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Tuesday, 23 November 1965

Mr CREAN (Melbourne Ports) .- The Superannuation Bill particularly is a measure that has been long awaited by members of the Commonwealth Public Service. The main purpose of the Bill is, I understand for the first time in the history of the Superannuation Fund, to distribute what is actuarially called a surplus disclosed by a quinquennial investigation of that Fund. This quinquennial investigation - being an investigation held every five years - was the eighth of its kind. Such investigations are provided for by, I think, section 17 of the Superannuation Act 1942-1959. The date of the eighth quinquennial investigation is given as 18th February 1964 and at its conclusion the hope was expressed that the distribution would be made as soon as possible thereafter. This legislation - in November 1965 - begins that distribution. As the Treasurer (Mr. Harold Holt) said, it will take some months before the total distribution is completed because there are many technical details surrounding the distribution. However, I quote from the report on the eighth quinquennial investigation of the Superannuation Fund as follows -

The Quinquennial Investigation required by section 17 of the Act is primarily directed to a periodical scrutiny of the financial position of the Fund to ascertain whether the amount of the assets held by the Superannuation Board is sufficient, after allowing for future contribution and interest receipts, to enable the Board to carry out its statutory obligations.

It is arising out of that investigation that the actuary found there was a surplus of about £5 million in the Fund after providing for all the liabilities it was called upon to meet in terms of the existing number of contributors and their contributions. The task is to distribute that surplus between two groups - those who are pensioners, that is those who have retired from the Public Service and are drawing a pension, and the present contributors to the Fund who have not yet retired. This is summarily explained in the most recent report of the Superannuation Board, that for 1964-65, which was tabled a few days ago. Referring to the eighth quinquennial investigation the Board stated -

In the course of the Board's Forty-first Annual Report, it was stated that the actuarial investigation for the period 1st July 1957 to 30th June 1962 had been completed by the actuary appointed under section 17 of the Act; surplus assets of £5,674,325 were disclosed.

The actuary's report, together with sustained growth of the Fund, led to a review by the Government of policy concerning rates of contribution and bases for distribution of the surplus. As a consequence, a ministerial statement was presented to the Parliament on 25th March 1965, which set out the Government's intention to provide for -

New rates of contributions from 1st July 1962.

Repayment to eligible contributors of excess contributions paid on and after 1st July 1962, together with interest.

Recalculation of the surplus previously reported at 30th June 1962 for distribution, together with interest from 1st July 1962, to eligible contributors and pensioners.

Increased rates of interest for contributors to the Provident Account from 1st July 19S7.

Those who are not eligible for full superannuation, mainly because of health reasons, have the option of paying into a provident fund. It is to encompass all those objectives that this legislation is before us. Those honorable members interested in the administrative details will find them clearly set out in the 43rd annual report of the Board. This indicates that separate calculations have to be made for 120,000 contributors and for each of about 2,000,000 separate units. Although I suppose the results of the calculations of some units will be the same as for others, nevertheless each has to be separately calculated. Obviously it will be a messy business to determine how this £5,674,325 is to be distributed among pensioners, present contributors in terms of the number of units they have, and members of the Provident Fund.

Public Service groups have been suggesting for a long time that legislation should be brought down. They say that after all the report was made over 18 months ago, in February 1964. The Treasurer reported on it as late as March 1965. However, because there was difficulty in obtaining staff in the Treasury for the actuarial computations he has not been able to introduce the legislation earlier. Pensioners who retired prior to 1962 are to be considered first. The calculations for them are to have priority, but as yet there is still no definite timetable for the whole scheme. We hope it will commence within a month or two, although three months was the limit set by the Treasurer. This would take us to January or February, by which time we will have the decimal currency system to further complicate this process, although basically the conversion from pounds to decimal currency with lump sums such as this legislation involves is simple.

