Chapter 3
Reforming the Scheme
The case for reform
3.1 The bulk of the evidence received by the Committee, particularly
from members of the public, indicates that the PCSS in its current form
is out of step with modern superannuation practice and is excessively
generous. The scheme is also considered by some to contain inequitable
features, such as marked differences in benefits for short and longer
term members. Furthermore, the scheme is criticised as being inflexible,
failing to meet the needs of its members.
3.2 In the May 1997 Budget, the Government announced its intention to
require preservation of future contributions to superannuation schemes
until age 55:
The preservation rules will be amended from 1 July 1999 to ensure
that all future superannuation contributions, including personal contributions
and earnings, will be preserved until preservation age, except in exceptional
circumstances
... the Government will proceed with a phased increase in the
preservation age from 55 to 60 by the year 2025. [1]
3.3 This decision will impact on Parliamentarians if they leave office
prior to age 55 without qualifying for a pension.
3.4 This change alone will require changes to the parliamentary scheme,
as currently there is no provision for interest to be paid on these contributions.
Younger members who do not qualify for pension benefits will be required
to preserve their superannuation savings for many years. Unless the provisions
of the scheme are changed, they may find that the value of their contributions
is substantially eroded by the time they are paid at retirement.
3.5 Additionally, the defacto redundancy provisions that are part of
the current scheme, whereby defeated members are returned a multiple of
their own contributions, will be considerably diminished by the changes
to the preservation rules.
3.6 Clearly, some form of reform is inevitable. There are a range of
possible changes available, including modifying the scheme or terminating
it for all new members and introducing an entirely new scheme. While there
are a number of possible options available, each has shortcomings as well
as advantages and these need to be carefully considered before deciding
on the most appropriate action.
Remuneration and representative government
3.7 Remuneration for parliamentarians, of which superannuation is a part,
must recognise that Commonwealth parliamentarians are the nation's elected
representatives: they are its legislators, and they also provide the Cabinet.
3.8 In their submission to the Committee, the Australian Democrats noted
that parliamentary office was usually unpaid until the late nineteenth
century, and that this was a barrier against potential parliamentarians
who did not have substantial independent means. [2]
Support for adequate parliamentary remuneration, as part of a program
for improving ethical standards in government, was 'a key proposal of
liberal political reform activists up to the turn of the century [1900]
and after'. [3]
3.9 If the opportunity of citizens to participate in parliament is not
to be restricted, then parliamentarians should receive remuneration which
is adequate, in the sense that people can serve as parliamentarians without
depending on private means. Mr Robert McClelland MP told the Committee
that:
I think it is part of the democratic process that all Australians
should have relatively equal access in a practical sense to entering
parliament, whether they be young parents or whether they be senior
executives. [4]
3.10 There is adequate evidence that parliamentary remuneration, particularly
at Ministerial level, lags well behind what may be expected for similar
levels of responsibility in the private sector and in some public sector
positions. While there is no apparent difficulty in attracting people
to stand for parliament, the Committee has received evidence that many
talented people will not contemplate parliamentary service because of
the relatively low remuneration when compared to other options available
to them.
3.11 In relation to the relative attractiveness of parliamentary remuneration,
Mr Ray Stevens, Director, William M. Mercer Pty Ltd, told the Committee
that parliamentary salary:
...might look very generous to someone who perhaps was not even
in the work force before they went into parliament, but that salary
level would be seen as a disincentive by a senior executive in a large
company. [5]
3.12 The Committee notes the statement of Mr McClelland MP that:
I think we should look not only at having people in parliament
who are representatives of the community but also at attracting those
who can match it in any field ... if you make the financial recompense
too far behind what is available in the private marketplace, you are
just going to wipe out that category of higher wage earners. [6]
3.13 The Committee is aware that delicate balances must be maintained
in this area. The Committee shares the view, put to it by Mr McClelland
MP, that it would be regrettable if people were attracted to parliamentary
office purely for their own financial gain. [7]
3.14 Senator Cheryl Kernot identified the difficulties associated with
parliamentary remuneration:
It is a very vexed question for Australia. It is a vicious circle
of public condemnation about the type of people who are politicians,
coupled with public condemnation about the level of remuneration they
already get. There are a lot of people who will not consider a political
career, people who have skills which would be valuable to the parliament,
and they just will not consider it. [8]
3.15 Representative government is an important feature of Australia's
democratic society. All Australians should have equal opportunity to serve
as elected representatives. The Committee considers that, in the interests
of representative government, it is desirable that a wide range of people
undertake parliamentary service. While success in business or the professions,
with its attendant high remuneration, is no guarantee of the quality of
a parliamentary candidate, it is undesirable that conditions of service
in the parliament be so as to deter such persons.
