Kate

Thank you for your letter on the issue of the indexation of military superannuation. I appreciate the time you have take to write to me. I apologise for the delay in answering your letter and thank you for your patience, as I have received a large amount of correspondence on this matter.  

I certainly DO acknowledge the unique nature of military service and our debt to our servicemen and women. 

The Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010 was referred to the Senate Finance and Public Administration Legislation Committee in March this year.

The Committee found problems with the Bill and in their final report advised against passing it.  For more information on the Committee report please see the following link: http://www.aph.gov.au/Senate/committee/fapa_ctte/defence_retirement_benefits/index.htm

Of particular note, this Bill applied to only a section of the Defence superannuants, and unfairly overlooked 7,200 current Military Superannuation Benefits Scheme superannuants, as well as the future beneficiaries of the MSBS, and, of course all other Commonwealth superannuants including those employed in the Department of Defence. 

I remain committed to continuing the campaign to improve the indexation methods applying to military and civilian Commonwealth pensions, and will continue to work closely with the representative organisations such as DFWA, SCOA and ACPSRO.  I am, of course, convinced that the CPI no longer provides the kind of indexation that responds to the cost-of-living needs of this group of superannuants and pensioners, and I have been seeking the development of the new analytical living cost index which would reflect more accurately the cost of living needs of military and civilian superannuants.

I will continue to post details of the campaign on my website at www.katelundy.com.au 

Thank you again for your comments.

The reasons for the bill’s failure were, firstly, the present budget situation and the need to return to a surplus by 2012-13; and, secondly, that the bill itself was so flawed. I took part in the debate on 16 June to point out some of the problems of this bill and why I was voting against it. In summary, this bill did not provide a sustainable, fair and funded solution to the inadequacy of CPI indexation. Unfortunately a lot of misinformation has since been circulated, either from ignorance or malice. One of these myths is that before the last election I and the Labor Party had promised to vote for this bill.

The facts are that in June last year the opposition put out a press release announcing that a coalition government would index DFRDB superannuation pensions by the same factors as used for aged pensions. This indexation would include a wage related or MTAWE factor, which the coalition government had so strenuously opposed throughout its 11 years of government. However, before this announcement the then Minister for Finance and Deregulation had announced that our government, the Labor government, had accepted the Matthews report and its recommendations. In essence the Matthews report recommended that the method of indexation for Commonwealth defence and civilian pensions should remain indexed by CPI alone, unless:

… a robust index which reflects the price inflation experience of superannuants better than the CPI becomes available in the future.

So at the pre-election meetings last year my colleagues and I were bound by the terms of the Matthews report and, of course, we were criticised by some for this stand. In a pre-election meeting in Canberra organised by SCOA and DFWA on 16 August last year, specifically on the topic of indexation, I acknowledged the government’s acceptance of the Matthews report and I said:

And so my work and that of my colleagues has been to find a way to use the Matthews report to still achieve our basic aim of fair retirement incomes for all ComSuper and Defence superannuants.

Firstly, recommendation 4 of the Matthews report gives us the green light to implement a new and fair indexation method. The shortcomings of the CPI alone as a measure of the cost of living have been acknowledged—even by Matthews! The government in introducing its new index for the aged pension (the PBLCI—Pensioner and Beneficiary Living Cost Index) acknowledged this also, so it is not a point of argument.

I also said at that pre-election meeting:

I do not consider, as the coalition does, that a changed indexation applying to only one section of defence pensions is a fair solution. Of course they deserve it, and of course we owe a debt to those who have served Australia, but we should not seek to water down this campaign, or to divide those involved, by choosing to benefit only one group and not the others. I agree with David Jamison and the DFWA that this political football with veterans should stop.

At this same pre-election meeting Senator Humphries admitted that the coalition had no plans to extend the indexation provisions to other similarly disadvantaged groups, such as the over 7,200 Military Superannuation and Benefits Scheme members or those in the CSS or PSS schemes. I thought it fairly ironic to see that Senator Nick Minchin, who throughout the 11 years of the Howard government so vigorously opposed any change whatsoever to the indexation of military and civilian pensions, was on 16 June paired on the side of supporting the private member’s DFRDB indexation bill.

As I have noted, I have supported the campaign to improve the indexation factors applying to all Commonwealth military and civilian pensions and have sought ideas on how to achieve this within the terms of the Labor government policies. This has included setting up a campaign section on my website. Through this website we have been able to gather information and ideas, to compile some case histories and case studies, and to gauge major areas of need, such as those on the lower pensions. I thank contributors who have made constructive suggestions and comments and those who have raised legitimate criticisms and aired their frustrations.

