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Superannuation Laws Amendment Bill 1994



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House: House of Representatives

Portfolio: Finance

Commencement: Other than Division 8 of Part 2, which contains a technical definitional amendment and commences on 1 July 1990, the Bill commences on 1 July 1994.

Purpose

The provisions of this Bill relate to the compulsory contributory superannuation scheme applying to Senators and Members of the Parliament of Australia. The major amendments provide for:

* the preservation of retirement benefits and disclosure of scheme information;

* the determination of applications for invalidity retirement;

* three levels of invalidity retirement benefits; and

* a decrease in the retirement benefit reduction for holders of offices of profit and a threshold below which a reduction will not apply.

Background

Parliamentary Contribution Superannuation Scheme

The Parliamentary Contributory Superannuation Act 1948 (the Principal Act) provides a contributory superannuation scheme (the Scheme) under which benefits are paid to former members of Parliament, their spouses, orphan children and personal representatives. The Scheme is administered by the Department of Finance under the direction of the Parliamentary Retiring Allowances Trust (the Trust). The Trust consists of five trustees - the Minister for Finance, two Senators and two Members.

At 30 June 1993 there were 223 Senators and Members contributing to the Scheme. 1 There were 264 former Senators and Members receiving benefits under the Scheme at 30 June 1993. 2 Benefits payable under the Scheme are paid out of the Consolidated Revenue Fund and in 1992- 93, benefit payments totalled $12 895 489. 3

Contributions

Contributions to the Scheme are compulsory (section 13). For Senators and Members whose period of parliamentary service is less than 18 years, the rate of contribution is eleven and one- half percent of the monthly parliamentary allowance to which he/she is entitled [subsection 13(1)]. In the case of a Senator or Member whose period of parliamentary service is 18 years or more, the rate of contribution is five and three- quarter per cent of the monthly parliamentary allowance to which he/she is entitled [subsection 13(1)]. Additional salary or allowance received by a Senator or Member for parliamentary service as a Minister or office- holder is subject to a contribution rate of eleven and one- half percent, in the case of a Senator or Member whose period of service is less than 18 years, and five and three quarter per cent in the case of a Senator or Member whose period of service is 18 years or more [subsections 13(2)- 13(4)].

Benefits Payable To Senators and Members

Under section 18 of the Principal Act, a Senator or Member is entitled to a retirement benefit if:

* 12 or more years service has been completed [subsection 18(1A)];

* the period of parliamentary service is less than 12 years but the Senator or Member has on four occasions ceased to be a Senator or Member because of the dissolution or expiration of the House of which he/she is a member or on the expiration of his/her term of office [subsection 18(1B)]; or

* retirement is involuntary and the Senator or Member has completed 8 years of parliamentary service or on three occasions has ceased to be a Senator or Member because of the dissolution or expiration of the House of which he/she was a member or on the expiration of his/her term of office [subsection 18(2)].

A Senator or Member who does not qualify for a retirement benefit under the above provisions may yet qualify for a benefit where their retirement is attributable to work related injuries. Under section 18A of the Principal Act, where the Trust is satisfied that the retirement was due to ill- health and that ill- health is attributable to a physical or mental injury or condition sustained while the Senator or Member was a member of Parliament, the former Senator or Member is deemed to have completed 8 years parliamentary service and hence qualify for a retirement benefit.

Lump Sum Payments

Provision is made under section 18B of the Principal Act for Senators and Members entitled to a retirement benefit (other than a person who retired by reason of ill- health) to elect to commute up to a maximum of 50% of their retirement benefit to a lump sum payment. Under section 18B, the lump sum is calculated by multiplying the annual amount of a retirement benefit by 10 if the Senator or Members is under 66 years of age or has reached 66 but retires from Parliament at the end of the term of office during which they reached that age. In other cases, the multiplication by 10 is reduced by one twenty- fourth for each month by which the Senators or Members age at retirement is over 65. 4

Rates Of Retirement Benefits

The rates of retirement benefits payable to retired Senators and Members are set out in subsection 18(6) of the Principal Act and are expressed as a percentage of the parliamentary allowance payable. The rates are:

Complete Years Of Service

Percentage Of Parliamentary Allowance

8

50.00

9

52.50

10

55.00

11

57.50

12

60.00

13

62.50

14

65.00

15

67.50

16

70.00

17

72.50

18 or more

75.00

An additional retirement benefit under subsection 18(9) is payable to Senators and Members for parliamentary service as a Minister or office holder. The additional benefit is expressed as a percentage of the additional salary payable for that office. The percentage is obtained by multiplying 6.25% by the number of years the Senator or Member served in the office [subsection 18(10)].

