. However, after a person leaves the scheme and a benefit has become payable, there could be at least one surcharge assessment issued after the benefits have commenced to be been paid. In this case the responsibility for payment of the surcharge debt to the ATO is transferred from the Board to the former member.
66. Similarly, a surcharge assessment may be made after the payment of a reversionary benefit has commenced on the death of a member or a former member. This may happen after the death of a person while still a CSS member or after the death of a former member to whom benefits have already commenced to be paid.
67. The proposed amendments in this Schedule will provide a facility to allow a former member, or the reversionary beneficiary of a deceased former member, to commute all or part of the pension to a lump sum to pay all or part of the assessed surcharge liability. The pension is then reduced to recover the lump sum over the period during which the pension is payable.
68. Part IV of the 1976 Act provides for the payment of reversionary benefits on the death of members or former members of the CSS to eligible spouses and orphans. Where there is more than one eligible spouse or where there are eligible children not in the custody, care and control of the eligible spouse, the available benefits may be split between those spouses or a portion of the benefit may be attributed as being only in respect of those children.
69. Sections 109AB and 110 of the 1976 Act give the CSS Board the discretion, having regard to the respective needs of the spouses and children, to allocate or attribute the available benefit in those circumstances. These sections also allow the Board to reallocate or re-attribute the benefits where necessary. However, the Board may not allocate or attribute more than an applicable percentage as provided under subsections 109AB(6) and 110(5).
70. Similarly section 115 of the 1976 Act gives the CSS Board the discretion to apportion the available amount of orphan benefit amongst eligible children in such manner as it thinks fit.
71. Where a reversionary beneficiary becomes liable to pay a surcharge assessment the benefit payable to that beneficiary may be reduced as a result of an election or elections under Division 3 of new Part IXA. Items 1, 2 and 3 of Schedule 2 amend sections 109AB, 110 and 115 to ensure that the CSS Board must disregard any need arising from such an election and when determining need under those provisions. The CSS Board may also not re-allocate, re-attribute or re-apportion the available pension under those sections in order to increase the benefits payable to other reversionary beneficiaries.
72. Item 4 of Schedule 2 inserts a new Part IXA to provide for the commutation of certain pensions and the payment of a surcharge liability.
73. New Division 1 of Part IXA provides a simplified outline of the Part and inserts definitions.
74. New subsection 146A provides a simple explanation of the purpose of the new Part.
75. New subsection 146B provides definitions of certain terms used in the new Part. These definitions ensure, among other things, that the new provisions may only be used to satisfy a surcharge liability arising from benefits accrued under the 1976 Act.
Commutation of a former member’s pension
76. New Division 2 allows for the post-retirement commutation of a former CSS member’s pension in order to discharge a liability arising from a surcharge assessment made after the pension becomes payable.
77. New section 146C provides for an election or elections to be made to commute a pension or pensions in order to be able to discharge a surcharge liability. An election or elections must be made within 3 months after the assessment was made. (Section 157 of the 1976 Act would allow the CSS Board to extend the period in certain circumstances.)
78. New paragraphs 146C(1)(a), (b) and (c) describe a person who is able to make an election under the section. Paragraph 146C(1)(d) provides that, where a person is in receipt of only one pension, he or she may elect by notice in writing to commute a portion of the pension to a lump sum which must be specified in the election. Paragraphs 146C(1)(e) and (f) set out similar requirements for a person in receipt of two pensions and also require that the election must specify which pension is to be commuted first. In this case the first pension to be commuted must be fully commuted before the second.
79. New subsections 146C(2), (3) and (4) provide that any election made under subsection (1) must include a request that the specified lump sum be paid to the Commissioner of Taxation to discharge the surcharge assessment and that the amount must be equal to, or less than, the amount of the assessment. This amount would not include any amount of penalty interest that had been applied because of non payment of the liability within the prescribed period. The commutation must not reduce the pension below zero.
80. New subsections 146C(5) and (6) provide an entitlement to a lump sum benefit equal to the commutation amount and for that lump sum benefit to be paid to the Commissioner of Taxation and applied towards payment of the surcharge.
81. Where a person has made an election and becomes entitled to a lump sum benefit new subsection 146C(7) provides for the reduction of the person’s pension from the beginning of the day of the election. It is intended that the election or elections take effect from the day of signature. The subsection provides a formula to calculate the amount of the reduction. The definition of conversion factor for the purpose of the formula requires the CSS Board to made a determination under new section 146D.
