Market forces at work: government policy a catalyst

Public servants, particularly those working for the Commonwealth, may find themselves accessing the new choice of fund environment within the next 12 to 18 months.

Two things are acting as catalysts for the move to choice for Commonwealth public servants — the Howard Government’s broad, free market philosophy and the implementation of the of the new Public Sector Superannuation Fund (PSS) accumulation plan from 1 July, this year.

However, while members of the new PSS Accumulation Plan may gain relatively early access to the new choice of fund environment, the story will be very different for those in the older defined benefit schemes, because the Government can only clear the way by passing new legislation.

Anyone doubting how soon public servants will be able to access the new choice regime need only read a discussion paper issued by the Department of Finance and Administration (DOFA) in December, last year. That discussion paper was based on a review of issues raised around the implementation of the new PSS accumulation plan.

In fact, the issues raised in the discussion paper were a direct reflection of how quickly the government moved in altering Australia’s broader superannuation regulatory regime with measures such as the co-contribution, the implementation of choice and the removal of the surcharge.

This caused DOFA to preface its remarks in the discussion paper with the following statement: “Some issues included in the review are not able to be resolved in the short term because a number of legislative changes were made during the conduct of the review that have implications for those issues.

“These included issues concerning choice for certain employees between the Commonwealth Superannuation Scheme (CSS) or the PSS defined benefit plan, the PSS accumulation plan and issues concerning eligibility for reversionary pension death benefits under the CSS and the PSS.

“Further work will need to be undertaken before conclusions can be reached on these matters. However, every effort should be made, in conjunction with employers and the PSS Board, to ensure that those employees who have an option to join the PSS before 1 July, 2005, are aware of the implications of doing so.”

Dealing with the key question of Commonwealth public servants being given access to the new choice of fund regime, the DOFA discussion paper suggests that “there would be some merit, and it would be in line with government policy”.

However, it notes that implementation of such an arrangement would need to have regard to the range of existing superannuation arrangements, and the particular unique features of these arrangements applying to government employees.

“If Australian government employees were required to offer any or all employees a choice of superannuation funds, consideration should be given to the timing of these further significant changes,” the discussion paper said. “Like employers in the wider community, who have 12 months to implement the new choice of fund arrangements, Australian government employers are likely to expect a similar lead time from when relevant legislation is passed before they are required to implement choice of funds for their employees.”

The discussion paper points to a number of issues that would need to be resolved before Commonwealth public servants could be offered choice of fund, not least of which being that members of the new PSS accumulation plan will have employer contributions of 15.4 per cent of superannuation salary paid to the PSS Fund.

It said before choice of fund could be extended to those employees, the following would need to be considered:

* the legislative requirement of these employees to participate in the PSS or, if the PSS does not apply, the Superannuation (Productivity Benefit) Act 1988 ;

* the different rate and/or amount of employer contributions for different employees depending on their existing superannuation arrangements;

* the minimum superannuation guarantee rate of 9 per cent of earnings that would be required if employees were permitted to join another superannuation scheme; and

* whether Australian government employees who exercised a choice would be allowed to return to accumulation arrangements offered by the Australian government.

“Given the differences that currently exist between the different accumulation arrangements, there may be some merit in continuing to simplify the existing suite of government arrangements before opening the government arrangements to the broader choice of fund regime,” the discussion paper said.

On the even more vexed question of exposing members of defined benefits plans to choice of funds, the discussion paper acknowledged that it was a highly complex issue “necessitating careful examination and consultation with relevant stakeholders”.

The discussion paper notes that among the complexities tied up in the defined benefits equation are the unfunded nature of the CSS and PSS defined benefit plans.

The bottom line of the DOFA discussion paper is that the question of allowing members of the CSS/PSS defined benefit schemes access to choice of fund is so complex that it would require separate government legislation and on that basis should be considered separately.