Military Superannuation:
To Right The (Seemingly) Unrightable Wrongs

This update was produced on 28 August 2009

The debate on rectifying the many deficiencies identified in Military Superannuation Schemes has been raging for far too long.  Despite Senate Select Committees and other reports having recommended improvements, our government has chosen to ignore the majority of them.  To this very day it refuses to believe that there is any need to change the method of indexation of military superannuation pensions.

Two issues, which affect the vast majority of retired military personnel and negatively impact on their standard of living in retirement, are:

1.      The inequitable CPI indexation of military superannuation pensions, resulting in their relative value being some 35% below what they otherwise would have been had there been a linkage to a wage based index (e.g. MTAWE) such as has been applied to the age/service pension.  Such a disparity denies current and former members of the ADF an equitable and appropriate share in the nation’s productivity outcomes and in reality seriously erodes their standard of living.

Action required:  Despite the government’s decision on 21 August 2008 NOT to act on this matter, we believe that Military pensions and Preserved Benefits should immediately be indexed at the higher of CPI or MTAWE.

2.      The use of out-dated life expectancy tables causes current and future retirees to suffer a lower rate of pension by having to repay a larger amount over a lesser number of years than would be the case if current life tables were used.  Combined with the inadequacy of indexation, previously discussed, this adversely affects the standard of living able to be enjoyed by the pensioner.

Action required:  Amend the legislation to provide that existing DFRDB pensioners revert to one hundred per cent of pension fully indexed once the life expectancy upon which repayment was based has been exceeded AND to provide that for all future retirees the life table to be used in the calculation of the repayment of the commuted amount be the life table current at the date of the election to commute.

How can you help?   We would appreciate your assistance in lobbying government ministers and other people of influence to;

have at least the discrepancies in military superannuation schemes as detailed above rectified as a matter of priority.

A Review of Military Superannuation Arrangements was commissioned on 27 February 2007

In early 2007, the Howard Government commissioned a comprehensive review of Military Superannuation.  The Terms of Reference (TOR) for that review can still be found on the Defence Force website.  Of particular interest, the TOR listed the unique conditions of military service which the review team was to take into account in developing its proposals.

Ex Service Organisations and those with an interest in Military Superannuation were invited to make submissions to the Review Team.  While many submissions were made; those by the Defence Force Welfare Association’s National Office and an associated detailed submission by the NSW Branch of the DFWA provide a good overview of the major deficiencies within the various acts controlling military superannuation.

These submissions focused on those issues that related to:

·         Older schemes – DFRB and DFRDB – noting specific deficiencies and argument for their correction;

·         Present scheme – MSBS;

·         Future military superannuation; and

·         Issues arising from the introduction of the Government's "Simple Super" taxation arrangements.

The Report of the Review into Military Superannuation Arrangements was completed before the 2007 elections and released by the Rudd Government in late December 2007.  It drew much criticism and in the opinion of the President of the Defence Force Welfare Association, "it should not be used as a basis for decision making by the Government".

28 February 2008

Following the release of the report a joint RSL-DFWA working group prepared an interim response indicating some of the areas of concern with the report.  The group subsequently met with the Review Team to address these and other technical issues, before finalising a full response on behalf of the major ex-service organisations.

The Review Team subsequently provided on 6 March 2008 answers to the questions posed in RSL-DFWA interim response.  Those answers were considered in formulating an agreed response to the report.

The DFWA and the Returned and Services League (RSL) submitted on 19 March 2008 a combined response to the Report of the Review of Military Superannuation.  The following links will provide you with the complete details of that response:

• the covering letter from DFWA and the RSL to the Review Team;
• the detailed response, which was endorsed by the 12 major Ex-Service Organisations; and
• the associated media release.

There is little evidence of any further action on the Podger Report.  However the Government in mid 2008 implemented a review into the cost of any change in the method of indexation of military pensions.

This Review of Pension Indexation Arrangements in Australian Government Civilian and Military Superannuation Schemes was established on 26 June 2008.

The review was conducted by Mr. Trevor Matthews, MA, FIA, FIAA, ASA, a prominent actuary in the United Kingdom.

Under the terms of reference for the review, Mr. Matthews considered and reported on whether the current CPI pension indexation methodology in these schemes should be changed, having regard to:

1. the occupational nature of those schemes;
2. the form and value of the benefits payable under those schemes;
3. indexation arrangements in similar defined benefit schemes in Australia;
4. the interaction with government safety net benefits;  and
5. the full cost to the Commonwealth.

Submissions to the review were called for by 19 July 2008.

