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					                                                        Chapter 33 - Superannuation
                          33) SUPERANNUATION
                              Key Points of ACT Argument
      The ACT Government has been required to meet the employer costs of
       Commonwealth Superannuation Scheme (CSS) and Public Sector
       Superannuation Scheme (PSS) accruing to its employees for service since
       self-government. Membership of these schemes emanate from the period of
       Commonwealth administration with the ACT being required to meet the
       schemes’ costs and having no control over the associated benefits.
Superannuation Scheme Costs for ACT Government Employees
     The ACT has been unable to reduce its superannuation costs because:
        it does not have the legislative power to amend the Acts under which it
         provides superannuation;
        under the Superannuation Guarantee Guidelines, the ACT Government,
         as an employer, can not force existing employees into lower yielding
         funds;
        the close proximity and dominance of the Commonwealth Public Sector in
         the ACT, which requires the Territory to offer comparable employment
         conditions, including superannuation contributions, in order to remain
         competitive in the local labour market - the ACT’s superannuation policy
         choices are constrained by the Commonwealth’s policies; and
        even if the ACT introduced an alternative scheme it would take many
         years to provide significant savings.
Superannuation Scheme Administration Costs
      Unlike the majority of other superannuation schemes, members of the CSS
       and PSS are not charged administration fees, these costs are borne entirely
       by employers.
      The ACT requests that a disability factor be assessed to reflect the
       additional administration costs borne by the ACT for its CSS and PSS
       member employees, which total approximately $2.5m per annum.
Adjustments to the Superannuation Assessment
      The ACT requests that the CSS adjustment be revised upwards, as the
       current 5% allowance significantly underestimates the ACT’s accruing
       liabilities:
        the ACT incurs $30.7m in superannuation expenses for the above
         standard costs of the CSS.
      The ACT also requests the introduction of a PSS adjustment to reflect the
       above standard superannuation costs accruing to the ACT as a result of the
       PSS:
        the ACT incurs $6.8m in superannuation expenses for the above standard
         costs of the PSS.




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                                                               Chapter 33 - Superannuation


 Background

33.1. This category comprises expenditure on contributions by governments
to superannuation funds or superannuation payments for those employees
and holders of public office whose salaries are included in the Commission’s
standard budget, together with associated administrative expenditures.

33.2. Under accrual accounting, both payments in respect of earlier
unfunded liabilities and provisions for current liabilities will be included in the
year in which they are incurred.

33.3. The ACT’s position relative to the States, based on the 1999 Review
methodology and using the latest available data, is illustrated below. This
sees the ACT being assessed by the Commission as having negative needs
in this category.

    STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE:
                    SUPERANNUATION, 2000-01




       1200
       1000
       800                                                                                Aust.
       600                                                                                Avg.
 $pc
       400
       200
         0
                      NSW      Vic     Qld    WA       SA       Tas    ACT     NT

                                  Standardised              Actual

Standardised expenditure is the amount that the Commission deems the ACT is required to
spend if it is to provide an average level of service.
Actual expenditure is the actual funding spent by the ACT on this category in 2000-01.

33.4. A category structure is provided in the following table and illustrates the
major components of the current assessment, together with comments on
how the ACT is affected by the application of the different factors.

33.5. This chapter focuses on those components of the 1999 Review
methodology that the ACT wishes to raise with the Commission. In particular,
the ACT is seeking that the following components be examined:
    the Commonwealth Superannuation Scheme (CSS) adjustment; and
    the introduction of a Public Sector Superannuation Scheme (PSS)
     adjustment.

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                                                                  Chapter 33 - Superannuation
  SUPERANNUATION:
  SUMMARY OF THE 1999 REVIEW METHODOLOGY
  Component factors assessed            ACT position
  (1) Assessment Structure: Cash Standard, 1996–97 and 1997-98
Scale affected expenditure          The ACT is assessed as having positive needs due to its
(wgt 0.42%)                         above average wages and salary disability and
Input Costs                         diseconomies of small scale disability.
Administrative Scale

Superannuation Services (wgt        The ACT is assessed as having negative needs for this
99.58%)                             category as its adjusted wage and salary related
Expenditure Relativities            standardised expenditures per capita were lower than the
                                    Australian average. The negative needs were, however,
                                    partly reduced by the CSS adjustment made for the ACT.

