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Tuesday, 23 November 1965

Mr WEBB (Stirling) .- As the Treasurer (Mr. Harold Holt) said in his second reading speech, the main purpose of this Bill is to give legislative effect to decisions announced in March 1965, first, by a reduction in the rate of contributions that is to take effect as from 1st April 1962 and, secondly, to authorise the cash distribution to eligible contributors and pensioners of shares of the reassessed surplus which is to be calculated in the light of revised assumptions about earning rates. Contributors to the Provident Account will be credited with interest from 1st July 1957 at the average rate earned by the Fund in each financial year. These additional amounts are to be paid in cash to those who have now ceased to contribute. The Treasurer said -

Although the legislation will provide the authority for the payments, there is still a considerable volume of complex actuarial calculations and administrative arrangements to be completed before the surplus can be finally distributed to individual contributors and pensioners.

The delay in finalising the payment of the surplus is a disgrace. I agree with the honorable member for Mackellar (Mr. Wentworth) that the delay is unfair. The eighth quinquennial investigation of the Superannuation Fund showed the state of the Fund as at 30th June 1962. On 18th December 1963 the Commonwealth Actuary reported to the Board that there was a surplus of £5,674,325 in the Fund as at 30th June 1962.

The House is aware that there has to be an actuarial investigation of the Fund every five years. The next investigation will take place after 30th June 1967. The fact that there will be an investigation so soon - possibly even before the final distribution of this present surplus - emphasises the shocking delay that is taking place in finalising the 1962 investigation. The investigation prior to 1962 was on 30th June 1957 when there was left unallocated a surplus of £500,000 so the 1962 surplus of approximately £5.7 million represents an accumulation of over £5 million in additional surplus for the five years ended 30th June 1962. For the purpose of both the 1957 and the 1962 investigations the Commonwealth Actuary assumed that the investments of Fund moneys by the Board would earn interest at 31 per cent. Section 11A of the Superannuation Act guarantees the Superannuation Board a minimum of 31 per cent, earning rate for its investments. In support of his continued use of the 3i per cent, interest earning rate the Actuary stated in his 1957 report -

For this valuation I have retained an assumed rate of interest of 3J per cent, per annum. Any excess obtained will emerge at each future valuation as surplus.

In his 1962 report he stated -

Members of the Fund are not penalised if a somewhat cautious approach is adopted in times of high interest earnings, provided that the resulting surplus is distributed.

In 1962 he adopted the 3i per cent, rate in the face of his knowledge that Fund earnings were, during the previous five years, continually rising and continually and largely in excess of £3 15s. per cent, per annum. The rates of interest during those years were, in 1957-58. £4 10s. 8d. per cent.; 1958-59, £4 14s. 6d. per cent.; 1959- 60, £4 16s. 6d. per cent.; 1960-61, £4 19s. 2d. per cent, and in 1961-62, £5 4s. 4d. per cent. Before his 1962 report was made in December 1963, the Fund earnings for the then completed 1962-63 year had increased further to £5 9s. 6d. per cent. Apart from the £5.7 million surplus to 30th June 1962 there is, therefore, quite clearly a new surplus developing at a faster rate than before. This gives added significance to the report by the Actuary that -

Members of the Fund are not penalised . . . provided that the resulting surplus is distributed.

Actually members of the Fund can be penalised by an overcharge for superannuation benefits. The figures quoted show that the rates of contribution were higher during the years 1957 to 1962 than was necessary to provide the benefits that the contributors were purchasing. This is emphasised more so since 1962 by the fact that the Fund's interest earnings have continued to rise. This measure provides for a reduction in contributions. The cost of superannuation contributions is heavy, particularly in the light of other costs that are increasing year by year. The penalty on contributors is emphasised, too, by the shocking delay in distributing the surplus in the Fund. True, there is going to be an interim distribution of the surplus, but no-one knows when the surplus set in the 1962 investigation will be finally distributed.

The Treasurer states that the cause of the delay is the difficulty of securing trained actuarial staff. He said -

Extensive advertising in Australia and the United Kingdom has so far failed to produce suitable candidates for two vacant positions for qualified actuaries.