Unfortunately, because of recent inappropriate, inaccurate and abusive comments which unfairly reflect on many passionate and constructive advocates for fair indexation, I have decided to close this comments section for the time being. Of course, I could have filtered out the abusive comments, but that would bring accusations of censorship. Those interested in the history of the campaign to date can still access it on the website, and comments can still reach me by mail or email.

Together with many other senators and members, I continue to seek ways to improve the superannuation outcomes for those on Commonwealth, military and civilian pensions. Our work in persuading our colleagues of the merits and necessity for this action has, I think, been hampered by a daily barrage of abusive, sometimes racist and inaccurate emails apparently sent to all senators and members as well as staff. This is counterproductive to the campaign, and it has been recognised by the DFWA, who have apologised and disassociated their organisation from such action.

We need to remember that the Labor government, in so successfully tackling the impact of the global financial crisis, took major initiatives to help those on the lowest incomes, and these were welcomed by the superannuants organisations. They particularly noted the benefits, such as the increase in the low-income tax offset, the increase in the tax-free threshold for low-income earners and the 50 per cent tax discount on interest on savings and deposits of up to $1,000. Those on ComSuper and Defence pensions, like others in the community, benefited from the economic stimulus plan and received either the $900 tax bonus payment or the earlier Economic Security Strategy payments to pensioners and carers of $1,400 for singles or $2,100 for couples. They have shared the benefits of the Labor government’s investments in health reform and aged care services. Australians in general, including those on Commonwealth defence and civilian pensions, would not have fared so well under a coalition government and its cuts.

That said, we recognise there is still more to do. That the CPI no longer provides fair indexation is no longer in dispute, and I have sought advice on the development of a new analytical living cost index, or ALCI, as foreshadowed in the Matthews review, to reflect more accurately the cost of living of military and civilian superannuants, including the DFRDB recipients to whom this bill would have applied.

I will continue to consult and to work with representative organisations such as DRWA, SCOA and the peak body, ACPSRO, to whom I am indebted for ongoing advice. A priority of my advocacy within government will be to make the case for recognition of specific cost of living impacts on Commonwealth defence and civilian superannuants and to alleviate the tax burden of those on the lowest incomes. This is a campaign I feel very strongly about, and I commend this issue to all of my colleagues and believe that the campaign is at its best when it is bipartisan in its character.

Transcript from Hansard

It is no secret that I have continued to seek a way to improve the method of indexation for Defence and other Commonwealth superannuation pensions. Unfortunately, this bill is not the answer. We do acknowledge the unique nature of military service and our debt to our service men and women, and I welcome the acceptance of the motion of support to this effect in the House of Representatives on 2 June and support the expression for fair indexation.

I also accept, as I have often argued, that the CPI is no longer an accurate measure of the changes of the cost of living. This has been acknowledged by the Australian Bureau of Statistics and the government, and I have therefore agreed that a better measure of indexation for military and other Commonwealth superannuation pensions should be developed. This was the reason for the Labor government’s development of the PBLCI, the pensioner and beneficiary living cost index, which has already improved the standard of living for pensioners, including those military and civilian superannuants whose Commonwealth pensions fall below the age pension income and asset levels.

That the CPI alone is no longer the best measure of changes in the cost of living was also recognised in the Matthews review of pension indexation arrangements in Australian government civilian and military superannuation schemes. One of its recommendations states:

If a robust index which reflects the price inflation experience of superannuants better than the CPI becomes available in the future, the Australian Government should consider its use for indexing Australian Government civilian and military superannuation pensions.

The government’s commitment to fiscal responsibility and to returning the budget to surplus by 2012-13 is and must be of paramount concern.

This government is proud of its handling of the global financial crisis and the way we are coping with the costs of this year’s natural disasters in Australia—and we are proud of our responses to the disasters and distress of neighbouring countries—but we know that, consequently at this time, all new expenditure must be offset by savings over the forward estimates.

The proposals for this bill do not satisfy this criterion.

In initially providing estimates of the cost of this bill to 2014-15, the Minister for Finance and Deregulation, my colleague Senator Wong, noted that no offsetting savings were proposed.

The bill’s explanatory memorandum proposed only that the costs could be met through the accrued funds of the Future Fund, but this assertion has been challenged by the Department of Finance and Deregulation and by the Government Actuary.