(2) Assessment Structure: Accrual Standard and Transitional Arrangements, 98-99
Accrued Expenses (wgt 30.40%)       The ACT is assessed as having negative needs for this
Expenditure Relativities            category as its adjusted wage and salary related
                                    standardised expenditures per capita were lower than the
                                    Australian average.

Nominal interest on equalised       The ACT is assessed as having zero needs (an equal per
unfunded liabilities (wgt - 0%)     capita assessment is applied).

Nominal interest on unequalised     The historical factor is negative for the ACT given that the
unfunded liabilities (wgt 28.65%)   Territory’s superannuation category factors (averaged over
Historical Factor                   the last 20 years) were below one, although they were partly
Interest rate cost factor           reduced given the interest rate cost disability faced by the
                                    ACT.
Outstanding Liabilities (wgt        The historical factor is negative for the ACT.
40.95%)
Historical Factor


(3) Assessment Structure: Accrual Standard and Transitional Arrangements, 99-00
Accrued expenses (wgt 33.10%)        The ACT is assessed as having negative needs for this
                                     category as its adjusted wage and salary related
                                     standardised expenditures per capita were lower than the
                                     Australian average. The negative needs were, partly
                                     reduced by the CSS adjustment.

Nominal interest on equalised        The ACT is assessed as having zero needs (an equal per
unfunded liabilities (wgt -1.71%)    capita assessment is applied).

Nominal interest on unequalised      The historical factor is negative for the ACT as it was
unfunded liabilities (wgt 26.52%)    assessed as having a relatively smaller size of unfunded
Historical Factor                    disabilities.
Interest rate factor

Outstanding Liabilities (wgt         The historical factor is negative for the ACT.
42.09%)
Historical Factor




  ACT Main Submission to the 2004 Review           679
                                                                   Chapter 33 - Superannuation

(4) Assessment Structure: Accrual Standard and Transitional Arrangements, 00-01
Accrued expenses (wgt 34.18%)             The ACT is assessed as having negative needs for this
Expenditure Relativities                  category as previously outlined.


Nominal interest on equalised             The ACT is assessed as having zero needs (an equal
Unfunded liabilities (wgt -0.03)          per capita assessment is applied).

Nominal interest on unequalised           The historical factor is negative for the ACT as it was
unfunded liabilities (wgt 23.64%)         assessed as having a relatively smaller size of
Historical Factor                         unfunded disabilities.
Interest rate factor

Outstanding Liabilities (wgt 2.21%)       The historical factor is negative for the ACT.
Historical Factor

SUMMARY:
The ACT is assessed as having negative needs for this category as its adjusted wage and salary
related standardised expenditures per capita were lower than the Australian average. However, as
the phase-in adjustment winds down and the nominal interest on unequalised unfunded liabilities
decreases over time, the ACT’s negative needs should reduce.




   Introduction

  33.6. The ACT, in general, supports the current method of assessment for
  superannuation liabilities.

  33.7. However, the ACT considers that the 5% allowance currently provided
  to the Territory for the Commonwealth Superannuation Scheme (CSS)
  significantly underestimates the annual cost disability. It should be revised to
  more accurately reflect the actual liabilities accruing to the ACT.

  33.8. In addition, the ACT believes that there is a need to take into account
  the additional costs of the Public Sector Superannuation Scheme (PSS) and
  the associated liabilities accruing to the ACT in the superannuation
  assessment.

