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Parliamentary Contributory Superannuation Amendment Bill 1996
House: House of Representatives
Commencement: Schedule 1 provisions will be taken to have commenced on 2 March 1996. Other provisions will commence on Royal Assent.
To ensure the accrued retirement benefits of serving members and pensioners are not reduced as a consequence of the Government's post-election decision to cut some Ministerial salaries.
The Parliamentary Contributory Superannuation Scheme (PCS) provides benefits for members of Parliament who have contributed to the scheme and have served the waiting period. 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 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 (ie. 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 attributable to their service in the Parliament, they will also be eligible even if their service is less than eight years.
Calculating the rate
The rate of benefit 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 8 years service to 75% for 18 years or more, 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 in another office in which they received additional salary (eg. 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 of the benefit to a lump sum (to a maximum of 50%); 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 serve.
Back after a break
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 leavingParliament (ie. they were not eligible to receive a benefit) and returns that amount 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 scheme's critics
The PCS scheme has been criticised on a number of grounds. For example, former Independent member, Ted Mack, is reported as saying that:
... the parliamentary superannuation scheme is a rip-off, allowing politicians to get out after serving only seven or eight years with generously indexed pensions of $50,000 or more a year for life.
... some people who enter Parliament in their early 20s can achieve financial security for life by the time they reach 30 with fully-indexed pensions for life under the generous superannuation scheme.
Once a politician is elected, they can sit back for three years if they want. There is no other job that could provide such security. 1
Arguments put forward by supporters of the PCS include that the generous pension payments are:
...compensation for a risky career that could be cut short at the whim of a fickle electorate. 2
The Prime Minister, in supporting the PCS has said:
The MPs' pension scheme is generous, there's no doubt about that. It's also true that, in relation to salaries paid in the private sector, the salaries paid to people in politics are not high. 3
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, it is worth noting that:
. the availability of a 50% pension after 8 years contribution greatly exceeds the benefits available from most general private sector schemes;
. the maximum rate of a 75% pension after 18 year contribution is very generous compared to most 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 actuarial value of pensions available under the PCS scheme exceeds the reasonable benefits limits; 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.
The objective given by the Government in the Second Reading Speech is to 'prevent a decrease in accrued parliamentary pension entitlements of current and former members or their spouses resulting from the new Ministerial salary arrangements, and any salary reductions in the future.'
The reference above to 'the new Ministerial salary arrangements' is a reference to a post election decision of the Howard Government to reduce the salaries payable to ministers not in Cabinet. The proposed reductions have resulted in a two-tiered pay structure under which the 15 Cabinet ministers receive a base ministerial salary of $52,862 (drawn from amounts payable under the Ministers of State Act 1952) on top of the rate payable as a Member or Senator, approximately $80,000 (drawn from amounts payable under the annual Appropriation (Parliamentary Departments) Act). 4 The 13 members of the outer ministry are to receive a ministerial salary of approximately $122,000, approximately $10,000 less than Cabinet minsters.
The Prime Minister is reported to have made the cuts because of differing workloads for Cabinet Ministers and their junior colleagues and as a demonstration of the Government's zeal for a leaner administration. 5
A new section 22T, dealing with the calculation of retiring allowance where there has been a decrease in parliamentary allowance and salary, is inserted in the Parliamentary Contributory Superannuation Act 1948 by item 5 of Schedule 1.
The retiring allowance payable to a member is based on a calculation of their parliamentary allowance and salary (the salary component based on the pay of comparable office holders). 'The effect is that benefits are linked, at any point in time, directly to the salaries payable at that time.' 6
Proposed section 22T provides that where there is a reduction in the rate of allowance payable to a member, salary payable to a Minister of State and allowance by way of salary payable to an office holder (the underlying payment) after 2 March 1996, the rate of underlying payment is taken to be that applicable before the decrease (the preserved rate). The preserved rate will operate until the underlying payment eventually catches up with it (ie through statutory pay rises etc).
The Bill is designed to protect the accrued benefits of pensioners and serving members from a reduction due to the cut in some Ministerial salaries.
For example, comparable Ministers who have retired would lose money if this Bill fails to pass. The reduction in actual salaries would have meant that they would be paid with reference to the lower rate, rather than the higher rate operating before the election.
The Explanatory Memorandum to the Bill explains:
'Where a parliamentary salary is reduced, as occurred to the salary payable to Ministers not in the Cabinet after the 2 March 1996 Election, the actual dollar amount paid to pensioners based on that salary is reduced. Members who had previously held such offices and are still servicing in the Parliament could also suffer a loss of accrued benefits on retirement.'
1 The West-Australian, 8 June 1996.
3 The Sun-Herald, 9 June 1996.
4 The Sydney Morning Herald, 16 April 1996.
5 The Sydney Morning Herald, 16 April 1996.
6 Parliamentary Contributory Superannuation Amendment Bill 1996, Explanatory Memorandum.
Ian Ireland Ph. 06 277 2430
Bronwyn Young Ph. 06 2772699
Bills Digest Service
Parliamentary Research Service
20 June 1996
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
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, 1996.