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Tuesday, 24 November 1959

Mr HAROLD HOLT (HigginsTreasurer) . - by leave - I move -

That the bill be now read a second time.

The bill which I have pleasure in introducing brings into being a comprehensive revision of the retirement benefits for members of the defence forces. It arises from the decision of the Government in 1957 to establish a committee to review the entire pay and retirement benefit conditions of the services. The committee was formed under the chairmanship of Sir John Allison, and I pay a tribute to Sir John Allison and his colleagues. The Government is greatly indebted to him and to his fellow members of the committee for the time and thought that they have given to the examination and resolution of all the difficult problems involved in these matters.

The present Defence Forces Retirement Benefits Act, which came into force in 1948, was designed to meet the special conditions relating to service in the forces, such as lower retiring ages, varying ranks, the need to maintain a high standard of medical fitness and the differing conditions of service applicable to officers and other ranks. This act introduced a scale of pensions for officers which increased in amount with rank and which were based primarily upon the maximum pensions available at age 60 to a member of similar salary in the Public Service, reduced to allow for the earlier retiring ages. For other ranks, the pension was based on a period of twenty years' service after age twenty and provided for additional amounts of pension for longer service.

Where the officer or other rank did not qualify for pension by reason of his length of service, he was entitled to a gratuity according to the scales laid down in the legislation. In addition, a comprehensive system of invalidity benefits was provided as well as a half pension for a widow. The contributions paid under this act by members of the services were precisely the same as in the case of the Commonwealth Public Service for retirement at age 60, and related to the member's rate of pay and the age at which he became a contributor or obtained a pay increase.

Since 1948, amendments have been made from time to time to meet changing conditions and to maintain an alinement between pensions and pay, but the basic principles which I have briefly outlined had not been re-examined prior to the appointment of the Allison Committee.

The problems facing the Allison Committee were difficult. On the one hand, it was necessary to have regard to the needs of the services and, on the other hand, it was necessary to examine the alinement of any variations in benefits which might be proposed with the benefits available in other spheres. In addition, at the time when the original scheme was introduced, the lack of experience as to the rates at which exits occurred from the post-war services as a result of death, invalidity or withdrawal, rendered it impossible to adopt a firm contribution basis.

The report of the committee has produced a satisfactory answer to these main problems. New rates of pensions are proposed. These pensions have been calculated by taking the pensions which are appropriate in the Civil Service at the age of 60 years and applying a scale of percentages to determine amounts appropriate to the earlier retiring ages of the services. The Civil Service pensions to which I have referred are those contained in the Superannuation Bill which is before the House.

These pensions are at the rate of 70 per cent, of salary at the lower and middle salary ranges, decreasing to approximately 40 per cent, of salary at the highest level. For the information of honorable members, the scale of percentages used to determine the earlier retirement pensions for the services is that which was adopted for the purpose of the 1948 act.

As regards the increased benefits which will flow to existing contributors from this billy both in their present ranks and on subsequent promotion, additional fortnightly contributions are provided for in the bill. These contribtuions are designed so that, over the remaining service of the members, the same proportion of the cost of the increases in benefits will be met as will be met by future members.

A special problem arises in connexion with those serving officers and other ranks who are approaching the time when they would normally retire from the services. For these members the additional contributions payable in their short remaining period of service may be substantial. The bill provides that if a member is within eight years of retirement he has the right to elect as to whether or not he takes up the whole of or part of his increase in pension. In addition, if he elects to take up any part of his increase and his total contributions would exceed 10 per cent, of his present salary, if an officer, or 5 per cent, if an other rank, he may enter into an arrangement with the Defence Forces Retirement Benefits Board to defer payment of his additional contributions until retirement.

The further problem, to which I referred earlier, has been to lay down a proper basis upon which the contributions payable by members of the Defence forces should be determined. As I have explained, the original contribution basis was not founded on any actuarial assessment of the various risks- of mortality, &c, experienced by the forces. The committee has recommended that the time is now opportune, in view of the knowledge gained under the present legislation, to place contributions on a proper footing.

The bill provides, therefore, that future entrants to the scheme will pay contributions designed to meet, on the average, 22i per- cent, of the cost of their pension bene- fits in place of the 15 per cent, that has prevailed in the past. The proportion of the cost of benefits met by contributors to the superannuation fund is 29 per cent., but the committee adopted the view that a lower average proportion was justified in the case of the services on account of the earlier ages at which service personnel retire.

For existing contributors to the scheme, the committee accepted the principle that accrued rights should be preserved. These members will, therefore, continue to pay their current rates of contribution for the benefits provided by the existing act for their present ranks.

The options available to serving members with long service have caused some problems in denning their future pension entitlements. However, the basic principles adopted are straightforward. Thus the member who is not promoted will be entitled to the pension provided under the present act, plus the proportion of the increase proposed by this bill for which he has elected to pay additional contributions. If he should be subsequently promoted he pays further contributions for, and receives further benefits in respect of, that promotion. The Allison committee recommended that on promotion this officer should be allowed to contribute, at his election, for all or part of the pension rights he had previously declined subject to a satisfactory medical examination. The bill provides accordingly. Honorable members will realize, of course, that these special concessions are restricted to a small sector only of serving contributors. For the majority of contributors the benefits will be the pensions contained in the schedules in the bill.