  Superannuation for ACT Government Employees

  33.9. The ACT participates in two main superannuation schemes for its
  public sector employees:
     the CSS, which is a defined benefits scheme carried over from the period
      of Commonwealth administration. This scheme has been closed to new
      employees since 1 July 1990 and at present has approximately 3,800
      active ACT Public Sector members and 4,800 members on pensions or
      with preserved benefits; and




  ACT Main Submission to the 2004 Review            680
                                                   Chapter 33 - Superannuation
   the PSS, which is a defined benefits scheme also carried over from the
    period of Commonwealth administration. The PSS has been open since
    1 July 1990 under the provisions of the Commonwealth’s Superannuation
    Act 1990. Currently the PSS has approximately 10,200 active ACT Public
    Sector members and 6,200 members on pensions or with preserved
    benefits.

33.10. The ACT has been required to meet the employer costs of CSS and
PSS benefits accruing to its employees since the inception of
self-government.     These schemes are legacies of the period of
Commonwealth administration and while the ACT is required to meet the
schemes’ costs, it has no control over the associated benefits.

33.11. Prior to the establishment of the ACT Public Service (ACTPS), staff
required for the conduct of the public administration of the ACT were
transitional Commonwealth staff provided for in the ACT Self-Government
(Consequential Provisions) Act 1988. From 1 July 1994, transitional staff
commenced employment under the provisions of the Public Sector
Management Act 1994 of the ACT.

33.12. Many of the transferred staff were members of the CSS and retained
membership as employees of the ACT because, under the provisions of the
Superannuation Acts, the ACT is an approved authority. CSS members now
make up 28% of the ACTPS and incur some of the highest superannuation
costs in Australia, at an average (actuarially determined) employer
contribution rate of 24.3% of superannuation salary.



 Superannuation Scheme Costs

Extent of Disabilities faced by the ACT

33.13. Under the current circumstances, the ACT faces large disabilities
which are not faced by other States (with the exception of the Northern
Territory in regard to its CSS arrangements).

33.14. The ACT must contend with the above standard costs of the
Commonwealth’s superannuation schemes. These additional costs are
illustrated in Table 33.1.




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                                                                   Chapter 33 - Superannuation
      TABLE 33.1 – CSS AND PSS EMPLOYER COSTS AS AT 30 JUNE 2001

             No. of     Total Active   Average       Employer          Annual       Liability Per
          employees      Members       Member         Liability       Employer       Employee
                          Salary        Salary                         Liability

                             $             $             %                $              $
                                                               a
CSS          3,800      200,378,648     52,731          24.3           48,692,011      12,814
                                                               a
PSS         10,165      455,469,494     44,808          10.5           47,824,297      4,705
                                                               a
Average     13,965      655,848,142     46,964          15.3          100,344,766      7,185
SG Min.     13,965      656,355,000     47,000           9.0           59,071,950      4,230


Calculation of Additional Costs:
CSS          3,800      200,378,648     52,731          24.3           48,692,011      12,814
SG CSS       3,800      200,378,648     52,731           9.0           18,034,078      4,746

Estimated Additional CSS Costs                                         30,657,933      8,068


PSS         10,165      455,469,494     44,808          10.5           47,824,297      4,705
SG PSS      10,165      455,469,494     44,808           9.0           40,992,254      4,033

Estimated Additional PSS Costs                                          6,832,042       672
  a
   : Five year actuarially determined rates, 1997.
  SG Min. is the Superannuation Guarantee prescribed minimum rate of employer contribution.
  Source: Superannuation Unit, ACT Department of Treasury, 2002.

  Commonwealth Legislation – the Superannuation Acts

  33.15. Previously, a number of States have argued that the means of
  reducing high average employer costs is to make employees contribute more
  towards their superannuation or amend superannuation arrangements to less
  costly alternatives.

  33.16. This is not a plausible solution for the ACT, as it funds CSS and PSS
  membership under the Commonwealth’s Superannuation Acts (1976 and
  1990) and does not have the legislative power to amend these Acts.

  33.17. Furthermore, under the Commonwealth’s Superannuation Guarantee
  Scheme Guidelines, the ACT can not force its employees to change to lower
  yielding schemes.

