Fayez Ali-Ahmed v Sas Trustee Corporation [2006] NSWIRComm 106 (26 June 2006)

Last Updated: 26 June 2006

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION : Fayez Ali-Ahmed v SAS Trustee Corporation [2006] NSWIRComm 106

FILE NUMBER(S): IRC 4642

HEARING DATE(S): 24/3/2006

DECISION DATE: 31/03/2006

PARTIES:

APPELLANT:

Mr Fayez Ali-Ahmed

RESPONDENT:

SAS Trustee Corporation

JUDGMENT OF: Staunton J

LEGAL REPRESENTATIVES

APPELLANT:

Mr F Ali-Ahmed (Self-represented)

RESPONDENT:

Mr B Matthews

Solicitor

CASES CITED:

LEGISLATION CITED: State Authorities Non-Contributory Superannuation Act 1987

State Authorities Superannuation Act 1987

State Authorities Superannuation Regulation 2000

State Authorities Superannuation Regulation 2005

Superannuation Administration Act 1996

Superannuation Guarantee (Administration) Act 1992 (Cth)

JUDGMENT:

- 1 -

INDUSTRIAL COURT OF NEW SOUTH WALES

CORAM: Staunton J

DATE: 31/3/2006

Matter No IRC 4642 of 2005

Fayez Ali-Ahmed v SAS Trustee Corporation

Appeal under s 88 of the Superannuation Administration Act 1996

Glossary of relevant legislation and superannuation schemes referred to:

· Australian Retirement Fund (ARF)

· Superannuation Administration Act 1996 (SA Act)

· State Authorities Superannuation Act 1987 (SAS Act)

· State Authorities Superannuation Scheme (SASS)

· State Authorities Non-Contributory Superannuation Act 1987 (SANS Act)

· State Authorities Superannuation Regulation 2000 (SASR 2000)

· State Authorities Superannuation Regulation 2005 (SASR 2005)

· SAS Trustee Corporation (STC)

· Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act)

JUDGMENT

[2006] NSWIRComm 106

1 This is an appeal brought by Mr Fayez Ali-Ahmed pursuant to s 88 of the SA Act 1996 against the determination by the SAS Trustee Corporation made on 10 October 2005 refusing Mr Ali-Ahmed's application to roll over his superannuation to the ARF.

2 It is the respondent's contention that it is unable to comply with Mr Ali-Ahmed's request because the relevant legislation does not permit it to do so.

3 The respondent's determination in relation to Mr Ali-Ahmed's application was made pursuant to s 67 of the SA Act 1996. Section 67(1) of that Act provides:

(1) A dispute under this or any other Act concerning an STC scheme is to be determined by STC, except as otherwise provided by the regulations.

4 Clause 4, Definitions of the SA Act 1996 provides that, in that Act, reference to STC means the SAS Trustee Corporation 'continued by this Act'.

Relevant factual matters and considerations

5 Mr Ali-Ahmed is currently employed by the Rail Corporation of New South Wales (RailCorp) having commenced employment with it's statutory predecessor on or about 27 April 1977. RailCorp is an employer listed in Schedule 1 of the SAS Act 1987.

6 On 29 January 1992, Mr Ali-Ahmed made application to become a member of SASS and elected to contribute three per cent of his salary to the Scheme.

7 In August 2004, Mr Ali-Ahmed applied for an early release of his superannuation benefits on compassionate grounds citing an inability to repay a loan of $50,000 secured by way of mortgage on his home. At the same time, he applied to reduce his contributions to zero per cent of his salary due to financial hardship.

8 The respondent agreed to Mr Ali-Ahmed's requests and approved a payment to him of $51,064 less tax. This amount represented the whole of the benefit Mr Ali-Ahmed would have been able to withdraw had he resigned at that time.

9 The decision made by the respondent to release the money was done in circumstances where the respondent believed Mr Ali-Ahmed was in danger of losing his family home. His letter to the respondent of 5 September 2004 said as follows:

To whom it may concern,

I am sending this letter to inform you that I have a $50,000 mortgage on my home and I have received a final notice for payment to be made by the 10th of September 2004 and if I cannot meet this date I may be forced to sell my home. I have five children, my wife and myself living in our home. Where are we supposed to go, this has been our home for over fifteen years and it means everything to us. Please consider my circumstances and any assistance you offer is mostly appreciated.

Yours truly

F. Ali-Ahmed

10 It is apparent the respondent had earlier advised Mr Ali-Ahmed that his initial application for early release of his SASS benefit did not meet the requirements for early release. That letter was sent on 20 August 2004. In that letter, the respondent advised that one of the reasons that would justify an application for early release was:

To pay the amount of the mortgage on my principal place of residence that will stop the mortgagee foreclosing the mortgage or selling the residence.

