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Rule changes pave way for more equitable distribution of earnings for preserved benefit members
Update: 19 September 2006
The SLA (SSOM) Bill 2005 was passed by the Senate on the 19th of September 2006 (including the amendment to the date for negative crediting - 1 July 2007) and is awaiting Royal Assent.
In last year's annual report, we advised members that rule changes had been proposed that will enable the Board to allocate more equitably Fund earnings between members who leave the scheme during a period of negative earnings and those who stay.
It is important to note that these changes will have little impact on PSS contributing members because (with the exception of some benefits transferred from other funds) their total gross benefit is defined by their rate of contributions, length of contributory membership and final average salary with investment performance only affecting the ratio of funded to unfunded components.
We took the first step in a transition phase towards more equitable distribution of earnings with the changes to the crediting and exit rate policies in 2004, which took effect from 1 July 2003.
The rule changes represent the next step in this transition phase. They will enable the Board , in the future, to remove the prohibition on negative crediting rates so that returns more accurately reflect the actual earnings of the Fund and more choices can be offered to members.
However, administration capabilities must be assessed, and upgraded if necessary, before the Board can lift the prohibition on negative rates. This means that, although the Bill is expected to be passed in 2006, it is not expected the Board will make any changes to the relevant policies immediately.
If and when the Board lifts the prohibition, members' balances will not fall below those as at 30 June 2003, and any contributions up until when the Bill takes effect.
In addition to administration capabilities, the Board has to consider:
- allocation of earnings since 1 July 2003 to members (currently the exit rate reflects earning rates since 1 July 2003 and is only being allocated when members exit);
- an appropriate crediting rate policy going forward; and
- application of a negative crediting rate to earnings since 1 July 2003 and to contributions from the commencement of the Bill.
Of course, there may be other factors in the future which will require consideration, but we will give members notice of any changes if and when they are decided.
8 March 2006