In her reply to the RSLs document An RSL Perspective the Prime Minister
says that her Government has no plans to change the indexation of
“We understand the Minister for Defence Science and Personnel the Hon Warren
Snowdon MP wrote to you on 13 February 2012 addressing the two key points
underpinning the RSLs submissions. Namely, that military superannuation schemes
are distinctly different from superannuation schemes for other Commonwealth
employees and that the Consumer Price Index (CPI) is a measure of inflation and does
not reflect changes to the cost of living.
As you would be aware, military superannuation pensions, including invalidity
pensions paid from the military superannuation schemes, are increased twice a year
to reflect increases in the CPI.
In the 2007 election the Government committed to a review of the indexation
arrangements for military and civilian superannuation schemes and had done so.
The Government is also very aware of the passionate campaign on this issue that is
being led by the RSL and other ex-service groups to change the way military
superannuation pensions are indexed.
The Australian Bureau of Statistics has said that CPI “is a robust measure of general
price inflation for the household sector and the best available broad measure of
changes in the cost of living faced by Australian households”. The 2008 Matthews
Review of Pension Indexation Arrangements in the Australian Government Civilian
and Military Superannuation Schemes did not find any conclusive evidence that CPI
understates inflation as it affects Australian households in general.
The proposals to change the method of indexation for military superannuation
pensions seek to use the most beneficial of three measures, CPI, Male Total Average
Weekly Earnings and the Pensioner Beneficiary Living Cost Index that applies to the
Age and Service Pensions.
Comparing military and civilian superannuation pensions with the Age and Service
Pensions is not comparing like with like. Superannuation schemes are employment
based benefits, while the Age Pension is a means tested income support payment
made as part of our social security system, paid to those who do not have sufficient
superannuation support in retirement.
It is also not appropriate to apply a wage indexation factor to a post-employment
superannuation payment and there would be significant extra costs to the
A much fairer comparison of the indexation of superannuation is to compare
increases in CPI with the performance of the superannuation funds. Since 1 January
2008, CPI increases have totalled in the order of 15 per cent and these have been
reflected in increases to military superannuation retirement pay. Many
superannuation funds have, on average, returned little or no growth over the last
four or five years. Superannuation retirement pay provides a guaranteed level of
income and indexation regardless of a persons other income or assets and is not
affected by investments returns.
The operation of the life expectancy factors was most recently examined by the
Review of Military Superannuation Arrangements (Podger Review). The Podger
Review was of the opinion that the conversion factors based on a 1960s life
expectancy are substantially more generous than cost-neutral conversion factors that
take into account opportunities to earn interest on the commuted lump sum. The
Government supports the independent reviews recommendations and has no plans
to change the current policy.”