82. A pension that has been reduced as a result of new subsection 146C(7) can still be altered by the other provisions of the 1976 Act for example, for the purposes of the indexation under section 148 or reduction of an invalidity pension under section 73A as a result of earnings from personal exertion.
83. New subsection 146C(8) provides for a person to be only able to make one election to commute any one pension in respect of a particular assessment.
84. Part X of the 1976 Act provides for the indexation of pensions payable under the Act with effect from the first payday in July. New subsection 146C(9) ensures that, where a person makes an election under subsection (1) during the first fortnightly payment period in the financial year, the reduction does not take effect until after the indexation provisions have been applied. This ensures that any indexation is applied to the rate of pension before reduction.
85. New section 146D provides that the CSS Board must determine conversion factors for the reduction of a pension where a person has made an election under section 146C. Standard retirement pension and invalidity pension payable under the various provisions of the 1976 Act are subject to indexation and additional retirement pension is not subject to that indexation. Accordingly different conversion factors are required to determine the yearly amount of reduction of benefit necessary to recover the amount of the surcharge assessment from the relevant pension during the period when the pension is payable. The conversion factors would have to be based on technical actuarial advice and are intended to be unbiased to either the Commonwealth or the former member. The CSS Board’s determinations under this section must be published in the Gazette.
Commutation of spouse’s pension
86. New Division 3 provides for the commutation of spouse’s pension in order to discharge a liability arising from a surcharge assessment made after the pension becomes payable.
87. New section 146E provides for an election or elections to be made to commute spouse’s pension or pensions in order to be able to discharge a surcharge liability. The provision is similar to subsection 146C.
88. New paragraphs 146E(1)(a), (b), (c), (d) and (e) describe a person in receipt of spouse’s pension or pensions who is able to make an election under the section. Paragraph 146E(1)(f) provides that, where a spouse is in receipt of only one pension, he or she may elect by notice in writing to commute a portion of the pension to a lump sum which must be specified in the election. Paragraph 146E(1)(g) and (h) sets out similar requirements for a spouse in receipt of two pensions and also requires that the election must specify which pension is to be commuted first. In this case the first pension to be commuted must be fully commuted before the second.
89. New subsections 146E(2), (3) and (4) provide that any election made under subsection (1) must include a request that the lump sum be paid to the Commissioner of Taxation to discharge the surcharge assessment and that the amount must be equal to, or less than, the amount of the assessment. The amount would not include any amount of penalty interest that had been applied because of non payment of the liability within the prescribed period. The commutation must not reduce the pension below zero.
90. New subsections 146E(5) and (6) provide an entitlement to a lump sum benefit equal to the commutation amount and for that lump sum benefit to be paid to the Commissioner of Taxation and applied in payment of the surcharge.
91. Where a spouse has made an election and becomes entitled to a lump sum benefit, new subsection 146E(7) provides for the reduction of the person’s pension from the beginning of the day of the election. It is intended that the election or elections take effect from the day of signature. The pension is to be reduced according to a method determined by the CSS Board under new section 146F.
92. A pension that has been reduced as a result of new subsection 146E(7) can still be altered by the other provisions of the 1976 Act for example, for the purposes of the indexation under section 148.
93. New subsection 146E(8) provides for a person to only be able to make one election to commute any pension in respect of a particular assessment
94. Part X of the 1976 Act provides for the indexation of pensions payable under the Act with effect from the first payday in July. New subsection 146E(9) ensures that where a person makes an election under subsection (1) during the first fortnightly payment period in the financial year the reduction does not take effect until after the indexation provisions have been applied. This ensures that any indexation is applied to the rate of pension before reduction.
95. New subsection 146E(10) puts beyond doubt that, where a spouse is in receipt of part of a pension because of the operation of section 109AB or 110, an election under subsection 146E(1) can only have effect on the part of the pension payable to that person.
96. New section 146F provides that, where a spouse has made an election under new section 146E, the CSS Board must determine the method by which a pension is reduced in order to recover the amount of the lump sum over the period during which the pension is payable. The Board’s determinations under this section must be published in the Gazette.
Commutation of orphan’s pension
97. New Division 4 allows for the commutation of orphan’s pension in order to discharge a liability arising from a surcharge assessment made after the pension becomes payable.
98. New section 146G provides for an election to be made to commute orphan’s pension or pensions in order to be able to discharge a surcharge liability. The provision is similar to new subsection 146C and new section 146E.
