Superannuation Benefits for Senators and Members

Current Issues

Superannuation Benefits for Senators and Members

E-Brief: Online Only issued 24 February 2004 with subsequent amendments to reflect changes to allowances and benefits.
Last reviewed June 2007.

Leanne Manthorpe, Information/E-links
Politics and Public Administration

IMPORTANT NOTE - This e-brief describes superannuation benefits available to Senators and Members who first served in parliaments prior to the general election held 9 October 2004. Those who were re-elected will continue to be eligible for benefits under the arrangments described below.

Parliamentarians elected for the first time at the 2004 election, however, will be eligible for benefits under the Parliamentary Superannuation Act 2004. Newly-elected parliamentarians will nominate a complying superannuation fund into which contributions of 15.4 per cent will be made by the government on their behalf. These arrangements have the stated aim of bringing superannuation arrangements for parliamentarians in line with current community standards. There will not, therefore, be a paper written to outline these new arrangements. Interested readers are referred to the general discussion of these changes in the e-brief Parliamentary Retiring Allowances Act 1948: Debates, Committee Reports, Remuneration Tribunal Reviews and a Chronology of Legislative Amendments.

Introduction

This e-brief is a response to client demand for a summary of Commonwealth Parliamentary superannuation benefits in place prior to the 2004 general election. It provides explanation, hyperlinks and documents pertaining to the operation of the Parliamentary Contributory Superannuation Scheme (the Scheme). A table of eligibility requirements and benefits under the Scheme is given.

The e-brief should be read in conjunction with an earlier e-brief, Parliamentary allowances, benefits and salaries of office.

A history of parliamentary superannuation can be read in the e-brief entitled The Parliamentary Retiring Allowances Act 1948: Debates, Committee Reports, Remuneration Tribunal Reviews and a Chronology of Legislative Amendments.

Legislation

The Parliamentary Contributory Superannuation Act 1948 (the Act) established the Parliamentary Retiring Allowances Trust (the Trust) and the Scheme. The Scheme is administered by the Department of Finance and Administration (Finance) under the direction of the Trust. The Minister for Finance and Administration, currently Senator the Hon. Nick Minchin, is a trustee of the scheme, along with two Senators and two Members of the House of Representatives.

The Scheme

Operation of the Parliamentary Contributory Superannuation Scheme is outlined in the Parliamentary Superannuation Handbook published by Finance.

The Scheme is an unfunded defined benefit scheme. 'Unfunded' means that when a pension becomes payable, benefits are funded from an appropriation within the Commonwealth Budget while 'Defined Benefit' means that the member's entitlement is, in general, a multiple of years of service and a percentage of salary. In other words, the amount of benefit is fixed by a formula rather than by market returns on investments made by the fund.

Contributions

Membership of the scheme is compulsory for all Senators and Members. Contribution rates are given as a fixed percentage of the Annual Allowance, or basic parliamentary salary, and of any additional salary payable to Ministers and Parliamentary Office-holders. Contributions are paid into the Consolidated Revenue Fund.

Current Contribution Rates for Senators and Members:

• 11 ¹/₂ per cent of Annual Allowance until completion of 18 years service;
• 5 ³/₄ per cent of Annual Allowance after completion of 18 years service

Current Contribution Rates for Office-holders receiving additional salary:

• 11 per cent of the monthly amount of additional salary received is contributed by those Office-holders who have not attained their maximum additional pension entitlement;
• For Office-holders who have attained their maximum additional pension entitlement, the contribution rate reduces to 5 ³/₄ per cent while that maximum applies.

Contributions are only paid while any additional salary is received.

Parliamentarians currently receive an Annual Allowance of $127 060 per annum. Information about the Annual Allowance can be found in the E-Briefs The annual allowance for senators and members and Parliamentary allowances, benefits and salaries of office.

Retirement benefits

Summary

Former parliamentarians gain an entitlement to a pension, called a Retiring Allowance, if they meet the minimum eligibility requirements set out in the Act. The Scheme provides an additional pension entitlement for Office-holders. The benefits payable depend upon a parliamentarian's length of service, the mode of retirement and the receipt of any additional salary. In certain circumstances a portion of the retiring allowance may be converted to a lump sum. If no retiring allowance is payable, former parliamentarians are entitled to a lump sum benefit that may include a refund of their contributions.

Retiring allowances are payable fortnightly from the Consolidated Revenue Fund and are subject to income taxation.

Benefits are summarised in the following table and discussed in the subsequent paragraphs.