3.16 If the superannuation portion of parliamentary remuneration is substantially
reduced without compensation elsewhere in the remuneration package, it
is possible that such a deterrent may become substantial.
Superannuation as part of parliamentary remuneration
3.17 The Terms of Reference for this part of the Committee's inquiry
were confined to a consideration of superannuation of parliamentarians.
While superannuation is unquestionably one part of remuneration, the Committee
has no brief to consider the wider question of the adequacy of parliamentary
remuneration and did not take any significant evidence on elements of
parliamentary remuneration other than superannuation.
3.18 The Committee places on record its opposition to one particular
concept of "total remuneration packaging", that is, where people
may trade off superannuation for other forms of remuneration for purposes
such as tax minimisation. The Committee believes that Parliamentarians
should set an example for the rest of the community in this regard, particularly
given the compulsory nature of superannuation.
3.19 However, the Committee received evidence that superannuation is
best considered as part of overall remuneration, rather than separately.
It was also suggested to the Committee that parliamentarians' remuneration,
including superannuation, should be provided as a "total remuneration
package".
3.20 In the Remuneration Tribunal's view:
It is clear that in modern remuneration practice, superannuation
is an intrinsic component of overall remuneration, and not something
separated out or put to one side. [9]
3.21 Similarly, the Australian Government Actuary noted that 'superannuation
provision is a major component of the remuneration package of Members
of Parliament'. [10]
3.22 Several witnesses, with recognised financial sector credentials,
also strongly advised the Committee that any consideration of the type
of scheme to be adopted for the Parliament is incomplete and possibly
meaningless unless superannuation is considered in a total remuneration
context.
3.23 Dr Vincent FitzGerald, an economic consultant who appeared in a
personal capacity, suggested that a total remuneration approach should
be taken to parliamentary remuneration. [11]
3.24 Mr Ray Stevens told the Committee that if a new parliamentary superannuation
scheme were to be developed, then "[i]n conjunction with this, of
course, there may be a need for a review of the overall remuneration package
of politicians". [12]
3.25 Mr Daryl Dixon, an independent superannuation expert, also suggested
that superannuation should be considered in the context of overall remuneration
and parliamentarians' remuneration should be provided as a total remuneration
package. He told the Committee that:
...the basic principles ... are that you cannot look at superannuation
other than as a total remuneration package concept. Any proposals for
change done in any other context will achieve an inappropriate result.
[13]
3.26 Mr Dixon advised the Committee that the New South Wales public service
had introduced total remuneration package (TRP) arrangements for its Senior
Executive Service (SES) officers. [14]
Under these arrangements, SES officers are paid an accepted TRP and from
this amount each employee meets the full actuarial cost of remaining in
an existing superannuation fund. TRP arrangements allow for individual
flexibility as to the level of superannuation, while providing the employer
with control over the remuneration expenditure. [15]
3.27 However, the Committee notes that the Remuneration Tribunal has
expressed reservations about a total remuneration approach to parliamentary
remuneration, notwithstanding its view 'that the maximum level of flexibility
consistent with due accountability in the expenditure of public funds
should be able to be arrived at'. [16]
The Remuneration Tribunal has stated that:
[A]ccountability is best served by the public knowing the purpose
for which funds are available to Members [of Parliament], recognising
the distinction between provisions directed to a member's individual
benefit and those expenses which are incurred in the discharge of electorate
functions... [17]
3.28 If TRP arrangements were to be introduced for parliamentarians,
this would necessarily involve a review of remuneration as a whole. Such
a review would have to address the four main elements of parliamentary
remuneration:
- salary;
- superannuation;
- electorate allowance; and
- other benefits. [18]
3.29 The Committee recognises that any suggestion to alter parliamentary
remuneration in order to compensate for changes to superannuation arrangements
can of itself be an obstacle to change. This is particularly the case
if salaries are increased to compensate for substantially reduced superannuation
benefits.