Submissions were also made directly to Mr. Matthews at hearings held in Canberra on 24 and 25 July 2008.

The review also received information on the compilation of the CPI.

Once again, the DFWA swung into action and provided the following advice on the actions it took in respect of this latest review.  It noted the current disadvantage suffered by military superannuants when compared with superannuants on other indexation arrangements to be a matter of significant concern to all serving and retired ADF members.

The inequitable CPI indexation of military superannuation pensions has resulted in their relative value being some 35% below what they otherwise would have been had there been a linkage to a wage based indexation (e.g. MTAWE) such as has been applied to the age/service pension. Such a disparity denies current and former members of the ADF an equitable and appropriate share in the nation’s productivity outcomes and in reality seriously erodes their standard of living.

This inequity has been consistently recognised by members of Senate committees and a wide range of current parliamentary representatives across the party spectrum.  The Association remains very perplexed that for so long successive governments have chosen not to act and continue to treat Australia’s military superannuants so inequitably.

The following links provide access to information on the DFWA's lobbying on this matter:

On the 16 July 2008 a joint RSL DFWA NAA RAAFA Submission was made to the Indexation Review.

Prior to making the above submission DFWA had produced on 3 May 2008 a pre-Budget statement on the indexation of military retirement pensions.  It highlighted that on 20 March 2008, the Senate Community Affairs Committee, in the report of its inquiry into Cost of living pressures on older Australians, recommended immediate action by the Government to "index Commonwealth funded superannuation benefits and the military pension to Male Total Average Weekly Earnings or the Consumer Price Index, whichever is the higher, as is currently the practice with the age pension."

Mr. Matthews’ report was provided to the Government as scheduled at the end of the 2008 calendar year and, after much delay, was released to the public on 21 August 2008.

Mr Matthews recommended that pensions from the Australian Government civilian and military superannuation schemes continue to be indexed by the CPI as it is the most suitable index to protect pensions against inflationary price increases available at this time.

Lindsay Tanner, the Minister for Finance and Deregulation, in his media release 52/2009 said that the Rudd Government fully supports the findings and recommendations outlined in the report.

“The Rudd Government is satisfied, after considering Mr Matthews’ report, the purpose of indexation of civilian and military superannuation pensions should continue to maintain the purchasing power of the pension.

Following you will find a small extract of what the Defence Force Welfare Association had to say about the Matthews Report and the failure of our government to take any action to rectify the many deficiencies with military superannuation arrangements.

“The Matthews Report - conveniently released the day Parliament went into recess - blandly recommends that military superannuation schemes continue to be indexed by the CPI.  The Government has refused to provide ADF superannuants with adequate protection against cost of living increases despite:

• Six parliamentary inquiries recommending military superannuation pensions be better indexed.
• The Prime Minister Mr Rudd criticising the Coalition for its failure to implement the findings of these inquiries during the last election campaign along with many Labor candidates who offered their strong support – their silence on the matter is now is deafening.
• The Australian Bureau of Statistics openly stating that the CPI simply does not reflect the cost of living.”

WHAT IS IT WE SEEK ?

Quite simply, indexation of our pension using the SAME formula that applies to Aged and Service Pensions!  Why should we be treated differently … and why should we have our standard of living continually deteriorate??

SOME RELATED DOCUMENTS

• The full Matthews Report can be found here.
• A DFWA Facts Sheet on Indexation is here.
• A DFWA Facts Sheet on Defined Vs Accumulation Superannuation Schemes is here.
• A graph showing the increases in Aged Pensions, Military Superannuation Pensions and Parliamentary Pensions is here.
• The DFWA Press Release regarding the Matthews Report is here.

Please write to the Prime Minister, his ministers, your local MP, and any other person of influence you may know, to have the many known deficiencies in military supperannuation schemes corrected as a matter of urgency.  A concerted effort is obviously needed to have this government take action to repair the inadequacies that exist in Military Superannuation Acts.  Your support of the DFWA’s efforts to improve our situation in retirement is essential.

Best regards

Richard

Richard Orr

Postal Address:            2 Naughton Grove, Blackburn, Vic 3130

Home 'Phone/Fax:       03 9877 6067

Mobile:                        04 2938 1862

Email:                          richardorr@bigpond.com

Date:                            28 August 2009

Notes:             1.                 Much of the Information contained in this brief has been drawn from the Defence Force Welfare Association (DFWA) Website; http://www.dfwa.org.au/

                       2.                 If you are reading this summary on a PC connected to the internet simply left click on any item in blue to gain access to greater detail about that item.  Depending on how you computer has been configured you may need to press ‘Ctrl & click’ to access those links.