Commonwealth Pensions

I spoke last week about retirement benefits for military personnnel and former public servants.
Indexation of Military Pensions, 23 May 2011

The indexation of military pensions and superannuation is an issue that, as the member for Fraser, I am very familiar with. Over at least the last year I have been working with colleagues Senator Kate Lundy, Mike Kelly, the federal member for Eden-Monaro and Gai Brodtmann, the member for Canberra, along with the Defence Force Welfare Association, the Superannuated Commonwealth Officers Association and the Australian Council of Public Sector Retiree Organisations, in making representations regarding the indexation of military superannuation pensions as well as those for Commonwealth employees. This is an important issue that affects the lives of many in my electorate and others who have given committed service to the Australian public and the interests of our nation. Reforms to the indexation of military superannuation pensions must be undertaken in a responsible and sustainable manner, one that requires the economic understanding and responsibility that the Labor government has shown in guiding Australia through the global financial crisis and returning the budget to surplus in 2012-13.

The Defence Force Retirement and Death Benefits Amendment Bill 2011 demonstrates yet again the divisive approach of the opposition and the fact that once again they cannot be entrusted with fiscal matters and matters as important as the ongoing funding of military superannuation pensions. Those who have served in the protection of our nation deserve better than fiscal incompetence and recklessness in their retirement livelihoods.

Military service is a special vocation with unique requirements. These include the compulsory and continuous liability for combat operations; being subject to both the civil legal code and a separate Defence Force disciplinary code to support command structures for effective conduct of combat operations and training; the requirement to work long and irregular hours for which no overtime is payable; separation from families, sometimes for considerable periods of time, which as I know with many Defence Force members in my electorate can be a cause of stress to both members and their families; the posting of members at regular intervals to meet Australian Defence Force manning requirements; and the requirement to maintain a high standard of both physical and mental fitness required to meet operational tasks and training for combat.

In recognition of the demands these requirements place on Defence Force personnel, military superannuation is one of the key elements in the competitive remuneration and conditions of service package provided to Australian Defence Force members. Established by the Keating government in 1991, the Military Superannuation and Benefits Scheme was introduced to address major changes the government had made to both the regulatory system and the regulations governing superannuation. The Defence Force Retirement and Death Benefits Scheme provides an indexed pension calculated on a combination of salary and length of service. Members who discharge after 20 years are able to take an immediate lifetime pension based on 35 per cent of the member's salary at discharge. These pensions, which can be taken as early as 38 years of age, continue to be paid even if the former member returns to the workforce. The percentage of final salary increases with each year of service. For example, at 30 years of service the pension is 51.25 per cent of final salary and at 40 years of service it is 76.5 per cent of final salary. As at 30 June last year, there were 3,978 pensioners in the Defence Forces Retirement Benefits scheme, and 4,246 contributors and 53,003 pensioners—15,193 of those under the age of 55—in the Defence Force Retirement and Death Benefits scheme. Military superannuation arrangements are based on salary and the length of a member's period of service. They are not based on, nor do they aim to reflect, a member's needs in retirement. To change military superannuation indexation arrangements would effectively mean a change to a member's preretirement conditions of service after the member has retired.

If allowed to proceed, the opposition's bill would present several issues. Firstly, a proposed law that would appropriate revenue or moneys cannot originate as a private member's bill, and a bill for such a law cannot originate in the Senate. Secondly, the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill as introduced by Senator Ronaldson would have a fiscal cost of $1.7 billion over four years and an underlying cash cost of $175 million over four years. It would increase the Commonwealth unfunded liabilities by $6.2 billion. Yet it would provide nothing more to recipients of the Commonwealth civilian superannuation pension. Indeed, the opposition's view of public servants was made clear by the member for Fadden, who clearly suggested that savings to pay for these pensions should be made up by Public Service cuts. The opposition's bill would also provide nothing to many recipients of military pensions.

On 9 February 2011, along with Senator Lundy and the members for Canberra and Eden-Monaro, I wrote to Senator Penny Wong asking that the Department of Finance and Deregulation estimate the costs regarding indexation changes in Commonwealth government civilian and military superannuation scheme pensions. The department's estimate stated that, firstly, the cost of indexing military and civilian pensions by the age pension methodology would be $322 million for the period 2011-12 to 2014-15, with an immediate increase in unfunded superannuation liabilities of $32.9 billion. Secondly, the cost of indexing military and civilian pensions by the higher of CPI, the pensioner and beneficiary living cost index and the increase in male average total weekly earnings would be $614 million for the period 2011-12 to 2014-15, with an immediate increase in unfunded superannuation liabilities of $47.8 billion.

Thirdly, and most importantly, the proposals in this bill would only benefit a minority of military superannuants. The bill does not provide any indexation change for the 3,978 benefit recipients from the Defence Forces Retirement Benefits scheme. The bill does not provide any change for any of the 7,684 pensioners under the Military Superannuation and Benefits Scheme. Nor does this bill provide for the 15,193 Defence Force Retirement and Death Benefits scheme recipients under age 55. Nor does it provide for the needs of Commonwealth civilian superannuants.

The coalition's policy to index military pensions for members of the Defence Forces Retirement Benefits scheme and the Defence Force Retirement and Death Benefits scheme who are aged 55 and over would not provide financial security for Australian Defence Force personnel. Superannuation pensions paid by the government to its retired military personnel are indexed twice annually to reflect quarterly changes in the price of a basket of goods and services which account for a high proportion of expenditure by the consumer price index population group.

The Gillard government honoured its 2007 election commitment to review the indexation arrangements for superannuation pensions that it pays to retired civilian employees and military personnel. The review of pension indexation arrangements in Australian government civilian and military superannuation schemes was conducted by Mr Trevor Matthews. In December 2008 the Matthews report of the review of pension indexation arrangements in Australian government civilian and military superannuation schemes recommended that pensions continue to be indexed against CPI to protect against inflation increases. The report also identified very significant additional costs that would be incurred if indexation methodology were changed. The Australian Government Actuary has also pointed to significant additional costs if the coalition policy, the subject of this bill, were adopted. The significant costs of higher indexation would have to be found from the Consolidated Revenue Fund or from the existing defence budget. This would jeopardise the funding of other initiatives. Over recent years, various groups have campaigned to change the indexation of public service and military pensions from the CPI to an analytical cost of living index. They have argued that compared to other pensions their level of indexation is not fair or equitable in terms of being able to maintain contemporary living standards, and that the CPI is ineffective as a measure of the change in the cost of living. Recommendation 4 of the Matthews report indicated that if a more suitable index became available the government should consider its use. With the adoption of the pensioner and beneficiary living cost index for age and other pensions, I am hopeful that such an index for Commonwealth superannuants, including those on defence pensions, will soon be developed.

ADFA and the Royal Military College of Australia are in the electorate of Fraser, and on 10 April I represented the Prime Minister and laid a wreath commemorating the 70th anniversary of the siege of Tobruk at the Rats of Tobruk memorial. I had the privilege of sitting next to Peter Collins, a veteran who was a signal operator at Tobruk. I am proud of the commitment and dedication of the men and women who provide military service to our nation every time I meet with them in my role as federal member.

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8/1 Torrens Street, Braddon ACT 2612 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au