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

PART A Chapter 1

The Parliamentary Contributory Superannuation Scheme

In its general purpose the scheme aims to meet the situation, long recognised by members of all parties, that men or women who serve in parliament often sacrifice opportunities to provide against the day when their parliamentary careers come to an end. [1]

Establishment and purpose of the scheme

1.1 The Parliamentary Contributory Superannuation Scheme (PCSS) provides for the superannuation benefits of Commonwealth parliamentarians. [2] Authority for the scheme is provided by the Parliamentary Contributory Superannuation Act 1948 as amended. Membership is compulsory and member contributions are required. Benefits are paid to former members of Parliament or, on their death, to their surviving spouse or orphan children.

1.2 The scheme is administered by the Department of Finance under the direction of the Parliamentary Retiring Allowances Trust (the Trust). There are five trustees of the Trust - the Minister for Finance who is the presiding trustee, plus two Senators and two Members of the House of Representatives appointed by their respective Houses.

The history

1.3 The PCSS was established in 1948 under the Parliamentary Contributory Superannuation Act of that year. Reasons for the establishment of the scheme included:

• entering Parliament often meant foregoing potential superannuation payouts from previous employers due to leaving that employer prior to retirement age;
• electoral and parliamentary demands reduced members' chances to re-establish careers when their parliamentary term was over; and
• the need to entice people to enter Parliament who would not otherwise come. [3]

1.4 Originally the scheme was funded to the extent of the member contributions, and was framed along the lines of the Commonwealth public service superannuation scheme. Contributions were three pounds per week (about 10.4 per cent of salary) and a fixed annuity of eight pounds per week was payable when a member qualified for a pension.

1.5 Between 1948 and 1973, the main amendments to the PCSS were:

• in 1955, the three occasions rule was introduced (see paragraph 1.11);
• from 1959, the age at retirement became a factor in fixing the rate of pension;
• orphan benefits were introduced in 1959; and
• from 1963, pensions changed from a fixed amount to being based on salary.

1.6 In 1973 the scheme underwent major changes. The PCSS fund was abolished and the assets transferred to the Consolidated Revenue Fund (CRF). Contributions were now paid into the CRF, out of which benefits were also paid.

1.7 The maximum benefit payable to a member was increased from 50 per cent to 75 per cent of the parliamentary salary payable, and pensions accrued according to the length of service rather than age at retirement. Also, the minimum age 40 requirement for the pension on involuntary retirement was removed, and the minimum age on voluntary retirement was raised from 40 to 45 years (eventually removed in 1978). Provision for invalidity pensions, indexation of pensions and recognition of State parliamentary service were introduced.

1.8 Since 1973, various amendments have been made including the introduction of 50 per cent commutation of pension option in 1978. This was increased to a 100 per cent commutation option in 1979.

1.9 Further changes in the same period 'to address the public's perception of generosity' included: [4]

reducing the 100 per cent commutation option to 50 per cent in 1983; and

the provision for reducing a pension, on the basis of the former parliamentarian receiving remuneration from an Office of Profit under the Crown, was reintroduced in 1983 (it had been removed in 1973).

 

Core features of the scheme

Contributions

1.10 Members must contribute at the rate of 11.5 per cent of their Parliamentary Allowances for the first 18 years of membership and at 5.75 per cent for subsequent membership. In addition, they must contribute the same percentages of their Additional Office Holder Allowance if they hold such office (such as ministerial).

Qualification, commutation and pension levels

1.11 On retirement from Parliament, a Senator or Member is entitled to a pension if:

(a) 12 or more years service has been completed;

(b) the member has on four occasions ceased to be a member on the dissolution or expiration of the House of which he or she was a member, or on the expiration of a term of office; or

(c) retirement is involuntary, and the member has completed not less than eight years service, or has on three occasions ceased to be a member on the dissolution of the House of which he or she was then a member, or on the expiration of term of office.

1.12 The effect of (b) and (c) is that a Senator or Member with less than eight years service who qualifies is deemed to have completed eight years service.

1.13 The essence of qualification for a pension is 12 years for voluntary retirement and eight years for those who retire involuntarily. Four and three parliamentary terms respectively equate to those periods of 12 and eight years.

