House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Finance and Administration, the Hon John J Fahey, MP)

General outline and financial implications

General outline

This Bill includes amendments to the Parliamentary Contributory Superannuation Act 1948 (the Act) to make changes to the superannuation arrangements for persons who become members of the Commonwealth Parliament at or after the next general election except where they were members immediately before that election was called.

The Act provides superannuation arrangements for persons who have served as Senators and Members of the Parliament. The current arrangements provide for the immediate payment of a retiring allowance when a member ceases to be a Senator or Member in a number of circumstances, including both voluntary and involuntary retirement after a certain period of service.

The Bill proposes amendments to the Act to provide that:

(a)

new Senators and Members who join the Parliament after the next election (including members who return to the Parliament after previous service completed before these arrangements take effect) and who leave Parliament voluntarily or involuntarily and become entitled to a parliamentary pension before age 55 should have the payment of that pension deferred (including the option to commute part of that pension to a lump sum) until that age, except where:

(i)

Senators and Members are covered by the current arrangements before the agreed changes take effect and their period of service is temporarily broken because they resign their place in the Parliament at the time of an election in order to change Houses of Parliament, or otherwise take action at that time to change Houses. These Senators and Members would continue to be covered by the current arrangements in that circumstance.

(ii)

the Senator or Members retirement is taken to be on invalidity grounds in accordance with existing policy as reflected in the Act;

(b)

a deferred pension may be paid before age 55 if the Parliamentary Retiring Allowances Trust considers that, because of ill-health, the former Member or Senator is incapable of performing the duties of a Member of Parliament. Any decision to activate the pension would be subject to review on a regular basis by the Trust;

(c)

eligible spouses and children would receive a reversionary pension on the death of the former member whose pension is deferred before age 55;

(d)

part of the deferred pension may be accessible before age 55 in circumstances where the former member is in severe financial hardship or on compassionate grounds. These grounds and the amount to be paid would be determined by the Trust based on new regulations under the Act which reflect, or substantially reflect, relevant provisions in the superannuation regulatory arrangements under the Superannuation Industry Supervision (SIS) legislation. When the deferred pension ultimately becomes payable it will be reduced to take account of these payments in accordance with a methodology determined by the Trust on the advice of an actuary.

Reversionary benefits would still be available to the spouse/children (ie including orphans) of all Senators or Members who die in service in accordance with existing policy as reflected in the Act.

Financial Implications

It is estimated that the amendments for the deferral of the payment of pensions for new Senators and Members to age 55, once in place, will have a small positive effect on the fiscal balance (estimated to be $0.22 million in 2001/02, $0.24 million in 2002/03, $0.25 million in 2003/04 and $0.50 million in 2004/05).

Notes on clauses

Clause 1 - Short title

Clause 1 provides for the short title of the Act to be the Parliamentary Contributory Superannuation Amendment Act 2001.

Clause 2 - Commencement

2. Clause 2 provides that the Act commences on Royal Assent.

Clause 3 - Schedules

3. Clause 3 provides that the Act specified in a Schedule to this Act is to be amended according to the applicable items set out in the Schedule.

Schedule 1 - Amendments of the Parliamentary Contributory Superannuation Act 1948

Items 1 and 2 - Consequential amendments

4. Items 1 and 2 add a note after subsection 18B(1) and amend subsection 20(3) of the Parliamentary Contributory Superannuation Act 1948 (the Act), respectively, as a consequence of new Part VA that provides for the deferral of payment of a retiring allowance.

Item 3 - Insertion of new Part

5. Item 2 inserts a new Part VA into the Act. The new Part provides for new arrangements for certain persons who become members of the superannuation scheme provided for under the Act (the Parliamentary Contributory Superannuation Scheme (PCSS)) as a result of the first general election after the Bill commences or subsequent to that election. The new arrangement is not intended to apply to existing Members and Senators in respect of their first cessation of membership after the Bill commences, but could apply if they are subsequently re-elected. However, the new arrangements are intended to apply to a person who is currently in receipt of retiring allowance or who has received a lump sum benefit from the PCSS and who again becomes a Member or Senator at the next general election or subsequent to that election.

6. The new arrangements will ensure that the payment of a retiring allowance on cessation of membership will be deferred until the person has reached the age of 55. There are some exceptions to this deferral and also some circumstances where a deferred benefit may become payable before age 55.

