House of Representatives

Explanatory Memorandum

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

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.