  33.18. While closure of the PSS would allow the ACT Government more
  freedom of choice over superannuation policy, which is likely to lead to lower
  superannuation costs for the Territory, the ACT is unable to deny its existing
  public servants ongoing access to the CSS and PSS. Similarly, the large
  CSS costs faced by the ACT will continue for many years to come as
  members can not be forced from this superannuation scheme.



  ACT Main Submission to the 2004 Review          682
                                                        Chapter 33 - Superannuation
33.19. The Commonwealth Government has sought, for a number of years, to
close the PSS to all new members. However, on 8 August 2001 the
Commonwealth’s bill seeking consent to the closure of the PSS was blocked
in the Senate.      As yet, this bill has not been re-introduced.     The
Commonwealth in its 2002 Budget has now flagged the closure of the PSS
from 1 July 2003, subject to passage of the amending legislation.

Composition of the ACT Public Service

33.20. 95% of the ACTPS are members of Commonwealth superannuation
schemes. Of these, 67% are members of the PSS and 28% are members of
the CSS.

33.21. In addition, 28% of the ACTPS has tenure of 10 or more years. On
behalf of these employees, the ACT makes employer contributions of 24.3%
for CSS members and up to 21% for PSS members. For those with less than
ten years of PSS membership, the ACT contributes up to 16% of their
superannuation salary. These rates are well above the Superannuation
Guarantee prescribed minimum of 9%.

Administration Costs

33.22. Unlike the majority of other superannuation schemes, members of the
CSS and PSS are not charged administration fees, these costs are borne
entirely by employers. The ACT is billed annually, by Comsuper, for CSS and
PSS administration costs for the maintenance of contributor accounts and
ongoing pension payments, as well as for the processing of benefits.

33.23. The ACT will incur administration costs of around $2.5m for
2001-02, or approximately $98 per member.

33.24. The ACT requests that the a disability factor be included in the
superannuation assessment to reflect the additional administration
costs the ACT must bear as a result of its public servants having access
to the CSS and PSS superannuation schemes.



 State Superannuation Scheme Costs

33.25. There is a general movement towards superannuation choice within
the public sector as a cost-effective alternative to historic higher costing State
superannuation schemes. Out in the market the employer contribution rate
for most superannuation schemes is defined by the Superannuation
Guarantee minimum, currently set at 9%. As evident in Table 33.2, many
States are now opting for this level of contribution.




ACT Main Submission to the 2004 Review      683
                                                             Chapter 33 - Superannuation
   TABLE 33.2 –STATE SUPERANNUATION SCHEME COMPARISONS

 Jurisdiction         Scheme                     Nominal Employer Contribution

 Commonwealth         CSS                        21.9%
                      PSS                        14.2%
                      DFRDB                      33.0%
                      MSBS                       22.3%
 ACT                  CSS                        24.3%
                      PSS                        Member contribution plus 11.0% (range
                                                 of 13.0% to 21.0%)

 NSW                  First State Super          9% (SG Minimum)
 QLD                  QSuper
                      -   Defined Benefit        Member contribution plus 7.75% (range
                                                 of 9.75% to 15.75%)

                      -   Accumulation           Contributing member = member
                                                 contribution plus 7.75% (range of 9.75%
                                                 to 15.75%).
                                                 Non-contributing member = 9.0% (SG
                                                 Minimum)
 WA                   Gold State Super           12.0% (based on 5.0% member
                                                 contribution)
                      West State Super           9.0% (SG Minimum)
 SA                   Southern State Super       9.0% (SG Minimum) for member
                                                 contribution >4.5%

 NT                   NTSS                       -
                      NTGPASS                    12.0%
                      AGEST                      9.0% (SG Minimum)
 TAS                  Tasmanian
                      Accumulation Scheme        9.0% (SG Minimum)
Note: The Superannuation Guarantee prescribed minimum (SG Minimum) rate of 9.0%
becomes effective as of 1 July 2002.
The employer contributions, where applicable, exclude the productivity payment component
of 3.0% p.a. In the ACT’s case, this certainly applies to both the CSS and PSS schemes.
Sources: State Superannuation Scheme Annual Reports, 2000-01.