11 It can be safely assumed, I believe, that as a consequence of being advised as above, Mr Ali-Ahmed sent his letter of 5 September 2004, detailing his home mortgage difficulties. In saying that, I accept those difficulties were genuine.

12 The respondent's letter of 20 August 2004 to Mr Ali-Ahmed also contained information as to the process the respondent would follow in registering the early release payment as a debt against future entitlements. That is an issue that ultimately became relevant in the proceedings before me and I will return to it later in this judgment.

13 Of the amount paid out, the greater part consisted of employer financed benefits paid including the Basic Benefit. Mr Ali-Ahmed's personal contributions as a component of the amount paid out in August 2004 was approximately $16,904.00

14 The Basic Benefit component that made up part of the amount paid out is paid by the employer pursuant to the SANS Act 1987 which was established to provide the three per cent superannuation awarded as from 1 April 1988 in lieu of a general wage increase at that time.

15 As a result of the early payment of his superannuation benefits, the employer instituted a debt account in relation to Mr Ali-Ahmed. That debt account is required to be established in accordance with regulation 15B of the SASR 2000 that provides:

(1) This clause applies to the reduction of benefits payable under the Act to or in respect of a contributor or former contributor (other than a benefit payable under section 43B or 43C of the Act) to whom a benefit has been previously released on the ground of the contributor’s or former contributor’s severe financial hardship or on compassionate grounds.

(2) If a benefit is released to a former contributor who has provided for a deferred benefit, STC must, on and from the date of the release, reduce the amount of the deferred benefit by the amount of benefit released. The amount of benefit payable when the deferred benefit is payable is to be reduced accordingly.

(3) In any other case, STC must create a debt account in the Fund in respect of the contributor and must when a benefit is payable reduce the benefit that is payable by the amount debited to the debt account at the time the benefit is payable.

(4) Despite subclause (3), if a contributor provides for a deferred benefit under the Act after the release of a benefit to the contributor concerned and before a benefit is otherwise payable, STC must, on and from the date the benefit is deferred, calculate the amount of benefit deferred and reduce that amount by the amount debited to the debt account at the time the benefit is deferred. The amount of benefit payable when the deferred benefit is payable is to be reduced accordingly.

(5) The amount debited to the debt account is to be the amount of benefit released together with interest on that amount at a rate determined by STC. (emphasis added)

(6) STC may obtain actuarial advice for the purpose of determining the amount of a reduced benefit.

16 The above provisions in 15B of the 2000 Regulation are also contained in the 2005 Regulation: See regulation 21 of the SASR 2005.

17 The provisions in regulation 15B required the setting up of a debt account to register the early payment of $51,064 as a debt owed by Mr Ali Ahmed to be deducted from any future deferred benefit paid to him.

18 As sub-regulation (5) above makes clear, this debt includes provision for interest 'at a rate determined by the STC'. According to the respondent, that interest rate is the fund earning rate for the intervening period. The intervening period refers to the period from when the benefit is paid out early and is then repaid or, if it is never repaid, the time the contributor exits from the Scheme.

19 Although the appeal filed by Mr Ali-Ahmed does not raise the issue, it became clear at the outset of proceedings that it was the interest charged on the early release debt, as well as ongoing interest charges that will accumulate year to year on that debt, that precipitated Mr Ali-Ahmed's application to have his superannuation entitlements transferred to another fund. As best as I can ascertain, Mr Ali-Ahmed not only believed the interest charged was unreasonable but that the only way to escape further interest charges was to change funds.

20 In 2005, Mr Ali Ahmed received his 2005 superannuation statement from the respondent. In that statement, the respondent set out his early release debt as follows:

Early Release Debt

$

Balance at 30 June 2004

0.00

Surcharge Tax assessed/adjusted this year

N/A

Early Release amount paid

-51,064.40

Repayment received

N/A

Interest Adjustment this year

-5,951.86

Balance at 30 June 2005

-57,016.26

21 Taking that early release debt into account, the respondent calculated Mr Ali-Ahmed's total withdrawal benefit as at 30 June 2005 to be $1434.43. His withdrawal benefits as at 30 June 2004 had stood at $51,163.82. As the above details reveal, the interest charged on the early release debt was not insignificant.

22 Before considering the interest issue to the extent possible in these proceedings, I will deal with the substance of Mr Ali-Ahmed's appeal being the respondent's refusal to transfer his superannuation as requested.

