Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill
2010 will provide fair indexation for Defence Force Retirement and Death
Benefits (DFRDB) Scheme and Defence Forces Retirement Benefits (DFRB) scheme
The Coalition made a commitment on 27 June 2010 to
provide fair indexation for DFRDB and DFRB scheme superannuation pensioners.
This Bill meets that commitment and demonstrates the Coalition’s unwavering
recognition of the unique nature of military service and our commitment to
introducing a fair, equitable and fiscally responsible military superannuation
Under this Bill, from 1 July 2011, DFRDB and DFRB
superannuants aged 55 and over will have their superannuation pensions indexed
in the same way as Australian Government income support pensions are indexed.
Twice yearly, in line with present practice and using the pre-determined
‘pension MBR factor’, pensions will be indexed to the higher of the Consumer
Price Index (CPI), Male Total Average Weekly Earnings (MTAWE) or the Pensioner
and Beneficiary Living Cost Index (PBLCI).
This Bill brings the indexation of a DFRDB and DFRB
member’s superannuation into line with those of aged and service pension
recipients. Currently, DFRDB and DFRB superannuation pensions are indexed
according to the CPI only.
The measures in this Bill will ensure that over
56,000 retired Australian Defence Force (ADF) personnel who are members of the
now closed DFRDB and DFRB schemes have their superannuation pensions indexed
more fairly and in a manner that better reflects changes in the costs of
Military superannuation reform is the number one
issue in the veteran and ex-service community.
contained within this Bill have long been sought by veterans’ organisations as
part of military superannuation reform. The Coalition is committed to beginning
the process of military superannuation reform and believes it is the right
thing to do given the unique nature and risks of military service.
Conversely, the Labor Party continues to oppose this
Bill. The Labor Government’s continuing opposition to this Bill is rooted in
its broken 2007 election promise to fix military superannuation. The then Labor
opposition’s election document for veterans stated that it would work hard to
achieve six goals for veterans. The first of these goals stated that a Labor
“restore the value of
compensation and prevent further erosion due to unfair indexation.”
The Matthews Review, which was commissioned by the
Labor Government, is the only report into Commonwealth civilian and military
superannuation schemes that has not recommended changes to indexation
arrangements, yet the Labor Government continues to subscribe to the widely
discredited recommendations made by the Matthews Review.
It is also worth noting that on Christmas Eve 2007,
Labor released the Podger Review of Military Superannuation Arrangements. They
have never acted on, or publicly acknowledged support for, any of the
recommendations in Dr Podger’s paper.
The Labor Government continues to hide behind the
discredited Matthews Review and Coalition Senators are extremely disappointed
that the submissions by both the Department of Finance and Deregulation and the
Department of Defence fail to acknowledge past reports and inquires into this
Senators support this Bill.
POSITION OF EX-SERVICE
the outset, it is important to note that of the 17 submissions received by this
Committee only two do not support the Bill. The two submissions that do not
support the Bill were submitted by the Department of Finance and Deregulation
and the Department of Defence.
the 15 submissions in support of the Bill, seven originate from Ex-Service
Organisations (ESO) and eight from individuals. All eight submissions made by
individuals support the Bill.
Senators determined that as the issues canvassed in the eight individual
submissions are largely, if not totally, covered within the varying ESO
submissions, this report will focus on the submissions made by the ESOs; who by
their very nature represent a large proportion of those affected by the Bill.
ESO submissions are widely comparable in the themes they raise. Three major
themes arising from the submissions include:
1. Unique Nature of
contend that military service is sufficiently unique that those serving in the
ADF should be entitled to special financial and non-financial benefits, and
that a fairer indexation regime would satisfy this objective.
made by the Alliance of Defence Service Organisations (submission No.
7) notes that:
“In no other calling,
occupation or profession has the State the power to accept or demand the
surrender of these rights [Universal Human Rights]. The
Unique Nature of Military Service deserves unique solutions and also places a
great burden on the Government as the “employer” to ensure that ADF members are
looked after both during and after Service.”
made by the Vietnam Veterans’ Federation of Australia (submission No.