33.26. While the ACT has examined the option of moving to introduce a range
of industry based superannuation funds, there are a number of issues unique
to Canberra which have prevented this.

Proximity of the Commonwealth and ACT Public Sectors

33.27. The close proximity of the Commonwealth and ACT Public Sectors
within the ACT, and their interrelationship, lends itself to a high degree of
workforce mobility. It is common for public servants to span their careers
within both sectors. On this basis, it is more practicable for the ACT to

ACT Main Submission to the 2004 Review          684
                                                            Chapter 33 - Superannuation
maintain its involvement with the Commonwealth’s superannuation schemes,
as both the ACT and Commonwealth would incur additional administration
costs associated with the recurrent transferral of funds if they each operated
separate schemes. In proportional terms, the diseconomies of small scale
faced by the ACT would lead to it bearing far greater costs than the
Commonwealth.

33.28. In addition to its proximity, the significance of the Commonwealth
Public Sector in the ACT 1 requires the ACT Public Sector to offer equivalent
employment conditions in order to remain competitive in the local labour
market. Subsequently, as long as the Commonwealth maintains the PSS, the
ACT has little choice other than to retain the scheme, ensuring a concerted
effort to attract and maintain the necessary skilled labour is put in place.

33.29. If the ACT moved to minimum guarantee superannuation choice,
without a commensurate move by the Commonwealth, the Territory would
place itself in an uncompetitive position in attracting new staff. Given that
ACTPS pay rates are already lower, on average, than for the Commonwealth,
deterioration in superannuation payments would inevitably exacerbate
recruitment difficulties.

33.30. Diseconomies of small scale rule out the feasibility of the ACT
operating its own fund offering competitive benefits. Thus, the ACT’s
superannuation policy decisions are constrained by the Commonwealth, and
until the Federal Government changes to a more cost effective
superannuation policy, such as superannuation choice, it will be necessary for
the ACT to uphold its current arrangements.

33.31. These issues are unique to the ACT, and are a product of its National
Capital status as host to the Commonwealth.

33.32. Conversely, in other States, where the private sector dominates the
economy, State Government superannuation arrangements need only match
private sector alternatives to remain attractive to staff. In most cases this
requires an employer contribution rate as prescribed by the Superannuation
Guarantee Guidelines (currently set at 9%).



    Commonwealth Superannuation Scheme

Underestimation of the CSS costs faced by the ACT

33.33. Currently, the ACT and NT receive a 5% disability allowance to
account for above standard costs of the CSS that they have not been able to
reduce.

33.34. In the lead up to the finalisation of the ACT’s Main Submission to the
2004 Review, the Commission, at the ACT’s behest, ran a simulation of the
superannuation assessment to calculate how much the 5% adjustment was

1
 The Commonwealth Public Sector employs approximately one third of the ACT workforce.
ACT Main Submission to the 2004 Review       685
                                                         Chapter 33 - Superannuation
worth to both the ACT and the NT. The Commission estimates that the
adjustment is worth $5.3m per annum to the ACT and $15.7m per annum to
the NT.

33.35. While the ACT supports the assessment of a CSS adjustment to the
superannuation assessment for both the ACT and NT, it notes that the
current assessment methods:
   do not fully compensate either Territory for the full extent of the above
    standard costs they incur; and
   are currently inconsistent in their application to the ACT and NT.

33.36. In regard to the first dot point, in light of the earlier evidence put
forward by the ACT outlining the high costs of the CSS (Table 33.1), this
allowance significantly underestimates the costs accruing to the ACT.

33.37. In regard to the second dot point above, the ACT is concerned that the
current assessment methods underestimate the costs faced by the ACT, and
overestimate the allowance for the NT. A consistent approach does not
appear to have been used to derive the disabilities accruing to the ACT and
NT.

