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(Circulated by the authority of the Minister for Finance and Administration, Senator the Hon Nick Minchin)
This Bill includes amendments to the Parliamentary Contributory Superannuation Act 1948 (the PCS Act) and the Remuneration and Allowances Act 1990 (the R&A Act). This Bill and the Parliamentary Superannuation Bill 2004 constitute a package of Bills to make new superannuation arrangements for persons who become members of the Federal Parliament, or return to the Parliament after a previous period in Parliament, at or after the next general election.
The PCS Act provides superannuation arrangements for persons who are, or who have been Senators or Members of the House of Representatives. Those arrangements are provided through a defined benefits scheme, which is known as the Parliamentary Contributory Superannuation Scheme (PCSS). The amendments to the PCS Act in this Bill will close the PCSS to new members from the next general Federal election and deal with the treatment of a retiring allowance payable under that Act in the event that a former Senator or Member in receipt of a retiring allowance is again elected or appointed to Parliament.
The R&A Act provides, amongst other things, for the basic parliamentary salary paid to Senators and Members. This Bill will amend the R&A Act to extend a limited salary sacrifice facility to Parliamentarians who are to be entitled to superannuation under the new arrangements to be put in place following the passage of the Parliamentary Superannuation Bill 2004.
The amendments to the PCS Act in the Bill will:
(a) close the PCSS to new Members of Parliament (MPs) from the next general election, including former MPs who are again elected or appointed to the Parliament; and
(b) suspend a retiring allowance being paid to a former MP who returns to Parliament at or after the next general election while they remain in Parliament. These former MPs will receive superannuation for their latest period of parliamentary service in accordance with the new arrangements to be put in place following the passage of the Parliamentary Superannuation Bill 2004. Payment of their retiring allowance will recommence once they leave the Parliament again. Members of one House of Parliament who resign to stand for election to the other House and who are elected will not be subject to this provision but will continue to be members of the PCSS after their re-election.
The amendments to the R&A Act will provide MPs who are to be entitled to superannuation under the new arrangements to be put in place following the passage of the Parliamentary Superannuation Bill 2004 with a salary sacrifice facility. This will enable them to salary sacrifice from their basic parliamentary salary an amount up to 50 per cent of their total parliamentary salaries, for the purpose of making additional employer superannuation contributions.
Financial Implications
The estimated financial impact of closing the PCSS and introducing a 9% accumulation arrangement is as follows.
|
|
2003-04
$ m
|
2004-05
$ m
|
2005-06
$ m
|
2006-07
$ m
|
2007-08
$ m
|
|
Fiscal Balance
|
0
|
0.9
|
3.2
|
3.7
|
5.3
|
|
Underlying Cash
|
0
|
-0.4
|
-1.1
|
-1.1
|
-0.5
|
The fiscal balance improvement is due to the reduction in accruing unfunded liabilities less the expense of funding the new arrangements and less the reduction in member contributions no longer received by the Australian Government.
The negative underlying cash impact reflects the Government contributions to the new accumulation arrangements and the member contributions that will no longer be received by the Government. In 2007-08, the underlying cash balance is improved because unfunded benefit payments will no longer be made in respect of new MPs exiting.
Clause 1 – Short title
Clause 1 provides for the short title of the Act to be the Parliamentary Superannuation and Other Entitlements Legislation Amendment Act 2004 (the Act).
Clause 2 – Commencement
2. Clause 2 provides that the Act commences on the day after Royal Assent.
Clause 3 – Schedules
3. Clause 3 provides that the Acts specified in a Schedule to the Act are to be amended according to the applicable items set out in the Schedule.
4. Schedule 1 contains all the amendments to the Parliamentary Contributory Superannuation Act 1948 (the PCS Act) that are required to close off the Parliamentary Contributory Superannuation Scheme (PCSS) to new members and to suspend the retiring allowance of a former MP who is elected to Parliament and receives superannuation in accordance with the Parliamentary Superannuation Act 2004. Schedule 2 incudes amendments to the Remuneration and Allowances Act 1990 to allow MPs whose superannuation is provided by the Parliamentary Superannuation Act 2004 to salary sacrifice.
Schedule 1 – Closing off the current Parliamentary Contributory Superannuation Scheme, and related matters
Parliamentary Contributory Superannuation Act 1948
Item 1 – Definition of surcharge debt account
5. Subsection 4(1) of the PCS Act includes a definition of a surcharge debt account which is to be kept in respect of an MP under the surcharge legislation. Item 1 amends that definition to ensure that the surcharge debt account contains only assessments related to the period that the MP accrued a benefit under the PCSS.