The Government indicated in my budget speech that it was proposed to allow superannuation contributors the opportunity of contributing for an increased rate of pension for their widows. As I have said earlier, the present rate of widow's pension is one-half the pension payable to the member. This will be increased in future, on a contributory basis, to five-eighths of the member's pension. A similar extension of benefit has been granted contributors to the Defence Forces Retirement Benefits Fund. However, whilst future entrants to the forces will be required, as a matter of course, to pay the appropriate contribution for a fiveeighths widow's pension, existing contributors will be given the right to elect whether or not they wish to contribute for the increase. The Government has also decided that the increased widow's pension will be available to existing widows and to widows of existing pensioners. The cost of this increase will be met by the Commonwealth.

The bill also gives effect to a number of other changes. Existing pensions are now related to the rank held at retirement and ignore, except in a few special cases, the actual age at which an officer retires. The Allison committee decided that this principle could not be supported as it was inequitable to require one officer with a late retiring age to pay much more in contributions for the same pension as is available to another officer of equivalent rank, but with an early retiring age. The Government has adopted the recommendation of the Allison committee that future service pensions should be related to the actual retiring age for the rank, in addition to the rank held.

Provision has also been introduced to meet the service problem that it is not always possible, for manning reasons, to retire an officer at his retiring age. Increments to the pension will now be granted for service up to two years beyond the retiring age for the rank held. In addition, such an officer will be covered for invalidity benefits during this period of extended service.

As I have mentioned previously, gratuity benefits are provided under the existing act for members who retire before having sufficient service to qualify them for pension. Under the present act these gratuities are based upon years of service, and range from £20 a year for six years' service for other rank members, to a gratuity of one and one-half times the contributions paid by an officer, or an other rank, with more than twelve years' service. The Allison committee considered the present basis of gratuity payments. The committee considered that a system of gratuities which was based on a stated amount for each year of service was, with some upward adjustment, preferable to a system based on the various levels of contributions paid by different contributors. This conclusion is undoubtedly a proper one as the present system under which the older entrant to the services received an inflated gratuity, compared with the younger entrant, merely because of the larger contributions which he has paid, is not sound.

The bill provides that all gratuities, in future, will be calculated as a set amount, dependent upon class of member, for each year of service. It also provides, as with pensions, that accrued rights under the existing act will be preserved for serving members. This principle has necessitated some technical provisions in the bill to ensure a smooth junction between the old and new rates of gratuity.

The bill also provides that a member who retires at his retiring age, or .on completion of his engagement, may commute up to one-third of the pension which he is normally entitled to receive. This is an >ex

A further provision has been included in relation to pensioners who become reemployed by the Commonwealth. The provision is similar to that which is included in the Superannuation Bill which is now before honorable members for consideration. Briefly, a pensioner may now receive pension up to an amount of £500 10s. per annum and become employed by the Commonwealth, without suffering any reduction in his pension. The comparable pension for a widow is £31'2 16s. 3d. per annum.

Since 1948, the women's services have been re-established, but the existing act provides benefits, similar to those for male members, only for the nursing services of the Army and Air Force. The opportunity is now being taken, therefore, of extending retiring benefits to women's services generally. The members of the women's services who will be permitted to contribute to the scheme will be all members who agree to service for a minimum period of six years. Special provisions are included to allow serving female members who become contributors to purchase past service which will count in determining their pension entitlement.

The committee also gave consideration to the serious problem which has arisen for the services from time to time in endeavouring to retain trained personnel who have completed an initial six-year engagement. As an incentive to serving other rank members to re-engage, the bill makes provision for a payment of £300 in cash to be made to all other rank members at the end of their initial six-year engagement, provided they have agreed to serve for a further six years. This payment is only an advance payment of their ultimate gratuity or pension and will be deducted from the benefit to which the member will become entitled except where he becomes an invalid, or dies in service leaving a widow.

At the present time, some Navy and Air Force personnel are not contributing for the full benefits provided by the existing act or, in some cases, are not contributing at all. Unlike other members with a deferred pay entitlement in 1948, they elected not to transfer their deferred pay to the Defence Forces Retirement Benefits Board in 1948 for paid up benefits under the act. The bill will give these members a further opportunity to elect to contribute to the scheme provided they now transfer their deferred pay entitlement to the board and pay the arrears of contributions which have arisen.

Also some Army personnel who entered the service before 1948 are not contributing to the fund, and are not entitled to deferred pay. The bill similarly provides a further election for them to become contributors.

The Superannuation Act has, since 1947, made provision for contributors who held unencumbered life insurance policies to apply to transfer them to the Superannuation Board. In these circumstances, the board, if it accepted transfer, would pay the premiums under the policies as they fell due. On maturity of the policies, the proceeds would be paid to the contributor, less the premiums paid by the board, accumulated at interest. A similar provision is included in this bill, to allow service personnel a similar concession. The provision should be particularly valuable in the case of existing contributors who may have heavy life insurance commitments, and who, consequently, may have difficulty in paying premiums, as well as the additional contributions under this bill.

I have outlined in some detail the main provisions of the bill. There are also a number of machinery adjustments which have been found to be necessary as a result of the changes now being introduced. The opportunity has also been taken to remove some sections which are now redundant.

In an important sense, the measure now before the House may be regarded as complementary to the new pay code which was introduced last year. While that code reestablished the standards of service pay and allowances which the uniformed services might expect during their careers, this bill brings forward an up-to-date system of retirement benefits which will be available to them at the end of their terms of service. The Government regards this bill as an essential part of its programme for an efficient and effective defence force for the Commonwealth. If it is true, as I am sure we all believe, that the efficiency of the defence force depends significantly on the quality of service personnel and on the readiness with which recruits of a high standard come forward for service in the forces, then I think a measure such as this forms a vital part of our defence programme.

I therefore commend the bill to the favorable consideration of honorable members.

Debate (on motion by Mr. Haylen) adjourned.

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