The Old Rules – Benefit design before 1 March 2016

THE “OLD RULES” (I.E. THE BENEFIT DESIGN APPLYING BEFORE 1 MARCH 2016 CHANGES)

HOW THE TOTAL BENEFIT AMOUNT WAS DERIVED

When you left office and took benefits from the Fund, you received your total benefit amount. The Total Benefit Amount was rather complex, and was made up of several different elements. 

• A. The Basic Fund Credit:

  The Basic Fund Credit was made up as follows:

  • Your own contributions (7,5% of your monthly pensionable salary) made towards your retirement savings; plus
  • Any additional voluntary contributions that you might have made; plus
  • The part of the employer contributions that was allocated directly towards your retirement – this has been set at 17% of your monthly pensionable salary since 1 May 1999, but before that date different contribution rates applied to certain categories of members; plus
  • Any amount that you may have transferred in to the Fund from a previous retirement fund of which you were a member (e.g. a fund provided by your previous employer, before you became a political office-bearer); plus 
  • The net investment returns earned by the Fund on the investment of all these amounts.

  PLUS

• B. The Additional Service Benefit (or ASB)

  This was calculated as follows:

  20% of your revalued* annual pensionable salary for each year of service (for which contributions were paid – but excluding any service as a diplomat), but only counting up to a maximum of 10 years of service.

  * This is explained elsewhere in the guide. The revalued annual pensionable salary would not be less than the (yearly) pensionable salary you were receiving at the time that you left office, but it might be more in some circumstances, e.g. if you left office as an ordinary member but had previously served at a higher grade.

  C. The Minimum Benefit:

  The sum of A plus B above (added together) was called the MINIMUM BENEFIT. All members of the Fund, regardless of how many years of service they had, received this benefit. 

  The next section only applied to those members whose service was MORE than one term of office:

  If you had completed more than one term of office when you left the Fund, you might receive an additional benefit, over and above the Minimum Benefit as calculated above.

  Before the final additional amount (if any) could be determined, the following calculations had to be performed:

• STEP 1:

  D. Equalisation Amount (before capping – see F. below) 

This amount was calculated as follows:

• A notional or “deemed” employer contribution of 20% of your monthly pensionable salary as earned over your whole period of service (but excluding any service as a diplomat); plus
• The net investment returns earned by the Fund on the investment of these 20% contributions, over the same period.

You can think of this amount as similar to your Basic Fund Credit, except that it was based on deemed contributions of 20% of your pensionable salary, rather than on the actual contributions of 7,5% (member) and 17% (employer).

• STEP 2:

  E. Maximum Benefit (or “capped” benefit amount)

  The Maximum Benefit amount then had to be determined, and was calculated as follows:

  • A fixed factor (based on your age last birthday at the date on which you leave office) multiplied by 92.5% of your revalued annual pensionable salary. The Fund Rules contained a table of these factors for each age. However, we have included this at the end of this section.

• STEP 3:

  F. Equalisation Amount (after capping) 

  Once the calculations in Steps 1 and 2 have been completed, the sum of C (Minimum Benefit) plus D (Equalisation Amount, before capping) had to be to be compared to E (Maximum Benefit). 

  If the total (C plus D) was higher than the amount calculated in E (Maximum Benefit), then the amount in D was reduced – in other words, amount D was restricted so that C plus D did not exceed amount E. In an extreme case, amount D might be restricted to zero – but even so, you would never receive less than amount C, however large this amount was. (If amount C on its own was more than E, then you would still receive amount C.)

  Importantly, when making this comparison in order to decide whether it was necessary to restrict amount D, any transfer value that you brought in from a previous fund, and also any 7.5% contributions that you might have made to this Fund after completing 15 years of service, were excluded from the Minimum Benefit, together with the investment returns on these amounts. This means you were not “penalized” for having continued to pay contributions after 15 years of service, or for having brought a transfer value in from another retirement fund. These amounts (if any) would be added back, to determine the amount of the final benefit that the Fund would provide for you (the Total Benefit Amount).