3.30 The Committee accepts that superannuation cannot be regarded in
isolation from remuneration generally. This is as true for parliamentarians
as it is for the community as a whole.
Is an accumulation scheme appropriate?
3.31 The terms of reference for this inquiry require the Committee to
consider whether it would be appropriate to replace the parliamentary
scheme with a fully funded accumulation scheme. In the following section,
the Committee evaluates this proposition, at the same time considering
options for modifying the existing scheme. These options include:
- Preservation of existing benefits until age 55; and
- Actuarially based reduction of benefits taken prior to 55.
3.32 The majority of superannuation schemes in the private sector today
are funded accumulation schemes. In these schemes, the employer contributes
a set percentage of the employee's salary to a fund. Under the Superannuation
Guarantee (SG), the minimum that may be contributed is currently 6 per
cent, rising to 9 percent in 2002/03.
3.33 Employers may contribute in excess of the minimum amount. Superannuation
is part of the salary package for many employees and, particularly at
executive levels, employers may make substantial contributions as part
of a salary sacrifice arrangement. The amount that employers can contribute
is effectively restricted by age-based limits for taxation purposes. The
employee may or may not contribute. The final benefit comprises accumulated
contributions, plus interest earned on the investment of these contributions.
3.34 Accumulation funds operate on a completely different basis to defined
benefit funds, like the parliamentary superannuation scheme, which pay
a predictable, guaranteed benefit, independent of contributions or earnings.
3.35 The Committee noted that there is a considerable body of opinion
in favour of replacing the current parliamentary defined benefits scheme
(the PCSS) with an accumulation scheme. For example, Mr Daryl Dixon considered
that the current parliamentary scheme should be closed down to all new
members:
Urgent action is required to close down the scheme to all new
members and to introduce measures to ensure the more equitable treatment
of individual members of parliament who wish to retain membership of
the current scheme. [19]
3.36 Mr Dixon considered that parliamentarians should be offered the
option of moving to an accumulation scheme, or if they wished to remain
in the old scheme, 'charged the full cost of continuing membership in
the schemes'. [20]
3.37 Dr FitzGerald also favoured an accumulation scheme over the PCSS'
defined benefit structure. He considered that the defined benefits approach
in the PCSS was not in accordance with current thinking and was very inflexible
in terms of the choices and options available to members of the scheme:
It has got aspects which are out of line with current thinking,
for example, because it is a defined benefit rather than an accumulation
scheme, being very inflexible in terms of people's own choices who are
in the scheme, for example, someone who may have good superannuation
provision before coming into the parliament is not given much choice
about taking more of the total remuneration in another way and so on.
[21]
3.38 Mr Ray Stevens also recommended an accumulation scheme to replace
the PCSS. He considered that a 'radical change to the design', including
a shift to an accumulation scheme, was the only practical method of addressing
the inequities between short and long term members. [22]
3.39 Senator Brian Gibson, one of the few parliamentarians who expressed
a view about how the parliamentary scheme should operate, also recommended
a fully funded accumulation scheme. He said that the scheme should be
operated on a fully funded basis, the Government, as the employer here,
making contributions equivalent to other employer contributions. These
contributions would be set in line with the rates prevailing in private
sector executive superannuation schemes. Senator Gibson submitted that
this was necessary to:
...make it more equitable for all serving politicians and to
ensure that the cost of politicians is made transparent to those citizens
they serve. [23]
3.40 Senator Gibson considered that the failure to fully fund the scheme
and disclose its on-going cost contributes to the distorted public debate.
He contended that there was a focus on the pension benefits paid to a
few former parliamentarians, but not on the fact that most parliamentarians
receive a superannuation return that is 'far from excessive'. [24]
3.41 Proponents of accumulation schemes claim such schemes have a number
of advantages, including:
- increasing perceived equity between members;
- flexibility, including member choice; and
- better cost control.
