- DWWA/ADSO has identified a number of inequities and has reported them in this letter to the Commonwealth Superannuation Corporation
MSBS inequities we are addressing include:
Indexation; We want indexation, the same way and the same frequency of the age pensions to all MSBS pensions and preserved benefits.
Governments in the role of the “employer” of ADF members must maintain its stated pledge to the purchasing power of these military superannuation pension payments by adopting an appropriate method of indexation.
Military superannuation pensions were originally indexed at CPI to maintain their value relative to national wages. In the late 1980s the CPI was changed to reflect its use as an economic tool to measure inflation rather than living costs and thus lost its relevance in wage fixing. Acknowledging this, in 1997 the then-Government changed the method of indexing the Aged and Service Pensions from CPI to a combination of CPI and Male Total Average Weekly Earnings (MTAWE) and the present Government further extended this formula to include the “Pensioner and Beneficiaries Living Cost Index” to keep pace with increase in prices.
Military superannuation pensions now stand out as being more harshly treated than almost every other long-term Commonwealth payment subject to regular indexing to maintain its value. To restore equity to military superannuation and maintain relative value as is the stated intention in Government policy documents, the same formula used for Age/Service pensions should be adopted for all components of Military superannuation pensions (DFRB/DFRDB/MSBS) including the reversionary pension for partners of deceased military superannuation pensioners and “employer” funds preserved for ADF members discharging before reaching preservation age.
Table 7 of the Department of Finance and Deregulation’s (DOFD) submission to the Matthews Review of Indexation Arrangements in Australian Government Civilian and Military Superannuation Schemes provided an estimate of the gross budgetary costs before “claw back” ( acknowledged by the Department of Finance and Deregulation to be 30% and estimated to be in the range of 37– 58% by the National Centre for Economic and Social Modelling) due to consequent increased tax revenue and reduction of support payments. Based on this data and calculations by the DFWA Retirements Benefits Team, the total estimated cost for this initiative for FY 2012-2013 is estimated not to exceed $20M and an additional $181M over the forward estimate period.
Access to the Preserved Benefit (Employer Contributions) on exit from the ADF: We want the government to give all people leaving the ADF, regardless of age the option to access the employer benefit for rollover into an approved superannuation fund.
Under the MSBS rules the employer benefit must remain preserved in MilitarySuper until at least age 55. It is important to note that this preserved benefit is nominal and funds are only allocated when a person becomes entitled to them which generally will be at the age of 55, or over.
The preserved benefit will be indexed at CPI and the impact on members is significant, especially those left the ADF at a young age. Currently there are approximately 87000 personnel with a preserved benefit.
Australian Superannuation returns over the long term are almost double inflation. The difference over a longer period can be hundreds of thousands of dollars.
The Review in to Military Superannuation Arrangements at Recommendation 8 stated; Preserved members of the MSBS should be given the option, for a limited period, to have the current face value of their benefit funded and then taxed on transfer to the new scheme, or to a scheme of their choice
MSBS MBL limits. We want MSBS MBL limits abolished.
MBLs in MSBS are limits on the maximum amount that the military superannuation fund will pay out. They should not to be confused with Reasonable Benefit Limits which limited the amount that could be contributed and accumulated at concessional tax rates. RBLs were abolished in “Better Super” changes but MBLs were not. MBLs include the sum of both Employer and Employee benefits.
There are two MBLs;
- All pension MBL at which the member must stop contributing because the member’s total payout has peaked; and
- Lower Lump Sum MBL at which the member may stop contributing because the member is getting close but is urged to seek specific advice.
The effect of the application of this measure means the Government also ceases its contribution into the employer component of MSBS and that results in an effective decrease in a persons remuneration package as the government notional contribution to MSBS is 28% of salary and the productivity benefit of 3% for longer term members is ceased. As a result the effected long serving ADF personnel receive no retirement income benefit for their final years of service.
The Report of the Review of Military Superannuation recommended that MBLs be scrapped for the MSBS. The combined Ex-Service Organisations response supported that particular recommendation.
Superannuation for Reserves: We want all personnel in the reserve to have access to government superannuation
Currently reservists can not contribute to any Military Superannuation Scheme unless they are on Full Time Service (FTS) when they can then contribute to an extant scheme.
Reservists on FTS should continue to be included in normal Defence superannuation arrangements however they are severely disadvantaged if their employer benefit is a preserved benefit as that benefit is only indexed to CPI. A reservist by definition is a part time person therefore they should be given the opportunity to roll over the employer benefit to a complying scheme of their choice when they complete the full time service.
Reservists not on full-time service whose pay is tax-exempt should have the opportunity to contribute to a Military Superannuation scheme and have some employer contribution. This group of people may be one of the few employee groups that have no right to contribute to and the employer does not contribute to their superannuation.