Peter Thornton responds to Podger criticism

16 Aug 2013


I read with increasing incredulity Andrew Podger’s article (CT 6 Aug 2013) where he condemns, based partly on nebulous 40 year cost projections, the Government and Opposition’s policy commitments to a small subset of military retirees in the fair indexation of their retirement benefits.

I am incredulous because these policy commitments are just a reflection of the Podger Review’s own Recommendation # 14 and also because it reflects some of the evidence that Podger and Dr. Knox gave at the discredited Matthews Review in 2008; valid evidence that advocated change but evidence that failed to materialise in Mr. Matthews subsequent report.

One such piece of evidence was the fact that Military and Commonwealth remuneration was typically less than that of the general community; lower pay accepted by employees over time as a form of salary sacrifice for a promised pension that would maintain true value in retirement.  Indeed, research reveals that up to 75% of all Commonwealth employees earned considerably less than the average wage for many decades with disposable incomes reduced even further by gross salary after tax superannuation contributions that were ploughed into Consolidated Revenue.

Old Commonwealth and Military retirement schemes were all developed on an ‘emerging cost basis’ but modern day political debate and accounting only wants to record and recognise the ‘fire and brimstone’ and ‘Darks Arts’ side of the balance sheet.  Commonwealth accounting fails to bring forward previous contributions (both physical and notional) and to account for the internal rate of return of those funds held within consolidated revenue or indeed the long term multiplier effect of those funds that were redeployed into the domestic economy to provide new infrastructure such as schools, ports, roads etc.

Mr. Podger’s brief trip back down memory lane to the 1970s unfortunately lacked clarity and depth because the Parliament’s legislative intent back then was to ensure that pension purchasing power’ for both Military and Commonwealth retirees was to be protected and maintained.  Contrary to Mr. Podger’s advice, the original indexation measure was in fact a hybrid mechanism of prices and wages as devised by the renowned actuary Professor Pollard. However, the design of Pollard’s formula came under considerable pressure from the severe double digit inflation that occurred due to the 1970s Oil Shock.  

The shift of pension indexation by the Fraser Government in 1976 to a prices only measure (i.e. a move to the then CPI) was not a limitation as suggested by Podger, but a necessary step at the time to protect the purchasing power of both superannuation and welfare pensions. 

The increasing limitation of CPI came a little over a decade later when surreptitious changes were made to the index and when the nexus between CPI and wages was severed at the end of the Wages Accords.  Both circumstances having a significant impact on retiree pensions as can be seen in the erosion graph.


Whilst Podger rightly points out some of the significant deficiencies that were inherent in older military superannuation schemes,  his 2007 Review’s recommendation about introducing a new prospective accumulation scheme for Military Super that reflects contemporary civilian standards is flawed in my opinion.  The reason why is because Military personnel need certainly in their financial affairs when on operational deployments and/or when training for war as they don’t generally have the luxury of easily monitoring or changing their investment choices in a timely fashion.

The major deficiency of the current scheme is just the same inadequate indexation that is applied to pensions in payment and to the employers contributions that are held notionally under preservation. Aligning the indexation of MSBS to the same percentage increase that is applied to the Age Pension would immediately fix the erosion of purchasing power of these benefits once and for all.

Mr. Podger suggests that the major political parties have “pandered to a small “vocal  group” of military retirees, but I would contend that the major parties have just prostituted the dedicated and honourable service of these older retirees in an attempt to only garner political leverage from the millions of voters who are generally sympathetic to Veterans issues.

This prostitution scam finally crystallised itself when Labor back-flipped and produced an inadequate 11th hour policy commitment for only 26,000 older military retirees affectively ostracising retirees such war widows, invalidity pensioners and age retirees under other Military and Commonwealth retirement schemes. 

Indeed, both major parties have clearly illustrated their outright contempt for all 207,000 former employees, both Military and Commonwealth,  who are and remain substantially affected by this 20 year ongoing atrocity.

About the author:

Peter Thornton is a retired member of the DFRDB and PSS schemes. Thornton is an economist and independent commentator who advocates for the fair and equitable pension treatment for all affected Military and Commonwealth retirees.