Summary
Superannuation contributions are required in respect of an executive.
An executive may choose to cease their membership of a defined benefits scheme but must be a member of another complying fund.
An executive may choose to be a member of more than one superannuation scheme, e.g. a defined benefits scheme (if eligible) and an accumulation scheme.
An executive may be able to sacrifice salary into their superannuation fund. Refer to the ATO website for rulings on effective salary sacrifice arrangements.
7.1 General Superannuation Information
Superannuation is a complex area and this handbook does not attempt to provide advice to individuals. This handbook outlines government policy and the choices available to employees.
A general information paper that executives may find useful is available on the VPSC website.
7.1.1. Which Superannuation Fund?
There are two types of superannuation fund: accumulation schemes and defined benefits schemes.
Accumulation schemes are lump sum funds where the investment of the individual and earnings on that investment determine the outcome for the individual on retirement. The employer contribution required under the Superannuation Guarantee (Administration) Act 1992 (Cth) is made into the accumulation fund.
The compulsory superannuation contribution is currently 10 per cent of “ordinary time earnings” (as defined for purposes of the Superannuation Guarantee legislation).
Defined benefits schemes operating in the broader Victorian public sector are, with the exception of the Emergency Services Superannuation Scheme which is open only to operational emergency services workers, closed to new membership. These schemes are established by legislation and have a prescribed level of contribution. They provide a defined benefit by way of lump sum, pension, or a combination of the two. The closed defined benefits schemes include the Revised Scheme, New Scheme, Transport Scheme and the SERB Scheme.
Appendix E details the employer contribution required to be made to the defined benefits schemes.
All executives are required to be members of a complying superannuation fund. However, choices are available in terms of the superannuation provider. As some executives will have been members of statutory superannuation schemes prior to entering into executive contracts the choices are complex.
Executives are required to make employer and employee superannuation contributions from their TRP if they are under a defined benefits scheme.
It is strongly recommended that executives seek financial advice before making decisions relating to superannuation.
Executives joining the public service, or who are already a member of an accumulation scheme must ensure their scheme is a complying superannuation fund or choose a complying superannuation fund to which employer contributions can be paid. Executives are required to provide the necessary documentation to their employer to prove their fund is a complying fund if a fund other than the default fund is chosen by an individual. (Most funds provide this proof by way of a ‘complying fund status’ letter which can be easily accessed on their website.)
VicSuper is currently the default provider for public service employees. However, ESSSuper can accept contributions where the executive has ceased membership of one of the defined benefit funds and still have funds with the fund.
7.1.2. Superable Salary
Defined benefits schemes superable salary, as elected by the executive, is:
- 70 per cent of the total remuneration package
- the pre-contract superable salary, if that salary is higher.
These limits are established by State legislation in the Superannuation (Public Sector) Act 1992 (Vic) and are therefore not able to be altered in any way.
Accumulation scheme members employer contribution is calculated on the basis of a notion of salary called “ordinary time earnings” in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth).
7.2 Superannuation Requirements
7.2.1. Employees Contributing to Superannuation
Employees in Victorian public service agencies and certain other public sector organisations are able to contribute their employee contributions either after tax as a personal contribution (also called a ‘non-concessional contribution’) or before tax which can include through a salary sacrifice arrangement. Salary sacrifice contributions are considered to be employer contributions (also called ‘concessional contributions’).
The conditions for an effective salary sacrifice arrangement have been decided by ATO rulings and policy (refer to the ATO website). Executives are strongly advised to obtain independent financial advice before entering a salary sacrifice arrangement. Employers accept no liability for an executive’s decision to request a salary sacrifice arrangement.
Employee contributions to defined benefits schemes are defined in the State Superannuation Act 1988.
Employees who are members of accumulation schemes may contribute additional voluntary contributions (whether concessional or non-concessional) subject to the rules of the relevant fund.
Limits apply with respect to concessional and non-concessional contributions. If contributions are made above these limits, additional tax may apply. Please check with your super scheme or the ATO website.
7.2.2. Employee Responsibilities
A member of a statutory superannuation scheme, as defined in section 3 of the Superannuation (Public Sector) Act 1992 (Cth), who is about to enter an executive contract, must elect to either continue or cease to be a member of that scheme.
