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25th Report of the Senate Select Committee on Superannuation
THE PARLIAMENTARY CONTRIBUTORY SUPERANNUATION SCHEME & THE JUDGES' PENSION SCHEME
TABLE OF CONTENTS

CHAPTER 4

Appropriateness of the Scheme

I suppose one of the considerations for the government is the purpose of the pension scheme. It may be that the way to handle it is to have a superannuation scheme rather than a pension scheme and to have it preserved for example to a particular age but to accumulate entitlements during service. [1]

Vesting

4.1 The Judges' Pension Scheme has no vesting provisions. This was seen as a weakness by several judges. For example, Chief Justice Nicholson of the Family Court regarded it as 'unsatisfactory':

...that there is no vested entitlement to anything until the expiration of 10 years and reaching the age of 60.

...

If I were to compare it with work in any other area of the community, there would at least be some benefit available in respect of the years of work that had been carried out. [2]

4.2 The judges' scheme is non-contributory and it is difficult to find a suitable comparison among other occupations. Justice Mullane of the Family Court cited an actual example of a colleague who 'retired for personal reasons after more than 10 years of service but before age 60' and was therefore not entitled to any benefit. [3] Justice Mullane continued:

There is a clear inequity in that, for example, someone who resigns at 60 after 10 years service will receive a full pension until death: whereas someone who resigns at 59 after 22 years service will not receive any benefit at all. [4]

4.3 While recognising these seeming anomalies, the Committee does not necessarily find them inequitable in the sense that conditions of the pension have been set when a judge is appointed. The conditions of that pension are fully recognised as part of the remuneration attaching to the appointment and are the same for every federal judge.

4.4 Whether they are inappropriate is another question. Western Australia provides for a lesser pension entitlement for early retirement from age 55. Whether there should be a discounted pension for federal judges in the event of their retiring before 60 (or with less than 10 years of service), is really a value judgement. The Committee considers this for the Government to decide in the light of the Government's decision to raise, from 55 to 60, the age when superannuation benefits become available generally in the community.

4.5 Perhaps a more "unjust" situation is that of the long serving judge who may work until compulsory retiring age, yet receive the same pension as one who has retired at 60 and, other things equal, served for a shorter time.

Death and dependants

4.6 At present, death benefits under the judges' scheme are only payable to spouses or dependant children. Such a restriction is general in superannuation. This Committee, in its Seventeenth Report, Super and Broken Work Patterns, offered a solution to the discrimination against those members of superannuation funds not in a recognised relationship. The Committee said:

... fund members without a spouse or dependant as presently defined should be able to nominate a beneficiary for their superannuation entitlements to whom the fund would pay those benefits currently available only to a spouse or dependant. [5]

4.7 The Committee again puts this forward as a general proposition without making a recommendation, because the Committee does not regard the judges' pensions scheme, as it is currently structured, as appropriate for such a provision. (However, should Recommendation 4.2 below be adopted, then the general proposition above may be regarded as appropriate to enable the payment of the commuted amount to the nominated beneficiary of a judge.)

4.8 In paragraph 3.93 of Part A of this report, the Committee addressed the issue of the cost of survivor benefits in respect of the parliamentary scheme. The Committee recommended that survivor and invalidity benefits continue to be paid. However, the Committee considered that the rules under which these benefits are paid should be reviewed to ensure they are in accordance with standards adopted in other private and public sector schemes.

Recommendation 4.1

Commutation and Choice

4.8 4.9 Under the judges' pension scheme, commutation to a lump sum is not permitted. In this context, Chief Justice Nicholson looked at the issue of estate and retirement planning of judges:

Most judges - many when they are appointed at least - have a young family and have to continue to maintain term and/or life insurance so that they have a capital sum which they could provide to their family in the event of death or incapacity because of the complete absence of any lump sum benefit in the existing scheme. [6]

4.10 Chief Justice Nicholson compared this situation with the United Kingdom provision of 'a retirement or death benefit equivalent to twice the pension':

As their pension is 50 per cent, it is in effect, a retirement or death benefit of a year's salary. It is not a huge amount, but it is better than what we have. [7]

4.11 The Committee believes that such a provision is appropriate to the judges' pension scheme in Australia, but not so as to increase the overall value of benefits payable.

Recommendation 4.2

4.12 The Committee considers this recommendation, if implemented, also addresses the issue of lack of flexibility in the scheme, and recognises that a lump sum benefit in circumstances of death or retirement is often needed.

4.13 Greater choice for judges in their superannuation arrangements was also considered by the Committee. It found that, beyond recommendation 4.1 above, no greater range of choice was appropriate if the integrity of the scheme was to be maintained.

Resolving equity between judges

4.14 The rather vexed concept of equity was canvassed in the submission from the Australian Government Actuary, and the Committee found the following comments helpful:

Equity is generally understood to reflect a degree of fairness. The trouble is that equity means many things to many people in many different situations. It is not unknown for a situation to be viewed as equitable by one person yet viewed as inequitable by a different person.

In the context of superannuation schemes probably the best concept of equity is that in similar circumstances, similar benefits are provided ...

An alternative concept of equity in the context of a superannuation scheme is that there should be no significant 'financial bias' for a particular group ...

As equity is such a nebulous concept in the context of a superannuation scheme no further attempt has been made to define what is equity. [8]

4.15 Justice Mullane's example in paragraph 5.2 above is a good example of a "relative fairness" issue.

4.16 The Government Actuary's submission described the main 'perceived inequities' in the judges' pension scheme as:

• the fact that those who do qualify for a pension clearly receive a much greater level of employer support than those who do not qualify; and
• judges over age 60 who have at least 10 years service and have attained the 60 per cent pension receive no additional benefit if they continue as a judge. [9]

4.17 The Committee makes no further comment on these perceived inequities as they go to the very core of the scheme, and the Committee will not be making any recommendations at the core level. The integrity of the scheme needs to be maintained and, in the light of the issues considered in the earlier chapters, no major change is considered appropriate.

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Footnotes

[1] Evidence, Justice Mullane, p. 11.

[2] Evidence, Chief Justice Nicholson, p. 43.

[3] Apart from the superannuation guarantee minimum benefits (see para 2.6?)

[4] Submission No. 4, Justice Mullane, p. 1.

[5] Senate Select Committee on Superannuation, Super and Broken Work Patterns, 1995, para. 14.44.

[6] Evidence, Chief Justice Nicholson, p. 42.

[7] Evidence, Chief Justice Nicholson, p. 43.

[8] Submission No. 42, Australian Government Actuary, p. 14.

[9] Submission No. 42, Australian Government Actuary, p. 16.

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