Table of Benefits under the Act

Occasions

An 'occasion' occurs on the dissolution or expiration of the Senate or House of Representatives or at the expiration of a Senator's or Member's term of office.

Senators who have 6 year terms achieve an 'occasion' after the completion of 3 years of that term, as well as when their term expires.

Members achieve an 'occasion' when they cease to be a Member upon the dissolution or expiration of the House or upon the expiration of the Member's term of office.

Supplements

Involuntary retirement the supplement is 2 ⅓ times the member's contributions

Voluntary retirement the supplement is 1 ¹/₆ times the member's contributions

Retiring Allowance

A retiring allowance is paid as a percentage of the minimum annual allowance payable at the time of retirement, currently $127 060 per annum. The applicable percentage is linked to a parliamentarian's years of service as follows:

Retiring Allowance Rates

The table represents an additional retiring allowance of 0.00685 per cent of the annual allowance for each additional day's service between 8 and 18 years.

Retiring Allowances for Ministers and Office-holders

The Scheme provides an additional retiring allowance for those parliamentarians paid a salary of office. This means that these parliamentarians may become eligible, in effect, for two retiring allowances the first may be gained by virtue of being an eligible Senator or Member in the manner described above, the second accrues by way of being a Minister, or holding a parliamentary office such as chair of a committee. Offices are determined by the Remuneration Tribunal and can be found in Determination 2006/21 Parliamentary Office-holders additional salary. The Tribunal also reports on Ministerial salary, see Report No 1 of 2006 Report on Ministers of State-salaries additional to basic parliamentary salary. For an explanation of the status of these reports, readers should consult the relevant section in the Library's publication, Parliamentary Allowances, benefits and salaries of office.

The additional retiring allowance is expressed as a percentage of the additional salary paid. It accrues at the rate of 6.25 per cent of the additional salary for each year the office is held. Put another way, each day as an Office-holder attracts a benefit of 0.0171 per cent of additional salary. [5] Where a Senator or Member has served in more than one office, the additional pensions in respect of those offices are aggregated.

Maximum Additional Pension Entitlement

A 'maximum additional pension entitlement' limit applies to additional retirement benefits. This is a limit whereby a Senator's or Member's additional retiring allowance must not total more than 75% of the salary payable for the highest paying office they have held. Note that if a parliamentarian holds more than one office concurrently, only the highest salary of office is paid.

Retirement for Reasons of Ill-health

A retiring parliamentarian who has not qualified for a retiring allowance under the Act may gain entitlement if their retirement is caused by ill-health. The retiring parliamentarian can write to the Trust and ask for a determination to be made on invalidity retirement. Section 15A of the Act requires the parliamentarian to provide a medical certificate and any other documentation the Trust requires. The medical certificate must include a statement setting out the medical practitioner's opinion about the percentage of the person's incapacity in relation to non-parliamentary employment. To issue a determination, the Trust must be satisfied that the member is unlikely ever to be able to again perform the duties of a parliamentarian because of physical or mental impairment. The determination on invalidity must specify the nature of these impairments.

The Trust must also classify the member's invalidity in terms of the percentage of the person's incapacity in relation to non-parliamentary employment. Classifications and associated benefits are as follows:

Invalidity Classification Sect 15B of the Act

The annual allowance [6] is currently $127 060.

Commonwealth Supplement

The Commonwealth Supplement is defined in Section 16 of the Act as 2 ⅓ times the contributions paid during parliamentary service or, if service exceeds 8 years, the contributions paid in the last 8 years of that service. This explanation simplifies the operation of Section 16. Readers should consult the Act for further information.

Superannuation guarantee safety-net amount

The Superannuation guarantee safety-net amount is described in Section 16A of the Act. It is the sum of certain member contributions, plus interest earned on contributions, plus any government-funded 'top-up' benefit provided for under the Superannuation Guarantee (Administration) Act 1992 designed to cover potential superannuation guarantee shortfalls. It is, in essence, a minimum benefit or 'vested benefit'.

Increases to Retiring Allowance

Retiring allowances are increased in line with increases in the annual allowance for serving Senators and Members.

Retiring Allowance for those elected for the first time at the 2001 general election

Senators and Members who joined Parliament on or after the 2001 election and become eligible for a retiring allowance have the benefit deferred until they reach 55 years of age, or until they reach their deferring day, commonly called 'preservation age'. Benefits commuted to a lump sum are also deferred until the retiring allowance is paid.

Commutation of Retiring Allowance to Lump Sum

Up to 50 per cent of a retiring allowance can be commuted to a lump sum. The lump sum is equal to the amount of retiring allowance commuted, multiplied by the commutation factor.

