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
| The Committee recommends that survivor
and invalidity benefits continue to be paid to beneficiaries of
the judges' pension scheme. However, as in the case of the parliamentary
scheme, the Committee considers that the rules under which these
benefits are paid should be reviewed to ensure they are in accordance
with community standards. |
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
| The Committee recommends that the Judges' Pensions
Act 1968 be amended to provide for an option for a judge to
elect to have his or her pension commuted on retirement, or on
death before or after retirement, to the extent that would provide
a lump sum equal to one year of the yearly pension to which the
judge was entitled at the date of the retirement or death.
If such an election is made, any pension subsequently payable
to the judge, spouse or dependant, is actuarially reduced by
the value of the commutation so that the total value of benefits
paid is the same as if there had been no election.
|
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.
[Return to Table of Contents]
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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