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Background The Retirement Benefits Fund (RBF) was established in accordance with the Retirement Benefits Act 1970. In 1982, 1987, 1993 and 1999 major amendments were made to the legislation. The Retirement Benefits Act 1993 (1993 Act) provides a framework for the now closed defined benefit scheme. The details of the scheme are set out in the Retirement Benefits Regulations 1994 (1994 Regulations), with savings and transitional arrangements specified in the Retirement Benefits (Transitional) Regulations 1994. Since 1 January 2003, the RBF consists of the:
Trustee The trustee of the RBF is the Retirement Benefits Fund Board, which consists of seven members appointed by the Governor. The 1994 Regulations provides that Unions Tasmania must consent to the appointment of the President of the Board, as the position is an independent position without voting rights (except in certain limited circumstances). Defined benefit scheme members elect one member of the Board, TAS members elect another member and a third member is nominated by Unions Tasmania. The remaining three members are nominees of the Treasurer. Details of the current members of the RBF Board can be found on the RBF website. Scheme Design Membership Membership of the RBF defined benefit scheme includes all permanent public sector employees, including permanent employees of Government Business Enterprises (GBEs), State-owned Companies (SOCs) and statutory authorities who were employed before 15 May 1999. The scheme also applies to some temporary or fixed-term employees. Member contributions Members of the defined benefit scheme are required to make compulsory employee contributions, with the basic (default) contribution rate being five per cent of the employee’s salary. A closed group of members are able to contribute at the rate of 2.5 per cent of their salary. The maximum contribution rate is 15 per cent of salary. Members can also make voluntary contributions, including salary sacrifice contributions. Such contributions are credited to the member’s RBF-TAS investment account. Member benefits The member superannuation benefit is calculated in terms of a lump sum, which is based upon the length of the member’s contributory service, the average salary of the contributor during the last three years of service and a benefit multiple factor (BMF). The BMF for a member contributing at the basic rate of five per cent of salary is 0.2. The following formula is used: LS = FAS(3) x BMF x Years of Service For example, if an RBF member contributed to the defined benefit scheme at the rate of five per cent of salary for 30 years with a three year final average salary for superannuation purposes of $50 000 per annum, that member would be entitled to a lump sum benefit of $300 000. All or part of this lump sum entitlement may be converted to a life pension. Such pensions are indexed twice a year in accordance with increases in the national Consumer Price Index (CPI). Where a contributor resigns prior to age 55 with more than five years’ contributory service, he or she is entitled to a benefit calculated on the same basis as above. However, unless the member satisfies an earlier condition of release (eg financial hardship), the Commonwealth’s preservation rules apply, which means that the employer share of the end benefit (currently 70 per cent of the total benefit), the employee contributions made since 1 July 1999, and any earnings of the fund in respect of the period from 1 July 1999, must be preserved until that person reaches his or her preservation age. The unfunded employer share of the benefit must be preserved in a Compulsory Preservation Account (CPA), but any funded benefits are preserved in the member’s Investment Account. A benefit in the CPA is indexed twice a year in accordance with the increase in the national CPI or Average Weekly Ordinary Time Earnings, whichever is the greater. Once the person reaches his or her preservation age, the employer component of the benefit is funded and the benefit is automatically transferred to his or her RBF-TAS Investment Account. Under the preservation rules, while a member may transfer this benefit to another complying superannuation scheme or roll-over fund of his or her choice, that member will not be able to access this benefit until retirement from the workforce. A benefit is also payable in the event that a member of the defined benefit scheme dies, becomes permanently incapacitated or is made redundant. Further information in relation to these benefits can be found on the RBF website. Anti-detriment provisions The RBF defined benefit scheme also contains anti-detriment provisions that ensure that contributors who joined the scheme prior to 1 July 1994 are able to access the benefits that they would otherwise have been entitled to receive under the provisions of the Retirement Benefits Act 1982. Membership Information on the membership of the RBF defined benefit scheme is outlined in Table 3. For the purposes of this table, children’s pensions are regarded as reversionary pensions. Table 3 Membership of RBF defined benefit scheme
Funding The RBF defined benefit scheme is a partially funded scheme. Employer contributions are paid on an emerging cost basis when:
When the benefit becomes payable, the employer-funded share of the benefit is reimbursed to the RBF Board from the SPA account on behalf of Agencies and directly by the remaining government organisations. Member contributions are invested by the RBF Board. These contributions, and the interest which accrues on the contributions, are referred to as Fund Assets in Table 5. The RBF defined benefit scheme’s enabling legislation required the State Actuary to review the state and sufficiency of the RBF fund every three years and, if necessary, recommend to the Treasurer whether the employer proportion should be varied in any way. As from 30 June 1996, the State Actuary has also reviewed the RBF scheme on an annual basis. The RBF defined benefit scheme was originally designed on the basis that the public sector employer would pay five-sevenths (71.43 per cent) of any benefits that included an employer component. As a result of the State Actuary’s triennial reviews, there have been changes to the level of employer contributions. The current employer contribution rate is 70 per cent of the benefit. The proportion of benefits met by the employer since the scheme’s inception in 1971 is shown in Table 4. Table 4 Employer funding of the RBF defined benefit scheme
For example, if a RBF defined benefit scheme member retired in 1982, and is currently in receipt of a RBF pension of $1 000 per fortnight, the public sector employer would reimburse the RBF Board an amount of $820 each fortnight. With the closure of the RBF defined benefit scheme to new employees in May 1999, it is expected that, at some point in the future, the percentage level of employer funding will once again increase above the scheme design level of 71.43 per cent. Without the employee contributions of new and younger scheme members, there will be insufficient time for the contributions of existing members to make investment returns which will cover the increase in benefits that will apply to these members by virtue of salary increases or promotions. Against this, however, will be the reduction in the absolute (total dollar) level of employer contributions as the number of defined benefit scheme members declines. Liabilities The Tasmanian Government's gross unfunded superannuation liability is an estimate of the “indebtedness” of the State with respect to past service liabilities arising from the current and former members of unfunded or partially funded public sector superannuation schemes. The Government's decision in 1999 to close the public sector defined benefit schemes to new employees has capped the State's unfunded superannuation liability in the sense that employees appointed since 15 May 1999 do not add to the liability. This is because the employer contributions towards these employees’ superannuation benefit is funded as it accrues. Table 5 outlines the superannuation assets and liabilities in respect of the General Government Sector from 30 June 1995. Table 5 Gross and net liabilities of the RBF scheme – General Government Sector
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