2004-2005-2006-2007

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

JUDGES’ PENSIONS AMENDMENT BILL 2007

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

(Circulated by authority of the Attorney-General,

the Honourable Philip Ruddock MP)

 

JUDGES’ PENSIONS AMENDMENT BILL 2007

 

OUTLINE

 

The Bill amends the superannuation surcharge related provisions of the Judges’ Pensions Act 1968 and adds a definition of ‘salary’ to the Act.

 

The Judges’ Pensions Act makes provision in relation to the entitlements to pensions of persons who hold office as judges of the High Court of Australia, the Federal Court of Australia and the Family Court of Australia and certain other office holders who are deemed to be judges for the purposes of the Act.

 

Currently, where a judge retires or dies in office with a superannuation surcharge debt, the pension payable to the former judge or dependant or dependants of the former judge, as the case may be, is reduced under a formula in section 6B of the Judges’ Pensions Act.  The formula reduces such a pension by averaging the rates of surcharge that applied to the judge in each full financial year of his or her service. 

 

The Bill remedies technical deficiencies in the formula, the first relating to reduced rates of surcharge in 2003-04 and 2004-05, the second relating to the treatment of invalidity and death benefits, and the third relating to payments made to discharge in part a judge’s surcharge debt. 

 

The formula currently operates so as to reduce a judge’s pension in respect of 2003-04 and 2004-05 by 15%, although the maximum surcharge rates in those years were 14.5% and 12.5% respectively.  The Bill amends the formula, in relation to pension payments made after the amendment comes into force, to reflect the lower rates in those years. 

 

The Bill also amends the formula in its application to invalidity pensions to take into account the abolition of the surcharge from 1 July 2005.  A judge who retires on invalidity grounds before qualifying for a pension on the usual grounds (which are having reached the age of at least 60 years and held office for at least 10 years) is entitled to a pension.  The Bill amends the formula to recognise the period between 1 July 2005 and the time when a judge who retires after that date on invalidity grounds would have first qualified for a pension as years in which no surcharge was payable.  This is how the formula operates following the abolition of the surcharge for judges who qualify for a pension on the usual grounds.  The amendment also applies w here a judge dies in office after 1 July 2005 before qualifying for a pension and a pension is payable under the Judges’ Pensions Act to the spouse or in respect of a dependant child or children.  In such a case, pension entitlements are based on the pension that would have been payable to the judge if the judge had retired on invalidity grounds on the date of death.

 

The formula does not recognise payments to reduce a judge’s surcharge debt made by the judge to the trustee of the Judges’ Pensions Scheme, where the debt is not paid in full.  The Bill permits a judge to elect to have his or her pension commuted to discharge a surcharge debt, rather than have the formula apply.  Commutation operates on the basis of actuarially-determined age-based factors and recognises the actual amount of a judge’s surcharge debt.  Commutation therefore automatically recognises payments which have been made to reduce the amount of the debt.  The Bill permits a judge who retires on or after 1 July 2007 to elect to have a surcharge debt commuted.

 

The Bill permits a spouse of a judge who dies in office on or after that date to choose between having the judge’s pension, on which the spouse’s pension is based, reduced under the formula or under commutation.

 

The Bill allows the trustee of the Judges’ Pension Scheme to draw on an existing special appropriation to pay judges’ surcharge debts to the Australian Taxation Office as they retire.  Once a debt is paid, it may be recovered from the former judge concerned under the formula or through commutation.

 

The Bill also defines salary for pension purposes.  This would ensure increased flexibility for the Remuneration Tribunal in setting serving judges’ entitlements without the Tribunal needing to take into account inadvertent effects that this could have on the pension entitlements of former judges or their dependants.  This arises because the Judges’ Pensions Act sets pension entitlements as a proportion of the salary of a serving judge.  For example, it would mean that the Tribunal could determine a cash allowance in lieu of other vehicle entitlements for serving judges, without the allowance needing to be taken into account in calculating the pension entitlements of former judges or their dependants.

 

FINANCIAL IMPACT STATEMENT

 

Where a judge elects to have his or her pension reduced under commutation rather than under the formula, there would be a small increased cost because the pension would be marginally greater.  However, the present value of the cost for all affected judges is estimated to be less than $1 million.  The cost would be spread over the entire period during which the pensions of affected judges are paid.

 

Reports by the Australian Government Actuary on the long-term costs of the Judges’ Pension Scheme already take into account the payment of judges’ surcharge debts from the existing special appropriation.

NOTES ON CLAUSES

 

Clause 1: Short title

 

1.             Clause 1 is a formal provision specifying the short title of the Bill.

 

Clause 2: Commencement

 

2.             Items 8 to 12, 17 and 19 of Schedule 1 to the Bill commence, or are taken to have commenced, on 1 July 2007.  The other provisions of the Bill commence on the day the Bill receives Royal Assent.

 

Clause 3: Schedule(s)

 

3.             This clause provides that each Act that is specified in a Schedule is amended or repealed as set out in that Schedule, and any other item in a Schedule has effect according to its terms.

 

Schedule 1: Amendments to the Judges’ Pensions Act 1968

 

Part 1 - Amendments

 

Item 1

 

4.             Item 1 amends subsection 4(1) of the Act to insert a definition to clarify what is, and what is not, included within ‘salary’ for the purposes of calculating pensions payable under the Act.  The definition excludes from salary any allowances payable in lieu of any other entitlements.  The definition also makes it clear that any benefits received under salary packaging arrangements are counted as salary for pension purposes.

