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Parliamentary Contributory Superannuation Legislation Amendment Bill 1995



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House: House of Representatives

Portfolio: Finance

Commencement: The provisions dealt with in this Digest commence on Royal Assent.

Purpose

To allow the Trust which deals with Parliamentary superannuation to grant a longer period for re- elected Members of Parliament to contract to repay any previously received lump sum; and to provide that the amount to be repaid will reflect changes in Parliamentarian's remuneration.

Background

The Parliamentary Contributory Superannuation Scheme (PCS) provides benefits for members of Parliament who have contributed to the scheme and have served the required period to become eligible. Eligibility is based on the number of years of service in the Parliament, whether retirement is voluntary or involuntary, and whether the person has retired due to ill health.

If retirement is voluntary, the person will be eligible for a benefit if they have completed 12 years of service in Parliament or have ceased to be a Member or Senator on four occasions due to the dissolution or expiration of the term for their Chamber (i.e. they have been re- elected a minimum of three times).

If retirement is involuntary, a person will be eligible for a benefit if they have completed 8 years of service or have ceased to be a Member or Senator on three occasions due to the dissolution or expiration of the term for their Chamber.

Where retirement is due to ill health that is attributable to their service in the Parliament, they will also be eligible for a benefit even if their service is less than eight years.

The rate of benefit payable depends on the length of service and the position/s held by the former Member or Senator. Benefits are based on a percentage of the person's Parliamentary allowance (which includes salary) and range from 50% for eight years service to 75% for 18 or more years service with increases of 2.5% per year of service over 8 years. Where retirement is due to ill health, the person is deemed to have served for 8 years. If the person has served as a Minister or another office in which they received additional salary (e.g. as a Committee Chair), the rate of benefit is increased by 6.25% of the additional salary for each year the person served in that office. The PCS also provides for the commutation of part, to a maximum of 50%, of the benefit to a lump sum; and for benefits to be payable to spouses where the person dies while a Member of Parliament.

If a member of the PCS is ineligible for a benefit, they receive a return of their contributions and a supplement, which is generally 2.33 times their contributions.

Members and Senators are required to contribute to PCS, with the rate of contribution being 11.5% of their Parliamentary allowance where service is less than 18 years and 5.75% for people with 18 or more years service.

Where a person has left Parliament and subsequently been re- elected, the following apply:

* if the person only received their contributions and a supplement on leaving Parliament (i.e. they were not eligible to receive a benefit) and returns the amount received to the Trustees, their previous service will be taken into account in determining any benefit they may be eligible for on subsequently leaving Parliament (in such a case they must enter an agreement within 3 months, or six months if the Trustees allow, to repay the amount within 3 years);

* if the person received a benefit, the benefit will be cancelled and the person will again become a contributor; and

* if part or all of the benefit was commuted, they will retain the lump sum and any benefit subsequently payable will be reduced by the amount commuted or the annual value of the amount commuted if the person receives an annual benefit.

The PCS scheme has been criticised on a number of grounds, principally the relatively large benefits available after short contribution periods and the payability of a pension to people who have not reached retirement age. While it is very difficult to make direct comparisons with private sector superannuation schemes, as levels of contributions differ and the benefits available under private sector schemes depend on the level of earnings of the fund, the following remarks may be made in regard to the benefits available under the PCS scheme:

* the availability of a 50% pension after 8 years contribution greatly exceeds the benefits that are available from general private sector schemes;

* the maximum rate of a 75% pension after 18 years contribution is very generous compared to general private sector schemes;

* the PCS scheme provides a pension from the time an eligible member leaves Parliament while most private sector schemes require benefits to be preserved until at least age 55;

* the members of PCS contribution rate under the PCS scheme before 18 years service is reached (11.5%) exceeds normal contribution rates; 1

* the actuarial value of pensions available under the PCS scheme exceeds the reasonable benefits limits; 2 and

* in addition to benefits under the PCS scheme, former politicians may be eligible for other benefits, such as a Gold Pass for restricted free travel.

Main Provisions

The Schedule of the Bill will amend section 20 of the Parliamentary Contributory Superannuation Act 1948 which deals with the treatment of members of PCS who have been re- elected to Parliament. The amendments will:

* extend the period during which the Trustees may allow a contract to be entered into for the repayment of previously received contributions and supplement from 6 months to 12 months (Item 1); and

* provide that the amount that the re- elected former member of PCS must repay will be multiplied by the ratio of any change in Parliamentary allowance since the person last left Parliament (this will update the amount that must be repaid to reflect changes, normally increases, in Parliamentary allowances since the person left Parliament) (Item 2).

Proposed sub- section 20(1AE) will make it clear that if a person fails to enter a contract for the repayment of previously received contributions and supplement their previous service is not to be taken into account in determining any future benefit (Item 2).

Transitional provisions are contained in Item 3. Where a re- elected former member of the PCS received their contributions and a supplement and has not entered, and was not eligible to enter, into a contract for repayment, they will have three months after the commencement of this Bill to enter into such a contract. This will extend the period that the person has to enter into such a contract from 3 months after re- election to 3 months after commencement of this Bill.

Endnotes

1. However, it has recently been reported that a contribution rate of 12% to 15% `would result in an income just sufficient to meet many people's needs' - The Age, 30 January 1995 reporting on a Association of Superannuation Funds of Australia conference.

2. It has been reported that the actuarial value of the pension available to the recently resigned Member for Canberra is $1.3 million, with an annual pension of approximately $70 000 - The Canberra Times, 29 January 1995.

Chris Field (Ph. 06 2772439)

Bills Digest Service 8 February 1995

Parliamentary Research Service

This Digest does not have any legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects amendments.

Commonwealth of Australia 1995.

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1995.