The powers of the Commission on appeal

23 Section 88 of the SA Act provides the power of the Commission to deal with appeals relevantly as follows:

(3) In dealing with the appeal, the Commission may exercise any function that could have been exercised by STC in making the determination the subject of the appeal.

(4) In dealing with the appeal, the Commission is to have regard to this Act and any other relevant provisions regulating the superannuation scheme concerned and such other matters as it considers to be relevant.

(5) In dealing with the appeal, the Commission is not bound by the rules of evidence and may inform itself in any manner it thinks fit.

(6) The final determination made by the Commission on the appeal is to be given effect to as if it were a determination of STC.

24 Together, the combined provisions of ss 88(3) and (4) above circumscribe the role of the Commission on appeals. Section 88(4), however, allows the Commission to have regard to 'such other matters as it considers to be relevant'. Such a provision is broad and general in its import and presumably was not meant to be rendered otiose in its application. Nevertheless, it would seem to me, the phrase 'such other matters it considers relevant' cannot be construed as extending the power of the Commission to deal with superannuation appeals beyond the legislative framework that underpins the particular scheme and superannuation generally. In that sense, reference to 'other matters' must, by implication, refer to matters of fact and law relating to superannuation generally or the relevant scheme in particular.

Factual matters relevant to the appeal and considerations arising

25 In or about early October 2005, Mr Ali-Ahmed wrote to his employer requesting that they provide him with a statement of employer contributions to his SASS account. RailCorp responded relevantly as follows:

... Please be advised that employer contributions to SASS are not paid on an individual member basis.

RailCorp makes monthly payment to SASS according to the amount invoiced by State Super. The amount charged and paid is not recorded on an individual basis therefore there is no amount shown on your pay dockets. ...

26 Mr Ali-Ahmed pursued this matter with the respondent in the same terms. There is no evidence before me as to whether or not the respondent did reply to that particular request. What is clear is that the respondent did reply to Mr Ali-Ahmed's request, presumably made in October 2005, to transfer his superannuation to the Australian Retirement Fund (ARF). On 11 October 2005, the respondent advised Mr Ali-Ahmed that it declined to roll over his superannuation to the ARF for the following reasons:

I refer to your dispute in connection with your application to roll over your superannuation from the State Authorities Superannuation Scheme to the Australian Retirement Fund.

At the meeting of the STC Disputes Committee on 10 October 2005 (rescheduled from 6 October), the Committee:

· noted that the State Authorities Superannuation Act 1987 does not provide for the benefit of an eligible contributor to the State Authorities Superannuation Scheme (SASS) to be paid out or rolled over until the termination of the contributor's employment, except where ss 43B and 43C relating to release of benefits on hardship and compassionate grounds apply, and that STC has already released the maximum amount to Mr Ali-Ahmed on these grounds;

· noted that the Superannuation Guarantee (Administration) Act 1992 (Cth) ("the SGA Act") provides that contributions by an employer to an unfunded public sector scheme satisfy the 'choice of funds' requirements;

· noted that SASS is an unfunded public sector scheme;

· noted that the SGA Act also prevents a member of a defined benefit fund such as SASS from making a choice of fund;

· determined the dispute in this matter pursuant to s 67 of the Superannuation Administration Act 1996 by declining to roll over Mr Ali-Ahmed's superannuation to the Australian Retirement Fund, on the basis that STC lacks power to do so.

27 As I have earlier stated, Mr Ali-Ahmed's request to roll over his superannuation funds to the ARF stems from his unhappiness about the interest charged against his early release debt. Surprisingly however, Mr Ali-Ahmed never articulated his unhappiness to the respondent in those terms. Apart from asking the respondent to detail his employer's contributions to SASS and requesting a transfer of his superannuation to the ARF, Mr Ali-Ahmed, as best as I can determine, never requested the respondent to revisit the issue of the interest on his early release debt.

28 The nub of Mr Ali-Ahmed's appeal cannot be properly considered without reference to the nature of, and the relevant legislative provisions pertaining to, the superannuation scheme of which Mr Ali-Ahmed is a member.

29 To start with, the superannuation fund of which Mr Ali-Ahmed is a member is a defined benefit fund and not an accumulation fund. In many respects, the differences between those two types of superannuation funds goes to the heart of Mr Ali-Ahmed's appeal and those matters that arise for consideration.

30 As a defined benefit scheme, SASS provides a benefit on retirement in three parts:

(a) The contributor financed benefit is a accumulation of the member's personal contributions and investment earnings less management charges;

(b) The employer financed benefit is a defined benefit calculated by reference to the member's final average salary, the number of accrued benefit points and a multiple. A member accrues one benefit point by contributing one per cent of salary for one year;

(c) The Basic Benefit, which is a defined benefit of three per cent of final average salary for each year of service from 1 April 1988. Entitlement to the basic benefit arises under the SANS Act 1987.