 

Items 2 to 6

 

5.             Items 2 to 6 amend section 6B of the Act to reflect the reductions in the maximum rate of surcharge from 15% to 14.5% in 2003-04 and 12.5% in 2004-05. 

 

6.             Existing paragraph 6B(2)(a) contains a formula which reduces the pension of a judge who retires with a surcharge debt by the average of the rates of surcharge that applied to the judge in each full financial year of the judge’s service.  Any financial year commencing on or after the surcharge was abolished on 1 July 2005 is counted as a year in which the judge’s rate of surcharge is zero.  The formula is drafted in such a way that for the 2003-04 and 2004-05 financial years the applicable rate is 15%, notwithstanding that the maximum rate was reduced to 14.5% for 2003-04 and 12.5% for 2004-05.

 

7.             The formula in existing paragraph 6B(2)(b) is similar to that in paragraph 6B(2)(a) except that it also quarantines from the effect of the surcharge any earlier service not affected by the surcharge that counts for pension purposes. 

 

8.             Items 2 and 3 repeal the existing formulas and substitute similar new ones.  Items 4 and 5 repeal definitions of terms not referred to in the new formulas and item 6 defines a new term in the new formulas.  The new term, SCS , is the rate of surcharge that applied to a judge for a financial year in the period covered by the formula for the judge.  This term will therefore pick up the lower rates in 2003-04 and 2004-05.

 

Item 7

 

9.             Item 7 replaces the definition of the term Y used in the repealed formula with a new definition for the two new formulas added by items 2 and 3.  Y is the number of financial years over which the rates of surcharge that applied to a judge during service are averaged to establish the rate by which the judge’s pension is reduced. 

 

10.         Where a pension becomes payable to a judge other than on invalidity grounds, the existing definition continues to apply.  Where a pension becomes payable on invalidity grounds, Y is based on the period which the judge would have been required to serve in order to qualify for a pension in the absence of invalidity (that is, the period from appointment and ending when the judge had served for 10 years and reached the age of at least 60). This ensures that the formula recognises the period between 1 July 2005 and when the judge would have qualified for a pension in the usual course as years in which no surcharge was payable. 

 

11.         Where a pension is payable on the death of a judge to the judge’s dependants, and the judge had not qualified for a pension, the pension is based on the pension the judge would have received if he or she had retired on invalidity grounds on the date of death.  The amendment to the definition of Y therefore also applies to pensions payable on the death of a judge.

 

Item 8

 

12.         Item 8 inserts new section 6C of the Act.  This provision allows a judge to elect to commute part of his or her pension rather than be subject to the applicable pension reduction formula in section 6B.  The judge must choose commutation in writing within two months of retiring or section 6B will apply by default.  If the judge chooses commutation, the judge would have his or her pension permanently reduced by a certain percentage depending on the size of the surcharge debt at retirement and actuarially calculated age factors to be included in regulations made under the Act.

 

Items 9 and 10

 

13.         Items 9 and 10 add new subsections 7(2) and 9(3) to the Act.  These provisions allow the spouse of a judge who dies in office to have the judge’s pension, on which spouses’ and eligible child benefits are based, reduced for the judge’s surcharge debt by commutation, rather than under the applicable pension reduction formula in section 6B.

 

14.         The spouse of a deceased judge must choose commutation in writing within two months of the judge’s death or section 6B will apply by default. 

 

Items 11 and 12

 

15.         Items 11 and 12 add new subsections 11(2A) and 12(2A) to the Act.  These provisions allow the person to whom a pension is payable in respect of a judge’s orphaned child or children, where the judge died in office, to have the judge’s pension on which the orphan’s pension is based reduced for the judge’s surcharge debt by commutation, rather than under the applicable pension reduction formula in section 6B.

 

16.         A person eligible to be paid an orphans’ pension must choose commutation in writing within two months after the Attorney-General makes a determination under section 13 of the Act that the pension is payable to that person or section 6B will apply by default. 

 

Item 13

 

17.         Item 13 adds new subsection 19(2A) to the Act, which clarifies that there are no surchargeable contributions, for the purposes of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 , for a judge for a financial year that ends after 1 July 2005, when the surcharge was abolished.

 

Item 14

 

18.         Item 14 adds new subsection 20(4) to the Act, which provides funding by way of a special appropriation for the trustee of the Judges’ Pension Scheme to discharge the trustee’s liability to the Australian Taxation Office where a judge retires or dies in office with a surcharge debt.

 

Part 2 - Application and transitional

 

Item 15

 

19.         Item 15 provides that the definition of salary added to the Act by item 1 applies to all former and current judges.

 

Item 16

 

20.         Item 16 provides that the amendments made by items 2 to 7 to the current method for reducing a judge’s pension where the judge retires with a surcharge debt, in section 6B of the Act, apply to judges regardless of the date of their retirement.

 

Item 17

 

21.         Item 17 provides that the amendments made to the Act by items 8 to 12, introducing the commutation option for discharging judges’ surcharge debts, apply only to judges who retire, or are taken to have retired, on or after those items commence operation.  Under clause 2, items 8 to 12 are taken to have effect from 1 July 2007.

 

Item 18

 

22.         Item 18 provides that the amendment made to the Act by item 14, introducing a new special appropriation covering the payment of judges’ surcharge debts by the trustee of the Judges’ Pension Scheme, applies in relation to amounts which become payable on or after that item commences operation on Royal Assent. 

 

Item 19

 

23.         Item 19 is contingent on the date of Royal Assent to the Bill.  If it is on or after 1 July 2007, and a person who retired on or after that date but before Royal Assent may make an election to have a pension reduced under new section 6C, rather than under section 6B, the person has two months from the date of Royal Assent to make the election.