1) also notes that ADF members have suffered conditions of service far less
favourable than civilians, and that service in the ADF includes:
“Liability for high
risk combat operations, restriction of liberty in a regimented way of life,
compulsory long and irregular working hours, compulsory statutory retiring ages
well below the community norms, compulsory high standards of fitness, frequent
The submission made by
the Returned & Services League of Australia (RSL) (submission No.
5) further argues that the nexus between legislating for military
superannuation schemes and other Commonwealth superannuation schemes is a
policy aberration and notes that:
“An examination of
legislation for the Australian Defence Force shows that in almost all respects,
the Parliament has been consistent since Federation in regarding the nation's
armed forces as a separate and quite distinctly different part of Australian
Senators fully appreciate the unique nature of military service and believe
that Australia’s service personnel, past and present, after giving so much to
their nation, deserve to live out their lives in the knowledge that they have
2. Method of
indexation versus the cost of living:
The second major
theme apparent across the ESO submissions relates to the use of the Consumer
Price Index (CPI) to index military pensions. All ESO submissions contend that
the CPI is no longer a relevant index and that the continued use of the CPI to
index military pensions has resulted in the deterioration of living standards
for DFRDB and DFRB members.
Senators note that the Australian Bureau of Statistics (ABS) also states that
the CPI is one of many relevant living cost indexes and continues to apply a suite
of living cost indexes rather than the CPI as a stand alone measure of the cost
of general household inflation.
The RSL (submission
No. 5) in its submission noted that:
Consumer Price Index is "not a measure of the cost of living. Rather it is
a measure of inflation and, as such, it cannot keep up with costs relative to
general community standards of Living.” This definition recorded by a Senate
Select Committee in 2001 accords with advice it received from the Australian
Bureau of Statistics and appears to have general acceptance.”
Veterans’ Association of Australia, Queensland Branch (submission No. 9)
further noted that:
believe that the only fair way [to index military
pensions] would be to have exactly the same methods of indexation for all
schemes which would be to use CPI, MTAWE or PBCLI whichever is the greater.
This would be the only fair way and would be acceptable to the Veteran
The Coalition agrees with the ESO
submissions that the current sole reliance on the CPI to index military
pensions is having a detrimental affect on the living standards of DFRDB and
DFRB members. The submission made by the Australian Veterans and Defence
Services Council (submission No. 11), which includes the analysis of
a self initiated survey, notes that:
little under half of the respondents [military
superannuants] reported the need for assistance from social welfare via the
safety nets available from Centrelink.”
believe that on the balance of evidence provided through the submissions to
this Committee, along with the wealth of evidence made available through seven
past inquiries on this issue, that the CPI on its own is not an adequate
indexation tool for the purposes of indexing DFRDB and DFRB military pensions.
This has contributed to a decline in the standard of living for members of
3. Matthews Review:
The third major
theme that appears across the ESO submissions concerns the Review of Pension
Indexation Arrangements in Australian Government Civilian and Military
Superannuation Schemes, also known as the Matthews Review.
Review was commissioned by the Labor Government and released in August 2009. It
is the only review out of eight reviews into military superannuation over the
past three decades that does not support a positive change to the indexation of
military superannuation pensions.
The Senate has previously enquired four
times into this issue. The inquiries were the:
1. Senate Select
Committee On Superannuation And Financial Services: The benefit design of
Commonwealth public sector and defence force unfunded superannuation funds and
schemes (Feb 2001);
2. Senate Select
Committee On Superannuation And Financial Services: The benefit design of
Commonwealth public sector and defence force unfunded superannuation funds (Apr
3. Senate Select
Committee on Superannuation: Superannuation and Standards of Living in
Retirement (2002); and
4. The Senate
Standing Committee on Community Affairs: A Decent Quality of Life: Inquiry into
the Cost of Living Pressures on Older Australians (2008).
made by the Alliance of Defence Service Organisations (submission No.
7) notes that:
analysis, the Matthews Review was widely discredited within the ESO Community
because of its flaws, inaccuracies, omissions and superficial approach to
The submission made by
the RSL (submission No. 5) further notes that:
“The RSL asserts that
the principle of Parliament is paramount and the omission of this principle
from the terms of reference provided to Mr Matthews makes the findings of his
review questionable and his recommendations unsafe.”
