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).