DISSENTING REPORT
SENATOR LYN ALLISON, AUSTRALIAN DEMOCRATS
This dissenting report expresses the firm view of the Democrats that
the Parliamentary Contributory Superannuation Scheme (PCSS) is too generous
and is in urgent need of reform. The majority report goes some way to
acknowledge the criticisms of the PCSS and explores the inequities inherent
in the scheme between members of parliament whose terms of office and
retirement ages vary widely. But, the report fails to tackle the more
substantive issues to do with the level of public subsidy to the scheme
as it was expected to do in its terms of reference. Furthermore, it shirks
from what we acknowledge is the difficult but important task of bringing
the scheme much more into line with community standards, while having
proper regard to the usual nature of parliamentary life. In effect, the
majority report refers that task back to the Government and the Remuneration
Tribunal. In our view, this is unlikely to result in significant change
in the absence of firm recommendation from the Committee as to the direction
that reform of the scheme needs to take.
It is fair to say that this Inquiry was not welcomed by the major parties,
and our recommendations, insofar as they would reduce, to varying degrees,
the entitlements of parliamentarians, are unlikely to be popular with
all of our colleagues. However, the evidence to the Committee, was, in
our view, compelling in making the case for such a direction in reforming
the PCSS.
The Inquiry was established as a result of a reference moved by the Leader
of the Australian Democrats, Senator Cheryl Kernot. Introducing the reference,
Senator Kernot told the Senate:
"The terms of references show that we seek to look at the fairness
of the schemes, particularly in relation to the cost to the public purse
and in relation to the benefits received by other citizens.....What is
happening now is that the scheme we have in place actually fails the test
of fairness."
The terms of reference are reprinted in the majority report. It is our
view that the absence of concrete recommendations for reform of the scheme
in the majority report has resulted in the report not fully addressing
the terms of reference, even though the Committee had before it substantial
evidence supporting the case for reform of the scheme.
A. LEVEL OF PUBLIC SUBSIDY TO THE PARLIAMENTARY SCHEME
The need for this Inquiry was amplified by the material contained in
detailed media reports on the scheme - notably Inside Canberra
and the Reader's Digest - highlighting the very high level of publicly
funded benefits received by some former members of the PCSS. The Inside
Canberra article alleged that some recently retired parliamentarians
had received benefits with a capital value of over $2 million having made
contributions of just $100,000 to $130,000 throughout their Parliamentary
life. While in many respects these figures are an exaggeration and somewhat
distorted, they added to the already high level of public concern that
the scheme was excessively generous, a view amplified in submissions to
the Committee. The public, in our view, has a legitimate right to be concerned
by outcomes such as the fact that, over the last two elections, as many
as five members of Parliament left office aged 40 years or less with an
entitlement of a pension for life of between $40,000 and $52,000.
Because the PCSS is an unfunded defined benefits scheme, and because
the benefit varies dependent on the years of service of the parliamentarian,
it is extremely difficult to estimate the exact level of public subsidy
for the retirement benefits of superannuation. The Government Actuary
has reported that the "notional employer contribution" as 69.1
per cent as at 30 June 1996. The Actuary calculated this notional contribution
as the effective cost of the PCSS benefits as a percentage of the total
salaries of scheme members. As such, the figures does not strictly represent
the level of subsidy for each individual members' superannuation, which
varies dependent on the years of service of the member at retirement.
The Actuary also provided the Committee with an estimate of the actuarial
value of benefits for a notional male member at age 32. These varied markedly
with years of service. Assuming the benefit is taken fully as a pension,
it varies between 16 -20 times parliamentary salary for a member retiring
involuntarily with 8 -25 years service. However, the Actuary did not calculate
how much of this was funded by the parliamentarian's own contributions
and how much was funded by public subsidies.
Senator Kernot, in her evidence to the Committee, tabled some estimated
calculations of public subsidy for parliamentarians retiring involuntarily
with different years of service. The calculations, prepared by her office,
sought to calculate the ratio of "public" or "employer"
contributions to parliamentarian's contributions. It should be emphasised
that such an exercise is sensitive to the assumptions used, however, it
did illustrate the heavily subsidised nature of the scheme:
Estimates of Employer Contributions to the PCSS
Years of Service at Retirement Ratio of Employer to Member
Contributions
8 years 8.16 times
12 years 5.99 times
18 years 4.88 times
24 years 3.17 times
Source: Office of Senator Kernot
Given that parliamentarians contribute about 11.5 per cent of salary,
a ratio of 8.16 times employee contributions represents an average notional
employer contribution of around 94 per cent of salary for a parliamentarian
involuntarily retiring after eight years service. The report concludes:
"By any measure, these are excessive subsidies. It also fails the
test of equity between fund parliamentarians - shorter periods of service
obtain bigger benefits."
The Australian Democrat senators, in their submission to the Committee
also recommended that the employer contribution needed to be set at "at
a rate substantially less than at present," as did many of the submissions
from the public to the Committee.