Surely there have been other reasons for the delay. The Treasurer told us on 25th March that the Superannuation Board was not unanimous in its view about the best and most acceptable method of utilising the surplus. Has it taken the Board from December 1963 until now - almost two years - to decide the best and most acceptable method of utilising the surplus? It has been suggested that the task is beyond the capacity of the Board. The honorable member for Melbourne Ports (Mr. Crean) made some comments on this.

In 1939 a board of three members handled contributions amounting to £500,000. Today, the same sized board is handling more than £10 million. Similarly the amount for investment has grown - from £6.7 million to over £100 million - yet the Board's membership remains the same. Surely it should not be a big problem to handle the distribution of the £5.7 million that is involved as a result of the 1962 investigation. I think the delay is worthy of some inquiry so that a similar delay will not occur after the next quinquennial investigation in 1967 by which time the Fund could have grown from £100 million to almost double that.

On the question of reduced contributions the Treasurer said -

Preliminary work towards reducing the fortnightly contributions of current contributors with effect from 1st July 1962 is also under way. The new lower rates of contribution will be applied by departments to all units taken up since 1st July 1965, and to all future units immediately the Bill becomes law. Once the interim payments to pensioners have been made the next step will be for the Superannuation Board to reduce contributions for units in force at 30th June 1965 and to refund to contributors, and former contributors now in receipt of pension, or their widows, the excess contributions paid since 1962, together with earnings thereon.

It is clear that contributors prior to 1962 and those contributing after that date have paid premiums much in excess of the amount required for the benefits due to them or that will be duc to them. When a contributor becomes entitled to take out further superannuation units it is important for him to know how much it is going to cost him. Units become very expensive when a contributor is reaching retiring age. The reduced rates, plus any refund due, will assist contributors to take out additional units which otherwise, possibly, could not have been afforded.' The honorable member for Melbourne Ports also drew attention to this matter. The older a contributor is when he receives a promotion the more he has to pay for each additional unit of superannuation which his salary on promotion entitles him to purchase. Until he reaches 40 years of age the number of units he is compelled to contribute for is fixed by reference to the salary he is receiving. But after reaching 40 years of age he is permitted by the Superannuation Act to elect not to contribute for any additional units of pension to which he may become entitled by reason of an increase in salary. The whole purpose of the superannuation scheme is to permit a contributor to retire on a pension sufficient to enable him to live decently having regard to his salary on retirement. His compulsory contributions up to the time he reaches 40 are calculated so as to secure for him a pension equivalent to a specific proportion of his salary. By that time he could well have been contributing for 20 or more years and the amount of his investment in the fund could be quite substantial.

To preserve the value of that investment he must continue after 40 years of age to contribute for the maximum pension to which his salary entitles him. Moreover, the closer he gets to retirement, the more urgent becomes the need to secure his future. He is therefore under very real pressure to make the sacrifice involved in purchasing the additional units at an increased cost. This often poses for him an economic problem at a time when his other financial commitments, such as housing and the education of his children, are usually at their height. This was referred to by the honorable member for Melbourne Ports, who suggested that there should be amendment to the Superannuation Act to give a member of the fund the opportunity to take out the additional units which he was entitled to take out upon reaching 40 years of age but which, in some cases, he could not take out because he could not afford the high cost.

On present day classifications, well over 90 per cent, of clerical and administrative positions in the Commonwealth service carry salaries of less than £2,500 per annum. Generally speaking, officers do not obtain the top positions in this group until middle age or later. Prior to the margin increase in 1959, a position which now carries a salary of £2,491 was classified at £1,935, including cost of living adjustments in both cases. In December 1959 an increase in margins raised the level of that position by £265 per annum to £2,200. Small cost of living increases and a further margin increase in May 1963 lifted the salary by another £239 to £2,439. Last year's basic wage rise added £52, to bring the position to its present day rate of £2,491.

