Monday, June 15, 2009
I wrote this in November '08:
Whatever reasons Peter Costello has for continuing to hang around, they don't include money.
Right now, as a backbencher, the former Treasurer is earning $127,000 per year.
But calculations performed by The Age using tables prepared by the Department of Finance suggest that if he retired instead, his annual income would jump to $176,633 courtesy of Australia's generous parliamentary superannuation scheme.
That payment would grow with increases in parliamentary salaries and would stay with the 51-year old for the rest of his life.
In plain terms each extra year that Mr Costello remains in Parliament as a backbencher is costing him $50,000. Each extra week is costing him $1,000.
And staying on won't boost his super payout...
Peter Costello entered Parliament in March 1990 – more than 18 years ago.
Eighteen turns out to be an important number in the design of the parliamentary superannuation scheme. Before 18 years there's something to be gained by staying on to build up a bigger super payment. The payout increases by 0.00685% for each additional day that an MP stays in office.
But at 18 years the payout hits a ceiling of 75% of the backbench salary (plus an allowance for having served as a Minister) and can't move higher.
In recognition of that after 18 years the required super contribution drops from 11.5% to 5.75% of the MP's salary.
But from the point of the view of the MP it's wasted money. The extra super contributions don't increase the super payout.
The payment that Peter Costello gets for having served as the Treasurer is also close to maxing out. As Australia's longest-serving Treasurer, in the job for more than 11 years, he is entitled to 73.4% of the extra salary he got as the Treasurer, close to the maximum of 75 per cent allowed under the rules.
If he wants he can halve his $176,633 per year pension and turn the rest into a lump sum of $1.77 million.
But, in the spirit of the rules that he oversaw when he was Treasurer, he will be unable to get access to the lump sum until he is 55.
Another rule that he introduced might complicate things. In his first budget Peter Costello slugged high-income earners with an extra superannuation surcharge, worth 15% of their super contributions.
He abolished it nine years later. As a member of parliament he has had the right to pay the surcharge each year as it fell due or to let it accumulate and to pay it with interest on his retirement.
If he took the second option it'll cut his retirement payout.
Whatever he does he'll be better off than many. MPs elected after 2004 get access to a much less generous scheme.
As the leader of his party pointed out in parliament Monday, single old-age pensioners get around $300 per week, a mere 8 or so per cent of what the former Treasurer will make.