An executive should carefully consider their decision because once a choice has been made to cease membership of a statutory superannuation scheme that decision cannot be reversed.
The choice to remain in a statutory superannuation scheme may be changed prospectively at any time in the future.
When commencing a new contract, executives must nominate a super fund for their employer to make contributions. Executives should seek independent financial advice before making any decisions about their superannuation.
For more information about contributing towards superannuation refer to:
- the VPSC website;
- the Emergency Services and State Super (ESSSuper) website;
- independent financial advice.
7.2.3. Lump Sum Payments Towards Superannuation
You may be able to make lump sum contributions directly into an accumulation superannuation fund either as a concessional contribution or a non-concessional contribution. Check the rules of your fund and the ATO website.
7.2.4. Temporary Changes to Remuneration (including Higher Duties Allowance)
Where an assignment is for a period of more than 12 months, the higher level of remuneration may be included in salary for superannuation purposes in a defined benefit scheme and also will constitute “ordinary time earnings” for Superannuation Guarantee purposes for members of accumulation funds.
7.2.5. Termination Benefits
Where an executive has elected to remain in a defined benefits scheme, membership of that scheme ceases on cessation of employment. The nature of any payment from the superannuation fund will be determined by the fund in accordance with the Superannuation (Public Sector) Act 1992 and will depend on the reasons for the cessation of employment.
7.2.6. Maximum super contribution base
The amount of superannuation payable for some executives may increase each year as a result of the indexation of the maximum super contribution base (MSCB) by the Australian Taxation Office. The superannuation guarantee and MSCB apply to executives who are members of accumulation schemes. The superannuation guarantee and MSCB do not apply to executives who are members of defined benefits schemes (such as the Emergency Services and State Super Defined Benefits Scheme).
VPS employers who use the VPS contract must bear the cost of increases to both the superannuation guarantee and the annual ATO indexation of the MSCB. Increases to the amount of superannuation payable as a result of the MSCB indexation will be required for executives whose base salary exceeds the amount of the MSCB. Under the contract, these increases must be passed onto executives without any impact on base salary.
If an executive’s remuneration is described as: “base salary + other benefits + superannuation”, the change will be to the superannuation component only. The executive’s salary component and other benefits cannot be reduced to offset the additional superannuation payments. Employers are not to offset the cost of the changes to superannuation by passing on less of the annual adjustment to an individual executive than they otherwise would have.
VPS employers do not need to seek the Tribunal’s advice under section 37 of the Victorian Independent Remuneration Tribunal and Improving Parliamentary Standards Act 2019 if an employer increases an executive’s superannuation benefits to comply with the Superannuation Guarantee (Administration) Act 1992 (Cth) and this results in the executive being paid above the relevant remuneration band.
7.2.7. Superannuation Guarantee rate
The compulsory superannuation contribution is currently 10 per cent. There are legislated annual increases to that rate scheduled between 2021 and 2025. Those increases must be passed on to executives without any impact on base salary. More information about the dates of the increases can be viewed on the ATO website.
7.2.8. Mandatory superannuation contributions
Executives who are entitled to the 10 per cent superannuation contribution rate (accumulation fund members) are only entitled to receive contributions up to the maximum super contribution base amount which the ATO sets each year. For executives earning above the maximum superannuation contribution base, the 10 per cent will be capped and updated subject to indexation each year. For executives earning below the maximum superannuation contribution base, the contribution rate will be 10 per cent of their salary.
The monetary value of the 10 per cent should be updated in each executive’s contract annually where there has been any change their remuneration package to ensure they receive their mandatory superannuation contribution.
7.2.9. Superannuation contributions during periods of parental leave
Executives are entitled to have superannuation contributions made by their employer in respect of the period of Primary Caregiver parental leave that occurs on or after 1 July 2020, capped at 52 weeks. Where a period of absence commenced before but concluded after 1 July 2020, an executive will be entitled to superannuation contributions for the portion of leave that occurred after 1 July 2020.
The superannuation contribution amount paid will be the applicable contribution rate under the Superannuation Guarantee (Administration) Act 1992 (Cth) at the time the payment is made, on “ordinary time earnings”.
The employer will pay the superannuation contribution as a lump sum to the executive’s superannuation fund on or before the first superannuation guarantee quarterly payment due date following the executive’s return to work at the conclusion of their Primary Caregiver parental leave.