31 Accumulation superannuation schemes consist predominantly of employer based contributions calculated by reference to a percentage of the employee's salary. The ultimate benefit is determined on the accumulated investment returns earned up to the point of retirement less management charges.

32 Until relevantly recent times, employer contributions paid pursuant to an accumulation superannuation fund were paid into a nominated employer or industry fund.

33 Recent amendments to the SGA Act 1992 (Cth) have permitted an employee to select a superannuation fund of his/her choice to which the employer contributions are to be made: See Part 3A - Choice of Fund Requirements of that Act. I will refer to those provisions in more detail later in this judgment.

34 As a defined benefit superannuation scheme, the SASS is now closed to new members and has been since November 1992. Membership of the SASS was not compulsory. That much is clear from the provision of s 19(1) of the SAS Act 1987 that provides as follows:

(1) An employee may at any time lodge with STC an election to contribute to the Fund.

35 The further provisions of s 19, specifically s 19(2)(b), specifies the rate at which the employee chooses to contribute to the Fund, being the rate of 1, 2, 3, 4, 5, 6, 7, 8 or 9 per cent of the employee’s salary. As earlier stated, when Mr Ali-Ahmed joined SASS in 1992, he elected to contribute three per cent of his salary. That contribution continued until 2004 when he cancelled that contribution. He is currently making zero per cent contributions to the Scheme.

36 On that latter point, s 25 of the SAS Act deals with the contributor's, that is, the employee's, liability to contribute and continue contributing until employment ceases. On that point, s 25 of the SAS Act provides:

(1) Where an election under section 19 takes effect, the person who made the election becomes, and remains, liable to pay to the Fund the contributions prescribed by this Part and, except as provided by sections 27, 28, 29 and 35A, to pay those contributions in respect of successive contribution periods:

(a) commencing with the contribution period in which the contributor’s entry date occurs, and

(b) ending with the last complete contribution period ending on or before the contributor’s exit date.

(2) A contributor’s contributions to the Fund shall be calculated on the basis of the contribution periods applicable to the contributor and a contribution payable in respect of a contribution period shall be paid to STC within 7 days after the last day of that period.

(3) A contributor’s contributions to the Fund are payable to STC by the employer by which the contributor is employed and the employer is entitled to deduct those contributions from any amount or amounts that may become payable by the employer to the contributor, whether as salary or otherwise.

(4) STC may, in a particular case, charge interest calculated on a daily basis at a rate determined by STC on a contribution to the Fund for any period during which the contribution remains unpaid after the time allowed for payment under subsection (2) and any such interest:

(a) shall be paid to STC by the employer in default, and

(b) is not chargeable against any employee.

(5) An employee is not entitled to contribute to the Fund, and STC is not to accept a contribution to the Fund offered by an employee, unless the employee is under 70 years of age.

(6) A contributor is not entitled to accrue benefit points after attaining the age of 70 years.

37 Reference in s 25(1)(b) above to the contributor's liability to continue to contribute to the Fund ending with the contributor's 'exit date' is understood by reference to s 3 of the SAS Act which defines 'exit date' as follows:

exit date, in relation to a contributor, means the date on which the contributor ceases employment with an employer, that cessation of employment being:

(a) the only such cessation of employment of the contributor, or

(b) where there has been more than one such cessation of employment of the contributor - the later or latest of those cessations of employment.

38 For the purposes of the appeal before me, it is timely to note at this point that Mr Ali-Ahmed has not yet reached his exit date. He continues to be employed by RailCorp.

39 In the defined benefit provisions of the SASS Scheme, the contributions to be made by employers listed under Part 1 of Schedule 1 (that includes Mr Ali-Ahmed's employer RailCorp) are set out in s 31 of the SAS Act as follows:

Where a contributor is employed by an employer specified in Part 1 of Schedule 1, the employer shall pay to the Fund an amount equal to a multiple of the contributions payable to the Fund by the contributor, being a multiple determined by STC, in relation to the employer, with the concurrence of the Treasurer.

40 As I understand it, the 'multiple' referred to in s 31 is determined on the basis of actuarial evaluation obtained by the respondent pursuant to s 18 of the SAS Act. The actuary assesses a common multiple that the employer needs to pay in respect of all employees in SASS so as to meet future benefits for which the employer is liable. The employer then contributes an aggregate amount for the whole cohort of it's employees in SASS - that is to say, it is not possible to identify from within the employer contributions at any time, any specific amounts paid in respect of an individual contributor.

