Wednesday, 5 June 2019

 Mr SCOTT (Preston—Assistant Treasurer, Minister for Veterans) (10:18): In accordance with the Charter of Human Rights and Responsibilities Act 2006 I table a statement of compatibility in relation to the Superannuation Legislation Amendment Bill 2019.

In my opinion, the Superannuation Legislation Amendment Bill 2019, as introduced to the Legislative Assembly, is compatible with human rights as set out in the Charter. I base my opinion on the reasons outlined in this statement.

Overview

The objectives of the Superannuation Legislation Amendment Bill 2019 are to:

•   amend the Emergency Services Superannuation Act 1986 (ESSA) to provide that where a member of the Emergency Services Defined Benefit Scheme (ES DB Scheme) has reached the maximum benefit multiple, the employer shall pay contributions to an accumulation fund in respect of the employee at 3 per cent in 2019–20 rising to 12 per cent by 2026–27;

•   amend the ESSA to provide that a member’s superable salary is maintained following a salary reduction unless otherwise advised by the member;

•   amend the ESSA to provide that contributions payable for the financial year will be fixed and based upon the superable salary at the start of the financial year;

•   amend the ESSA to allow members to take a transition to retirement pension;

•   amend the ESSA to allow members on unpaid parental and carer’s leave to choose their level of contributions (and therefore benefit accrual);

•   amend the ESSA to provide members with the opportunity to make higher ‘catch up’ contributions;

•   amend the ESSA to change the method of calculating death benefits in respect of police recruits who do not have dependants; and

•   amend the ESSA, the State Superannuation Act 1988 (SSA), the Transport Superannuation Act 1988 (TSA) and the State Employees Retirement Benefits Act 1979 (SERB) to provide that the Late Payment of Interest provisions apply from the date the member becomes entitled to a benefit.

Human Rights Issues

Human rights protected by the Charter that are relevant to the Bill

The Superannuation Legislation Amendment Bill does not impinge on any rights protected by the Charter of Human Rights and Responsibilities.

Are the relevant Charter rights actually limited by the Bill?

The proposals outlined in the Bill will not limit any individual’s human rights contained in the Charter of Human Rights and Responsibilities.

Robin Scott MP

Assistant Treasurer

 Mr SCOTT (Preston—Assistant Treasurer, Minister for Veterans) (10:18): I move:

That this bill be now read a second time.

I ask that my second-reading speech be incorporated into Hansard.

Incorporated speech as follows:

This Bill amends the Emergency Services Superannuation Act 1988 to provide for significant improvements to the superannuation benefits for Victoria’s emergency services workers.

In February 2017, the Government engaged Dr David Knox of Mercer and Ms Robbie Campo of Circa Consulting to undertake a review of certain aspects of the Emergency Services Defined Benefit Scheme (ES DB Scheme). The terms of reference for this review were to:

i.   review certain design elements of the ES DB Scheme such as the maximum multiple, the calculation of death and disability benefits, the calculation of the resignation benefit and the feasibility of introducing a transition to retirement pension; and

ii.   also review gender equity.

After considering the recommendations of this review the Government made an election commitment endorsing reforms to the ES DB Scheme. This Bill implements these reforms. I will now speak to each of these reforms in turn.

Paying additional accumulation contributions for certain members

At present, ES DB Scheme members can accrue an (untaxed) maximum benefit of 8.4 times their final average salary. A member contributing at 7 per cent of salary will reach this maximum multiple after 30 years service.

Once the maximum multiple has been reached, there are no further accruals and the member’s benefit only increases with salary growth. This has been an issue of concern to members for many years and it has been argued that the lack of accrual beyond the maximum multiple may result inexperienced staff retiring prematurely.

To address this concern, the Bill will require employers pay contributions in respect of ES DB Scheme members who have reached the maximum benefit multiple at the following rates, as a percentage of salary:

In 2019–20 and 2020–21—3 per cent; in 2021–22 and 2022–23—6 per cent; in 2023–24—8 per cent; in 2024–25—9 per cent; in 2025–26—11 per cent; and in 2026–27—12 per cent.

Superable salary maintenance

The rules of the ES DB Scheme do not currently provide for the automatic maintenance of a member’s superable salary if a member’s actual salary reduces. Therefore, if a member takes a lower substantive position, or ceases a period of higher duties which have been recognised as superable, the lower salary is taken into account immediately for superannuation purposes.

Currently, a contributor may apply to the Board to maintain a higher salary for superannuation purposes. Any such requests are considered on a case by case basis and require consultation with the relevant employer who, along with the contributor, is required to make contributions based on the higher salary if this is approved.

The Bill amends this provision to align the salary and contribution rules for the ES DB Scheme with those that apply to members of the former State Superannuation Fund. That is, following a salary reduction the previous higher salary is maintained automatically for superannuation purposes unless the member elects otherwise.