Prior Service In A State Parliament Or The Northern Territory Legislative Assembly

Previous service in a State Parliament or the Northern Territory Legislative Assembly is taken into account for the purposes of the Scheme where the Senator or Member is entitled to a retirement benefit arising out of their former service, or they received a lump sum payment and enter into an agreement with the Trust within 3 months, or, if the Trust allows, 6 months after becoming a Senator or Member, to pay that lump sum to the Commonwealth within 3 years [subsection 20A(1)].

Where a Senator or Member is entitled to a retirement benefit under the Scheme, that benefit is reduced by the rate of any pension received for service in the State Parliament or the Northern Territory Assembly (section 21).

Senators and Members Who Hold Offices Of Profit Under the Commonwealth or a State

Section 21B of the Principal Act reduces the retirement benefits of Senators and Members who hold an office of profit under the Commonwealth or a State. The retirement benefit of a Senator or Member is reduced by the lesser of the amount of the remuneration paid from the office of profit and:

* if the Senator or Member has not commuted part of his/her benefit to a lump sum - one- half of the benefit; or

* if the Senator or Member has commuted part of his/her benefit to a lump sum - one- half of the benefit [subsection 21B(4)].

The term "holder of an office under the Commonwealth" is defined by section 21B to mean:

(a) the Governor- General;

(b) a Justice or Judge of a federal court;

(c) a person who, by virtue of an Act, has the same status as a Justice or Judge of a federal court or of the Supreme Court of a Territory;

(d) the holder of an office referred to in paragraph (a) of the definition of "office of Permanent Head" in subsection 7(1) of the Public Service Act 1922;

(e) a head of mission within the meaning of the Vienna Convention on Diplomatic Relations, a copy of the English text of which is set out in the Schedule to the Diplomatic Privileges and Immunities Act 1967, or a head of consular post within the meaning of the Vienna Convention on Consular Relations, a copy of the English text of which is set out in the Schedule to the Consular Privileges and Immunities Act 1972, being mission sent, or consular post established, by Australia; or

(f) the holder of a public office within the meaning of Part II of the Remuneration Tribunals Act 1973.

The term "holder of an office of profit under State" is defined by subsection 21B(1) to mean:

(a) the Governor of the State;

(b) a Justice or Judge of a court of the State;

(c) a magistrate; or

(d) the holder of:

(i) an office established for a public purpose by or under a law of the State, being an office appointments to which are or may be made by:

(A) the Governor of the State; or

(B) a Minister of the State; or

(ii) any other appointments made for a public purpose by:

(A) the Governor of the State; or

(B) a Minister of the State;

but does not include a member of the Parliament of the State.

Main Provisions

Preservation Of Scheme Benefits

A new section 16A, containing a definition of the term "superannuation guarantee safety- net amount", will be inserted into the Principal Act by clause 6. Proposed subsection 16A(1) defines the term "superannuation guarantee safety- net amount" as the sum of the following:

* a Senator's or Member's contributions made after 30 June 1992 (the date the Superannuation Guarantee (Administration) Act 1992 came into effect);

* interest accrued on the above contributions if they had been made under the superannuation scheme established by the Superannuation Act 1990;

* the minimum employer contribution that the Commonwealth would have had to contribute to avoid having any individual superannuation guarantee shortfall;

* interest accrued on the above contributions if they had been made under the superannuation scheme established by the Superannuation Act 1990; and

* where a Senator or Member was entitled to a parliamentary allowance at all times since 30 June 1992 and would have been entitled to a lump sum retirement benefit had they retired voluntarily on 30 June 1992, the lump sum and interest on that lump sum if that lump sum comprised contributions made under the superannuation scheme established by the Superannuation Act 1990.

Subclause 7(a) provides that Senators or Members who retire involuntarily before qualifying for a retirement benefit are entitled to receive the greater of:

* his/her contributions and the Commonwealth's supplement; or

* the superannuation guarantee safety- net amount (see proposed section 16A).

Subclause 7(c) provides that Senators or Members who retire voluntarily before qualifying for a retirement benefit are entitled to receive which ever is the greater of the following:

* his/her contributions and 50% of the Commonwealth's supplement; or

* the superannuation guarantee safety- net amount.