On the face of it, an occupant of that position would appear to have done fairly well. He had received a rise of £5 per week in 1959, £4 10s. a week in 1963 and a further £1 last year. However, in order to maintain the relativity between salary and pension the scale of superannuation entitlements was radically changed in 1959 and again in 1963. If there had been no change in the scale of entitlements a contributor on the salary in question would have been eligible to take up an additional two units of pension after the margins increase in 1959. In fact, as a result of the change, he became eligible to take up seven additional units. If this new scale had remained unaltered he would have been eligible for a further two units after the 1963 margin rise. In fact, the scale was changed so that he was entitled to take up five more units. After last year's basic wage rise he became entitled to contribute for a further unit of pension.

If the age of the occupant of the position at his next birthday was 45 in 1959 and he had a dependent wife and two dependent children and planned to retire at 60 years of age, the extra seven units he could have taken up in 1959 would have cost him £2 13s. Id. per fortnight. In addition, because of his salary rise his tax deductions would have increased by £2 per fortnight, making a total of £4 13s. Id. and leaving him with only £5 6s. lid. out of his salary increase of £10 per fortnight. To take up the further five units in 1963 would have cost him £2 10s. because he was three years older, and his tax deductions would have increased by £2 16s., making a total of £5 6s. out of his salary increase of £9 per fortnight. If he took up the additional unit after the basic wage rise last year of £1 per week he would have paid an extra 12s. 5d. in superannuation and an extra £1 8s. per fortnight in tax, making a total of £2 0s. 5d. out of a salary rise of £2 per fortnight. So out of a gross increase in his salary of £10 10s. per week since 1959, this man's actual take home pay would have increased by only £4 10s. 3d. a week.

In the case of a man who was 54 in 1959 and is due to retire this year, the position must have been difficult. Although his children would probably no longer have been dependent on him he would have been faced with the stark reality that in a short while there would be no further margin increases and no further opportunity to maintain the value of the pension upon which he and his wife might have to live for another quarter of a century. If he elected to take the seven extra units in 1959 he would have had to pay £9 6s. 8d. per fortnight plus a further £2 6s. in tax deductions, making a total of £11 12s. 8d. out of a fortnightly rise of only £10. He may have managed that but by 1963, when he received an extra £9 per fortnight, he would have had to pay £17 2s. 6d. for his five additional pension units and £3 6s. in increased tax deductions, making a total of £20 5s. 6d. The basic wage rise of £2 per fortnight last year would have entitled him to lay out another £7 4s. 5d. in superannuation and an additional £1 10s. in tax, making a total of £8 14s. 5d. Out of his gross rise of £10 10s. per week since 1959 he would have received not Id. extra and, in fact, would have been £9 16s. 3d. worse off.

I am emphasising these examples to show how important it is that the cost of the units should be kept as low as possible. They also support the view advanced by the honorable member for Melbourne Ports that the Act should be amended to allow those members of the service over 40 years of age to take out any additional units which they may have missed, as a result of the cost of the units at that time being excessive, and which are to be reduced as a result of this measure.

Although current contributors have been disadvantaged by the delay, the plight of existing superannuation pensioners is also very bad, if not worse than that of the current contributors. For them, time is running out. A maximum age pensioner, retired just before the end of June 1962 - that was the end of the five year period during which the surplus was created - would be over 68 years of age. Many are much older. As the honorable member for Mackellar said, many have passed on and others will pass on before the matter is finalised. It is small consolation to pensioners to know that the moneys due to them will go into their estates.

The delay in distributing the surplus cannot be explained away. The five year period analysed by the Government ended in June 1962. The Actuary's recommendations were made available in December 1963. In March 1965 the Treasurer announced that he had directed a recalculation of the fund as at June 1962 and the assessment of new contribution rates to apply after that date, using an assumed earning rate of 5i per cent, instead of the 3£ per cent, used by the Actuary. Why did the Treasurer take 15 months after receiving the report to arrive at the decision announced in March 1965? The Treasurer must bear some of the responsibility for the delay in distributing the surplus revealed by the quinquennial investigation following 30th June 1962. I ask him: Has any consideration been given to obtaining the services of actuaries in private practice? Such specialists are to be found in the business world and their services could possibly have been obtained to help with this matter and so have avoided the long delay that has taken place and apparently will continue. The Government cannot justify the way it has treated Commonwealth public servants in this matter. Their loyalty and efficiency cannot be questioned and in my view they deserve much better treatment.

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