I ask the Treasurer to note the suggestion made by members of the Public Service that when cheques are distributed to individual pensioners or contributors a statement should accompany each cheque indicating how the payment is made up - that is, to how many units it applies, over what period, how much is refund of contributions and how much is payment of accumulated interest. People would then be able to check on their individual calculations. I have no doubt that some of the mora mathematically minded of them would have made their own calculations and I am sure that they would like to test their skill against the computer. The fact that the present situation has been reached might well make us ponder about the next five years. In fact, it is not a case of the next five years, because the ninth quinquennium actually commenced on 1st July 1962 and will expire at 30th June 1967. It is likely that a new surplus of considerable magnitude is already being built up, because each time we read an annual report of the Superannuation Board it seems that the average overall rate of interest that the Fund is earning is progressively edging up each year. At the moment I think it is something in excess of £5 10s. per cent, per annum. Until recently, as I understand it, the presumption was that the earning rate would be £3 15s. per cent. I think that from 1962 to 1972 a higher calculation will be in force. There are some public servants who believe that a quite considerable additional surplus will have accumulated and will be revealed at the time of the next quinquennial investigation, which is due to take place some time after 1st July 1967. It seems in all these sorts of calculations that the actuary leans, as it were, on the side of the dead rather than the living. I think it would cause much less complication if the Fund were some few hundreds of thousands of pounds under rather than that it should be some millions of pounds over. I say that because once it gets to the stage of being some millions of pounds over you have these very messy redistributions of those sums and you have to try to adjudicate between the present contributors and existing beneficiaries as to how that surplus should be equitably distributed.

I would hope that in the long run the overall rate if interest should continue to decline rather than increase. I believe, as far as the community as a whole is concerned, that more people gain out of interest rates being low than are advantaged by interest rates being high. After all, the very people who look to the fund in isolation and say that it is a good thing that the average interest rate should be 5i per cent, are, perhaps, not very happy that in their working lives the interest on their mortgage payments may be 6} per cent, or 7 per cent, because the gilt edge rate is 5i per cent. Sometimes I do not think we give enough attention in the community to ascertaining, as between various financial commitments, whether, overall, you are advantaged by the interest rate being a low one rather than a high one. Probably those who are about to take out pensions regard it as a good thing that the interest rate has edged up progressively. I think a table was given in the quinquennial report which shows that the interest rate has edged up from about 3i per cent, in 1942, or thereabouts, to its present average rate of 5i per cent. That is a good thing for the Fund but it is doubtful, if you carry other calculations through in respect of the individuals affected, whether the benefit overall is nearly as great as we think

I think there are some other complaints that ought to be noted here al1 this stage. I think the Board, in one of its reports - I cannot say whether it is the current one or the previous one - suggested that in another 7 or 10 years the size of this fund would double. Progressively, the number of people contributing to it is rising by some 10,000 to 15,000 a year. I think that at the moment there are about 125,000 contributors. According to the latest report the estimated number of contributors at 30th June 1965 was 125,000 where as at 30th June 1963 the figure was 110,000. In two years there has been an increase of some 15,000 in the number of contributors and, of course, progressively more units are being taken out. The estimate is that in 7 to 10 years - without getting the proper reference I am not sure whether it is 7 or 10 years - or in a relatively short time the magnitude of this Fund will be doubled. At the moment, the holdings of the Fund are £130 million in round figures. The net accumulation each year over and above the previous year is approaching the order of £10 million.

So there is a fair task in front of the Board. The constitution of the Board is not very much different in 1965 to that which it had when the Fund was first set up, apparently some 43 years ago. Suggestions have been made that the Board should be reconstituted so as to provide for a wider representation of the interested parties in this Fund. The public servants take the view that the Fund is their fund and is, in that sense, a private fund. Public servants make certain contributions according to their salary ranges and, in anticipation, hope to receive a certain measurable pension at a certain age or on the occurrence of certain circumstances. The Government makes its contribution, as the employer, to that Fund. But the Fund itself, once the terms of participation are agreed upon, is, in the view of the public servant's, their fund rather than a Treasury fund.