33.38. The bases underpinning this assertion are that:
   the NT receives substantially more per active CSS member then the ACT -
    the current 5% allowance equates to $1,395 per active ACT CSS member
    and more than $6,000 per active NT CSS member; and
   less than 10% of the Northern Territory’s public servants are in the CSS
    while 95% of ACT public servants are in Commonwealth superannuation
    schemes.

33.39. If the unit costs for CSS members are similar in the ACT and NT, it
could be expected that an allowance of 5% for both States is inconsistent
given the proportion of public servants belonging to the CSS. The current
allowance partially reflects the higher unit costs associated with the CSS for
the ACT and NT, but it does not reflect the demand side of the equation.

33.40. To overcome this, the ACT suggests that the following model be
incorporated into the assessment:

      Above Standard                     Number of                 Allowance
                                X                           =
    Superannuation Unit                  Active CSS
          Costs                           Members

33.41. Given that most States are heading towards Superannuation Choice
and that, under different circumstances, the ACT would also adopt this
approach, it is reasonable to assume that the Superannuation Guarantee
minimum (SG minimum) level of contribution reflects the standard.

33.42. Based on this approach, as evident in Table 33.1, the ACT incurs
$30,657,933 for its public servants in the CSS. Currently, under the 5%

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                                                             Chapter 33 - Superannuation
allowance, the ACT only receives $5.3m for the above standard costs of the
CSS. This is approximately 1/6 of the ACT’s actual additional CSS costs.

33.43. The ACT requests that the CSS superannuation adjustment be
revised upwards to reflect the $30.7m the ACT incurs for the above
standard costs of the CSS.



 Public Sector Superannuation Scheme

33.44. PSS member contributions are matched by at least 13% of their
superannuation salary by employers. A maximum of 16% applies for
membership of less then 10 years (under the ‘ten-year rule’), beyond that the
employer contribution can reach as much as 21% of a member’s
superannuation salary, depending on their contribution rate. In addition,
previous CSS membership counts towards the PSS ten-year rule.

33.45. The more a PSS member contributes, in general, to their
superannuation, the greater the employer funded contribution. This concept
is reflected in Table 33.3, with the rates being well above the Superannuation
Guarantee prescribed minimum of 9%.

                    TABLE 33.3 - PSS CONTRIBUTION RATES

        Member Benefit                Employer Benefit             Total Benefit
        multiple share                 multiple share a              multiple
             (%)                             (%)                        (%)
                2                              13                        15
                3                              14                        17
                4                              15                        19
        5 (standard rate)                      16                        21
                6                             17 b                       23
                7                             18 b                       25
                8                             19 b                       27
                9                             20 b                       29
                                                    b
                10                            21                         31
(a)
  Includes Productivity/Superannuation Guarantee Charge component and interest.
(b)
  These rates are only applicable after ten years of PSS membership.
Source: PSS Members’ Handbook 2001.

PSS allowance

33.46. In light of the evidence put forward in Table 33.1, regarding the above
standard costs of the PSS, the ACT requests that an allowance be
implemented, such as the one granted to the Territories for the above
standard costs of the CSS that they have been unable to reduce. Like the

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                                                      Chapter 33 - Superannuation
CSS, the PSS is also a legacy from the period of Commonwealth
administration.

33.47. Similar to the CSS, an allowance for the PSS should reflect the
demand side of the equation. The ACT suggests the following model be
incorporated into the assessment:

      Above Standard                     Number of              Allowance
                                X                        =
    Superannuation Unit                  Active PSS
          Costs                           Members

1.    Based on a 9% standard level of contribution, the PSS costs the ACT
$6,832,042 or 17% per annum.

33.48. The ACT requests the introduction of an allowance into the
superannuation assessment to reflect the $6.8m per annum the ACT
incurs for the above standard costs of the PSS.




ACT Main Submission to the 2004 Review      688