The purpose of this Circular is to advise you of the affect of the new Superannuation Preservation Rules on medical retirements and voluntary redundancy payments i.e. the benefit allowable as a contributor to a retirement fund.

New Commonwealth superannuation preservation rules will apply to most NSW public sector superannuation schemes with effect from 1 July 1999. The new rules increase the preservation requirements applying to superannuation benefits paid from 1 July 1999 for members who are younger than their "preservation age".

The new rules also increase the "preservation age", which is the age at which lump sum superannuation benefits may be paid to members. The "preservation age" increases in graduated steps from 55 years for those born after 30 June 1960 as follows:

members born in the year 1 July 1960 to 30 June 1961: 56 years;
members born in the year 1 July 1961 to 30 June 1962: 57 years;
members born in the year 1 July 1962 to 30 June 1963: 58 years;
members born in the year 1 July 1963 to 30 June 1964: 59 years;
members born after 30 June 1964: 60 years
 
Employers may also wish to advise employees retiring on medical grounds that the new preservation rules may affect the amount of an invalidity benefit which can be paid to them when they exit the scheme if their last day of service is on or after 1 July 1999. Employers may also wish to advise employees considering voluntary redundancy that this may affect the amount of a superannuation retrenchment benefit that can be paid to them at the time they terminate employment.

The whole of any new benefit accrual from 1 July 1999, including the employer-financed accrual and the member's own contributions must be preserved, together with benefits required to be preserved prior to 1 July 1999, until scheme members satisfy a condition of release. These conditions include death, and permanent invalidity and retirement as defined in the Commonwealth preservation rules. (Members who have reached a "preservation age" that is less than 60 years are not considered to have retired unless they intend never to become gainfully re-employed).

From 1 July 1999, the only part of a lump sum superannuation benefit that can be paid to scheme members who exit employment without meeting a condition of release is a "cashable amount". In accordance with Commonwealth legislation, "cashable amounts" will be calculated for each member asthe greater of:

• the lump sum resignation or retrenchment benefit; or
• the capitalised value of any pension retrenchment benefit, that would have been payable had the member exited the scheme on 1 July 1999, less what had to be preserved under the old rules.

Members who become entitled to a benefit which is less than the "cashable amount" will not be affected by the new preservation rules. The "cashable amount" is not indexed. This means that the impact of the new rules will apply progressively, because over time a greater and greater proportion of superannuation lump sum benefits will need to be preserved.

If benefits are paid in the form of lifelong pensions, then the new rules allow the payment of the pensions, including any preserved pension component, to commence when members terminate employment. Pensions which are paid as lifelong pensions to comply with the Commonwealth preservation rules can never be commuted to lump sums.

Members who wish to retain the right to commute the pension to a lump sum in accordance with the scheme rules may request the trustee to pay any preserved pension component into a separate account established by the trustee until they satisfy a Commonwealth condition of release.

Further information regarding the new preservation rules may be obtained from your employer advisory officer at the Superannuation Administration Authority (SAA). Scheme members may obtain further information about the effect of the new rules by telephoning the SAA's advisory service on (02) 9238 5666 or 1800 45 1112.