On the other hand, I can see that there are certain significant advantages to the Treasury that it should have at its disposal a quite substantial sum per annum which mainly has to be turned in the direction of gilt edge securities. The rather odd feature is that when one comes to examine the makeup of the investments of the Fund one finds that, preponderantly, the investments of this Commonwealth Superannuation Fund are not in Commonwealth securities; they are in local government securities. The reason for that of course is that local government securities yield an extra i per cent., approximately, over and above that of the Commonwealth security. There are certain people in the community who are advantaged by the Commonwealth bond rate and the fact that they get a rebate on taxation. But bodies such as the Commonwealth Superannuation Board, which is not subject to taxation, find that it is advantageous to get the 5i per cent, on the local government security rather than to take the lower rate of about 5 per cent. - and it has been that figure for some time now - on the Commonwealth security. It is a rather ironical circumstance, it seems to me, that a major part of the funds are in these State securities rather than in the Commonwealth securities. At 30th June 1965, out of total investments of near enough to £131 million, only £33 million were in Commonwealth Government securities and £85 million were held in semigovernment and local government authorities. That was because of the difference in interest rates. That simply shows the rather odd interplay that does occur when a concession is given for one reason and somebody takes advantage of it for an entirely different reason.

There have been suggestions, for instance, that the differential of i per cent, ought to be removed. One of the difficulties if it were removed would be that it would cause some problem as far as funds of this type are concerned. Taxation concessions would either have to be taken away from everybody or they would have to be made applicable to local government securities as well as to Commonwealth securities. That is just another point to note by the way.

Primarily, this Bill is not a general amendment to the Superannuation Act. As has been explained, it is primarily an attempt to distribute this surplus of £5,600,000 among those entitled to it. At the same time, the Treasurer has taken the opportunity to make one or two machinery amendments to the Act. I would like to draw his attention to one or two other suggestions I have had. I am not suggesting that he should include them in this Bill at this stage but at least the Opposition asks that he take note of them. One point that has been brought to our attention is that section 20 sub-section (7.) of the Superannuation Act allows a certain option to a public servant who has attained the age of 40 years. Apparently, prior to reaching this age, a public servant must take all the units consonant with his salary. As his salary rises, he becomes eligible to take more units and, up to the age of 40 years, he is expected to take all the units. Beyond the age of 40 years, he has an option. Many public servants complain that the years from, say, 40 to 55 are the most expensive years in their family life. If they were married when they were 25, 26 or 27 years of age, their children are receiving a secondary or tertiary education and every £1 or so a week is significant. There is a tendency therefore for contributors to neglect some units after reaching 40 years of age. However, when family obligations lessen in later years some public servants would be willing to take up neglected units. In the Superannuation Bill the Treasurer is giving public servants another opportunity to decide whether they will make an additional payment to provide their wives with a pension of five-eighths of the full pension instead of half in the event of the predecease of the husband, and the suggestion has been made that consideration should be given to renewing also the option to take additional units that have been foregone because the public servants concerned could not afford them. A unit from now on will cost less than it did previously.

Apparently a year or two ago the Government agreed to pay its share of the value of units to those contributors to the Defence Forces Retirement Benefits Fund who had not been able to afford to pay for additional units. The Commonwealth Government pays about £5 of every £7 that is distributed from the Fund. The payment by the Government of its share of units that have not been taken up is, therefore, quite a significant advantage to members of the Defence Forces Retirement Benefits Fund. I have not had time to look into the pros and cons of this suggestion, but the request has been made that a similar concession be extended to contributors to the Commonwealth Superannuation Fund. That is another matter that we have been asked to bring to the attention of the Treasurer. Whilst I do not suggest at this stage that such an amendment should be or could be made to the Bill, we ask that the suggestion be considered. I think the relevant sections are sections 24 and 25 of the Superannuation Act.

