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2004-2005-2006-2007
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
JUDGES' PENSIONS AMENDMENT BILL 2007
EXPLANATORY MEMORANDUM
(Circulated by authority of the Attorney-General,
the Honourable Philip Ruddock MP)
JUDGES' PENSIONS AMENDMENT BILL 2007
OUTLINE
The Bill amends the superannuation surcharge related provisions of the Judges' Pensions
Act 1968 and adds a definition of `salary' to the Act.
The Judges' Pensions Act makes provision in relation to the entitlements to pensions of
persons who hold office as judges of the High Court of Australia, the Federal Court of
Australia and the Family Court of Australia and certain other office holders who are
deemed to be judges for the purposes of the Act.
Currently, where a judge retires or dies in office with a superannuation surcharge debt,
the pension payable to the former judge or dependant or dependants of the former judge,
as the case may be, is reduced under a formula in section 6B of the Judges' Pensions Act.
The formula reduces such a pension by averaging the rates of surcharge that applied to
the judge in each full financial year of his or her service.
The Bill remedies technical deficiencies in the formula, the first relating to reduced rates
of surcharge in 2003-04 and 2004-05, the second relating to the treatment of invalidity
and death benefits, and the third relating to payments made to discharge in part a judge's
surcharge debt.
The formula currently operates so as to reduce a judge's pension in respect of 2003-04
and 2004-05 by 15%, although the maximum surcharge rates in those years were 14.5%
and 12.5% respectively. The Bill amends the formula, in relation to pension payments
made after the amendment comes into force, to reflect the lower rates in those years.
The Bill also amends the formula in its application to invalidity pensions to take into
account the abolition of the surcharge from 1 July 2005. A judge who retires on
invalidity grounds before qualifying for a pension on the usual grounds (which are having
reached the age of at least 60 years and held office for at least 10 years) is entitled to a
pension. The Bill amends the formula to recognise the period between 1 July 2005 and
the time when a judge who retires after that date on invalidity grounds would have first
qualified for a pension as years in which no surcharge was payable. This is how the
formula operates following the abolition of the surcharge for judges who qualify for a
pension on the usual grounds. The amendment also applies where a judge dies in office
after 1 July 2005 before qualifying for a pension and a pension is payable under the
Judges' Pensions Act to the spouse or in respect of a dependant child or children. In such
a case, pension entitlements are based on the pension that would have been payable to the
judge if the judge had retired on invalidity grounds on the date of death.
The formula does not recognise payments to reduce a judge's surcharge debt made by the
judge to the trustee of the Judges' Pensions Scheme, where the debt is not paid in full.
The Bill permits a judge to elect to have his or her pension commuted to discharge a
surcharge debt, rather than have the formula apply. Commutation operates on the basis
of actuarially-determined age-based factors and recognises the actual amount of a judge's
surcharge debt. Commutation therefore automatically recognises payments which have
been made to reduce the amount of the debt. The Bill permits a judge who retires on or
after 1 July 2007 to elect to have a surcharge debt commuted.
The Bill permits a spouse of a judge who dies in office on or after that date to choose
between having the judge's pension, on which the spouse's pension is based, reduced
under the formula or under commutation.
The Bill allows the trustee of the Judges' Pension Scheme to draw on an existing special
appropriation to pay judges' surcharge debts to the Australian Taxation Office as they
retire. Once a debt is paid, it may be recovered from the former judge concerned under
the formula or through commutation.
The Bill also defines salary for pension purposes. This would ensure increased flexibility
for the Remuneration Tribunal in setting serving judges' entitlements without the
Tribunal needing to take into account inadvertent effects that this could have on the
pension entitlements of former judges or their dependants. This arises because the
Judges' Pensions Act sets pension entitlements as a proportion of the salary of a serving
judge. For example, it would mean that the Tribunal could determine a cash allowance in
lieu of other vehicle entitlements for serving judges, without the allowance needing to be
taken into account in calculating the pension entitlements of former judges or their
dependants.
FINANCIAL IMPACT STATEMENT
Where a judge elects to have his or her pension reduced under commutation rather than
under the formula, there would be a small increased cost because the pension would be
marginally greater. However, the present value of the cost for all affected judges is
estimated to be less than $1 million. The cost would be spread over the entire period
during which the pensions of affected judges are paid.
Reports by the Australian Government Actuary on the long-term costs of the Judges'
Pension Scheme already take into account the payment of judges' surcharge debts from
the existing special appropriation.
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NOTES ON CLAUSES
Clause 1: Short title
1. Clause 1 is a formal provision specifying the short title of the Bill.
Clause 2: Commencement
2. Items 8 to 12, 17 and 19 of Schedule 1 to the Bill commence, or are taken to have
commenced, on 1 July 2007. The other provisions of the Bill commence on the day the
Bill receives Royal Assent.
Clause 3: Schedule(s)
3. This clause provides that each Act that is specified in a Schedule is amended or
repealed as set out in that Schedule, and any other item in a Schedule has effect according
to its terms.
Schedule 1: Amendments to the Judges' Pensions Act 1968
Part 1 Amendments
Item 1
4. Item 1 amends subsection 4(1) of the Act to insert a definition to clarify what is,
and what is not, included within `salary' for the purposes of calculating pensions payable
under the Act. The definition excludes from salary any allowances payable in lieu of any
other entitlements. The definition also makes it clear that any benefits received under
salary packaging arrangements are counted as salary for pension purposes.