The Democrats believe that the evidence of the level of hidden public
subsidies to the scheme being excessive is compelling, and the Majority
Report erred in making no recommendation about the appropriateness of
the level of public funding as outlined in its terms of reference. However,
the Democrats share the Majority Report's concern about politicians voting
on their own remuneration. For that reason, the Democrats support the
view of the Majority Report that it would be appropriate for the Remuneration
Tribunal to determine a fair level of superannuation benefits for parliamentarians.
However, this review should occur in the context of a clear direction
from the parliament that the level of superannuation benefits should be
reduced.
Recommendation No. 1:
Recommendation No. 2:
That the Remuneration Tribunal should be asked to determine an appropriate,
reduced level of superannuation benefits for parliamentarians, taking
into account standards prevailing in the community at large and the
unusual nature of parliamentary life.
B. SHOULD PARLIAMENTARIANS BE COMPENSATED FOR A REDUCTION IN SUPERANNUATION?
The Democrats strongly disagree with the view that superannuation should
be considered as part of the total remuneration package (TRP)for parliamentarians,
with the implicit view that any reduction in superannuation should be
offset by some increase in some other component of the package. As noted
by the Majority Report, the Remuneration Tribunal has expressed reservations
about the TRP approach to salaries, arguing that:
"Accountability is best served by the public knowing the
purpose for which funds are available to Parliamentarians, recognising
the distinction between provisions directed to a parliamentarian's individual
benefit and those expenses which are incurred in the discharge of electorate
functions..."
A TRP approach to parliamentarians' remuneration would allow parliamentarians
to arrange their remuneration to best suit their individual needs, which
for some could mean minimising their tax obligations. It must be seriously
questioned whether is appropriate to consider TRP for parliamentarians
at a time when the Government, through the Australian Taxation Office,
is trying to crack down on abuse of salary packaging arrangements in the
private and public sectors. In particular, should parliamentarians be
seeking to move their remuneration out of superannuation into other forms
of remuneration when parliament has put in place laws making it mandatory
for all workers to be members of superannuation schemes. In short, there
are very strong arguments for rejecting the TRP approach for parliamentarians'
remuneration, and for maintaining the current arrangements whereby each
component of remuneration should be separately determined as appropriate
for its purpose.
The Majority Report expressed concern that if superannuation were reduced
without compensation elsewhere in the remuneration package, it could become
a substantial deterrent to quality candidates entering Parliament. The
Democrats do not think that this concern was well founded on the basis
of the evidence. The PCSS only delivers very substantial benefits to parliamentarians
after they qualify for a pension i.e. after three terms of the House of
Representatives. The Democrats frankly doubt whether it is reasonable
to conclude that the aggregate level of pension they may or may not have
if they survive three elections would be a major consideration on the
part of would-be members of Parliament. Given the vagaries of the electoral
process and even the preselection process, it is simply too speculative
to argue that changes to the aggregate level of a benefit which they may
be entitled to if they survive three terms would act as the "substantial
deterrent" as argued by the Majority Report.
Remuneration is obviously a consideration for serious candidates for
election. The availability of a generous pension after a certain period
of service, the absolute level of the salary available and the immediate
value of allowances would clearly be a relevant consideration. The Democrats
would argue that changes in particular to the level of salary or the general
availability of a superannuation scheme could act as a substantial deterrent,
but that the absolute level of a possible future superannuation benefit
would be a very marginal consideration. While the current salary payable
to parliamentarians are generous in comparison with average weekly earnings,
it should be noted that the level is set well below the earnings level
of many senior professionals and businesspeople who would find the salary
would mean a significant cut in their living standards.
It is relevant to note that the number of candidates nominating for office
at Federal elections rose from 868 in 1987 to 1163 in 1996, a 34 per cent
rise. This hardly suggests that the current remuneration levels are inadequate.
It would be extremely hard to justify an increase in parliamentarians'
salaries and allowances even if superannuation were reduced.
The Australian Democrats senators submission to the Committee recognised
that the remuneration arrangements for parliamentarians needed to balance
several considerations:
- the need for office holders to be able to live appropriately but not
ostentatiously, while holding office without the need for an independent
income;
- the removal of any financial need of illicit income from misuse of
office;
- the need for remuneration to be sufficiently attractive to provide
an adequate consideration for qualified citizens to leave the private
sector to enter parliament;
- the need to be sufficiently modest to ensure that offices for not
become a source of money making, and that the public has confidence
that the remuneration levels are appropriate.
Based on these criteria, and the evidence presented to the Committee,
there is a strong and compelling case for retaining a parliamentary superannuation
scheme. The longer a parliamentarian is in office, the more distant, in
most cases they become from the profession or occupation from which they
came, making it difficult for them to return successfully to their former
occupation. Against this, it should be noted that parliamentarians, particularly
those who take up senior Ministerial office, are able to develop new skills
and contacts which could result in new career paths. But, most parliamentarians
do not move into higher office.