This bill is divisive. A major problem is that it unfairly applies to only a section of the Defence superannuants and debars over 7,200 current Military Superannuation Benefits Scheme superannuants, as well as the future beneficiaries of the MSBS—and, of course, all other Commonwealth superannuants, including those employed in the Department of Defence. This point was made in many of the submissions to the Senate inquiry, even those in support of the bill. The Australian Veterans and Defence Services Council, for example, noted that the bill was ‘a start’ but would not overcome the financial problems of all veterans.

I have had emails and messages from Commonwealth defence and civilian pensioners who have long campaigned for measures such as those outlined in the bill but find that they have been excluded from its provisions. In the context of the bill’s title, ‘Fair Indexation’, is it fair to discriminate in this way?

In March the Senate referred the bill to the Senate Finance and Public Administration Legislation Committee, which considered departmental and public submissions and reported on 10 May. The committee recommended that the bill not be passed.

Coalition senators presented a dissenting report. The Department of Defence submission to the Senate committee opposed the bill, reasoning that the military superannuation schemes had been designed to reflect the unique nature of military service and did already provide benefits well in excess of the community standard. Any requirement for Defence to fund the changes proposed by the bill would significantly impact on Defence funding for ongoing programs.

The Senate Finance and Public Administration Legislation Committee agreed that the unique nature of military service is already reflected in provisions and entitlements. It also highlighted that significant factors in its assessment were the impact on the government’s fiscal position and the ability of the Department of Defence to deliver ongoing programs.

The committee pointed to the gap between the target level of assets required in the Future Fund and the actual level of assets in the fund and stated that ‘the gap would be exacerbated if the bill is passed’.

I would like to acknowledge the commitment and hard work of those who have made submissions to this inquiry despite the difficult time constraints. Some of the individuals who have made extremely useful contributions were constituents of mine.

I would like to mention in particular the ongoing and valuable work of Peter Thornton and Bert Hoebee. I remain committed to trying to improve the indexation methods applying to military and civilian Commonwealth pensions and will continue to do so within the fiscal constraints and all of those factors that do apply.

I will continue to work with representative organisations such as DFWA, SCOA and ACPSRO, to whom I am indebted for their ongoing advice.

I am convinced, as I think we all are, that the CPI no longer provides the kind of indexation that responds to the cost-of-living needs of this group of superannuants and pensioners, and I have sought advice on the development of the new analytical living cost index to reflect more accurately the cost of living of military and civilian superannuants, including those to whom this bill would apply.

I challenge the empty rhetoric and the feigned indignation of Senator Humphries and others opposite with respect to my constituency here in the ACT. You do not need to look too far into the policies of the coalition and their attacks on Canberra and the Australian Public Service—to the tune of 12,000 jobs; that still stands as a coalition policy.

It exposes the duplicitous nature of their presentation here to feign concern for the welfare of superannuants while attacking the very jobs for the people who will find themselves on a Commonwealth superannuation pension at some point in the future. So let us not stand here and feign indignation. This bill is divisive in its character and nature.

I understand what you are trying to do—tap into the discontent that prevails right across Commonwealth and military superannuants—but this bill does not achieve it.

It is, I think, an attempt to tap into sentiment without providing any solution whatsoever.

Much of our discussion centred on an analysis of the Updated Estimates of the Cost of Alternative Indexation Arrangements for Commonwealth Superannuation Pensions – Summary , released on 17 February by the Department of Finance and Deregulation. This paper includes the assumptions and some base data on which the estimates were made. It was updated again with minor changes to some figures on 8 March.

One positive reaction to this paper is the recognition by the Department of “clawback”, estimated now to be “in the order of 30 per cent”. However none of the tables presented on the costs of changing indexation from the CPI alone reflect the clawback. One assumption made by the Finance Estimates paper that has been questioned is that enhanced indexation would change the percentage of benefits taken as a pension rather than as a lump sum (an estimated 10 per cent higher). Peter Thornton has prepared a paper questioning this and other assumptions of the Finance Estimates paper.

The Minister for Finance and Deregulation, Senator the Hon Penny Wong, has stressed the Government’s commitment to returning the Budget to surplus by 2012-13 and the need to offset all new spending as part of the Budget process. In provided estimates of the costs of the Ronaldson Bill to 2014-15, she noted that to date no offsetting savings appeared to have been proposed by Senator Ronaldson.

The Ronaldson Private Member’s Bill, the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010. has now been referred to the Finance and Public Administration Legislation Committee for inquiry and report by 10 May 2011. Submissions were due by 15 April. I understand that DFWA made a submission, assisted by SCOA. I expect that many submissions will centre on questioning the assumptions and conclusions of this Finance paper.