Increasing perceived equity between members
3.42 A major disadvantage of defined benefit arrangements was pointed
out by the Australian Government Actuary in his submission - the level
of employer support received by an individual will vary according to his
or her individual circumstances. Some will receive more and some less.
[25] While implied employer contribution
rates may be quite high, this does not necessarily relate to the level
of benefit enjoyed by an individual employee. For example, a person who
enters and leaves parliament at a relatively young age and qualifies for
a pension may be expected to derive considerably greater benefits from
the scheme than someone who enters Parliament late in life or dies shortly
after retiring.
3.43 Similarly, a person who does not qualify for a pension at all receives
much less than someone who does. As noted previously in this report, the
trend towards shorter terms for parliamentarians means that proportionately
more people will fall into this latter category.
3.44 Introducing an accumulation scheme would introduce a direct relationship
between the level of benefit that a retiring or defeated parliamentarian
receives and his or her length of service in the parliament. This arrangement
would also avoid the disparity in treatment between members who qualify
for a pension and those who do not. Similarly, very long term members
should not be disadvantaged.
3.45 Whether this would in fact improve equity depends on the interpretation
of equity adopted. As pointed out by the Actuary, equity is a nebulous
concept with different meanings to different people. The nature of defined
benefits schemes means that people in different circumstances will always
derive different quantities of benefit. This can be judged acceptable
if the objectives of the scheme, for example, the provision of retirement
security for former members, is achieved.
3.46 In the Committee's view, the scheme as currently constituted does
not meet this objective, as the scheme only provides income in retirement
for those fortunate enough to qualify for a pension. While the scheme
makes payments to non qualifying members, this is in the form of a lump
sum and is effectively a redundancy payment.
3.47 The Committee acknowledges that under the Government's announced
changes to the preservation rules, the proportion of the payment to non-qualifying
members which comprises contributions will be preserved for retirement
purposes. However, the difference between levels of employer support for
qualifying and non-qualifying parliamentarians will remain disproportionate.
Improved choice and flexibility
3.48 In the 1997 budget, the Government announced that, as at 1 July
1998, employees would be given a choice concerning the superannuation
fund or retirement savings account into which their contributions would
be paid. [26] The Committee understands
that defined benefits funds may be exempt from these provisions. Nonetheless,
it would be in keeping with government policy and wider community standards
in this area if parliamentarians were given some choice in this regard.
3.49 The Committee has received only limited evidence to indicate whether
parliamentarians regard choice of fund and flexibility as desirable. Evidence
given to the Committee by Mr Wilson Tuckey indicates that this may be
an issue to some parliamentarians. Mr Tuckey advised the Committee that
some older parliamentarians will not recover their contributions back
as benefits before they die, particularly if they retire at or after 60
and choose a pension over a lump sum. [27]
Nonetheless, these members are compelled to continue contributing to the
scheme.
3.50 Similarly, the submission of the Parliamentary Retiring Allowances
Trust observed that some members may wish to provide better cover for
spouses and children or other dependants, or to enhance their benefits
by contributing at a higher rate. [28]
They are unable to do so within the scheme under current rules.
3.51 Dr Vincent FitzGerald also drew the Committee's attention to anomalous
situations that may arise as a consequence of the current lack of flexibility
in the scheme. He noted that a person who enters the Parliament later
in life and who has already accrued a substantial superannuation benefit
from previous employment is none the less required to contribute to the
fund. [29]
3.52 As pointed out by Mr Daryl Dixon, such persons may even fall afoul
of reasonable benefit limits and be subjected to penalty rates of taxation,
through no fault of their own. [30]
3.53 Mr Graham Millar, Assistant Secretary, Commonwealth Superannuation
Group, Department of Finance confirmed that member choice of fund and
investment' are not really practical' under a defined benefit arrangement
as currently exists. Mr Millar told the Committee that, in his opinion,
if greater choice of scheme or investment policy is required, then 'it
would seem appropriate to move to a fully funded accumulation scheme'.