Items 2 to 6
5. Items 2 to 6 amend section 6B of the Act to reflect the reductions in the maximum
rate of surcharge from 15% to 14.5% in 2003-04 and 12.5% in 2004-05.
6. Existing paragraph 6B(2)(a) contains a formula which reduces the pension of a
judge who retires with a surcharge debt by the average of the rates of surcharge that
applied to the judge in each full financial year of the judge's service. Any financial year
commencing on or after the surcharge was abolished on 1 July 2005 is counted as a year
in which the judge's rate of surcharge is zero. The formula is drafted in such a way that
for the 2003-04 and 2004-05 financial years the applicable rate is 15%, notwithstanding
that the maximum rate was reduced to 14.5% for 2003-04 and 12.5% for 2004-05.
7. The formula in existing paragraph 6B(2)(b) is similar to that in paragraph 6B(2)(a)
except that it also quarantines from the effect of the surcharge any earlier service not
affected by the surcharge that counts for pension purposes.
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8. Items 2 and 3 repeal the existing formulas and substitute similar new ones. Items 4
and 5 repeal definitions of terms not referred to in the new formulas and item 6 defines a
new term in the new formulas. The new term, SCS, is the rate of surcharge that applied
to a judge for a financial year in the period covered by the formula for the judge. This
term will therefore pick up the lower rates in 2003-04 and 2004-05.
Item 7
9. Item 7 replaces the definition of the term Y used in the repealed formula with a new
definition for the two new formulas added by items 2 and 3. Y is the number of financial
years over which the rates of surcharge that applied to a judge during service are
averaged to establish the rate by which the judge's pension is reduced.
10. Where a pension becomes payable to a judge other than on invalidity grounds, the
existing definition continues to apply. Where a pension becomes payable on invalidity
grounds, Y is based on the period which the judge would have been required to serve in
order to qualify for a pension in the absence of invalidity (that is, the period from
appointment and ending when the judge had served for 10 years and reached the age of at
least 60). This ensures that the formula recognises the period between 1 July 2005 and
when the judge would have qualified for a pension in the usual course as years in which
no surcharge was payable.
11. Where a pension is payable on the death of a judge to the judge's dependants, and
the judge had not qualified for a pension, the pension is based on the pension the judge
would have received if he or she had retired on invalidity grounds on the date of death.
The amendment to the definition of Y therefore also applies to pensions payable on the
death of a judge.
Item 8
12. Item 8 inserts new section 6C of the Act. This provision allows a judge to elect to
commute part of his or her pension rather than be subject to the applicable pension
reduction formula in section 6B. The judge must choose commutation in writing within
two months of retiring or section 6B will apply by default. If the judge chooses
commutation, the judge would have his or her pension permanently reduced by a certain
percentage depending on the size of the surcharge debt at retirement and actuarially
calculated age factors to be included in regulations made under the Act.
Items 9 and 10
13. Items 9 and 10 add new subsections 7(2) and 9(3) to the Act. These provisions
allow the spouse of a judge who dies in office to have the judge's pension, on which
spouses' and eligible child benefits are based, reduced for the judge's surcharge debt by
commutation, rather than under the applicable pension reduction formula in section 6B.
14. The spouse of a deceased judge must choose commutation in writing within two
months of the judge's death or section 6B will apply by default.
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Items 11 and 12
15. Items 11 and 12 add new subsections 11(2A) and 12(2A) to the Act. These
provisions allow the person to whom a pension is payable in respect of a judge's
orphaned child or children, where the judge died in office, to have the judge's pension on
which the orphan's pension is based reduced for the judge's surcharge debt by
commutation, rather than under the applicable pension reduction formula in section 6B.
16. A person eligible to be paid an orphans' pension must choose commutation in
writing within two months after the Attorney-General makes a determination under
section 13 of the Act that the pension is payable to that person or section 6B will apply
by default.
Item 13
17. Item 13 adds new subsection 19(2A) to the Act, which clarifies that there are no
surchargeable contributions, for the purposes of the Superannuation Contributions Tax
(Assessment and Collection) Act 1997, for a judge for a financial year that ends after
1 July 2005, when the surcharge was abolished.
Item 14
18. Item 14 adds new subsection 20(4) to the Act, which provides funding by way of a
special appropriation for the trustee of the Judges' Pension Scheme to discharge the
trustee's liability to the Australian Taxation Office where a judge retires or dies in office
with a surcharge debt.
Part 2 Application and transitional
Item 15
19. Item 15 provides that the definition of salary added to the Act by item 1 applies to
all former and current judges.
Item 16
20. Item 16 provides that the amendments made by items 2 to 7 to the current method
for reducing a judge's pension where the judge retires with a surcharge debt, in section
6B of the Act, apply to judges regardless of the date of their retirement.
Item 17
21. Item 17 provides that the amendments made to the Act by items 8 to 12, introducing
the commutation option for discharging judges' surcharge debts, apply only to judges
who retire, or are taken to have retired, on or after those items commence operation.
Under clause 2, items 8 to 12 are taken to have effect from 1 July 2007.
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Item 18
22. Item 18 provides that the amendment made to the Act by item 14, introducing a
new special appropriation covering the payment of judges' surcharge debts by the trustee
of the Judges' Pension Scheme, applies in relation to amounts which become payable on
or after that item commences operation on Royal Assent.
Item 19
23. Item 19 is contingent on the date of Royal Assent to the Bill. If it is on or after
1 July 2007, and a person who retired on or after that date but before Royal Assent may
make an election to have a pension reduced under new section 6C, rather than under
section 6B, the person has two months from the date of Royal Assent to make the
election.
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