Section 22DA - Definitions

7. Section 22DA provides definitions of a number of terms.

8. Deferral day is defined to mean the day on which a person, the payment of whose retiring allowance is deferred by section 22DC, attains the age of 55 years.

9. Deferral period is defined as the period starting from the day on which a person becomes entitled to a retiring allowance (ie, a PCSS pension) and ending immediately before reaching the age of 55.

10. Deferring member is defined as a person described in section 22DB which describes those persons whose retiring allowance is to be deferred until age 55.

11. SIS regulations is defined to mean regulations under the Superannuation Industry (Supervision) Act 1993 (the SIS Act).

12. Transitional general election is defined as the first general election after the commencement of the new Part.

Section 22DB - Members who are subject to deferral

13. Section 22DB describes the circumstances in which a person is a deferring member and therefore, by virtue of new section 22DC, is subject to the deferral of the payment of retiring allowance to which he or she becomes entitled before age 55. With certain exceptions the section describes a person who is elected to Parliament at the transitional general election or who becomes a Senator or Member by any means after that time.

14. Persons who are not to be deferring members when they become entitled to a retiring allowance are persons who were Senators and Members immediately before that transitional general election, who are re-elected at that election and are Senators or Members continuously until they become entitled to the retiring allowance. That continuity will not be broken where a person resigns from, or otherwise ceases to be a member of, one House and is elected to the other House within a period of 3 months.

15. A person who was in receipt of a retiring allowance prior to becoming a member at a relevant election or joining the Parliament by other means will become a deferring member when they again become entitled to a retiring allowance if they have not reached age 55.

Section 22DC - Deferral of retiring allowance

16. Section 22DC provides that a retiring allowance (other than a retiring allowance that becomes payable as a result of invalidity retirement) of a deferring member becomes payable from the date on which the person reaches age 55. The person will also not be entitled to make an election for commutation of their retiring allowance until age 55.

17. This deferral does not apply to an annuity for an eligible spouse or eligible children following the death in service of a Senator or Member or where a Senator or Member dies while payment of his or her retiring allowance is deferred by the operation of section 22DC.

Section 22DD - Payment of retiring allowance during period of invalidity

18. Section 22DD provides that where the payment of a former Senator or Members retiring allowance has been deferred it can become payable before reaching age 55 in circumstances similar to the invalidity provisions for members under the Act. That is, the Trust may determine that the deferring member would be unable, because of physical or mental impairment, to perform the duties of a Member of Parliament if he or she were still such a member.

19. An invalidity determination of the Trust under this section is subject to a review by the Trust at least every 2 years that may result in the revocation of the determination and the further deferral of the payment of the retiring allowance.

Section 22DE - Effect of invalidity determination

20. Section 22DE provides for the payment of retiring allowance to a person during a period when an invalidity determination made under section 22DD has effect.

Sections 22DF, 22DG and 22DH - Procedures in relation to invalidity determinations

21. Sections 22DF, 22DG and 22DH mirror other provisions of the Act in relation to the procedures for invalidity retirement of a person who is still a member and related reviews.

Section 22DI - Other special payments during deferral period

22. Section 22DI provides that the Trust may determine that a deferring member has satisfied a ground for release of benefit provided in the regulations and authorise the early payment of a portion of the benefit. The determination will also specify a subsequent reduction in the deferred benefit to become payable to the member when he or she attains the age of 55 as a consequence of the early release of part of the benefit. The section makes it clear that, because of the time value of money, the reduction in the ultimate benefit (which may occur up to 20 years later) could exceed the actual amount paid under these early release arrangements. However, the person's retiring allowance will not be reduced below zero.

23. Determinations under this section cannot be revoked or varied after the payment has been made.

24. Regulations made under this section will prescribe grounds for the payment of part of the retiring allowance that has been deferred. Before the regulations are made, the Minister must be satisfied that the specified grounds for payment are substantially similar to the conditions of release provided for under the SIS Regulations in relation to "severe financial hardship" and "compassionate ground". The regulations will also prescribe the matters that the Trust must take into account when determining the amount that may be paid having regard to similar matters under SIS.

25. The SIS Act provides a general supervisory regime for superannuation schemes including the requirement for preservation of benefits until retiring age in most cases. Regulations made under that Act allow for the release of portions of a preserved benefit in certain circumstances. The SIS Regulations do not apply to deferred life-time pensions.