[31]
3.54 An accumulation scheme could offer members improved flexibility,
within the context of a total remuneration package arrangement. Under
such an arrangement, a parliamentarian could, as in the private sector,
negotiate a total package, including an appropriate level of superannuation,
according to individual requirements. However, such an arrangement is
not currently available to parliamentarians.
Cost control
3.55 In a defined benefit fund, the benefits paid to members and hence
the costs of the benefit, are determined by qualifying conditions rather
than accumulated contributions. The Committee received the following evidence
that the cost controls on the PCSS are inadequate and that the scheme
is vulnerable to exploitation.
3.56 Mr Daryl Dixon was highly critical of the lack of controls on the
cost of the scheme, and argued that the failure to examine parliamentary
superannuation in the context of the total remuneration package, but rather
as an 'add-on', can lead to 'vast blow outs in cost'.
Basically, it is not equitable, it is too costly, it is inflexible,
it is unjust between politicians and it is not well designed from the
aspect of control of government revenue... [32]
3.57 Mr Dixon indicated that he thought that the 'single worst feature'
of the scheme was that there is no adjustment of the level of pension
according to the age at which it commences.
3.58 He also criticised the lack of provisions in the scheme to take
account of the age of the spouse of a parliamentarian, noting that as
a result, a parliamentarian who is survived by a much younger spouse creates
a much greater cost to the taxpayer than where the spouse is of equivalent
age. Mr Dixon said that this was not in accordance with industry practice.
He advised the Committee that if a person buys a pension in the private
sector, the age of the spouse is 'the first thing the insurance company
will ask you. [33]
3.59 Improving cost controls should theoretically be easier to achieve
in an accumulation fund arrangement, if benefits are effectively limited
by contributions. However, the Committee understands that benefits are
commonly paid to members of accumulation schemes in the event of invalidity,
or to their spouses or estate in the event of death. These arrangements
are usually provided through insurance cover taken out by the superannuation
fund with an insurance company.
3.60 Similarly, there are no reasons to prevent the imposition of limits
on benefits within defined benefit funds. For example, the Public Service
Superannuation scheme includes a qualifying test based on age of a surviving
spouse. Further, that scheme contains a provision discounting early retirement
pensions by 3 per cent for each year before the age of 60.
3.61 Bringing parliamentary superannuation more into line with common
private sector practice by introducing an accumulation scheme may help
alleviate adverse public perceptions of parliamentary superannuation benefits.
Disadvantages associated with accumulation schemes
3.62 Accumulation schemes do however have some disadvantages, including
the following:
- unpredictable benefit levels;
- variable benefit levels at different times, but in like circumstances;
- administration costs; and
- potential for impacts on parliamentary independence.
Unpredictable benefit levels
3.63 In particular, the return paid to accumulation scheme members depends
on the success or otherwise of the investment of the fund. Consequently,
it is not possible to predict in advance the value of employee's benefit,
which makes retirement planning more difficult.
Variable benefit levels in like circumstances
3.64 Variations in investment performance can also give rise to differences
in benefit levels for persons in like circumstances. This may be perceived
as inequitable. A person who retires after a period of buoyant investment
returns may derive higher benefits than someone who retires after a time
of lower investment success.
Administration costs
3.65 If the Parliament were to establish its own accumulation scheme,
this may entail a higher level of administration costs than is currently
the case, because of the need to manage investments. The consequences
may be higher costs to the Commonwealth or lower benefits for members,
depending on the mechanism for allocating the costs associated with administering
the new scheme and managing the investments.
3.66 Alternatively, the Parliament could devolve the scheme to the private
sector, either by allowing existing public offer funds to compete for
the Parliament's business or requiring parliamentarians to nominate the
superannuation fund or retirement savings account into which they required
contributions to be paid. This would not necessarily be a lower cost option
to members, as any private fund would impose management fees.
Independence
3.67 In the section of the inquiry that examined the judges' pension
scheme, the Committee received evidence on the need to maintain judicial
independence through a range of measures, including judges being insulated
from superannuation fund investments. This was seen as important in the
event that judges might be required to rule on matters in which they had
an interest.