41 As was explained on behalf of the respondent:

... the way SAS works essentially is the employer is expected or required to fund the benefit for a person who gets to retirement of about two and a half times of what the employee puts in. So if the person puts in the maximum average of six per cent of their salary the employer's notional contribution or the benefit that the employer would have to contribute would be 15%.

Now, if a contributing employee was only putting in as they could choose to do, one or two per cent, or indeed if there was temporary financial hardship and they were allowed to contribute, as this applicant is, is at zero, he is still a contributor. But technically the amount is zero and that is for a temporary period. ... then it's evident that the employer component will be a small amount as well.

... what the employer is funding in circumstances like that would be less than the superannuation guarantee requirement. That is the 9%. ... In a case like that the employer would be contributing something, potentially something less than the 9% if it wasn't for s45 D. But presumably the actuary must take into account that some of the people might be contributing or may be only (contributing) one or two per cent to ensure that when such an employee's benefit emerges there will be enough money in the fund to pay at least the equivalent of the superannuation guarantee charge which should be similar to what a person would have got if they had been in an accumulation scheme.

I think one of the problems is that in a defined benefit fund like this the only accounts that exists for an employee is the accounts into which his own contributions are put from his salary. There is no account as such for an employee in respect of the employer contributions. There is simply an obligation on the employer to pay a certain amount of the benefit worked out under a formula and so you can't say that when Mr Ali-Ahmed says how much money did the employer pay into my account last year, the answer is there is no such thing. There is a benefit that the employer is obliged to fund. When an event happens which triggers a benefit payment.

Her Honour: That being either a la the exit date or as Mr Ali-Ahmed has done, a benefit payment earlier than he might otherwise be entitled on what's called financial hardship ground?

Matthews: That is so.

42 Section 14 of the SAS Act provides for the establishment of reserves into which the employer contributions are made and from which each employer financed benefit is paid. Further, s 37 of the SAS Act provides for the manner in which the benefit, including the employer financed benefit, is determined on retirement at age 58 or thereafter as follows:

(1) The benefit provided by this section is payable by STC when a contributor retires from employment with an employer on or after reaching the early retirement age or dies during employment with an employer on or after reaching that age and is so payable:

(a) where the benefit becomes payable on the contributor retiring - to the contributor,

(b) where the benefit becomes payable on the death of the contributor and the contributor is survived by a spouse or de facto partner - to the contributor’s spouse or de facto partner, or

(c) where the benefit becomes payable on the death of the contributor and the contributor is not survived by a spouse or de facto partner - to the personal representatives of the contributor or, if appropriate, in accordance with section 51 (Payment without grant of probate etc).

(2) The benefit provided by this section is an amount equal to the sum of:

(a) the amount of the contributor-financed benefit, and

(b) an amount of employer-financed benefit calculated in accordance with the formula:

E = F x A x 0.025

where:

E represents the amount to be ascertained,

F represents the contributor’s final average salary, and

A represents the accrued benefit points for the contributor at the contributor’s exit date.

(3) If STC makes a determination under section 45A in relation to a benefit to be provided by this section, the amount of that benefit is reduced by the amount specified in STC’s determination.

43 The respondent contends that, having regard to the above provisions of the SAS Act, and the SANS Act with respect to the Basic Benefit, Mr Ali-Ahmed remains a contributor to SASS until he ceases employment with his employer under those Acts. Further, until that event occurs, the respondent is not permitted to roll over or transfer his superannuation to another Scheme in the absence of any provision of those Acts authorising it to do so. In making that submission, the respondent points specifically to the relevant provisions of the SGA Act 1992 (Cth) to which I have earlier referred.

44 In order to exercise the Choice of Fund provisions of the SGA Act, the fund nominated has to be a chosen fund as prescribed by Part 3A s 32F of that Act. As a general proposition, it can be said that a defined benefit fund is not such a fund. In order to understand that latter comment, it is necessary in the first instance to have regard to s 6 of the SGA Act where 'defined benefit member' is defined as follows:

Defined benefit member means a member entitled on retirement to be paid a benefit defined, wholly or in part, by reference to either or both of the following:

(a) the amount of the member's salary:

(i) at the date of the member's retirement or an earlier date;

or

(ii) averaged over a period before retirement;

(b) a specified amount.

45 Further, s 6A Interpretation: defined benefit superannuation scheme defines a defined benefit superannuation scheme as follows:

(1) Subject to subsection (2), a defined benefit superannuation scheme is a scheme under which:

(a) one or more members of the scheme are entitled, on retirement, to be paid a benefit defined, wholly or in part, by reference to either or both of the following:

(i) the amount of the member’s annual salary:

(A) at the date of the member’s retirement; or

(B) at a date before retirement; or

(C) averaged over a period of employment before retirement;

(ii) a specified amount; and

(b) if the scheme is not a public sector scheme—some or all of the contributions under the scheme (out of which, together with earnings on those contributions, the benefits are to be paid) are not paid into a fund, or accumulated in a fund, in respect of any individual member but are paid into and accumulated in a fund in the form of an aggregate amount.