A new section 26B, dealing with the preservation of Scheme retirement benefits and disclosure of Scheme information to members, will be inserted into the Principal Act by clause 11. Proposed subsection 26B(2) provides that the Superannuation Industry (Supervision) Regulations (the SIS Regulations) apply to the Trust and the Scheme. The effect of clause 11 is to provide for the preservation of Scheme retirement benefits and the disclosure of Scheme information to contributors. Where retirement benefits payable to a Senator or Member are required by the SIS Regulations to be preserved, those benefits must be paid:

* if the Senator or Member nominates a regulated superannuation fund within 90 days of the benefit becoming payable, that fund;

* if the Senator or Member nominates an approved deposit fund within 90 days of the benefit becoming payable, that deposit fund;

* subject to certain specified conditions, a deferred annuity (the conditions include, for example, that the annuity does not provide for the payments except when the person retires after reaching age 55, dies, or such other circumstances as the Insurance Superannuation Commissioner approves); or

* in any other case, to an approved deposit fund nominated by the Trust.

Invalidity

New section 4D, which will be inserted into the Principal Act by clause 14, sets out the matters which the Trust or a medical practitioner must consider when determining the percentage of a Senator or Members incapacity in relation to non- parliamentary employment. The matters include, but are not limited to, the following:

* the vocational, trade and professional skills, qualifications and experience of the former Senator or Member; and

* any income derived by the Senator or Member from personal exertion.

New section 15A- 15C, dealing with invalidity, will be inserted into the Principal Act by clause 15. Proposed subsection 15A(1) sets out the persons in respect of which the proposed invalidity provisions apply. The persons include:

* Senators or Members who have resigned before the end of their term;

* at the expiration of the term of office of a Senator or Member, or the dissolution of the Senate or House of Representatives, Senators or Members who are not candidates for re- election; or

* a Senator who ceases to be a Senator because of the election of a successor under section 15 of the Constitution and is not, at the election at which his/her successor is elected, a candidate for election as a Senator, or his/her successor is a candidate at a general election for election either as a Senator or Member.

Under subclause 15A(2), the Trust may determine that a Senator or Members resignation or failure to be a candidate, as described above, is to be treated as an invalidity retirement, provided the person, or someone on his/her behalf apply for such a determination, and the Trust is satisfied the person is unlikely to ever be able to perform the duties of a Senator or Member again because of physical or mental impairment. Applications are to be accompanied by medical certificates and such information as the Trust requires [proposed subsection 15A(3)]. Medical certificates must include a statement of opinion as the percentage of the person's incapacity in relation to non- parliamentary employment and whether the person is unlikely to ever be able to perform the duties of a Senator or Member again [proposed subsection 15A(4)]. Where the Trust refuses an application, notice of the refusal must be given to the applicant [proposed subsection 15A(6)].

Where the Trust makes a positive determination under proposed subsection 15A(2), it must determine the percentage of the Senator or Members incapacity in relation to non- parliamentary employment [proposed subsection 15B(2)]. In addition, the Trust must classify the Senator or Member in accordance with the table contained on page 12 of the Bill [proposed subsection 15B(3)]. Under the provisions of the table, Senators or Members which the Trust determines as:

* 60% or more incapacitated, are classified as Class 1 invalids;

* 30% to 60% incapacitated, are classified as Class 2 invalids; and

* less than 30% incapacitated, are classified as Class 3 invalids.

Senators or Members so classified must be notified of the classification [proposed subsection 15B(4)]. Proposed section 15C allows the Trust to review classifications from time to time, and to reclassify individuals if it believes it necessary.

As outlined in the "Background" to this Digest, section 18 of the Principal Act sets out the level of retirement benefits payable to Senators and Members. New subsections 18(2AA)- 18(2AC), dealing with the level of benefits for invalidity retirements, will be inserted into the Principal Act by clause 17. The effect of proposed subsection 18(2AA) is to set the level of benefits for:

* class 1 invalidity retiree's, 50% of the Senator or Member's parliamentary allowance;

* class 2 invalidity retiree's, 30% of the Senator or Member's parliamentary allowance;

* class 3 invalidity retiree's, whichever is the greater of the following:

* the Senator or Member's contributions to the Scheme together with the Commonwealth supplement; or

* the superannuation guarantee safety- net amount.

Repeal Of Current Provisions Concerning Invalidity

Section 18A of the Principal Act, which contains the Scheme's current invalidity arrangements, will be repealed by clause 18 [invalidity is now dealt with under sections 18(2AA- 2AC) - see clause 17].

Commutation Of Invalidity Benefits

Clause 19 will prevent the commutation to a lump sum of invalidity benefits.