Senators have previously expressed similar concerns with the Matthews Review.
We agree with the objections the ESO submissions, and others, make with regard
to the validity of the Matthews Review. Furthermore, Coalition Senators
consider the Matthews Review as having been politicised by the Labor Government
in an effort to white wash its broken 2007 election promise to address military
POSITION OF THE
DEPARTMENT OF FINANCE AND DEREGULATION AND THE DEPARTMENT OF DEFENCE
previously noted, of the 17 submissions received by this Committee only two do
not support the Bill. The two submissions that do not support the Bill are the
submissions from the Department of Finance and Deregulation and the Department
Senators note with some concern that the submissions made by both the
Department of Finance and Deregulation and the Department of Defence (the
Departments) were submitted after the deadline for submissions to this
contained in the Departments’ submissions revolve in large part around the
recommendations and conclusions contained within the Matthews Review. The
Coalition Senators stated position with regard to the Matthews Review applies
equally to the submissions by the Departments, particularly where each
submission cites the Matthews Review for the purposes of arguing against the
proposed changes in this Bill.
Senators are also disappointed that neither of the Departments made reference
to any of the seven reports and inquiries into military superannuation schemes
initiated prior to the release of the Matthews Review (such as the Podger
Review). Coalition Senators consider this to be more than an oversight; rather,
it is a deliberate attempt to dismiss a field of evidence acquired over three
decades on this matter.
Senators are also extremely concerned that each of the Departments reached
different conclusions regarding the scope of this Bill. In their respective
submissions, each of the Departments differently and selectively quoted advice
from the Australian Government Actuary (AGA) with regards to how the provisions
in this Bill will apply to DFRDB and DFRB members.
For instance, the Department of
Defence (submission No. 15) in its submission states that:
“On 13 January 2011 the
Australian Government Actuary (the Actuary) provided Defence with an analysis
of the increased costs involved in changing from current indexation by the
Consumer Price Index to the methodology proposed in the Bill. The analysis indicated
that the Bill, as drafted and amended, does not deliver indexation for the best
of the Consumer Price Index, Male Total Average Weekly Earnings and the
Pensioner and Beneficiary Living Cost Index. Instead it falls short of that
the Department of Finance and Deregulation submission states that:
“However, as reflected
in the AGA’s advice to the Department of Defence it appears that the Bill would
provide for better indexation arrangements than those currently applying to Age
and Service Pensions.
Coalition Senators are extremely
concerned that the submissions of two government departments have reached
different conclusions on the Bill while citing the same analysis provided by
the Australian Government Actuary.
As the Departments were unable to
reach a mutually agreed outcome (in fact they reached completely opposite
conclusions) regarding the advice provided by the AGA, it stands to reason that
their submissions should be regarded with a high degree of scepticism.
COSTS AND SAVINGS
Coalition Senators remain committed to introducing a
fair, equitable and fiscally responsible military superannuation system. This
Bill reflects these objectives and importantly, remains affordable over the
forward estimates and into the future.
Submissions made to this Committee are widely
cognisant of the need to pay for the changes contained within this Bill. While
the submissions make different assessments of the costs, and indeed propose
different solutions, it is important to note that the Department of Finance and
Administration also makes different cost estimates within its submission.
Coalition Senators are of the opinion that the
submission tendered by the Department of Finance and Administration is designed
to confuse and mislead readers with regard to the costs of this Bill.
The Department of Finance and Administration
submission states that:
“the Bill would have an
immediate increase in the Government’s unfunded superannuation liability of
$6.2 billion which would worsen the Government’s balance sheet. The fiscal
impact is $1,667 million and the cash impact is $175 million over the forward
The submission does not make
available any data to support these cost estimates, nor does it seek to
contextualise these figures. For this reason, it is plain to see why the
Alliance of Defence Service Organisations (submission No. 7) said
Government for its deceptive scare tactics by not being transparent in its
calculations of the net costs of fair indexation”
Coalition Senators agree that the
submission put forward by the Department of Finance and Deregulation is
deliberately misleading regarding the costs of this Bill. No other spending
commitments made by the Labor Government have been spoken about in terms of the
costs over the life of the programme; rather, they are spoken about in terms of
their costs over the forward estimates.