The commutation factor, for ages up to and including 65 years, is 10. The commutation factor reduces by 0.5 per year until reducing to zero at age 85. The commutation factor applicable at selected ages is as follows:

Commutation factor

Preservation of Lump Sum Benefits

Parliamentarians who were elected for the first time at the 2001 election and become eligible for a retiring allowance, are required to preserve any lump sum commutation benefit until their preservation age. The amounts commuted and preserved will naturally vary in each case.

Parliamentarians who retired after 1^st July 1999, but before the 2001 election, could commute fifty per cent of their retiring allowance to a lump sum, but were required to preserve part of this amount until their preservation age.

Parliamentarians who retired before 1^st July 1999, except for reasons of ill-health, had the option of taking a full retiring allowance or commuting up to fifty per cent of this amount to a lump sum that was immediately accessible. In other words the preservation age rules do not generally apply to those elected prior to 1^st July 1999. If the retired parliamentarian is subsequently re-elected, however, the rules may apply.

Deferral of benefits is not required if retirement is on invalidity grounds, regardless of the age of the member.

Deferral of Retiring Allowance and Preservation of Benefits

In 1994, the Parliamentary Contributory Superannuation Act 1948 was amended to make the Scheme subject to the same preservation age rules applying to members of other superannuation funds. [7] In effect, this meant that many members of the Scheme were required to preserve any lump sum benefit, but were still able to access a retiring allowance immediately after retirement. From 2001, certain retiring parliamentarians became 'deferring members' under the Act and they are required to preserve all benefits, including their retiring allowance, until their 'deferral day', generally the day they reach age 55.

Preservation is a prudential regulatory requirement under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and associated Regulations whereby certain superannuation benefits (superannuation contributions, including member contributions, and superannuation fund investment earnings) must be maintained either in a superannuation or roll-over fund until permanent retirement, or until the member reaches preservation age.

Preservation Age

Preservation age is that at which a member can gain access to preserved benefits that have accumulated in their superannuation fund or Retirement Savings Account, provided that they have permanently retired from the workforce.

In the 1997 Commonwealth Budget, the Howard Government announced that the preservation age would be increased from 55 to 60 years on a phased-in basis. By 2025, the preservation age will be 60 years for anyone born after June 1964, with the preservation age being reduced by one year for each year that a birthday occurs before 1 July 1964. This means that persons born before 1 July 1960 will continue to have a preservation age of 55 under the SIS Act. [8]

Preservation Age Phase-in Timetable

Hardship

The Trust can determine to allow early payment of part of a deferred retiring allowance in circumstances of severe financial hardship or on compassionate grounds. When the retiring allowance ultimately becomes payable at age 55 it will be reduced to take account of these payments.

Resettlement Allowance

The resettlement allowance is determined by the Remuneration Tribunal in Determination 2006/18 Clauses 8.6 to 8.8.--

Administration

The Resettlement Allowance will be administered and paid by the Chamber Departments. The allowance is not a redundancy payment - it is an amount determined as appropriate to provide re-skilling and re-employment assistance to those parliamentarians who do not have access to superannuation benefits at the point of losing office. It is expected that the allowance will be fully tax assessable.

For further information, please refer to the 2006 and 2007 sections in the E-Brief, The Parliamentary Retiring Allowances Act 1948: Debates, Committee Reports, Remuneration Tribunal Reviews and a Chronology of Legislative Amendments.

Reversionary Benefit paid as an Annuity

Benefit

Benefits payable to the spouse of a deceased parliamentarian under the Scheme are outlined in Part V, Sections 19 to19AB of the Act.
Upon the death of a serving MP, their spouse receives an annuity equal to ⁵/₆ of the rate of the retiring allowance which would have been payable had the MP not died.
If the MP has served less than 8 years at the time of death, the retiring allowance is calculated as if they had served 8 years.
Upon the death of a former MP already in receipt of a retiring allowance, the spouse receives ⁵/₆ of the rate of the retiring allowance being paid.
Annuities continue to be paid if a spouse remarries. Annuties are also paid if the spouse is subsequently elected to Commonwealth Parliament.

In summary, a spouse will be paid an annuity for their lifetime, equivalent to ⁵/₆ of the retiring allowance to which the deceased parliamentarian would have been entitled.

Spouse

For the purposes of the Act, a person is a spouse if the person has, or had, a marital relationship with the deceased person at the time of the death of the deceased person.