  Members whose service was NOT more than one term of office, and who therefore did not qualify for the Equalisation Amount:

  This section applied to you if you left office without completing more than one full term (or more than five years of service, if your service started in between Elections). Remember that, if you joined the Fund at one Election and left at the next one (i.e. you were not returned to office at the next Election), you only completed one term, and not “more than one term” – therefore, this section would apply to you.

  If this section applied to you, you might also receive a (small) additional amount, in addition to your Basic Fund Credit and Additional Service Benefit (ASB).

  Note that you would not receive a Loss-of-Office Gratuity.

  Before the final additional amount (if any) could be determined, the following calculations had to be performed:

  STEP 1:

  D. Maximum Benefit 

  A Maximum Benefit amount had to be determined, and was calculated as follows:

  • 45% of the yearly pensionable salary that you were receiving at the time you left office, multiplied by the number of years’ service you had (including part-years). Service as a diplomat was not counted.

  STEP 2:

  E. Terminal Gratuity amount (if any) 

  Once the calculation in Step 1 had been completed, your Minimum Benefit (amount C) was compared to D (the Maximum Benefit). 

  If amount C was less than D, your total benefit was increased to make it equal to amount D. The extra amount needed (if any) was referred to in the Fund Rules as the “Terminal Gratuity”. The total of amount C plus the Terminal Gratuity then formed your Total Benefit Amount.

  If amount C was more than D, you would still receive amount C in full (but then the Terminal Gratuity, amount E, was zero).

  The Terminal Gratuity was unlikely to be a large amount, compared with the Minimum Benefit (which was the total of your Basic Fund Credit plus your Additional Service Benefit).

  Importantly, in making this comparison, any transfer value that you may have brought in from a previous fund was excluded from the Minimum Benefit, together with the investment returns on this amount. This means you were not “penalized” for having brought a transfer value in from another retirement fund. This amount (if any) was then added back, to determine the final benefit that the Fund provided for you (the Total Benefit Amount).

  Explanation of “Term of Office”

  “Term of office” refers to the period from one Election to the next. If you joined the Fund at one Election and left at the next, you only completed one term and therefore did not qualify for the benefits applicable to members with more than one term of office – to qualify, you had to return to office after the next Election. If you joined the Fund in between two Elections, you had to serve more than five years to qualify under this section – so, if your term of office started on 1 July 2014, for example, you would have to leave office after 30 June 2019 to qualify under this section. Any service as a diplomat was excluded from consideration, i.e. was not counted.

  What is the meaning of “Revalued Pensionable Salary”? 

  The Revalued Pensionable Salary was calculated based on your pensionable salary as actually earned over your whole period of service, adjusted to take into account any cost-of-living increases that may have been granted during your period of service. 

  This amount was determined by applying a cost-of-living adjustment factor to the total pensionable salary earned by you in each applicable financial year. The adjusted salaries earned in each financial year were then added together and averaged over your whole period of service.

  This average figure was then subject to a minimum of the yearly Pensionable Salary that you were actually earning at the date of your leaving office – this resulted in the Revalued Pensionable Salary. (This meant that the Revalued Pensionable Salary would never be less than the yearly Pensionable Salary that you were actually earning at the date of your leaving office.)

  The Revalued Pensionable Salary was used in the calculation of the Additional Service Benefit (ASB) and the Maximum Benefit, for members with more than one full term of office, as described earlier.

  (Any service as a diplomat was ignored – the benefits for which the revalued pensionable salary was relevant, did not apply to service as a diplomat.)

  What happened to those members who continued contributing after the completion of 15 years’ service? 

  For members who did continue contributing after the completion of 15 years of contributory service, their contributions were treated as “voluntary contributions”. This means that such contributions did not count towards the “Benefit Cap” test, as explained above – this means you were “penalized” for making contributions to the Fund, after you passed 15 years of service.