Excerpt from Camaraderie Vol 36, No 1, p11

THE INDEXATION BATTLES

Here is a recent response from Minister Brough during his brief term as Minister Assisting the Minister for Defence. We will continue our efforts to overcome this iniquity in the face of bureaucratic resistance to a just cause.

'Thank you for your recent representation to the Minister for Veterans' Affairs, the Hon Danna Vale MP, on behalf of Mr Norville Simpson of 11 Ocean View Avenue, Mooloolaba, concerning the indexation of military retirement pensions to the Consumer Price Index (CP1). As this matter falls within my portfolio responsibilities, your correspondence has been passed to me for response.

Calculations of Defence Force Retirement and Death Benefits (DFRDB) pension amounts are based on a percentage of the recipient's final salary (the percentage ranges from 35% to 76.5% depending on length of service). Recipients may elect to commute up to five times their annual pension, which results in a reduced pension. The notional employer contribution representing the cost of the scheme to the employer is 33.9% as calculated by the Government Actuary. The community standard for employer superannuation contributions is 9%.

Military and Australian Public Service pensions and most Commonwealth benefits are indexed to upward CP1 movements every six months, as per relevant legislation and scheme rules. CP1 is an accurate and frequently used cost‑of‑living index, and six‑monthly adjustments to upward CP1 movements are considered an equitable and reasonable measure of socio‑economic change across a basket of goods and services.

This is supported in a recent report by the Australian Bureau of Statistics (updated to June 2003). Furthermore, State and Territory Governments also use CP] movements for indexing pensions from their superannuation schemes. Only a few Commonwealth benefit rates, such as the Age Pension, are adjusted after CP1 indexing to compare with only 25% Male Total Average Weekly Earnings (MTAWE). A means tested Age Pension for a single person is worth around $12,000 per annum, which is not at all comparable with the total DFRDB package.

The Government continues to monitor Commonwealth schemes to ensure they meet retirement income objectives. The Senate Select Committee on Superannuation and Financial Services recently reported into the adequacy of Commonwealth pension indexation. Findings noted that any change to any aspect of a scheme, the use of the CP1 index for example, needs to consider all aspects of scheme design, as well as the cost of providing and administering those benefits.

Changing to another indexation method for military and Australian Public Service superannuation schemes would markedly increase the notional average employer contribution rates (or cost of Scheme contribution to the employer). At the time of reporting in December 2002, an increase in unfunded liability for all military superannuation schemes alone would be around $6 billion and worsen Budget fiscal balance by around $500 million per annum. Such a significant change needs to be assessed against other policy priorities and still ensure equity across the whole community.'

 Note: 

 As RDFWA and Australian Council of Public Sector Retiree Organisations Inc (ACSPRO) have calculated that to change indexation of Military and Commonwealth Public Service Superannuation payments from CP1 to MTAWE would cost $25 million per year gross and approximately $15 million per year net after tax and age pension reduction, it is difficult to understand how the  Minister Assisting the Minister for Defence has arrived at the figure of $500 million per annum.

 NSW Branch