Where the deceased was a retired member at the time of death, a spouse is one where:

• the marital relationship began before the member retired; or
  
• the marital relationship began after the member retired but before they reached 60 years; or
• where the marital relationship had continued for a period of at least 5 years up to the time of death. [Section 4C]

Marital relationship

Orphaned children

If a deceased parliamentarian has no spouse, orphan children are entitled to an annuity equal to of an annuity that would have been payable to a spouse, or equal to the spouse's annuity divided by the number of children if there are more than four. In effect the annuity payable to orphaned children is of ⁵/₆ of the deceased parliamentarian's retiring allowance. Orphan children are also eligible for an annuity if the spouse of a deceased parliamentarian dies while in receipt of a reversionary benefit they are eligible to receive of the annuity their parent had received upon the death of the parliamentarian.

Ss19AA(5) --

• must not have a surviving natural or adoptive parent, including where that parent was a former spouse of the deceased MP
• must be an eligible child (see definition above)
• must have been dependent on the deceased MP
• must not have been born or adopted after the MP became eligible for a retiring allowance or reached the age of 60 years unless their parents marriage lasted for 5 years or more
• must not have been born or adopted after the member s death unless the Trust is of the opinion that the child would have been dependent on that member had they lived.

Reversionary benefit to personal representative

Certain other conditions surround the position of the deceased MP s surcharge debt account and the payment of any benefit.

Annuities from Deferred Benefits

Family Law and the Scheme

Reduction of Benefit

Office of Profit held subsequent to parliamentary service

Where former Senators and Members who are entitled to a retiring allowance or their spouses in receipt of an annuity are held to be the 'holders of an office of profit' under a State or the Commonwealth, their benefit may be reduced. Section 21B of the Act defines the 'holder of an office of profit' as:

• Governors-General and state Governors
• federal court and state court justices or judges
• appointments to any public office made by Governors and Ministers
• federal magistrates
• Judges or justices of Territory Supreme Courts (or others of that staus)
• an office of Head of Administration or Associate Head of Administration under section 49 of the Australian Capital Territory (Self-Government) Act 1988 [Note that section 49 appears to have been repealed in 1994]
• Secretaries within the meaning of the Public Service Act 1999
• Head of a diplomatic mission or Head of a Consular post under Schedules to the Diplomatic Privileges and Immunities Act 1967 and the Consular Privileges and Immunities Act 1972
• Holder of a public office within the meaning of Part II of the Remuneration Tribunal Act 1973

In these circumstances, the retiring allowance is reduced, above a threshold of 20 per cent of backbench salary, at the rate of 50 cents in the dollar. The maximum reduction that may apply is 50 per cent of the retiring allowance before commutation.

Section 21B does not apply to members of state parliaments. In Section 21, however, the Act does allow for reductions in benefit for those who subsequently serve in other legislatures.

Prior and Subsequent Parliamentary Service

Those parliamentarians who become eligible for a retiring allowance under the Scheme and who are already in receipt of a retiring allowance or annuity by virtue of prior service in a state legislature have their retiring allowance reduced by the amount already received. Those parliamentarians in receipt of a retiring allowance under the Act, who are subsequently elected to a state legislature, will have this benefit reduced by the amount of any state retiring allowance they later receive. Former parliamentarians who are re-elected to federal Parliament are required to repay any lump sum benefit received. See The Parliamentary Contributory Superannuation Act 1948, Part V Sections 20, 20A, 21 and 21B

Notional Commonwealth Employer Contribution Rate

A notional employer contribution rate is actuarily calculated to illustrate the effective cost of the superannuation benefits being provided by the employer in unfunded schemes, the Commonwealth, as a percentage of the salaries of scheme members. It represents the contribution rate that would be required if benefits were fully funded and is presented as a percentage of the total salaries of Scheme members.

The Australian Government Actuary reports to the Department of Finance and Administration (Finance) on the long term cost of benefits provided under the Parliamentary Contributory Superannuation Act 1948. At each of these reviews, the notional employer contribution rate is reported. In accordance with common practice this advice is normally provided every three years. Full actuarial reviews were undertaken in 1995, February 1997, December 2000 and for the period 2002 to 2005. This information is not publicly reported but is published in the Scheme's Annual Report provided to Senators and Members. The most recent figure available to the author was given as evidence to the Senate Finance and Public Administration Legislation Committee on 31 May 2004. The notional employer contribution rate to the Parliamentary Contributory Superannuation Scheme is quoted at 67.6 per cent. [13] At 30 June 1996, the rate stood at 69.1 per cent of the total members' salaries. [14]

A comparative table of rates for other commonwealth schemes is provided:

For copyright reasons some linked items are only available to Members of Parliament.

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