Trust Advice To Senators And Members Contemplating Retirement

A new section 24D, dealing with Trust advice to Senators and Members contemplating retirement on invalidity grounds, will be inserted into the Principal Act by clause 20. Proposed section 24D allows Senators and Members considering retirement on invalid grounds to ask the Trust for advice that would be likely to assist them in their consideration of the matter. The Trust may give such advice as it thinks appropriate.

Offices Of Profit

New subsections 21B(2)- 2B(3A), dealing with reductions in retirement benefits for holders of offices of profit, will be substituted into the Principal Act by clause 23. Proposed subsection 21B(2) provides that subject to subsection 21B(4) (which provides that a retirement benefit is not to be reduced by more than one- half of the commutation amount), if the holder of an office of profit under the Commonwealth or a State (the terms "holder of an office of profit under the Commonwealth/State" are defined in the "Background" to this Digest) receives remuneration in respect of that office, and the fortnightly rate of that remuneration exceeds 20% of fortnightly rate of parliamentary allowance payable to a Senator or Member, his/her retirement benefit will be reduced by $0.50 for each $1.00 of the excess. Effectively, proposed subsection 21B(2) represents a decrease in the retirement benefit reduction for holders of offices of profit.

Where income from an office of profit is not subject to income tax (i.e. the income of the Governor- General) the reduction outlined above is to be applied to the fortnightly grossed- up amount of the remuneration. The term "fortnightly grossed- up amount" is defined by subclause 23(b) as the assessable income that a hypothetical taxpayer would have to earn during each fortnight in a financial year in order that the hypothetical taxpayer's annual after- tax income for that year would equal the annual rate of remuneration. The term "hypothetical taxpayer" is defined by subclause 23(b) as a hypothetical taxpayer where certain assumptions are made, including that: the taxpayer is an individual; is not a trustee; and is a resident for the purposes of the Income Tax Assessment Act 1936.

Members Who Have Previously Served In State Or Territory Parliaments

New subsections 20A(1AA)- 20(1AD), dealing with the recognition of prior State or Territory parliamentary/legislative assembly service, will be inserted into the Principal Act by clause 27. The proposed subsections will allow an "eligible member" (i.e. a person who is currently a Senator or Member and was previously a member of a State Parliament or Territory Legislative Assembly) to elect that the proposed arrangements do not apply to them. Where such an election is made, the previous arrangements, as outlined in the "Background" to this Digest, will continue to apply. An election must be given to the Trust within 12 months of the commencement of this clause, or immediately before the day on which a general election is first held after the commencement of this clause, whichever is the earlier.

Reduction Of Retirement Benefits Because Of Membership Of A State Parliament Or Territory Legislative Assembly

New subsections 21(1) and 21(1AA), dealing with the reduction of Scheme retirement benefits payable to a person receiving a State or Territory parliamentary salary or allowance, will be inserted into the Principal Act by clause 29. Proposed subsection 21(1) provides for a reduction in a former Senator or Member's rate of Scheme retirement benefit by the rate of salary or allowance being received for his/her service as a State or Territory parliamentarian.

Proposed subsection 21(1AA) provides for a reduction in Scheme retirement benefits in the situation where a person is or becomes in receipt of a State or Territory retirement benefit, or was an eligible member (as defined in clause 27) who has not made an election under proposed subsection 20A(1AC) (see clause 27). In these circumstances, the rate of Scheme retirement benefits will be reduced by the rate of State or Territory retirement benefit.

Remarks

It may be noted in respect to section 21B of the Principal Act, which reduces retirement benefits for recipients holding offices of profit, that it may be argued to

be a tax for the purposes of section 55 of the Constitution (see attached extract) and

as such may contravene that provision so as to invalidate the other provisions of the Act.

It may also be argued that Senators or Members entitled to a retirement benefit may loose that benefit under section 21B of the Principal Act in certain circumstances, as the benefit is a pension payable during the pleasure of the Crown under section 44(iv) of the Constitution (see attached extract). In consequence, a person qualifying for a benefit under the Principal Act may be incapable of being chosen or sitting as a Senator or Member of the House of Representatives.

Endnotes

1. Department of Finance, Annual Report 1992- 93, p. 125.

2. Ibid.

3. Ibid.

4. The outline of commutation provisions of the Parliamentary Contributory Superannuation Act 1948 is a summary of information contained in the 1993 Department of Finance Parliamentary Contributory Superannuation Scheme Handbook at pages 6 and 7.

Ian Ireland (Ph. 06 2772438)

Bills Digest Service 7 June 1994

Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1994.

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, 1994.