Fix contribution amounts at the start of the financial year

Under the current rules of the ES DB Scheme, member and employer contributions vary every time a member’s superable salary changes, even if only by a small amount. This increases the administrative effort required by both employers and the Scheme. The frequent fluctuations in contributions also increase the likelihood of contribution arrears and/or advances arising.

Therefore, the Bill includes a provision to fix contributions at the start of each financial year based on a member’s salary at that time. The contributions payable by the member would then only vary if the member changed their rate of contribution or varied their work hours.

This and the preceding proposal are interdependent as it would be problematic to fix the contribution amount for the financial year and then allow a member’s superable salary to decrease.

Introduction of transition to retirement pensions

In the mid-2000s, Commonwealth superannuation laws were changed to enable superannuation funds to offer transition to retirement pensions (TTRPs). A TTRPs allows members who have reached their preservation age to access their superannuation benefits prior to completely retiring from the workforce. This can assist those wanting to transition into retirement by reducing their working hours as it allows them to draw down their superannuation to supplement their reduced salary income.

The Bill allows members of the ES DB Scheme to take out a TTRP.

Under Commonwealth law, there are lower and upper limits on how much can be withdrawn from a TTRP each year.

Based on the prevailing limits, a person wanting to supplement their income by $20 000 per annum would need to invest more than $200 000 in a TTRP. Therefore, any cap on the amount a member of the ES DB Scheme can draw down needs to be high enough to provide a meaningful income from the TTRP while also considering the residual retirement benefit and the fact that the contributor is taking on the investment risk. With this in mind, the Bill will allow members to withdraw up to 50 per cent of their accrued benefit to purchase a TTRP.

To ensure that the policy is used as a genuine way to supplement a member’s income while they continue to work, the Bill requires that at least 20 per cent of a member’s accrued benefit is withdrawn to purchase a TTRP.

If a contributor takes out a TTRP, their accrued multiple will be reduced to ensure that their accrued benefit decreases to reflect the amount withdrawn. The member’s maximum accrued multiple will also be reduced.

The necessary reductions will be determined using a methodology approved by the Minister on the advice of an actuary appointed by the Board.

More flexible arrangements for those on unpaid parental and carer’s leave

The review panel noted that members on unpaid sick leave can choose their level of notional contribution (and thus benefit accrual). On resuming work, the accumulated unpaid contributions, plus interest, are either recovered via higher member contributions or deducted from a member’s final benefit.

At present, members on unpaid parental leave continue to be covered for death and disability benefits for the first twelve months and they accrue benefits at the rate applicable to a zero contributor, of 8.5 per cent of final average salary per year. The Bill amends the ES DB Scheme’s governing rules to provide those on unpaid parental and carer’s leave with the ability to choose their contribution (and accrual) rate.

Improved ‘catch up’ contribution provisions

The ES DB Scheme allows members to make additional ‘catch up’ contributions at 8 per cent of salary if their average member contribution rate has been less than 7 per cent. This allows a member to accrue benefits at a faster rate than is otherwise permitted to make up for periods when their contributions, and accrual, were lower than the maximum possible. This flexibility is valuable for members who, at times, may not have been able to contribute at a rate that maximises their accrual due to the cost of raising a family or periods of unpaid leave. Currently, around 17 per cent of ES DB Scheme members are contributing at the catch up rate of 8 per cent.

The review panel noted that the catch up provisions are relatively slow, as they only allow an additional 1 per cent of salary to be paid each year, and suggested that members be allowed to contribute at a higher rate. The panel suggested that such a change may be particularly beneficial for women who are returning to the workforce after having children.

The Bill therefore amends the ES DB Scheme’s governing rules to provide for catch up contributions of up to 10 per cent of salary.

Death benefits for police recruits

The review panel noted that police recruits are not members of the ES DB Scheme and that the death benefit paid in respect of recruits without dependants is far lower than that paid in respect of a police recruit with dependants.

The panel noted that this distinction only applies to police recruits and is inconsistent with the provision of death benefits for other emergency services personnel.

The Bill amends the ES DB Scheme’s governing rules to remove this distinction by increasing the death benefit payable in respect of police recruits without dependants.

Late payment of interest provisions

In addition to the proposed amendments to the Emergency Services Superannuation Act 1988 that have been developed following the review into the ES DB Scheme, the Bill contains an amendment to the Late Payment of Interest (LPI) provisions. Currently the Late Payment of Interest (LPI) provisions in the Emergency Services Superannuation Act 1988, State Superannuation Act 1988, the Transport Superannuation Act 1988 and the State Employees Retirement Benefits Act 1979 allow the payment of interest if a benefit is paid more than 14 days after the member became entitled to the benefit.

The current 14 day period is inconsistent with industry standards. The Bill therefore amends the LPI provisions in the schemes’ governing legislation to allow for LPI to apply from the date a member becomes entitled to a benefit.

I commend the Bill to the house.

 Ms McLEISH (Eildon) (10:18): I move:

That the debate be adjourned.

Motion agreed to and debate adjourned.

Ordered that debate be adjourned for two weeks. Debate adjourned until Wednesday, 19 June.