Items 2 and 3 – Surcharge deduction amount
6. Section 4E of the PCS Act provides for the Parliamentary Retiring Allowances Trust to determine a surcharge deduction amount which is used to reduce benefits payable under that Act when a person, whose surcharge debt account is in debit when they leave Parliament, ceases to be a member of the PCSS. The amendments to section 4E made by items 2 and 3 will ensure that any surcharge deduction only relates to benefits payable under the PCS Act and not also to any benefits under the Parliamentary Superannuation Act 2004 if the MP is also entitled to benefits under the arrangements to be made by that Act.
Item 4 – Closing off the PCSS
7. This item inserts new section 29 at the end of the PCS Act which in turn provides for a new Schedule 1 for that Act to close the PCSS. Section 29 provides that the preceding provisions of the PCS Act have effect subject to Schedule 1.
Schedule 1 to the PCS Act – Closing off the scheme constituted by the PCS Act, and related matters
Part 1 - Interpretation
Clause 1 – Definitions
Two terms that are used extensively in the closing off provisions take their meaning from the proposed Parliamentary Superannuation Act 2004. These terms are new scheme contribution period and new scheme entry time.
8. In the Parliamentary Superannuation Act 2004, new scheme entry time means the first time after the commencement of that Act that the following conditions are satisfied:
(a) the time is on or after the polling day for the first general election of the members of the House of Representatives following the commencement of the Act;
(b) the person becomes entitled to a parliamentary allowance at that time;
(c) the person was not entitled to a parliamentary allowance immediately before that time.
2. A person who has resigned from one House of Parliament to stand for election to the other House and who is elected to that other House within 3 months does not have a new scheme entry time in respect of that election.
3. This clause will not apply to currently sitting MPs, as those MPs who stand for re-election to Parliament at the next general election continue receiving their parliamentary allowance up to and including the day before the election and when re-elected receive an entitlement to their parliamentary allowance from the day of the election. The new scheme entry time for a member is used to determine the beginning of a member’s first new scheme contribution period.
4. The Parliamentary Superannuation Act 2004 defines new scheme contribution period as used in that Act to be:
(a) the period from when the person (including a person who returns to the Parliament after a previous period in Parliament) is first elected or appointed on or after the first polling day for a general election of the House of Representatives after the commencement of that Act and that ends when the person next ceases to be entitled to a parliamentary allowance; and
(b) if the person has more than one period of parliamentary service (because they have resigned, lost pre-selection or have been defeated but return to the Parliament after the general election following the commencement of that Act), the period that starts at any later time in relation to which the person becomes entitled to a parliamentary allowance and that ends when the person next ceases to be entitled to a parliamentary allowance.
Part 2- Closing-off contributions to the scheme
Clause 2 – No section 13 contributions in respect of new scheme contribution periods
2. Clause 2 removes the rights of a person to make contributions to the PCSS under section 13 during a new scheme contribution period. This prevents new MPs and former MPs returning to Parliament from making any further contributions under the PCS Act.
Part 3 − Closing off entitlements to benefits under the scheme
Division 1- The close-off
Clause 3 - No section 18 benefits at the end of new scheme contribution periods, etc
3. Section 18 of the PCS Act is the main provision for providing superannuation benefits under the PCSS to MPs when they retire from Parliament. Clause 3 closes off section 18 by preventing a person deriving any benefits under section 18 from the end of their first and any subsequent new scheme contribution period.
4. Clause 3 also provides that any retiring allowance entitlement of a former MP who returns to Parliament after the commencement of the new arrangements in the Parliamentary Superannuation Act 2004 is cancelled. However, this cancellation will be subject to the rules for preserving or suspending the retiring allowance detailed below.
Division 2- Situations in which a person is entitled to a retiring allowance, or additional retiring allowance, at a preserved percentage
Clause 4 - Entitlement to a retiring allowance at a preserved percentage
5. Clause 4 contains provisions that preserve the basic retiring allowance for the person if the person was entitled to a retiring allowance immediately before the start of the first new scheme contribution period that applies to them. This will apply to a former MP who returns to Parliament and also in the event that a currently sitting MP ceases parliamentary service, becomes entitled to a retiring allowance and is then re-elected at some future time.