(2) A scheme embodied in the governing rules of a superannuation fund (other than a scheme of the kind referred to in subsection (1)) is a defined benefit superannuation scheme if a conversion notice has effect in relation to the fund or scheme.

(3) If the conversion notice is expressed to take effect on a day before the day on which the notice is given, the scheme in question is taken to have been a defined benefit superannuation scheme from the day on which the notice is expressed to take effect.

(4) Subsection (3) has effect regardless of the making of any assessment, or the payment of any superannuation guarantee charge, in respect of a quarter that ended after the conversion notice took effect.

46 Finally, s 32F(3) of the SGA Act provides as follows:

(3) A fund (the selected fund) cannot become a chosen fund for an employee under this section if:

(a) immediately before the employee gave the notice to the employer, the employee was a defined benefit member of a defined benefit superannuation scheme; and

(b) even if the selected fund were to become a chosen fund for the employee, the employee would be entitled, on the employee’s retirement, resignation or retrenchment, to the same amount of benefit from the defined benefit superannuation scheme as the employee would be entitled if the selected fund were not a chosen fund for the employee.

47 In effect, s 32F(3) of the SGA Act prevents an employee who is a defined benefit member choosing a fund unless the defined benefit fund (in this case SASS) would still pay the full benefit on retirement even though the member in the meantime chose another fund to receive his/her Superannuation Guarantee (SG) contribution. This is not the case with SASS and would not be the case, as I would understand it, for any defined benefit scheme. In relation to SASS in particular, it could not occur because s 45D of the SAS Act provides that the benefit financed by the employer must be sufficient to avoid any SG shortfall. But the employee cannot have both.

48 Further, support for the respondent's contention that a defined benefit scheme cannot become a chosen fund under the SGA Act 1992 (Cth) is to be found in an Interpretative Decision of the Australian Tax Office issued on 9 May 2005 (ATO ID 2005/141) which relevantly stated as follows:

Issue

Can a fund, selected by an employee who is a member of a defined benefit scheme become a chosen fund for the member under section 32Fof the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Decision

No. A fund selected by an employee who is a member of a defined benefit scheme cannot become a chosen fund for the member under section 32F of the SGAA by virtue of subsection 32F(3), as none of the powers under the trust deed of the defined benefit scheme are exercised as a result of the member making a choice. The member remains entitled to the same amount of benefit from the scheme.

Facts

The employer makes superannuation contributions to a superannuation scheme for the benefit of its employees.

The scheme is a defined benefit superannuation scheme within the meaning of subsection 6A(1) of the SGAA.

The members of the scheme are defined benefit members within the meaning of subsection 6(1) of the SGAA.

There are a number of provisions available under the trust deed of the defined benefit scheme which can be used to change the amounts of the benefits payable to a member of the scheme in certain circumstances.

However, there are no provisions in the trust deed which result in the benefits of members being altered as a direct result of an employee choosing another fund as their chosen fund.

...

According to the Explanatory Memorandum that accompanied the Bill which inserted the choice of fund requirements into the SGAA, the purpose of subsection 32F(3) is to ensure that an employer will not have to make contributions to a fund chosen by the employee while also being required to finance that employee's right to receive a full retirement, retrenchment or resignation benefit from the defined benefit fund.

49 Further, it would seem that whilesoever Mr Ali-Ahmed continues to be employed by RailCorp and is a member of a defined benefit scheme as described, he is unable to exercise any choice to transfer his superannuation to another fund because the employer financed benefit, which is a defined benefit, is calculated by reference to the employee's final average salary. There is no final average salary yet able to be determined for Mr Ali-Ahmed as he continues in employment with RailCorp.

50 Additionally, the provisions of s 35F(3) of the SGA Act have to be viewed in light of the provisions of s 45D of the SAS Act that provides:

(1) Minimum benefits

STC must, after obtaining actuarial advice, determine what the minimum employer-financed benefit would have to be to ensure that there is no superannuation guarantee shortfall.

(2) Increase in benefits

An employer-financed benefit provided by an employer is, despite any other provision of this or any other Act, not to be less than the minimum benefit determined under subsection (1). The benefit that would otherwise be payable under this Act is increased to the extent necessary for the purposes of complying with this section.