BTW, with Senator Ronaldson’s private member’s Bill so divisive in its approach, at the very least the debate ought to be informed by public scrutiny of Finance’s estimated costs of any change to the indexation methodology, hence our letter urging their release.

Kate.

PS My continuing thanks to the contributors to this blog!

To download the PDF please click here

I believe that any indexation improvements should apply to all of the relevant Defence and ComSuper schemes. These are the Defence Force Retirement and Death Benefits Scheme (DFRDB), the Defence Forces Retirement Benefits Scheme (DFRB), the Military Superannuation and Benefits Scheme (MSBS), the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the Scheme under the Superannuation Act 1922 and the scheme under the Papua New Guinea (Staffing Assistance) (Superannuation) Regulations 1973.

As John Coleman reports in the latest issue of SCOA’s newsletter Supertime, the Government is seeking to develop a more appropriate living cost index than the CPI, and  I am working to try to expedite this process. While this is being developed, I have suggested that the existing PBLCI which applies to the Age pension could be included as a short-term indexation measure for these Commonwealth pensions.

My work to achieve fair indexation includes persuading Senators and Members of Parliament of the importance and justice of this issue, and in this I have been joined by our local MPs. Mike Kelly, Gai Brodtmann and Andrew Leigh.

Together with the organisations representing you, I have worked to develop a new proposal to achieve a fairer outcome. Our proposals include the development of a new Analytical Living Cost Index (ALCI) tailored to a realistic cost of living assessment for this group of retirees, and reform of the tax treatment of ComSuper and Defence pensions.

We completely reject the cynical attempt by the Opposition to inject chaos and disunity into the campaign by offering a change in indexation to one section only of the Defence superannuants.

I look forward to working with the new Prime Minister and the new Finance Minister in a re-elected Labor Government to achieve the equity we seek.

Thank you for continuing with us the campaign for fairer indexation for Defence and ComSuper pensions.

Over 500 Commonwealth superannuants attended a public meeting in Canberra recently to address pension indexation arrangements in Australian Government Civilian and Military Superannuation Schemes.

ACT Senators Kate Lundy (Labor) and Gary Humphries (Liberal) addressed the meeting, giving their views on Trevor Matthews’ review into superannuation indexation for APS and military employees.

Both Senators criticised the Matthews Report, with Senator Lundy saying she had intended meeting with the Minister for Finance, Lindsay Tanner to show him why the report was flawed.

(Check against delivery) I want to thank the SCOA (Superannuated Commonwealth Officers’ Association) executive committee and to DFWA (Defence Force Welfare Association) for inviting me to talk and to listen to you.  I am representing the Government here today as Minister Tanner is necessarily in Bathurst for a Community Cabinet meeting.  However I would like to introduce Adrian Warner, the Minister’s new adviser on ComSuper and Defence pension matters.  He will be listening to your arguments and concerns and will take these back to the Minister, as I, of course, will also.

I acknowledge my ACT Senate colleague, Senator Humphries. I know my colleagues Mike Kelly, Bob McMullan and Annette Ellis would also have been here were they able so I too convey their apologies.

Dr Annette Barbetti and Les Bienkiewicz have outlined for us the issues rising from the Matthews Review.  SCOA and DFWA have prepared reasoned critiques of the Matthews Report and its conclusions and recommendations, and I commend these to you.  I want to acknowledge the time and expertise that the representatives of your organizations have devoted to this campaign.  I might particularly mention here of course, Annette Barbetti, John Coleman and Ewan Hazell from SCOA,  Les Bienkiewicz (National Secretary DFWA)  and Ron Dean from ACSPRO (Australian Council of Public Sector Retiree Organisations).

Over the years in which I have been involved in this campaign I have had many meetings with these and other members of your organizations and it would be fair to say that they have been instrumental in shaping my commitment and ideas on this and related issues.  In Opposition we fought hard to promote the recommendations of the Senate committees for a change in the method of calculating the indexation of ComSuper and Defence pensions.

Earlier this year, in view of the continuing pressure from constituents, growing impatience for the public release of the Matthews Review, and after consulting SCOA and others, I decided to set up an interactive website, or blog, to gather suggestions and ideas regarding the indexation campaign, and to promote the issue to my parliamentary colleagues generally. We have been able to provide links to SCOA, DFWA and other relevant websites, and many of their websites have provided links to ours.  Through this we have been made aware of individual case histories, and gained constructive and informed opinions.  In particular the hardship cases point to the need for social justice to be considered. Of course, some people have used the website to vent their anger and frustration, but I guess that is understandable.