6. The rate of preserved basic retiring allowance is calculated at the end of the first new scheme contribution period by reference to the percentage of parliamentary allowance that was applicable in calculating the retiring allowance immediately before the person again became entitled to a parliamentary allowance. The basic retiring allowance will be calculated as that percentage of the current parliamentary allowance payable from time to time. Also, salary sacrifice by a member of any part of their parliamentary allowance will not affect the rate of basic retiring allowance to be paid under this clause.
7. If the former MP is again re-elected after an absence, the preserved basic retiring allowance is suspended while the person is in Parliament.
8. This rate of preserved basic retiring allowance may be adjusted to take account of any surcharge assessments that arise during any new scheme contribution period ( see clauses 9, 10 and 11).
Clause 5 - Entitlement to an additional retiring allowance at a preserved percentage
9. Clause 5 contains provisions to preserve and suspend any additional retiring allowance payable to a person because of their service as a Minister or office-holder in the Parliament in the same way that the basic retiring allowance is preserved or suspended under clause 4.
Division 3 - How this Act applies in relation to a person after the new scheme entry time
Clause 6 - Act applies subject to this Division in relation to a person after the new scheme entry time
10. Clause 6 provides that, after the new scheme entry time for a person and subject to certain exceptions and modifications detailed below, the PCS Act applies to a preserved basic and additional retiring allowance in the same way as that Act applies to a basic and additional retiring allowance under section 18 of the PCS Act.
Clause 7 - Disapplying sections 15A, 15B and 15C
11. Clause 7 provides that the invalidity retirement provisions of the PCS Act do not apply to a person once they have first become covered by the superannuation arrangements under the Parliamentary Superannuation Act 2004.
Clause 8 - Modified application of section 16A
12. Section 16A of the PCS Act is the provision under which the minimum Superannuation Guarantee safety-net amount is calculated. Clause 8 provides that, for the purpose of section 16A, only service as an MP before the new scheme entry time for the person is taken into account in calculating the Superannuation Guarantee safety-net amount. This will ensure that any residual benefit from the PCSS to the estate of a person under section 19AB of the PCS Act does not take account of a period when the person was covered by the superannuation arrangements under the Parliamentary Superannuation Act 2004.
Clause 9 - Provisions applying instead of subsection 18(8A)
13. Subsection 18(8A) of the PCS Act provides for the reduction of a retiring allowance where the surcharge debt account for the person is in debit on retirement from the Parliament. Clause 9 provides for the reduction of a preserved basic retiring allowance in respect of any surcharge assessments received by the PCSS when the person is entitled to superannuation under the Parliamentary Superannuation Act 2004 but relating only to a period of service in the Parliament when they were a contributor to the PCSS. This surcharge reduction is calculated in the same way as it would have been calculated under subsection 18(8A) of the PCS Act.
Clause 10 - Provision applying instead of subsection 18(8AA)
14. In the same way as subsection 18(8AA) of the PCS Act produces a surcharge reduction for a retiring allowance under section 18, clause 10 provides for a surcharge reduction which feeds into the reduction formula in clause 9 in order to reduce the preserved percentage, provided for in clause 4, that is applied to the parliamentary allowance to calculate the preserved basic retiring allowance.
15. This will have consecutive application so that each reduction in the preserved percentage to take account of the surcharge will stand alone and the reduced percentage will be preserved. Any further reduction to take account of any subsequent surcharge assessments will be applied to the reduced preserved percentage.
Clause 11 - Provisions applying instead of subsection 18(8AC)
16. Subsection 18(8AC) of the PCS Act provides for the reduction of a retiring allowance payable under section 18 where a former MP receives a surcharge assessment after retirement and elects under section 18A of the PCS Act to commute a part of that retiring allowance to pay the assessment. Clause 11 provides for a reduction of a preserved basic retiring allowance in similar terms to subsection 18(8AC) of the PCS Act where a former MP receives a surcharge assessment after a new scheme contribution period, the assessment relates to a retiring allowance that had accrued before a new scheme entry time for the person and the former MP makes an election under section 18A.
Clause 12 - Modified application of section 18A
17. Clause 12 modifies section 18A of the PCS Act so that it will have continued application to a preserved basic retiring allowance. This allows for the possibility of a commutation of a preserved basic retiring allowance to discharge a surcharge liability after the end of a new scheme contribution period.
