The government has rammed draft laws to prevent an up to $8 billion hit to the budget through the Senate, following a Federal Court case over public service superannuation.

Foreign affairs official Brendan Peace and other parties successfully argued in court the Commonwealth should have paid superannuation on rent-free accommodation allowances received on overseas postings.

It was argued the Commonwealth was in breach of enterprise agreements and federal workplace laws, reducing the value of Mr Peace’s superannuation entitlement.

The laws – which now go to the lower house – would be retrospective, meaning around 10,000 public servants employed since 1986 would not be able to access lump sums, which could be worth between $1 million and $11 million each.

Finance Minister Katy Gallagher said the Federal Court decision could have “widespread, significant, unintended and inequitable financial ramifications for Commonwealth employees and the Commonwealth”.

The ramifications included some public servants receiving significant windfall increases in superannuation benefits well beyond community standards only because they have received rent-free housing, and that others could incur large, unexpected debts.

“Since the taxpayer pays the rent, the employee gets their salary. Super is paid on their salary, but not on their rent,” Senator Gallagher told the Senate on Wednesday.

“(Public servants) receiving an annualised pension in the order of $200,000 could increase to over a million dollars a year.

“It doesn’t pass the pub test. It’s out of line with community expectations about the adequacy of superannuation arrangements and that’s why we are dealing with this today.”

Senator Gallagher says the bill isn’t about “ripping things away” or being disrespectful to the public service, but rather about clarifying administrative practice.

As well, the Commonwealth could incur “significant additional costs to meet increased superannuation benefits and additional employer contributions”, Senator Gallagher said.

The bill passed with the support of the opposition, but was opposed by the Greens.

The finance minister also defended ramming the legislation through the Senate, calling the procedure the exception rather than the rule.

“We accept this is an unusual way of dealing with legislation and I don’t bring this legislation to the chamber lightly and have no intention of treating the chamber with any disrespect at all. But this bill is urgent,” Senator Gallagher said.

– AAP