BENEFITS PROVIDED BY THE FUND
This section of the member guide deals with the benefits provided by the Political Office-Bearers Pension Fund for its members. The next section covers some additional benefits for Fund members that are not actually provided through the Fund or specifically dealt with in the Fund Rules – these are included in this guide because the cost of these benefits is also part of the total contributions paid by the State for member’s retirement and related benefits.
The areas covered in this section are:
- The design of the Fund
- The contributions payable by you and by the State
- What benefits you will receive when your term of office ends (on retirement or resignation)
- What benefits your dependants will receive (from the Fund) if you die in office.
THE “OLD RULES” (I.E. THE BENEFIT DESIGN APPLYING BEFORE 1 MARCH 2016 CHANGES)
HOW THE TOTAL BENEFIT AMOUNT WAS DERIVED
When you leave office and take benefits from the Fund, you will receive your total benefit amount. The Total Benefit Amount is rather complex, and is made up of several different elements.
A. The Basic Fund Credit:
The Basic Fund Credit is 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 may choose to make (as discussed further in this section of the member guide); plus
- The part of the employer contributions that is 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 chosen to transfer into 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.
B. The Additional Service Benefit (or ASB)
This is 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 later on in the guide. The revalued annual pensionable salary will not be less than the (yearly) pensionable salary you were receiving at the time that you left office, but it may 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) is called the MINIMUM BENEFIT. All members of the Fund, regardless of how many years of service they have, will receive this benefit.
The next section only applied to those members whose service was MORE than one term of office:
If you have completed more than one term of office when you leave the Fund, you may receive an additional benefit, over and above the Minimum Benefit as calculated above.
Before the final additional amount (if any) can be determined, the following calculations need to be performed:
STEP 1:D. Equalisation Amount (before capping – see F. below)
This amount is 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 is based on deemed contributions of 20% of your pensionable salary, rather than on the actual contributions of 7,5% (member) and 17% (employer).
E. Maximum Benefit (or “capped” benefit amount)
The Maximum Benefit amount then needs to be determined, and is 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 contain a table of these factors for each age. However, we have attached this at the end of this section.
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) must be to be compared to E (Maximum Benefit).
If the total (C plus D) is higher than the amount calculated in E (Maximum Benefit), then the amount in D will be reduced – in other words, amount D will be restricted so that C plus D does not exceed amount E. In an extreme case, amount D might be restricted to zero – but even so, you will never receive less than amount C, however large this amount is. (If amount C on its own is more than E, then you will still receive amount C.)
Importantly, when making this comparison in order to decide whether it is necessary to restrict amount D, any transfer value that you may have brought in from a previous fund, and also any 7.5% contributions that you may have made to this Fund after completing 15 years of service, are excluded from the Minimum Benefit, together with the investment returns on these amounts. This means you are 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) will be added back, to determine the amount of the final benefit that the Fund will 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 applies to you if you leave 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 have only completed one term, and not “more than one term” – therefore, this section would apply to you.
If this section applies to you, you may also receive a (small) additional amount, in addition to your Basic Fund Credit and Additional Service Benefit (ASB).
Note that you will not receive a Loss-of-Office Gratuity.
Before the final additional amount (if any) can be determined, the following calculations need to be performed:
D. Maximum Benefit
A Maximum Benefit amount needs to be determined, and is 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 is not counted.
E. Terminal Gratuity amount (if any)
Once the calculation in Step 1 has been completed, your Minimum Benefit (amount C) must be compared to D (the Maximum Benefit).
If amount C is less than D, your total benefit will be increased to make it equal to amount D. The extra amount needed (if any) is referred to in the Fund Rules as the “Terminal Gratuity”. The total of amount C plus the Terminal Gratuity then forms your Total Benefit Amount.
If amount C is more than D, you will still receive amount C in full (but then the Terminal Gratuity, amount E, is zero).
You should note that the Terminal Gratuity is unlikely to be a large amount, compared with the Minimum Benefit (which is 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 is excluded from the Minimum Benefit, together with the investment returns on this amount. This means you are not “penalized” for having brought a transfer value in from another retirement fund. This amount (if any) will be added back, to determine the final benefit that the Fund will provide 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 join the Fund at one Election and leave at the next, you have only completed one term and therefore do not qualify under this section – to qualify, you need to return to office after the next Election. If you joined the Fund in between two Elections, you need 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 is excluded from consideration, i.e. is not counted.
What is the meaning of “Revalued Pensionable Salary”?
The Revalued Pensionable Salary is 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 is 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 are then added together and averaged over your whole period of service.
This average figure is then subject to a minimum of the yearly Pensionable Salary that you were actually earning at the date of your leaving office – this results in the Revalued Pensionable Salary. (This means that the Revalued Pensionable Salary will never be less than the yearly Pensionable Salary that you were actually earning at the date of your leaving office.)
The Revalued Pensionable Salary is 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 is ignored – the benefits for which the revalued pensionable salary is relevant, do not apply to service as a diplomat.)
What happens to those members who continue contributing after the completion of 15 years’ service?
For members who do continue contributing after the completion of 15 years of contributory service, their contributions are treated as “voluntary contributions”. This means that such contributions do not count towards the “Benefit Cap” test, as explained above – this means you will not be “penalized” for making contributions to the Fund, after you pass 15 years of service. For this reason it is a good idea to continue contributing in order to build up your retirement savings, even beyond the 15-year point
This guide includes a summary of the Rules of the Fund and the insurance policies that provide certain benefits for members and their dependents. In the event of a conflict between this guide and the Rules or the insurance policies, the Rules or the insurance policies (as the case may be) will take precedence.
The information in this guide does not constitute advice by either the Board of Trustees or its professional advisors. Members are encouraged to seek expert advice from a personal financial advisor before taking decisions regarding their benefits from the Fund.
The Fund will try to ensure that the material in this guide is up to date and accurate, but this cannot be guaranteed at all times.