Clause 13 - Disapplying section 18B
18. Clause 13 ensures that a general commutation election cannot be made in relation to a preserved retiring allowance. However, commutation to discharge a surcharge liability will still be possible.
Clause 14 - Modified application of section 19
19. Section 19 of the PCS Act which provides for a benefit to a spouse on the death of an MP or former MP is modified by clause 14 so that it continues to operate effectively in respect of a preserved retiring allowance after the new scheme entry time for the person.
Clause 15 - Modified application of section 20
20. Section 20 of the PCS Act provides that a former MP who returns to the Parliament after a period of absence may repay a lump sum benefit based on member contributions received under the PCSS on previous retirement in order to have previous Parliamentary service recognised for a future benefit. That section also cancels a retiring allowance on return to Parliament and it has the effect of reducing a subsequent retiring allowance where the MP had previously commuted a retiring allowance on previously becoming entitled to a retiring allowance on leaving Parliament.
21. Clause 15 closes off the facility for a returning MP to repay a previous lump sum benefit to the PCSS and have previous service credited under section 20. Also, any retiring allowance payable to an MP immediately before the start of the first new scheme contribution period of that person will be cancelled under clause 3. However, a preserved retiring allowance will continue to be reduced under subsection 20(3A) where the MP had previously commuted a retiring allowance on becoming entitled to a retiring allowance on leaving Parliament before the new scheme entry time for the person.
Clause 16 - Modified application of section 21AA
22. Section 21AA of the PCS Act provides for the allocation of benefits where an MP or former MP dies leaving more than one spouse. Clause 16 modifies section 21AA so that it continues to operate effectively in respect of a preserved retiring allowance after the new scheme entry time for the person.
Clause 17 - Modified application of section 21B
23. Clause 17 modifies section 21B, which provides for a reduction of a retiring allowance for former MPs who hold an office of profit under the Crown, to ensure it continues to operate effectively in respect of a preserved retiring allowance after the new scheme entry time for a person. This reduction would apply for as long as the former MP holds the office of profit after the end of a new scheme contribution period. When the person no longer holds the office of profit, the preserved retiring allowance would revert to the level prior to the person’s appointment to the office.
Clause 18 - Modified application of Part VB
24. Clause 18 closes off Part VB of the PCS Act, which allows an MP joining the PCSS to purchase a period of service for benefit purposes on payment of a lump sum benefit received from previous membership of another superannuation arrangement, after the new scheme entry time for the person.
Schedule 2 – Salary Sacrifice
Parliamentary Contributory Superannuation Act 1948
Items 1, 2 and 3 - Parliamentary allowance
25. Items 1, 2 and 3 provide that, for the purposes of sections 18, 21B and 22T (which has the effect of preserving the rate of retiring allowance if parliamentary salaries are reduced), any salary sacrifice reductions to the parliamentary allowance resulting from the amendments to the R&A Act are to be disregarded. In particular, this prevents any salary sacrifice reductions from reducing the rate of retiring allowance payable.
Remuneration and Allowances Act 1990
Item 4 - Special Appropriation
26. Item 4 amends section 8 of the R&A Act, which provides the standing appropriation for the payment of allowances to MPs, as a consequence of the amendments made to the R&A Act by item 6 below to facilitate salary sacrifice. The amendment will allow the Commonwealth to pay salary sacrifice superannuation contributions out of the standing appropriation.
Item 5 - New headings
27. Item 5 inserts a new heading before clause 1 of Schedule 3 of the R&A Act as a consequence of the amendments made to the R&A Act by item 6 below to facilitate salary sacrifice.
Item 6 - New salary sacrifice arrangements
28. Item 6 inserts a new Division 2 after clause 1 of Schedule 3 of the R&A Act which deals with salary sacrifice.
Division 2 - Salary sacrifice
Definitions
29. New clause 1A defines a range of terms for the purpose of the new salary sacrifice division.
30. The term “administering authority” means the Clerk of the Senate or of the House of Representatives, as appropriate.
31. The term “allowance by way of salary” is defined by reference to the Parliamentary Superannuation Act 2004.
32. The term “chosen basic contributions fund”, as it applies in relation to a person at a particular time, means a fund mentioned in a notice by a member under Division 2 of Part 2 of the Parliamentary Superannuation Act 2004.
33. A “complying superannuation fund” is defined by reference to the description in new section 1B.
34. The term “default basic contributions fund” is the default fund under Division 3 of Part 2 of the Parliamentary Superannuation Act 2004.