1.14 While the PCSS is primarily a defined benefit pension scheme, up to 50 per cent of a pension entitlement can be commuted to a lump sum benefit. The minimum pension is 50 per cent of backbench salary (based on eight years service), and the maximum is 75 per cent of backbench salary (after 18 years service).

1.15 There is additional pension payable for any Ministerial and salaried parliamentary office held during the period of parliamentary service. That additional pension is based on the additional salary for each office held and period of each office.

Without pension entitlement

1.16 Those retiring members who do not qualify for a pension are entitled to a lump sum benefit calculated on the basis of contributions made. The Department of Finance suggests this is similar to an accumulation benefit. [5] The level of benefit in this case depends on whether the retirement is voluntary or involuntary. The respective benefits are:

• involuntary retirement

- refund of all contributions (without interest); plus

- a supplement of two and one-third times those contributions.

• voluntary retirement

- refund of all contributions (without interest); plus

- a supplement of one and one-sixth times member contributions over the last eight years.

1.17 These lump sum benefits, however, will be increased where the minimum level of superannuation required under the Superannuation Guarantee (SG) legislation has not been provided by the calculations above. Where the lump sum benefit would be lower than the SG amount, the SG amount will be payable.

 

Special Features

1.18 The PCSS provides the highest aggregate benefits to members who retire at a relatively young age and qualify for a pension. This scenario can be contrasted to the retiree from a short parliamentary career with no pension and only a lump sum benefit entitlement - a net benefit significantly lower in relative terms.

Invalidity benefits

1.19 A member may be entitled to a pension on invalidity grounds if the Trust is satisfied that the member has suffered physical or mental incapacity. There are three classes of invalidity:

• Class 1 - 60 to 100 per cent incapacity, meaning total, or near total, and permanent disablement, and unlikely to work in a job for which the member is reasonably qualified by education, training or experience;
• Class 2 - 30 to 59 per cent incapacity, meaning partial invalidity and unable to work as a member of Parliament, but capable of performing outside employment for which the person is reasonably qualified; and
• Class 3 - less than 30 per cent incapacity, meaning the capacity to work as a member of Parliament is restricted (but could still continue), and capable of performing outside employment for which the person is reasonably qualified.

1.20 Class 1 and 2 benefits are paid as non-commutable pensions of 50 and 30 per cent of backbench salary respectively. The Class 3 benefit is the higher of:

• a refund of member contributions plus two and one-third times the member's own contributions; or
• the SG amount payable.

Where a member's benefit on involuntary retirement is higher than the invalidity benefit, that higher benefit is payable. [6]

Other benefits payable - to spouses and children

1.21 A pension is payable to a spouse of a member where:

(a) the member dies while in service, irrespective of the length of service of that member; or

(b) the member dies and was entitled to a pension, and:

(i) the marital relationship commenced before the member's retirement; or

(ii) if the marital relationship commenced after the member's retirement, it commenced before the member attained age 60 or at least five years before death.

1.22 The amount of the pension payable to a spouse is five-sixths of the pension that would have been payable to the member on the date of death. If the member had not completed eight years service at death, service is deemed as eight years. [7] A spouse pension continues to be payable whether or not the spouse remarries.

1.23 Pensions are payable to any eligible children, including adopted and ex-nuptial children, of a member who dies:

• while in service; or
• while entitled to a pension,

provided the member is not survived by a spouse who is the natural or adoptive parent of the child and who is entitled to a pension.

1.24 A pension is also payable to any eligible children on the death of a spouse who was in receipt of a pension.

Benefit payable to the personal representative

1.25 There is a benefit payable on the death of a member who was entitled to a pension, and who is not survived by a spouse or an orphan who is entitled to a pension. The benefit in this case is a lump sum payable to the personal representative of the deceased member, to be dispersed in accordance with the deceased member's will. This lump sum consists of:

• a refund of contributions plus a supplement equal to two and one third times the contributions paid during the last eight years of service, or
• the superannuation guarantee safety-net amount,

which ever is the higher,

Less

• the amount of any benefit paid to the former member.