(3) Increase in benefit to be paid from non-contributory scheme

The amount of any increase in benefit is to be debited by STC from the employer reserve of the employer concerned established under the State Authorities Non-contributory Superannuation Act 1987.

(4) Definition

In this section, employer-financed benefit means the sum of the employer-financed benefit under this Act, any basic benefit under the State Authorities Non-contributory Superannuation Act 1987 and any employer-financed benefit of a kind provided by the State Authorities Non-contributory Superannuation Act 1987.

51 Having regard to the respondent's compliance obligations under s 45D of the SAS Act above, it follows that the employer is liable to fund an employer financed benefit which is at least equivalent to that which Mr Ali-Ahmed would have received if his employer had made superannuation guaranteed contributions on his behalf. Whether the combined benefit financed by the employer to Mr Ali-Ahmed under the combined provisions of the SAS Act and the SANS Act will be less than what the benefit represented by superannuation guaranteed contributions would have been, cannot be ascertained until he ceases employment and the benefit becomes payable, calculated in accordance with the relevant formula. At that time, s 45D of the SAS Act 1987 will apply to ensure that there is no superannuation guarantee shortfall in the employer financed benefit.

52 In all the circumstances therefore, if Mr Ali-Ahmed was permitted to transfer his superannuation to the ARF or some other nominated accumulation fund, his employer would be required to pay superannuation guarantee contributions to that fund in respect of him as well as remaining liable to finance his retirement benefit in SASS including any superannuation guarantee shortfall under s 45D of the SAS Act. In all the circumstances, I would agree with the submission of the respondent that the exception provided in s 32F(3) of the SGA Act 1992 (Cth) seems intended to avoid such a result.

53 Having regard to all of the above, I am not persuaded that the relevant provisions of the legislation to which I have referred together with those matters which I have taken into consideration, permit me to accede to the substance of Mr Ali-Ahmed's appeal that the respondent should roll over his superannuation entitlements under SASS to the ARF. Accordingly, Mr Ali-Ahmed's appeal as pressed is dismissed.

54 In my view, however, that is not the conclusion of the matter.

The interest on the early release debt

55 I refer particularly to Regulation 15B(5) of the SASR 2000 which provides:

The amount debited to the debt account is to be the amount of benefit released together with interest on that amount at a rate determined by STC. (emphasis added)

56 There is no information currently before me that tells me precisely what the current interest rate is that is being applied to Mr Ali-Ahmed's early release debt. On behalf of the respondent, it was stated that the interest rate would be the current fund earnings rate. It would be matter of general knowledge, in my view, that superannuation funds have for the past few years operated in a market of buoyant investment returns. Further, doing a crude calculation based on Mr Ali-Ahmed's debt of $51,064.40 and the interest charged on that being recorded as $5,951.86 results in an interest rate of approximately 11.65 per cent.

57 What makes this approach prima facie potentially financially punitive, in my view, is that the adjusted balance of Mr Ali-Ahmed's early release debt as at 30 June 2005 is now $57,016.26. That is the figure that will be used to calculate a further interest adjustment for the 2006 year and so on. It is not too hard to envisage an outcome for Mr Ali-Ahmed where ultimately the accumulated interest adjustment to his early release debt will potentially outstrip any ultimate benefit that he may receive from the Fund. It is not surprising, on one view, that Mr Ali-Ahmed was and is unhappy with the financial position of his account as it currently stands and as it potentially may be in the foreseeable future.

58 Mr Ali-Ahmed was unrepresented in the appeal proceedings before me and was assisted only by an interpreter. He did however make clear that if he had known about the interest rate adjustment approach taken by the respondent to his early release debt, to use his words, 'he would have gone to a bank instead' to borrow the money that he needed to assist him in his home mortgage difficulties. That is a view that is difficult to accept without question. As I indicated to him at the time, he would still have had to pay interest on any monies loaned by a bank.

59 To a limited extent, Mr Ali-Ahmed was aware of the respondent's intention to create the early release debt account. That much is clear in the correspondence sent to him on 20 August last to which I have earlier referred where this issue was referred to as follows:

The early release of part of your superannuation benefit will reduce the amount of the scheme benefits you will receive in the future. If you are a current contributor a debt account adjusted for interest will be created. A debt will be deducted from the SANCS Basic Benefit entitlement first. The reduction of a pension benefit will be calculated using actuarial factors. Details of your debt account or deferred benefit reduction, as appropriate will be shown on your annual benefit statement.