3.68 Somewhat surprisingly, the Committee received very little evidence
in this regard concerning parliamentarians. This must, however, be acknowledged
as a factor that should be considered in any evaluation of whether an
accumulation scheme would be appropriate for the Parliament. The Parliament
is regularly required to consider legislation that affects the superannuation
system and potentially, all members of parliament in a funded parliamentary
accumulation superannuation scheme would have a direct interest.
3.69 The Committee does not wish to overemphasise the importance of this
potential disadvantage. There is currently no prohibition on parliamentarians
holding investments or indeed operating businesses, as long as such interests
are declared.
3.70 The Committee considers that the eventual transition of the Parliamentary
Contributory Superannuation Scheme to an accumulation scheme offers an
alternative for addressing the problems identified with the current scheme.
3.71 An alternative to introducing an entirely new scheme is to modify
the existing PCSS to address some of the more significant shortcomings
identified in this inquiry. The Committee has canvassed two options:
- Introducing preservation of pension benefits to age 55; and
- Actuarially reduced pensions
Preservation to age 55
3.72 The first option for reforming the scheme is to increase the age
at which pension benefits can be taken. [34]
The Committee was advised that Parliamentarians in the USA, Canada and
the UK are not paid benefits until 50, 55 and 65 respectively.
3.73 Preserving benefits to a later age could reduce the cost of the
scheme to the taxpayer by a substantial margin. The Australian Government
Actuary, Mr Craig Thorburn, estimated that the saving could be 20 per
cent if the age of access to pensions was increased to 55 years. [35]
3.74 This option would also be publicly acceptable, as it is more in
accordance with private sector practice where contributions to accumulation
funds are generally preserved until a recognised retirement age.
3.75 Mr Thorburn advised the Committee that making changes to pension
preservation rules may produce unexpected results, including behavioural
change. He predicted that 'people would be less likely to retire before
55'. [36]
3.76 It is also possible that such a change may change the patterns of
people entering Parliament at a relatively young age. Such people may
choose to delay their entry into Parliament until a later age.
3.77 The desirability of this eventuality must be considered, as it has
implications for the concept of representative government. Its importance
should not however be overstated, as there is little current evidence
of parliamentarians basing their behaviour around the possibility of an
early lifetime pension. As Mr Thorburn noted:
... parliamentarians are actually serving for what would be other
reasons rather than financial in terms of the benefits of the scheme.
If they were behaving financially, you would expect them to leave at
the point they qualified for the pension. They do not. [37]
3.78 The major disadvantages of preserving benefits until age 55 are:
- the perceived inequities between short and longer term members identified
in this report would not be addressed unless other changes such as early
vesting were introduced;
- continued lack of flexibility; and
- potential hardship for those former parliamentarians who experience
difficulty in obtaining employment after they leave parliament.
Actuarially reduced pensions
3.79 A second option is to maintain the scheme essentially in its current
form, but pay pension benefits at a lesser rate if taken before a recognised
retirement age. The rate at which pension is paid would be discounted
using actuarial tables taking into account life expectancy and years of
service.
3.80 A similar arrangement is in force in the Commonwealth Superannuation
Scheme for retiring or redundant Commonwealth public servants. Mr Daryl
Dixon pointed out that in this scheme, it is possible to take a pension
prior to recognised retiring age. However the pension is discounted by
3 per cent for each year below the age of 60. [38]
3.81 The Committee found some general support for this proposal throughout
the evidence.
3.82 The disadvantages of the proposal are similar to those associated
with the previous proposal. It is possible that as foreshadowed by the
Australian Government Actuary, such a proposal may also produce behavioural
changes in parliamentarians and prospective parliamentarians.
3.83 The proposal has a number of distinct advantages, however. These
include:
- reduced potential for impacts on parliamentary independence, when
compared to an external accumulation fund;
- cost savings;
- disincentive to taking early benefits, while preserving safeguards
for those unable to secure employment;
- certainty of benefit levels;
- improved equity between younger and older retiring parliamentarians;
and
- improved public perception.
Conclusions and recommendations
3.84 The Committee considers that change to the Parliamentary Contributory
Superannuation Scheme is desirable. The scheme is now out of step with
superannuation practice in the wider community. There is convincing evidence
that it is excessively generous to a small group of retiring parliamentarians.
