Military super no pension

Letter-writers have repeatedly vented their anger at the Federal Government, demanding changes to the indexing of their Defence Force Retirement and Death Benefits (DFRDB) retirement pay.

They argue military superannuation should be regularly increased in the same way as the aged pension.

However, emotion should not get in the way of superannuation facts. Former Liberal finance minister Nick Minchin, despite being on the opposite side of politics to me, wrote on May 2, 2012, to The Australian newspaper: “All claims made upon the public purse, even those by retired Defence personnel, should be considered rigorously and on their merits. This particular claim was properly rejected by the Howard Government, of which I was a member, as well as by the Labor Government.

“The payments are maintained in real terms, which is what they signed up for. Changing the indexation for Defence personnel would create immediate demands for the same change to be made for all other Commonwealth employees, at a potentially enormous cost to taxpayers”.

The Government’s decision not to change the way it increases military superannuation, from the current guaranteed increases based on the Consumer Price Index (CPI) to a system providing increases the same as the age pension, is because the two are different.

One is superannuation, one is the age pension. Mr Minchin can see it.

The age pension is the principal or only source of income for many older Australians. The current full single rate of the aged pension is $21,018 a year.

However, someone who receives the average DFRDB superannuation retirement pay of $24,600 a year will almost certainly have received a lump sum payment of at least $120,000 in today’s dollars.

The lump sum (of up to five times their retirement pay in exchange for a modest reduction in retirement pay) is taken in more than 99 per cent of cases.

It is paid after a minimum 20 years service regardless of other income.

In addition, veterans over 60 may also receive, subject to their other income and assets, a service pension, or if they are over 65, the age pension of up to $9700 a year as a single or $21,500 as a couple.

DFRDB pays a higher percentage of final salary compared with other Commonwealth schemes. It is mostly paid before recipients are 55.

It’s generous but it’s exactly what the Government and military personnel signed up for.The Federal Government makes an employer contribution of about 30 per cent of salary to military superannuation compared with the community standard employer contribution of 9 per cent (increasing to 12 per cent), or up to 15.4 per cent for the public sector and politicians.

Since 2008, CPI increases have compounded, producing a 15 per cent increase to DFRDB retirement pay.

However, many ordinary superannuation funds have returned low or no growth since January 2008, thanks to the global financial crisis.

The point is that DFRDB retirement pay provides a guaranteed level of income and indexation regardless of age, other income or assets and is not affected by investment returns or events such as the GFC.

In spite of Mr Minchin’s warnings, the Opposition has proposed to change indexation for some military superannuants from age 55, and include male total average weekly earnings increases to their superannuation.

To include a wage factor in a post-employment payment makes no sense. Most workers do not have this benefit and it will cost taxpayers billions of dollars.

Apart from being very costly, many military superannuants are still of working age and will be for some time.

Older, wealthier retirees would also be beneficiaries of the change proposed by the Opposition.

However, older retirees eligible for the age or service pension would see relatively modest change because any increase in their retirement pay will partly offset the amount of the means tested age or service pension.

The Government’s changes to income tax thresholds in last year’s Budget and other measures are more likely to provide far greater benefit to low and middle income military superannuants than the Opposition’s proposed indexation changes to DFRDB retirement pay.

Some claim military veterans are being forced to deal with “dwindling” retirement income.

Judge for yourself. Military superannuation with its CPI link is guaranteed in real terms for life and with a benefit paid to a surviving spouse for the term of their life, as it should be.

Most people in private superannuation schemes actually saw their retirement savings and incomes fall substantially during the GFC.

Many have been forced to delay retirement, or return to work, to rebuild their superannuation.

Military superannuation was entirely protected and increased during the GFC and its aftermath, as it should be and no more.

Gary Gray is Brand MHR