I should like to raise one other matter. We will, to some extent, be looking at this when we deal with amendments to the income tax legislation in the next few days. If we are not careful, we will get into some difficulties as a community with private superannuation funds. I use the expression here in the same sense as public servants use it when they refer to their fund. When we take into account the number of people who contribute to the Commonwealth Superannuation Fund, to local government funds and to what are called private superannuation funds, we are getting to a rather difficult situation in terms of the total community. I direct the attention of the House to some figures that are contained in " Insurance and Other Private Finance, 1963-64, Bulletin No. 2 ", which is issued by the Commonwealth Statistician. At page 93, statistics are given showing government, local government and semi-governmental pension and superannuation schemes operated through separately constituted funds at 30th June 1963. According to these statistics, the assets of Commonwealth funds totalled £128 million, of New South Wales funds £131 million, of Victorian funds £93 million, of Queensland funds £18 million, of South Australian funds £20 million, of Western Australian funds £10 million, and of Tasmanian funds £7,500,000. The assets of all these funds totalled £408 million at 30th June 1963. At the same date, the Commonwealth funds, including the Defence Forces Retirement Benefits Fund, had 166,000 contributors, the New South Wales funds 132,000, the Victorian funds 80,000, the Queensland funds 20,000, the South Australian funds 21,000, the Western Australian funds 14,000 and the Tasmanian funds 10,000. Contributors to all funds totalled 445,000. In addition, some 60,000 people were in receipt of pensions. In this group, 500,000 people are either beneficiaries or recipients of pensions through government funds.

At page 98, the document gives statistics relating to what are called private pension and retiring allowance schemes. The statistics show that at 30th June 1963 some 241,000 people were beneficiaries of schemes operated through life assurance offices and that 300,000 people were potential beneficiaries of superannuation, pension and retiring allowance funds. The total assets of these funds reached some £377 million. AH these various schemes - Commonwealth, local government, State government and private - have accumulated assets in the region of £800 million and the potential beneficiaries total some 1,000,000. This contrasts with the present total of some 600,000 recipients of age pensions. I would suggest that the circumstances in the days when superannuation funds were first set up were very much different from the circumstances of today, and I rather think that we have come to a stage in our economic life where some consideration should be given to the future of such institutional schemes. We should not do anything to alter the circumstances of those who are already contributors, because there is a certain contractual relationship between those who contribute and those who subsidise the schemes.

Let us consider the income from the age pension of a married man over 65 years of age and his wife over 60 years. The retiring age for those in Government employment is 65 years. A pensioner married couple can get something like £12 a week without any direct contribution by themselves. In superannuation funds there are two categories of people. There are some whose pension is not very much above that of a pensioner couple under the social services legislation plus what is described as the per.missable income. Contributors to superannuation funds who are in this position feel a certain sense of resentment because they are being asked the contribute - at least to the age of 40 contribution is compulsory in the Commonwealth Public Service - for certain units of superannuation when the only effect will be to deny them certain advantages under the social services legislation. At the other end of the scale in superannuation schemes there is the person who receives a substantial pension. Under the Commonwealth Superannuation scheme persons whose salary is more than £2,500 a year may receive a pension of more than £30 a week. Of that sum, five sevenths or more than £20 is actually contributed by the Commonwealth. So we can see that some people are really being subsidised by the Commonwealth to a greater degree than are age pensioners. Other contributors to superannuation funds are in the middle, and they are probably losers rather than gainers in the net result.