60 It is entirely probable that when Mr Ali-Ahmed received that correspondence, he did not fully appreciate the implications for his superannuation account that the above passage presumed to convey. Mr Ali-Ahmed's grasp of English is relatively limited. Further, it must be said that the legal niceties and complexities surrounding superannuation generally are not ones that would be readily apparent to a person such as Mr Ali-Ahmed. It has to be said, however, when this matter was first mentioned before me Mr Ali-Ahmed was strongly advised to seek his own independent legal advice, preferably from a person or persons with knowledge of superannuation and its complexities. It would seem Mr Ali-Ahmed did approach the Legal Aid Commission but, not surprisingly, received no assistance from that quarter. Beyond that, Mr Ali-Ahmed has not pursued any alternative avenue for advice and stated that the submissions filed by the respondent had nothing whatsoever to do with the appeal that he had filed. That is most certainly not the case but it does highlight Mr Ali-Ahmed's difficulty with the English language, his somewhat stubborn refusal to seek assistance from the right quarters and that the real issue in this matter is the interest rate debt, not necessarily the desire to roll over his superannuation from SASS to the ARF.

61 On any view, it is clear that the willingness of the respondent to release Mr Ali-Ahmed's benefits early required the respondent to give to Mr Ali-Ahmed monies that, in part, belonged to the employer and were in the relevant reserve fund earning interest. However, a proportion of the money that was going into any reserve accounts in relation to Mr Ali-Ahmed was Mr Ali-Ahmed's. I refer in the first instance to Mr Ali-Ahmed's own personal contributions which formed part of the $51,064 that he received. That amount was $16,904.10. Further, from 1992 and up to the time the early release payment was made (and continuing for that matter), Mr Ali-Ahmed was entitled, as of right, to the three per cent Basic Benefit. That is his money. As I understand it, that money also formed part of the monies paid out to Mr Ali-Ahmed by way of early release payment.

62 Further, there is also an amount of money representing the superannuation guarantee charge over and above the initial three per cent Basic Benefit that has been increasing since 1992 up to 2004. The SGC now stands at nine per cent. In other words, within that early release benefit paid, there were monies that belong to Mr Ali-Ahmed as of right, part by way of personal contribution and part by way of legal and statutory entitlement. If there is interest foregone on those amounts, that is interest foregone by Mr Ali-Ahmed as much as by the respondent. Without more, it would appear that Mr Ali-Ahmed is being doubly penalised. That is, he is foregoing interest earned on monies that rightfully and legally belongs to him and at the same time he is being charged interest for early access to that same money.

63 It seems to me that the respondent is being unfair to Mr Ali-Ahmed in simply applying an interest rate to the total amount of the early release debt without in any way offsetting that proportion of those monies which rightfully are Mr Ali-Ahmed's. To put it in the alternative, the respondent is making no offsetting adjustment against any interest payments for that proportion of the early release payment that, at the time the early release payment was made, 'belonged' to Mr Ali-Ahmed, in part being his own personal contributions and partly arising from his legal and statutory entitlements.

64 I believe that the respondent should be able to consider Mr Ali-Ahmed's early release debt taking into account those factors I have identified and should accordingly be able to adjust the interest rate on the debt in a way that does not reflect so punitively as it currently appears to be doing. The extent of that adjustment is obviously not able to be determined by me in these proceedings given the absence of any precise details as to how the respondent approaches it's actuarial calculations in relation to such matters. Nevertheless I believe, given that the interest rate on the early release debt is set at 'a rate to be determined by the STC', it should be an interest rate that properly accommodates the source and entitlement of all funds being held by the respondent relevant to Mr Ali-Ahmed.

65 Section 88(4) provides that the Commission is to have regard to, inter alia, 'such other matters as it considers to be relevant'. In relation to Mr Ali-Ahmed's matter, I do consider that the Commission is entitled to have regard to those matters that I have detailed above. They are extremely relevant to the position that Mr Ali-Ahmed finds himself in having regard to the interest being charged against his early release debt.

66 In all the circumstances, I believe that the respondent should re-examine Mr Ali-Ahmed's account with a view to acting upon the matters I have raised. Having done that, they should then advise Mr Ali-Ahmed of their further considerations in relation to his superannuation account. Depending on the respondent's further considerations and determination on this matter, it may well be that Mr Ali-Ahmed would wish to exercise further appeal rights in relation to any determination made by the respondent concerning that matter.

67 Mr Ali-Ahmed's current appeal went solely to the issue of the respondent's refusal, for the reasons given, to transfer his superannuation account to the ARF. For reasons I have already detailed, that cannot be done and his appeal therefore fails and is dismissed.

68 That, however, does not preclude Mr Ali-Ahmed pursuing further appeal rights in relation to any determination made by the respondent concerning the interest rate adjustment on his early release debt.

LAST UPDATED: 31/03/2006