35. A “month” is defined as meaning one of the 12 months of the year.
36. The term “new scheme contribution period” is defined by reference to the description in the Parliamentary Superannuation Act 2004 (see also paragraph 11 above).
37. An “office holder” is defined by reference to that term as used in the Parliamentary Superannuation Act 2004. It means a person who is entitled to a parliamentary allowance who holds a parliamentary office for which he or she receives an allowance by way of salary. An office-holder does not include a Minister of State.
38. The term “parliamentary allowance” is defined to mean an allowance by way of salary under clause 1 of Schedule 3 to the R& Act.
39. The term “RSA” refers to a Retirement Savings Account as provided for in the Retirement Savings Accounts Act 1997.
40. The term “salary”, as it applies in relation to a Minister of State, is defined to ensure that it does not include any allowance.
41. The term “self managed superannuation fund” has the same meaning as in the Superannuation Industry (Supervision) Act 1993.
Meaning of complying superannuation fund
42. New clause 1B, provides that where in Division 2 there is a reference to a “complying superannuation fund” at a particular time it is referring to a fund or scheme that is a complying superannuation fund for the purposes of Part IX of the Income Tax Assessment Act 1936 in relation to the year of income in which the time occurs and a superannuation fund as defined by subsection 6(1) of the Income Tax Assessment Act 1936.
43. Subclause 1B(2) ensures that a fund or scheme cannot be a complying superannuation fund for the purposes of the Act unless there is in existence at that time a notice under the Superannuation Industry (Supervision) Act 1993 that it is a complying superannuation fund in the terms of that Act. It also ensures that a notice under the Superannuation Industry (Supervision) Act 1993 that a scheme or fund is not a complying superannuation fund in the terms of that Act will not have retrospective effect for the purposes of the Act.
When may a person elect to salary sacrifice?
44. New clause 1C provides that a person may make an election to salary sacrifice during a new scheme contribution period or, in the case of a Senator- elect or person appointed to fill a casual vacancy in the Senate who is not yet receiving parliamentary allowance, the election can be made before that time.
The nature of the salary sacrifice election
45. New clause 1D describes the election that a person may make to forgo a percentage or amount of their parliamentary allowance in order to have additional employer contributions paid to a specified fund (the additional contributions fund). The additional contributions fund must be a complying superannuation fund, but may not be a self managed fund, or a Retirement Savings Account. There may be only one additional contributions fund at any particular time.
How to make an election
46. New clause 1E describes the process that a person must follow to notify the appropriate authority of the salary sacrifice election. The election must be in writing, must specify a percentage or amount of parliamentary allowance that is to be forgone, must include specified details of the fund to which the salary sacrificed amount is to be paid and the date of effect of the election. The election must be made in respect of a new scheme contribution period before there is an entitlement to be paid parliamentary allowance. Regulations can be made to specify other matters to be included in the notice of election. Evidence must also be given that the fund will accept the contributions, unless the additional contributions fund is the default basic contributions fund or the chosen basic contributions fund (that is, the choice fund of the person under the new arrangements).
Duration of an election
47. New clause 1F provides that a salary sacrifice election commences from the date of effect of the election and continues until revoked or until the additional contribution for the month in which the member ceases to be entitled to a parliamentary allowance has been paid.
Effect of an election
48. New clause 1G provides that if an MP makes a salary sacrifice election, the amount of parliamentary allowance to be salary sacrificed must be deducted from the parliamentary allowance and the Commonwealth must pay that amount foregone as additional employer superannuation contributions to the additional contributions fund. The amount to be salary sacrificed out of the MP’s parliamentary allowance each month cannot exceed 50% of the MP’s total Parliamentary salary (including Ministerial or office-holder salary) for the month.
49. If the additional contributions fund ceases to exist, ceases to accept contributions under the Act, ceases to be a complying superannuation fund or an RSA, or becomes a self managed superannuation fund, or the member dies before the additional contributions in respect of a month are paid, the parliamentary allowance for that month will not be reduced and no contribution will be paid in respect of that month.
Variation of an election
50. New clause 1H provides that an MP may vary an election to salary sacrifice to change the additional contributions fund to another eligible fund, to change the specified percentage or amount of parliamentary allowance to be salary sacrificed or to change the start date to a later date provided the original start date has not passed.
Revocation of an election
51. New clause 1I provides that a member may revoke an election to salary sacrifice from a specified date which must be no earlier than the date of the notice.