Wednesday, 12 September 2012
Matters of Public Importance
Military Superannuation Pensions
The only people who would truly benefit from any changes to the indexation of military indexation are those already on higher pensions or with other incomes and significant assets. For everyone else, the changes to indexation are small but they would create significant difficulty for the federal budget. Those opposite understand this, which is why for 11 years they did nothing. In fact, this government's tax cuts introduced on 1 July 2012 are likely to provide more financial assistance for those veterans earning less than $80,000 per annum than any proposed changes to the indexation of military super.
When we discussed the Defence Forces Retirement Benefits Scheme, DFRB, and the Defence Force Retirement and Death Benefit Scheme, DFRDB, we must remember that these are not the same as the aged pension and they are not the same as the service pension. Neither scheme is even open any longer, with the more recent DFRDB closing in 1991.
Our military super systems are tailored specifically to meet the special needs of military service personnel and are already more generous than their counterpart Commonwealth civilian schemes. That, of course, is appropriate. Many people on DFRB and DFRDB retired from the military while still at working age, with time to continue to save for their retirement. The general trend has been that some 75 per cent of DFRDB members were under 45 years of age when they ceased service and 40 per cent of those were between 35 and 40 years of age. These are people who should have continued to work and continued to save.
Relying on an indexation system designed for aged pensioners is not the answer to increased retirement wealth. The majority of veterans who receive a pension from these systems still have access to other financial assistance such as the age or service pension—that is, it is not their only source of income. The DFRB and the DFRDB are guaranteed sources of income that are not subject to market fluctuations and are not subject to the same levels of risk that most Australians in the superannuation system are exposed to. These are generous schemes that receive benefits not received by other sectors and certainly not received by the average Australian. I think this is an appropriate juncture for me to note in the context of some of the more inflammatory correspondence I have received—care of the provocations of Senator Ronaldson—it is a more generous arrangement than prevails for people elected to this place since 2004.
Recipients of DFRB and DFRDB get higher contribution rates—up to 30 per cent—compared to the national legislated rate of nine per cent. Even as the national rate of super gradually increases to 12 per cent, another Labor achievement, it is still nowhere near the potential 30 per cent contribution for military personnel. Military pensioners get an annual payment that is not subject to market risks. Those under the DFRDB get the option to receive a larger payment upon retirement, a commutation of between four and five times, for a reduced annual payment. This is a choice exercised by over 99 per cent of retirees, and accessed immediately upon retirement after 20 years of service as opposed to the preservation age for the rest of the Australian community.
Changes to the indexation methodology for generous systems would be inappropriate. Changes would be inequitable. Changes would be costly. Vitally, they would have a minimal impact for those on lower pensions—minimal impact for those not on higher incomes. Finance and the Government Actuary costed of the opposition's bill, Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010 at a cost of $1.7 billion over the forward estimates. That is $1.7 billion to change a system that will provide little real help for retirees on lower incomes. If we are talking about fairness, if we are talking about justice, if we are talking about equality, then what about those under the current Military Superannuation and Benefits Scheme, the MSB? What about those on civilian Commonwealth schemes? Why are Senator Ronaldson and his colleagues absolutely silent on those important questions? We would also need to alter the indexation arrangements for those in other schemes if this were really about fairness and not entirely about politics. The opposition, right now, have a $70 billion black hole and it is growing and growing. Changes to these systems are not financially sustainable nor are they fair. This is just another unfunded promise by the opposition and it cannot be justified. That is why the coalition, after 11 years in government, never made the changes that they are spruiking today. Let me quote former finance minister, Nick Minchin. Former Senator Minchin said:
This … claim—
to change indexation—
was properly rejected by the Howard Government, of which I was a member. There is no inherent logic to the proposition that a public sector employment-related superannuation payment should be indexed in exactly the same fashion as a means-tested welfare benefit in this case, the aged pension.
Former finance minister Nick Minchin said that then and he says it now. He was right then and he is right now, and the Gillard government agrees with him.
Senator Ronaldson and his colleagues, in their spruiking of this policy, remind me of that old diggers' saying, 'What do you call a politician spruiking for veterans? A member of the opposition'—because when in government these obligations and promises were as nothing. This is a 'road to Damascus' conversion from a group of politicians who only comprehended this mission when they were in opposition. I predict that should they ever form a government this promise will be the first on the cutting-room floor. Today's debate is purely political in motivation. The proposed changes would be zero help for those under the current MSBS. For those under the MSBS who served in East Timor it would mean zero help. For those under the MSBS who served in Afghanistan it would mean zero help. For those under the MSBS who served in Iraq it would mean zero help.
The Gillard government is committed to providing an equitable and fiscally responsible competitive remuneration package for all current and retired members of the ADF that reflects the unique nature of military service. Changing the index arrangements is not the answer. There is no intention here to deny former servicemen and servicewomen their beneficial rights. Our military super schemes are generous, providing early access and a higher percentage of employer contributions than most other Australian workplace schemes. Comparing military super with the age pension is just not relevant. Super payments are an employment based benefit; the age pension is a means-tested income support system that forms part of our welfare system. For many, the age pension is their only source of income. Military super payments are a guaranteed level of income regardless of the person's other income or assets and does not remove their eligibility for the service or age pension. They are not the same and they are not comparable. The age pension is indexed so that the maximum basic rate of the single adult age pension, after indexation, does not fall below a rate equal to 25 per cent of total average weekly earnings. This was done so that pensioners would share in the increase in community living standards.
The DFRB and the DFRDB pensions, unlike the age pension, were not intended to ever be the sole lifelong income source for those who were still of working age when they ceased service either through choice or due to rank retirement age. The rate of indexation of the age pension is not relevant to military super payments and yet here we see the opposition trying to use it to justify changes. Criticisms of the DFRDB Scheme are not justified. It is a generous scheme, even more so than most other Commonwealth superannuation schemes, and changes to the indexation proposed by those opposite would be unfair, unjust and costly without helping those on lower pensions. It is not a habit of mine to fully agree with former Senator Nick Minchin but on this occasion he was right.