This point is reinforced by advice
from the Australian Government Actuary (AGA). In a letter from the Finance
Minister, Senator Wong, to Senator Ronaldson dated 22 Mar 2011, the enclosed
AGA advice states that:
“The additional cash
expenditure provides an estimate of the future cash impacts on the
Commonwealth’s cash budget from the benefit improvement.”
Where as the advice from the AGA regarding
the fiscal balance figures states that:
“Fiscal balance figures
are used for accrual accounting purposes. They are also mandatory for cabinet
submissions. However, great care should be exercised when using fiscal balance
figures for decision making purposes, particularly in the area of unfunded
In echoing the advice provided by
the AGA, Coalition Senators consider the cash expenditure figures as the most
appropriate basis on which to cost this Bill. Furthermore, given the
Coalition’s record of strong economic management, and in accordance with its
own strict rules of financial accountability, it has ensured that the policy is
affordable in the longer term and over the forward estimates.
In proposing this legislation, the
Coalition identified offsets, over the forward estimates, which exceed
even the most inflated cost estimates provided by the Labor Government.
Identified savings will be achieved by reducing the growth of Australian
Public Servant (APS) employees in the Department of Defence (including the
Defence Materiel Organisation (DMO)) by 33%.
The Coalition believes that the
Government has not justified the expansive growth in the civilian Defence
bureaucracy. The Defence Portfolio Additional Estimate Statements 2010-11
forecasts the bureaucracy to grow by 12.6% over the forward estimates at a cost
of $718.2 million. This growth is taking place parallel to the Government’s
Defence Strategic Reform Program that is designed to reduce expenditure by $2
billion per annum over 10 years. Accordingly a savings measure to provide a
more equitable indexation regime for retired Defence personnel should be funded
from within the Defence Department.
Importantly, this strategy will see
the number of civilian staff in the Department of Defence (including DMO) still
grow in size by 8.3% by FY 2013-14 compared to a budgeted 12.6%. This growth
rate is still generous, particularly in comparison to the military growth rate,
which is only 2.3% over the same period.
Furthermore, during a sitting of
the Joint Standing Committee on Foreign Affairs Defence and Trade Defence
Subcommittee on 25 March 2011, a senior Department of Defence official
confirmed that a growth reduction of 33% in the Defence APS workforce was
already being considered by the Department. This reinforces the Coalition’s
view that the strategy to offset the costs of this Bill is an entirely
As part of the Coalition’s own
strict rules of financial accountability, funds accrued in the Future Fund will
be used to offset the long term costs associated with this Bill. Furthermore,
the Coalition has committed to investing future savings into the Future Fund to
offset the commitments made in this Bill. Coalition Senators note that
excluding the sale of Telstra shares, the Labor Government has not added a
single cent to the Future Fund since coming to government.
In developing this Bill, the Coalition spent a
considerable amount of time widely consulting with veterans, ex-service people,
ex-service organisations and current ADF personnel. The Coalition concluded
that the overwhelming view held by interested groups and individuals was for
the introduction of a more equitable indexation method for DFRDB and DFRB
The Coalition’s approach to dealing with
superannuation reform is in stark contrast to the approach adopted by the Labor
Government, which has exerted more energy on criticising the Coalition’s plan
than coming up with one of its own.
The Labor Government had no military superannuation
policy at the last election and continues to have no policy on superannuation
reform now. Worse still, the Labor Government is attempting to block this Bill,
which will provide approximately 56,000 DFRDB and DFRB members a higher quality
of life in their retirement.
On 1 July 2011, approximately 30,000 DFRDB and DFRB
superannuants will immediately benefit from the changes proposed in this Bill.
Senators note that the submissions made to this Committee overwhelmingly
support the introduction of this Bill. Indeed, the Coalition remains committed
to introducing a fair and equitable military superannuation system and it
remains equally steadfast in its commitment to ensuring that all schemes remain
fiscally responsible and affordable.
Senators recommend that the Bill be supported.
Mitch Fifield Senator Helen Kroger
The Liberal Party of Australia The Liberal Party of
Senator for Victoria Senator for
the Hon Michael Ronaldson
The Liberal Party of Australia
Senator for Victoria
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