3.85 The Committee is also conscious of the difficulties associated with
a parliamentary Committee reviewing their own entitlements. Inevitably,
charges of conflict of interest will arise.
3.86 The Committee believes there is a lack of transparency in parliamentary
superannuation, and that this lack of transparency gives rise to much
of the criticism of the PCSS.
3.87 The divergent views of Coalition and Australian Labor Party Senators
are expressed in the following section. The Australian Democrat member,
Senator Lyn Allison, has appended a separate dissent
to this report.
Coalition Senators' view - Superannuation and Parliamentary remuneration
3.88 Coalition members of the Committee conclude that the issue of superannuation
must be considered as part of parliamentary remuneration determined by
the Remuneration Tribunal.
3.89 The Coalition Senators consider that the framework and the terms
of remuneration should be determined by the Government of the day, who
should give guidance to the Remuneration Tribunal taking account of the
following principles:
- Separation of retirement income and redundancy functions. Coalition
Senators concur with the view put by several witnesses that the PCSS
attempts to fulfil too many functions and considers that the scheme
should operate solely as a method of providing income for retirement.
- Choice and opting out. Coalition Senators consider that new
parliamentarians should be offered the choice of opting out of the PCSS
in favour of a fully funded accumulation scheme or retirement savings
account of their choice. This could become part of the establishment
of a fully funded parliamentary scheme.
- Early vesting of benefits. Coalition Senators consider that
the current disparity in benefits between short and longer term members
needs to be addressed. The benefit, as far as practicable, should be
proportional to years of service. The development of the concept of
notional employer contributions for Superannuation Surcharge Tax purposes
may be useful for this purpose.
- Optional and variable contributions. Coalition Senators are
of the view that the scheme should be made more responsive to the personal
circumstances and needs of members. However, if parliamentarians elect
not to contribute to the scheme or to contribute at a lower rate, the
value of their final benefits should be discounted accordingly.
3.90 At present the parliamentary scheme provides for the taking of pensions
prior to retirement age. Under the changes to the preservation rules announced
in the 1997-98 Budget, early access to benefits will still be possible
'where the benefits are taken as a non-commutable life pension or lifetime
annuity'. [39] While a case may be made
for allowing early access to pensions, this is not consistent with current
community standards. Coalition Senators recommend that future members
of parliament should not receive any pension benefit until age 55.
3.91 For current members, Coalition Senators consider that there is a
case for introducing actuarially discounted benefits if they are taken
before age 55. The Australian Government Actuary should determine the
appropriate discount to be applied. However, introduction of this provision
should coincide with the new preservation rules announced in the 1997-98
Budget, that is, to commence from 1 July, 1999.
Australian Labor Party Senators' view - Superannuation and parliamentary
remuneration
3.92 The report refers to the independent Remuneration Tribunal setting
the employment conditions of members of parliament.
3.93 Labor Senators have chosen not to recommend specific changes to
the Parliamentary Contributory Superannuation Scheme but see the Remuneration
Tribunal as the appropriate body to make necessary recommendations for
reform in light of its independence, experience with remuneration matters
and its ability to evaluate the totality of the scheme and its objectives.
3.94 Labor Senators believe there is a case for reviewing the Parliamentary
Contributory Superannuation Scheme and recognise the potential conflict
of interest in current parliamentarians determining changes to the superannuation
scheme which affect the entitlements of current and future parliamentarians.
3.95 Labor Senators recommend that any review of the Parliamentary Contributory
Superannuation Scheme be conducted independently by the Remuneration Tribunal.
Funding
3.96 The Committee has considered whether there is any advantage to be
gained through fully funding the PCSS. The Committee notes the evidence
of the Australian Government Actuary that such a proposal would not produce
any savings for many years.
3.97 In the long term the Committee believes that the PCSS should move
toward becoming a fully funded scheme. This would provide for greater
transparency of superannuation with other parliamentary entitlements.