I suggest that all these matters are worthy of consideration in the future. Probably when the Commonwealth Superannuation Fund was established there was a different attitude to these matters. No doubt the idea then was, as the Commonwealth was quick to recognise, that there was some responsibility on the community in the years of a person's decline to look after him if he had served the community in the years of his strength. Perhaps for this reason government superannuation funds were the first superannuation funds. But equally the attitude to the age pension has probably changed now. I know that there are still some people who regard it simply as a sort of charity payment to be bestowed when necessary and to be avoided whenever possible. But more and more people, by force of the very circumstances of economic life, with the intrusion of inflation and other factors, are inevitably being forced to depend on payment of the age pension at 65. However there are some more fortunate groups in the community, especially at high levels in government service, who receive superannuation based on a government contribution that is often much more than many other people earned for a full week's wage. There is also the mix-up concerning superannuation funds under the tax laws. Some people are subsidised by the allowance of deductions to enable them to receive on retirement a higher payment either from a private fund or from a annuity purchased from an insurance company. In my view, these things are getting very greatly mixed up and investment funds of considerable magnitude are involved!

It seems doubtful whether the present constitution of the Commonwealth Superannuation Board is adequate to enable it to look after the needs of all the classes of contributors to the Superannuation Fund. The principal Act provides for a quinquennial investigation of the Fund in this instance but who is to say whether or not many of the private funds are in surplus and who is to determine just what is their position with respect to the contributors? Recently we have witnessed the unfortunate experience of one superannuation fund which thought it was clever when it bought debentures in Reid Murray Holdings Ltd. and which lived to rue the day. We have also seen recently the predicament of an insurance company that has strayed into the investment field of a hire purchase company with unfortunate results. Who is to act as custodian, as it were, of the rights of the half million or so people whose interests are involved in superannuation funds? The figure is rising rapidly every year. These days a substantial part of total life assurance business is bound up with superannuation funds. I have not time to go into all that this afternoon, but honorable members who are interested will find the figures in this publication by the Commonwealth Statistician, "Insurance and Other Private Finance 1963-64", which I mentioned earlier.

We are getting to a stage at which we have accumulated resources totalling about £800 million in superannuation funds. Contributions each year are probably of the order of £30 to £40 million and annual distributions something like £15 million to £20 million. So more than £20 million a year is available for investment, not to mention the reinvestment of part of the £800 million or so of accumulated funds that occurs periodically. Are not these matters of some significance to the overall activity of the economy?

Then there is another point. Is it not time that we began to sift through the interrelationship of the various factors involved? There must be points of contact in a community, whether they arise out of gratitude or out of grudge, according to whether one is a pensioner or a person who is denied a social services pension by the operation of the means test. I am not one who favours the abolition of the means test until the basic pension is first made adequate for those who have nothing else to sustain them. But I believe that in the fairly near future the Government should consider undertaking a comprehensive investigation of these matters. The Income Tax and Social Services Contribution Assessment Act is at present cluttered up with about 30 or 40 pages of provisions related to attempts by some people to get deductions to which they believe they are entitled and attempts by the Commissioner of Taxation to deny these deductions because he believes that the claimants are exceeding the spirit of the law. The whole thing is becoming top heavy and in many respects incomprehensible to the ordinary person in the community. This situation affects in all something like one million present and potential beneficiaries. Indeed, when one takes into account the fact that a fair proportion of these are probably married men the total number of persons affected is probably about double that number. In addition, there are nearly 700,000 people who at present receive age and invalid pensions. So a fairly substantial proportion of the entire population - between one quarter and one fifth - is affected. In my view the magnitude of the problem is too great to allow it to be regarded in the haphazard way in which it has been regarded so far.

I conclude by expressing the hope that the distribution from the Commonwealth Superannuation Fund now proposed will be made effective as soon as possible. I also ask the Treasurer to note the few amendments that we believe should be made to the Superannuation Act at a later stage. I do not suggest that they be made now but I propose them for consideration later so that some people may be relieved of what they regard as the burden of injustices and anomalies. The Treasurer, in the light of the circumstances that exist now and the likely growth of the Superannuation Fund, for which he has direct responsibility, ought to consider reconstituting the Superannuation Board so as to make it more representative of the contributors to the Fund and perhaps give it wider powers than apparently it has at present to consult with the Treasury.

Debate (on motion by Mr. Wentworth) adjourned.

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