Submissions to the Matthews review were made by the organizations represented here today.  Nonetheless it appears that the submission from the Department of Finance and Deregulation may have had most influence.

The Matthews  Review, as we know, rejected any change to the indexation method and system, and the immediate Government reaction was to accept its recommendations.

Reacting to the release of the Report, Mike Kelly, Bob McMullan, Annette Ellis and I presented a letter to Minister Tanner outlining some of our concerns, and suggesting that action could still be taken in terms of Recommendation 4 of the Report .  This says:

That, if a robust index which reflects the price inflation experience of superannuants better than the CPI  becomes available in the future, the Australian Government should consider its use for indexing Australian Government civilian and military superannuation pensions.

We argued that in terms of this Recommendation, the Pensioner and Beneficiary Living Cost Index (PBLCI) which had been developed after Matthews had reported in December 2008, could well represent a better index than the CPI, and we submitted that, as an immediate step, the PBLCI index could be included as an indexation factor in the calculation of ComSuper and Defence pensions.

Mike Kelly and I had a follow-up meeting with Minister Tanner in which we pressed our view that the ALP pre-election commitment was not just for a review of the indexation system, but at least implied that it was to be a review for the purpose of creating a fairer indexation system.

Many of you will have already seen, on my website, the full text of the letter to Minister Tanner, and my comments on the follow-up meeting with him.

Also on the website now are my comments on the Senate Estimates Committee hearing of 20 October, at which Senator Sherry represented Minister Tanner and replied to the questions of the opposition.  At the Estimates Committee hearing, Mr Tune, Secretary of the Department of Finance and Deregulation, said in terms of Recommendation 4 of the Matthews Report that there is an index that is produced by the Australian Bureau of Statistics, but [quote] “we do not consider it as being a reliable index at this stage”.

Mr Tanner’s reply to our letter, which I received some time after the Estimates hearing, went further in stating that “the PBLCI is not an index in relation to the living costs of superannuants.  It has not been derived from the self-funded retiree ALCI (Analytical Living Cost Index), which was the index that Mr Matthews discussed in his report”.  I will post this letter on my website later today.

It is my view that the door is still open for the development of an Analytical Living Cost Index which does focus on the changes in the living costs of superannuants, and to this end I am seeking information on how far the development of such an index has proceeded already, and what costs would be involved in its further development. I am writing to the Australian Bureau of Statistics to this effect.

Meanwhile, I support the work of SCOA, DFWA and other organizations and individuals – Peter Thornton is one of note — in exposing the flaws in the Matthews terms of reference,  methodology and the conclusions drawn.

Too often in the Report , Matthews makes statements such as, for example on page 39:  “ I have been unable to ascertain …” and “However there was no information available to the review about …” and “ A current estimate of clawback …was not available to the review”.  I believe that the underlying financial assumptions behind government costings of the indexation change need to be transparent so they can be discussed and debated.  Issues such as taxation clawback need to be considered and I congratulate Dr Barbetti’s diligent work in this regard and on tax treatment.

I am working with you in this challenge, and I shall continue to represent your concerns to the Minister and the Government.  I am pleased to announce that Minister Tanner has agreed to meet with and hear the views of SCOA and DFWA in the next sitting fortnight and I will be assisting to organize this.

I believe that a united front by the organizations here, including SCOA, DFWA, ACPSRO, together with the CPSU and supported actively by your local parliamentarians will hopefully have an impact.  I know that this campaign for fairer indexation will not go away!

Letter from Minister Tanner – 26th Oct 2009

Obviously we are disappointed with the response however the Minister has agreed to meet with a delegation from SCOA and DFWA in the next sitting fortnight so they present their point of view. I reported this to the public meeting held today at Ainslie Football Club.  I will be posting the notes from my address first thing tomorrow.

The public meeting was incredibly well attended and representatives from the offices of my colleagues who weren’t able to attend were all present including one of Minister tanner’s advisors. Ewen Hazell chaired an orderly and heartfelt meeting and myself, Senator Humphries, Annette Barbetti, Les Bienkiewicz and John Coleman formed a panel and responded to questions from the audience.

I noticed that John Coleman’s point that the recommendations of the Matthews Review which were immediately accepted by the Government were contrary to the recommendations of no less than three parliamentary inquiries, was picked up strongly in the ABC television news this evening.

A strong resolution was carried at the meeting and I will post a link to it as soon as I can. I have also been asked to present to the Prime Minister a framed copy of the email sent to a constituent during the election campaign.