99. New subsection 146G(1) provides that a person may elect by notice in writing to commute a portion of the pension to a lump sum which must be specified in the election. New paragraphs 146G(1)(a), (b), (c), (d) and (e) describe a person in receipt of orphan’s pension who is able to make an election under the section.
100. New subsections 146G(2) and (3) provide that an election made under subsection (1) must include a request that the lump sum be paid to the Commissioner of Taxation to discharge the surcharge assessment and that the amount must be equal to, or less than, the amount of the assessment. The amount would not include any amount of penalty interest that had been applied because of non payment of the liability within the prescribed period. The commutation must not reduce the pension below zero.
101. New subsections 146G(4) and (5) provide an entitlement to a lump sum benefit equal to the commutation amount and for that lump sum benefit to be paid to the Commissioner of Taxation and applied in payment of the surcharge.
102. Where a orphan has made an election and becomes entitled to a lump sum benefit new subsection 146G(6) provides for the reduction of the pension from the beginning of the day of the election. It is intended that the election take effect from the day of signature. The pension is to be reduced according to a method determined by the CSS Board under new section 146H.
103. A pension that has been reduced as a result of new subsection 146G(6) can still be altered by the other provisions of the 1976 Act, for example, for the purposes of the indexation under section 148.
104. New subsection 146G(7) provides for a person to only be able to make one election to commute any pension in respect of a particular assessment
105. Part X of the 1976 Act provides for the indexation of pensions payable under the Act with effect from the first payday in July. New subsection 146G(8) ensures that where a person makes an election under subsection (1) during the first fortnightly payment period in the financial year that the reduction does not take effect until after the indexation provisions have been applied. This ensures that any indexation is applied to the rate of pension before reduction.
106. New subsection 146G(9) puts beyond doubt that, where an orphan is in receipt of part of a pension because of the operation of section 115, an election under subsection 146G(1) can only have effect on the part of the pension payable to that person.
107. New section 146H provides that, where an orphan has made an election under new section 146G, the CSS Board must determine a method for the reduction of a pension in order to recover the amount of the lump sum over the period during which the pension is payable. The Board’s determinations under this section must be published in the Gazette.
108. Section 157 of the 1976 Act allows the CSS Board to direct that elections made under various provisions of the Act are to be cancelled.
109. Item 5 of Schedule 2 amends section 157 to provide that the CSS Board may accept the cancellation of an election made under new sections 146C, 146E or 146G where no payment has been made to the ATO.
110. There are a number of regulations made under the 1976 Act and many of them modify the provisions of the Act for certain specified persons. Item 6 of Schedule 2 provides that amendments to those regulations may be made with retrospective effect up to 12 months after commencement of this provision.
111. Item 7 of Schedule 2 provides that sections new 146C, 146E and 146G may apply to an assessment made prior to Royal Assent to these amendments.
112. Item 8 of Schedule 2 provides that new section 146E and 146G may apply to a death that occurred prior to Royal Assent to these amendments.
113. Item 9 of Schedule 2 provides that determinations made under new sections 146D, 146F and 146H may be made with retrospective effect to the date of Royal Assent to those provisions.
114. The rules of the PSS are mostly provided under the Trust Deed under section 4 of the 1990 Act. Amendments to that Trust Deed will be necessary to allow persons in receipt of PSS retirement or reversionary pensions to elect to reduce those pensions to provide a post-retirement commutation benefit in order to pay a post retirement surcharge assessment.
115. Some minor changes to the 1990 Act itself are also required to support the making of such changes.
116. PSS Benefits arise from both funded and unfunded components. When benefits become payable to a person from the scheme subsection 16(1) of the 1990 Act requires the PSS Board to pay to the Commonwealth the total amount attributable to the person in the PSS Fund at that time (ie, the funded component). The total benefit, whether lump sum or pension or a combination, is then payable by the Commonwealth to the person.
117. Item 1 of Schedule 3 makes a consequential amendment to section 16 to ensure that the PSS Board is not required to transfer money from the PSS Fund to the Commonwealth when a post-retirement commutation benefit becomes payable to the ATO to satisfy a surcharge assessment. This is because the funded component has already been transferred to the Commonwealth when the original benefit was paid.
118. Item 2 of Schedule 3 amends section 16 by inserting three new subsections. Subsection (7) provides that the Commonwealth is liable to pay any post-retirement commutation benefit that becomes payable under the PSS Rules. New subsections 16(8) and (9) provide that, where there is an entitlement to a post-retirement commutation benefit under those Rules, that amount must be paid to the Commissioner of Taxation and applied in payment of the surcharge assessment.