Increases in pensions

1.26 Pensions and additional pension entitlements are expressed as a percentage of the backbench salary and additional salaries. Accordingly, these pension payments will increase each time the corresponding salaries increase.

1.27 Spouse pensions will proportionally increase with salaries - that is by five sixths of the increase that would have applied to the deceased member's pension had the member lived. Corresponding adjustments will apply to orphans' pensions.

Reduction or suspension of pensions

1.28 Unlike the judges' pension scheme, a parliamentary pension may be reduced if a recipient is appointed to an office of profit under the Crown. The pension is reduced on the following basis:

no reduction unless the salary from the office of profit exceeds 20 per cent of the annual salary payable to a backbencher (currently 20 per cent of $81,856 = $16,371);

for every dollar over the 20 per cent threshold, the pension is reduced by 50 cents; and

the maximum amount by which the pension is reduced is 50 per cent of the pension entitlement before commutation - so that someone who does not commute any of the pension entitlement is not disadvantaged.

Suspension

1.29 Commonwealth parliamentary pensions are suspended where a recipient is elected to another Australian Parliament. However, a person in receipt of a pension higher than the salary in the other Parliament would continue to receive the excess.

 

Membership and costs of the PCSS

1.30 The following table summarises the membership of the PCSS as at 1 July 1996, and takes account of nine senators leaving the Senate on 30 June and being replaced by nine new senators on July 1 1996. [8]

Males	Females	Total
Contributors	178	46	224
Ex- contributor Pensioners	207	19	226
Spouse Pensioners	nil	86	86

1.31 Total pensions payable at 1 July 1996 amounted to $14.3 million per year. Of the 226 ex-contributor pensioners at 1 July 1996, seven had a pension entitlement which had been suspended due to an office held or membership of a State Parliament. Another seven received a reduced pension because of an office held.

1.32 The Australian Government Actuary (the Actuary) provided details of the cost to the Commonwealth of the PCSS. In such a defined benefit scheme, the employer is responsible for providing the difference between the benefit actually paid and what the member has contributed toward the benefit. The certainty comes from the fact that the employer is prepared to accept uncertain cost:

The true cost to the employer can only be determined at the time the benefit is paid. It is for this reason that defined benefit arrangements have regular actuarial valuations to estimate the cost of benefits promised and to monitor the ongoing 'health' of the arrangement. [9]

1.33 The Actuary last reported to the Department of Finance on the long term cost of benefits provided under the PCSS in February 1997, based on data as at 30 June 1996. This advice is normally provided every three years, which is in accordance with common practice for superannuation arrangements in the private sector.

1.34 At each of these reviews, the notional employer contribution rate is reported. This rate illustrates the effective cost of the PCSS benefits as a percentage of the total salaries of scheme members, and was 69.1 per cent calculated as at 30 June 1996. [10]

1.35 In the May 1997 Budget, the Government announced that, from 1 July 1999, it would require preservation of future contributions to superannuation schemes and earnings on those contributions until age 55.

1.36 These changes will not affect early access to superannuation pensions, as the Government has announced that early access will still be permitted where the benefits are taken as a non-commutable life pension or lifetime annuity. [11]

1.37 The Government's changes to the preservation rules may be expected to produce some savings in the cost of the parliamentary superannuation scheme as members who do not qualify for a pension will lose access to their contributions until age 55.

 

Disqualification from entitlements

1.38 Section 22 of the Parliamentary Contributory Superannuation Act 1948 provides for a refund of personal contributions, and 'no other benefit under this Act', to a member:

• whose place becomes vacant by reasons of that member becoming subject to any of the disabilities specified in paragraphs 44 (i) and (ii) of the Constitution; or
• who, by reason of having directly or indirectly taken or agreed to take any fee or honorarium for services rendered in the Parliament to any person or State within the meaning of paragraph 45 (iii) of the Constitution.

1.39 One of the disabilities covered in paragraph 44 of the Constitution is being convicted of 'any offence punishable under the law of the Commonwealth or of a State by imprisonment for one year or longer'.