Controls on costs to the Commonwealth
3.98 The Committee notes the evidence that it received that the provision
of survivor and invalidity benefits represent a significant and uncontrolled
extra cost. While accepting that there may be a need to review these provisions,
the Committee notes that survivor benefits are provided in many superannuation
arrangements. The Committee considers that such arrangements are entirely
reasonable.
3.99 The Committee recommends that survivor and invalidity benefits
continue to be paid. However, the rules under which these benefits
are paid should be reviewed by the Remuneration Tribunal, in accordance
with standards adopted in other private and public sector superannuation
schemes.
Interest on contributions
3.100 The new preservation rules announced by the Government apply to
contributions by Parliamentarians to the PCSS. Unless a mechanism is developed
for paying interest on these contributions, the real value of these contributions
may be eroded over time.
3.101 The Committee therefore recommends that contributions made by
parliamentarians attract interest in accordance with normal superannuation
practice.
[Return to Table of Contents]
Footnotes
[1] House of Representatives, Hansard,
13 May 1997, p. 3379.
[2] Submission No. 40, Australian Democrats,
p. 2.
[3] Submission No. 40, Australian Democrats,
p. 2.
[4] Evidence, Mr Robert McClelland MP,
p. 142.
[5] Evidence, Mr Ray Stevens, p. 160.
[6] Evidence, Mr Robert McClelland MP,
p. 141.
[7] Evidence, Mr Robert McClelland MP,
p. 139.
[8] Evidence, Senator Cheryl Kernot,
p. 174. Senator Kernot went on to suggest that this might indicate over-generous
remuneration of some private sector executives (Evidence, p. 174).
[9] Submission No. 45, Remuneration Tribunal,
p. 2.
[10] Submission No. 42, Australian Government
Actuary, p. 27.
[11] Evidence, Dr Vincent FitzGerald,
p. 155.
[12] Evidence, Mr Ray Stevens, p. 162.
[13] Evidence, Mr Daryl Dixon, p. 128.
[14] On these arrangements see Evidence,
pp. 128, 131, 135.
[15] Evidence, Mr Daryl Dixon, pp. 128,
131.
[16] Remuneration Tribunal, Statement: Members
of Parliament Allowances and Entitlements (1996), p. 2.
[17] Remuneration Tribunal, Statement: Members
of Parliament Allowances and Entitlements (1996), p. 2.
[18] The four elements are identified in Submission
45, Remuneration Tribunal, p. 4. Parliamentarians' salary is presently
adjusted under statute by reference to a public service pay level (the
current link is with the bottom point of the Australian Public Service
SES Band 2 level). The Remuneration Tribunal deals with the electorate
allowance and other benefits (including, for example, the charter transport
reimbursement allowance and the travelling allowance). See Submission
45, Remuneration Tribunal, p. 1.
[19] Submission No. 48, Mr Daryl Dixon,
p. 1.
[20] Submission No. 48, Mr Daryl Dixon,
p.1.
[21] Evidence, Dr Vincent FitzGerald,
p. 155.
[22] Evidence, Mr Ray Stevens, p. 163.
[23] Submission, Senator Brian Gibson,
p. 1.
[24] Submission, Senator Brian Gibson,
p. 1.
[25] Submission, Australian Government
Actuary, p. 3.
[26] House of Representatives, Hansard,
13 May 1997, p. 3379.
[27] Submission No. 30, Mr Wilson Tuckey
MP, p. 3.
[28] Submission No. 43, Parliamentary
Retiring Allowances Trust, p. 3.
[29] Evidence, Dr Vincent FitzGerald,
p. 156.
[30] Evidence, Mr Daryl Dixon, p. 128.
[31] Evidence, Mr Grahame Millar, p.
112.
[32] Evidence, Mr Daryl Dixon, p. 132.
[33] Evidence, Mr Daryl Dixon, p. 135.
[34] As previously explained, lump sums will
be preserved until 55 under the new preservation rules.
[35] Evidence, Mr Craig Thorburn, p.
122.
[36] Evidence, Mr Craig Thorburn, p.
122.
[37] Evidence, Mr Craig Thorburn, p.
123.
[38] Evidence, Mr Daryl Dixon, p. 130.
[39] 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.
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