Military Superannuation Indexation – Summary

9 Feb 2013

The purpose of indexation is to maintain the payments purchasing power.

Military superannuation payments are NOT welfare payments. They are entitlements arising from a “contract of employment” where both the employee (the military service person) and the employer (the Government) contribute to a managed Superannuation Fund from which payments will be made to eligible persons at the appropriate time.

Under their conditions of service, military persons compulsorily contribute 5.5% of their gross salary towards their superannuation scheme (DFRB/DFRDB 1974 – 1992, or MSBS since 1992). The Government initially contributed its share to the Military Superannuation Fund until 1977 when it decided not to contribute to the Fund but to guarantee payments from consolidated revenue.

Superannuation Payment Eligibility.

  • Generally for members of the DFRB/DFRDB schemes, the superannuant is eligible to receive a superannuation retirement payment each fortnight that would be indexed to maintain its purchasing power after 20 year’s service and upon retirement from the military. (This was the stated intent of the Parliament legislators in 1974 and the method chosen was the consumer price index (CPI): the same method used for national wage increases, some commonwealth superannuation payments and commonwealth welfare payments (old age pension, military service pension, etc). Those persons who did not complete their eligible service period (normally 20 years) received a return of their superannuation contributions only: no contribution from the employer and no payment of interest on their contributions.
  • For members of the current MSBS scheme, the superannuant is eligible to receive a superannuation retirement payment when retired from the ADF and having reached preservation age.  Amounts taken as a “pension” are indexed by the CPI as for the DFRB/DFRDB schemes as is the preserved “notional employer” Government’s contribution which is held until the preservation age has been attained.

CPI was the suitable indexation method until the late 1980s when the Wages Accords broke the nexus with the CPI. 

In the early 1990s Welfare Agencies successfully lobbied the Government to change the indexation method because the CPI alone no longer maintained the pension’s purchasing power. In 1997 the welfare payments indexation method was changed to include a wages component: 25% of MTAWE (Male Total Average Weekly Earnings) or CPI whichever was the greater. Military superannuation indexation remained pegged at CPI.

Our representations to the Government, Parliament, opposition and political parties for the same indexation method application succeeded in the Parliament appointing several Senate enquiries that recommended the military superannuation indexation method be similarly changed. The then Coalition Government failed to act on those recommendations.

The Labor Opposition, in its 2007 Federal electoral platform, adopted policies to fix this and other military issues including veterans’ disability pensions’ indexation parity. Their policies won the Defence Family’s support and in our opinion influenced the result in some electorates.

With Labor’s success at the 2007 election their “fix” for military superannuation indexation was to commission another review. The resulting Matthews’ Report recommended no change to the CPI indexation method. That Report was widely condemned for being limited by its Terms of Reference, inaccurate in its assumptions, selective in its use of data, failure to consider relevant data and the uniqueness of the military profession and importantly failure to consider the intent of the 1974 DFRDB Superannuation Act legislators: an indexation method that would maintain purchasing power. Attempts to have the Government publicly reveal its data and assumptions and to review the recommendations have failed.

Closely following the Matthews’ Report the Government released its Pensions Review (The Harmer Report) into measures to strengthen the financial security of seniors, carers, and people with disability. The review included the Age Pension, Carer Payment and Disability Support Pension but not as advised the DVA Disability Pension. One of its accepted recommendations was that the welfare indexation method be upgraded to include an increase in its wages component from 25% to 27.7% of MTAWE and an additional factor the pensioner and beneficiary living cost index (PBLCI).  The new indexation method became CPI or PBLCI whichever was the greater and benchmarked to a minimum of 27.7% of MTAWE. Again the military superannuation indexation method remained pegged to CPI. And the DVA Disability Pension did not receive the 2.7% MTAWE increase granted to Age and Service Pensions thereby losing the indexation parity established under the 2007 Act

What has been the financial impact on military superannuants?

You can calculate your loss HERE.

A Contract Breach?

We believe that in 1997 the military superannuation contract was broken when the Government approved a new indexation method for Age and Service Pensions (welfare pensions) to protect its purchasing power but excluded military superannuation from that indexation change.  By excluding military superannuation its purchasing power was no longer maintained and so the contract breach occurred.

What we want

We want the same indexation method that reflects the same percentage increase and frequency that is applied to the Age and Service Pensions. That will ensure that the Australian Government keeps its obligation to military superannuants to provide an indexation method that maintains purchasing power, an obligation that was stated in the original employment contract.