 

Administrative Costs

1.40 The full cost of administering the PCSS is borne by the Commonwealth, which also provides advice to the Minister and the Trust. This administration includes the cost of:

• a small team in the Department of Finance comprising four and one-half staff years;
• regular actuarial and audit review; and
• the ADP System with its direct linkage to the Commonwealth Payroll System.

 

The trustee structure

1.41 The current trustee structure comprises the Minister for Finance and four other parliamentarians. There may be some scope for reviewing these arrangements. The Department of Finance indicated two possible alternatives - that the Minister be the sole trustee, or that two of the present trustees could be replaced with independent non-parliamentary persons which would be 'similar to employer representatives on private sector superannuation trustee boards'. [12]

 

Other parliamentary schemes

States and Territories

1.42 Parliamentary superannuation schemes in the States and Territories require contribution rates and provide benefits similar to the PCSS. Appendix D reproduces a comparative summary of the Commonwealth, State and Territory schemes which was provided in the submission by the Department of Finance. [13]

Canada

1.43 In Canada, pension coverage for Members of the House of Commons is provided by the Members of Parliament Retiring Allowances Act (MPRAA). This Act was first introduced in 1952, with the most recent amendment being in 1995. Participation in this scheme is voluntary.

1.44 The Canadian system has the following features:

(a) members' contributions are 9 per cent of salary;

(b) those members receiving additional salaries for extra duties such as a Minister, Whip, Parliamentary Secretary and so on have the option to contribute up to 9 per cent on these salaries as well, with the additional contributions being used to purchase further pensionable service credits and increase the retiring allowance payable;

(c) a minimum of six years service is needed to qualify for a pension, which is earned at the rate of four per cent per year of service based on the average of the best consecutive six years of earnings, with a maximum pension of 75 per cent after 19 years;

(d) a pension is payable to a former Member at age 55, or earlier if the Member is disabled;

(e) pensions are increased to reflect increases in the cost of living once the recipient has reached 60, or earlier if disabled, while pensions paid to a surviving spouse or child are indexed immediately;

(f) for a person who ceases to be a Member or dies and who has not contributed to the pension plan for at least six years, there is payable to the person (or estate) a Withdrawal Allowance as a lump sum, equal to the total amount of the contributions paid plus interest at 4 per cent;

(g) Survivor's benefits are paid:

(i) to the surviving spouse, an annual allowance equal to 60 per cent of the basic allowance;

(ii) to each dependent child, an annual allowance equal to 10 per cent of the basic allowance or, if there is no surviving spouse, 20 per cent;

but the total amount of the allowances under (ii) shall not exceed 30 per cent or, if there is no surviving spouse, 80 per cent of the basic allowance;

(h) if a former Member is re-elected then the pension payments are suspended;

(i) retired Members of Parliament who earn more than $5,000 a year from contracts in the federal public sector after July 13 1995, will have their pensions reduced by the amount of their earnings; and

(j) pensions paid under the MPRAA may be attached to honour family support orders, and may be subject to division on marriage breakdown.

 

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Footnotes

[1] Mr Chifley, Prime Minister and Treasurer, Second Reading Speech on the Parliamentary Retiring Allowances Bill 1948, House of Representatives, Hansard, 1 December 1948, p. 3738.

[2] This chapter draws principally from the submission from the Department of Finance, JP-46.

[3] Submission No. 46, Department of Finance, Attachment A, p. 1.

[4] Submission No. 46, Department of Finance, Attachment A, p. 2.

[5] Submission No. 46, Department of Finance, p. 2.

[6] Submission No. 42, Department of Finance, Appendix A, p. 2.

[7] Submission No. 42, Department of Finance, Appendix A, p. 3.

[8] Submission No. 46, Department of Finance, Attachment E, p. 4.

[9] Submission No. 42, Department of Finance, p. 6.

[10] Submission No. 42, Department of Finance, p. 12.

[11] Savings: Choice and Incentive, Statement by the Hon. Peter Costello, M.P., Treasurer of the Commonwealth of Australia and Senator the Hon. Jocelyn Newman, Minister for Social Security, 13 May 1997, p. 27.

[12] Submission No. 46, Department of Finance, p. 6.

[13] Submission No. 46, Department of Finance, Attachment D.