Nick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

Well, they are simply not allowed to. These people are not allowed to take advantage of the concession. While the lump sum benefit cap in these schemes is just over a million dollars, it is worth noting that this roughly equates to some 40 years of $25,000 contributions.

Members elected after October 2004 have contributions made into an accumulation fund and they have the ability to salary sacrifice. However, they are subject to the caps and subject to the reduced caps, the same as anyone else. Older public servants are also in untaxed schemes, like the PCSS, and thus are subject not to annual contributions caps but, rather, to benefits tax. While the cap reduction thus does not affect their entitlement in the untaxed scheme to the extent that they salary sacrifice elsewhere into a private scheme, those contributions will now be limited by the reduced caps.

The grandfathering arrangements apply to private sector defined benefit funds. As contributions are made into these schemes regularly they are subject to the annual caps. Given that the nature of these schemes is that the contributions are pooled rather than made for individual members, an actuary determines an annual notional contribution each year. Also, private sector DB schemes often have contribution rates predetermined and these cannot be adjusted by the members. When contribution caps were first introduced, which was as a consequence of Better Super, it was decided by the previous government—and we supported the previous government’s approach —that these schemes would be grandfathered.

So I say to Senator Xenophon that the exclusion, if you like, does not just apply to politicians’ schemes. The effective exclusion applies to all defined benefit funds. This means that they are still subject to caps but, to the extent they were predetermined contribution levels that exceeded the caps, they would have those contributions set as equal to the cap, whatever the cap is. For example, if their contributions were predetermined at $55,000, they were deemed to be $50,000. Similarly, under the new changes, if contributions had been predetermined prior to the budget announcement as being, say, $30,000, they would be deemed under the new grandfathering to be $25,000. This means they would not breach the caps by virtue of the predetermined defined benefit contributions. However, if they then in addition salary sacrifice to another fund, they would exceed the caps. They lose the grandfathering if they move to further increase benefits outside the grandfathered private sector fund. For that reason I would argue that the second reading amendment of Senator Xenophon is inappropriate.

I do not have the time to deal with Senator Fielding’s amendment, but we will deal with that in committee. I have taken the time at the conclusion of the second reading debate to outline our reasons for opposing Senator Xenophon’s amendment to the second reading and to provide some further information to Senator Milne with respect to current and new law, and the way in which it would apply to backpackers. I thank all senators for their contribution to the debate. This is important legislation and the government will be opposing the Xenophon second reading amendment.

Question put:

That the amendment (Senator Xenophon’s) be agreed to.