Military Superannuation

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Military Superannuation issues cover DFRB/DFRDB and MSBS and involves six subjects:

  1. Indexation
  2. DFRB/DFRDB Commutation
  3. MSBS MBL Limits
  4. Spouses Reversionary Benefits
  5. Taxation under Better Superannuation
  6. Extension to ADF Reserve Members

Background

 There are three military superannuation schemes:

The Defence Forces Retirement Benefits Act (DFRB) 1948 and applied until 1973 when superceded;

The Defence Force Retirement and Death Benefits Act (DFRDB) 1973 until 1993 when superceded,

Annual Report 2010-2011

The Military Superannuation Benefits Scheme (MSBS)

Annual Report 2010-2011

Defence Force members were/are required compulsorily as a condition of service to contribute 5.5% of their gross (pre-tax) salary to the relevant Fund/Scheme.

After the Whitlam Governments decision in 1974 to unfund the military superannuation Funds, all member contributions previously deposited into a defined funded Management Fund, were transferred into Consolidate Revenue with the Government guaranteeing the defined benefits payments on retirement. These Funds, by the Governments decison, were now defined as unfunded with later unintended tax consequences to the superannuates. The Funds and continuing contributions were not invested by the Government to increase the value of the members superannuation contributions but were used for Government purposes, without any financial benefits accruing to the individual members. In simple terms the Government was using Defence members contributions as another funding source, to invest or to use how the Government decided.

In 1972, a Joint Parliamentary Committee, commonly known as the "Jess Committee" after its Chairman, Mr John Jess, MHR, recommended, in Recommendation No 6 of its Report, "... that retired and invalid pay be expressed as a percentage of final pay and be adjusted annually so that relativity with average weekly earnings is maintained. A means to achieve this would be to maintain relativity of benefits to current pay for the rank held on retirement." Furthermore the Jess Committee recommended that "... The Committee has concluded that the most appropriate method of maintaining the real value of retired pay is to ensure that it maintains relativity with average weekly earnings." The Whitlam Government, and subsequent Governments of all political persuasions, chose not to accept the Jess recommendations. Consequently the DFRDB was indexed against the Consumer Price Index (CPI).

There have been further reviews since of the DFRDB schemes, all of which have recommended that the DFRDB pension should be indexed against the Male Total Average Weekly Earnings (MTAWE) or the CPI, whichever is the greater, to ensure that relativity with current salaries is maintained. Despite these confirmatory recommendations, the Government of the day, still continued to argue that the CPI is the fairest means of indexing these payments.

However, the Australian Bureau of Statistics (ABS) has stated that the CPI is a measure of inflation, NOT a measure of the increase in the cost of living. DFRB and DFRDB superannuants were advised that, as there had been no increase in the CPI during the third quarter of 2007, there would be no increase to their payments. However, the ABS announced, in late July 2007, that petrol prices had risen by 9%, the cost of vegetables had increased by 6%, and rent had increased by 16% in the three months to June 2007, just to mention a few increases in the cost of living.

When a pension is indexed in line with movements in the CPI, it continually causes standards of living to fall behind other community groups – relativity is not maintained. The former Prime Minister, the Honourable John Howard, MP, is reported to have said that this "... would not occur." This "falling behind" is accumulative.

It is interesting to note that, during this same period Government salaries were increased by 6.7% in 2007 and by 7% in 2006. If there had been no increase in the CPI one has to wonder why Parliamentarian salaries were increased by such a large margin. It must be noted that, as represented in the following graph, since December 1989 to December 2009, Parliamentary salaries have increased by 139%, the Old Age Pension has increased by 131% and the poor old Military superannuation has risen by only 70% – equal to the CPI increases.

Super Chart

Over the last ten years, Parliamentary superannuation pensions (pre 2004 Scheme)have risen by 91%, the Age Pension has increased by 95% BUT the CPI (noting that ADF and ex-Commonwealth superannuants have their pension indexed against the CPI) has increased by a meagre 33%.

Since 2009 the Age Pension has been indexed further in line with a wage-based index (27.7% of MTAWE) , the CPI or the Pensioner and Beneficiary Living Cost Index, whichever is the greater. The Age Pension continues to increase at a faster rate than the military superannuation pension, even though the DFRB/DFRDB superannuants were required to contribute 5.5% of their gross (pre-tax) salary to these funds.

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According to the latest June 2011 figures, the average weekly Military Retirement superannuation pension was LESS than the Henderson Poverty Line:

Average ADF DFRB/DFRDB superannuation pension (weekly for a couple) was $448.25 ($23,309 pa)

Henderson Poverty Line June 2011 (weekly for a couple) was $512.80 ($26,665 pa)

Age Pension September 2011 (weekly for a couple) $519.40  ($27,008 pa - excludes pension supplement if eligible of + $1,555 pa)


Not only that, but Aged Pensioners are eligible to split their superannuation payments for taxation purposes, providing them with a more favourable taxation outcome. This is not available to the Defence superannuants.

Australias ex-servicemen and women and their families coping with rising costs of living are seeking a "Fair Go" in having the current inequitable indexation formula for their superannuation pensions amended to bring them in line with age/service pensions. and receive the same percentage increase.

 

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