In the absence of a retirement savings scheme, a parliamentarian while
in office, losing the relevance of their occupational skills, could feel
compelled to use other means to "save" for a post-parliamentary
career. This could involve outside work or illegal use of office. The
establishment of a generous superannuation scheme eliminates such a need.
It becomes a matter of judgement at which point a generous superannuation
scheme ceases to act as a bulwark against the need for supplementary income,
and becomes an excessive benefit in its own right. It is the view of the
Australian Democrats that the balance has shifted too far to the latter,
and that a new, more appropriate balance needs to be set by the Remuneration
Tribunal.
Recent media reports have noted that a number of former parliamentarians
are still unemployed some 18 months after losing office. The Majority
Report has canvassed the need for a dislocation allowance to assist former
parliamentarians in the transition from parliament back into the workforce.
The Australian Democrats support the establishment of a dislocation allowance.
Such an allowance should also be read in the context of the strong support
given by the Coalition Senators to preservation of benefits to age 55,
requiring former parliamentarians to wait until age 55 to commence a pension
along with the rest of the community. It is a well recognised industrial
principle that employees who lose their positions are paid a retrenchment
or redundancy benefit. This need is currently partly filled by the superannuation
scheme, and it would be appropriate to use the time at which the benefits
payable under the scheme are reduced to introduce a modest and appropriate
dislocation allowance to provide some transitional assistance to former
parliamentarians.
Recommendation No 3:
That salary packaging and total remuneration packaging approaches
be rejected for parliamentarians' remuneration, with each element of
remuneration being separately assessed as being appropriate and fair
for its relevant purpose.
Recommendation No 4:
That the PCSS be confined in scope to providing an adequate post
age 55 retirement income for former parliamentarians, taking into account
the unusual nature of parliamentary life.
Recommendation No. 5:
That in restricting the PCSS to retirement income purposes and reducing
the level of public subsidy, there should be introduced a separate and
additional dislocation allowance to assist former parliamentarians in
transition from office to the workforce. Such an allowance should be
set by the Remuneration Tribunal taking into account community standards
in the area and the unusual nature of parliamentary life.
C. OTHER DESIGN ISSUES IN RELATION TO THE PCSS
The Majority Report has made a number of comments about the design of
PCSS, and has correctly identified the important issues raised from the
evidence. The Australian Democrats concur with the broad recommendation
of the Majority Report that the Remuneration Tribunal should be requested
to review the terms and conditions of the scheme. However, the Tribunal
should not be asked to do this in a vacuum. It is our view that the Committee
should provide more detailed guidelines to the Tribunal on the general
direction of reform. Nor do the Democrats agree with the all of the principles
on the issues reached by the Coalition Senators at the end of Chapter
Three, given the opposition of the Democrats to a salary packaging or
TRP approach to parliamentarians' remuneration.
Recommendation No. 6:
That, in redesigning the PCSS, the Remuneration Tribunal be asked
to:
a. Restructure the scheme as a fully vested accumulation scheme
with the level of public subsidy being substantially reduced, and
with the Government contribution becoming an appropriate multiple
of the parliamentarians' 11.5 per cent contribution;
b. That the redundancy function be separated from the retirement
function;
c. That, the Government contribution should cease after 18 years,
and parliamentarians be permitted to reduce their contributions to
5.75 per cent after 18 years service as at present;
d. That membership of the scheme remain compulsory, but where
a member can satisfy the trustees that they have adequate retirement
savings already, they may opt out of the scheme, thereby forfeiting
the benefit of the Government contribution;
e. That the rules for survivor and invalidity benefits be reviewed;
f. That parliamentarians be able to make additional contributions
if they so opt and be paid interest on those contributions;
g. That benefits under the scheme be paid as a pension, actuarially
determined based on the value of the accumulated benefit when the
parliamentarian retires or turns 55 (which ever is later), with the
parliamentarian able to commute up to 50 per cent of their pension
to a lump sum as at present.
Given the overwhelming evidence that the public subsidy of the scheme
is excessive, the Democrats believe that it would be not appropriate for
any reform to apply only to new parliamentarians, with current parliamentarians
"grandfathered" into arrangements based on the existing scheme.
Such an arrangement would see parliamentarians working side by side receiving
different remuneration in respect of the same periods of service. It is
our view that the current scheme should be closed down, with benefits
determined for existing members as at the date of the closure. All subsequent
service would be remunerated in accordance with the new scheme, with the
Remuneration Tribunal determining the transitional arrangement.
Recommendation No 7:
That the new scheme apply equally to new and current parliamentarians
in respect of future service. The entitlements of existing members should
be determined under the current scheme as at the date of the closure
of the existing scheme, with the Remuneration Tribunal determining appropriate
transitional arrangements.
PART D: JUDGES SCHEME
The Australian Democrats generally support the analysis, conclusions
and recommendations of the Majority Report in respect of the Judges' scheme.
Senator Lyn Allison
Australian Democrats member
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