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Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010

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2010

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

THE SENATE

 

 

 

 

DEFENCE FORCE RETIREMENT AND DEATH BENEFITS AMENDMENT (FAIR INDEXATION) BILL 2010

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

Circulated by authority of

Senator the Hon. Michael Ronaldson

 



 

Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010

 

General Outline

This Bill will amend the Defence Force Retirement and Death Benefits Act 1973 in such a manner that will change the indexation methodology applied to the military superannuation pensions of eligible members of the Defence Force Retirement and Death Benefits (DFRDB) scheme.

 

The provisions contained within the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010 will result in eligible DFRDB scheme members’ pensions being indexed in the same manner as Australian Government income support pensions. Specifically, DFRDB superannuants aged 55 and over will have their superannuation pensions indexed twice yearly by the Consumer Price Index (CPI), Male Total Average Weekly Earnings (MTAWE) or the Pensioner and Beneficiary Living Cost Index (PBLCI); whichever is the higher. Currently, DFRDB scheme pensions are indexed only by changes in the CPI.

The Coalition recognises the unique nature of military service and is committed to introducing a fair, equitable and fiscally responsible military superannuation system. The introduction of this Bill meets the Coalition’s commitment made on 27 June 2010 to provide fair indexation for Defence Force Retirement and Death Benefits (DFRDB) scheme and Defence Forces Retirement Benefits (DFRB) scheme superannuation pensioners.

The provisions within this Bill will ensure that over 56,000 retired Australian Defence Force personnel who are members of the now closed DFRDB and DFRB schemes have their superannuation pensions indexed more fairly and in a manner that better reflects changes in the costs of living.

Financial Impact

The measures contained within the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010 are estimated to cost of $98 million over the forward estimates.

Ongoing costs associated with the introduction of this Bill can be met through the accrued funds of the Future Fund. This additional commitment is entirely affordable in the long-term.

The Future Fund was established by the previous Coalition government as a fundamental aspect of its policy to meet the future long-term costs associated with unmet Commonwealth superannuation liabilities, including the financial liability of all military superannuation schemes.

It is noted that future savings from the Federal Budget that are invested in the Future Fund will have the affect of reducing the long term cost of the Commonwealth’s superannuation liability.

 

 

 

Notes on clauses

Clause 1 - Short title

This clause provides for the Bill to be cited as the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Act 2010.

Clause 2 - Commencement

 

This clause provides a table that sets out the commencement dates of the various items of Schedule 1 to the Act.

 

Clause 3 - Object

 

This clause provides an explanation as to the underlying rationale for why this Bill is being introduced.

 

Clause 4 - Schedules

 

This clause provides that each Act that is specified in a Schedule to this Bill is amended or repealed as set out in the applicable items in the Schedule.

 

Schedule 1 - Amendments

 

Amendment of the Defence Force Retirement and Death Benefits Act 1973

 

Item 1 - Section 98A

 

Item 1 inserts a new definition; the LCI . Within this Bill LCI means the Pensioner and Beneficiary Living Cost Index (PBLCI). The PBLCI is based on the Analytical Living Cost Indexes that have been compiled and published by the Australian Bureau of Statistics since 2000. The PBLCI has been developed as an additional measure for assessing cost of living pressures and represents the conceptually preferred measure for assessing changes in prices on the disposable incomes of households whose income is derived principally from government pensions or benefits.

 

Item 2 - Section 98A

Item 2 inserts a new definition; the LCI number . This section defines the LCI number in accordance with the quarterly publication of the LCI number by the Australian Statistician (Australian Bureau of Statistics).

 

Item 3 - Section 98A

 

Item 3 inserts a new definition; the VEA . Within this Bill the VEA means the Veterans’ Entitlements Act 1986 .

 

Item 4 - Subsection 98B(1)

 

Item 4 inserts a new phrase within Subsection 98B(1) that ensures that the definition of pensioner, as applies within this section, applies equally to section 98BA; which is to be inserted in accordance with Item 6 contained in the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010.

Item 5 - Subsection 98B(2)

 

Item 5 inserts a new phrase within Subsection 98B(2) that ensures due regard is given to section 98BA; which is to be inserted in accordance with Item 6 contained in the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill 2010 . This item amends the Defence Force Retirement and Death Benefits Act 1973 in such a manner as to ensure that the indexation methodology applied to a DFRDB member’s pension is not determined solely by changes in the CPI. Put another way, this amendment will ensure that a DFRDB member’s pension is indexed in accordance with movements in the CPI, MTAWE or PBLCI; whichever is the higher.

 

Item 6 - After section 98B

 

Item 6 inserts section 98BA, Additional increase in certain pensions . This section provides for those DFRDB members aged 55 or older to have their DFRDB superannuation pension indexed by the CPI, MTAWE or PBLCI; whichever is the higher.

 

Item 6 also inserts section 98BB, Percentage increase using the pension MBR method . The pension MBR method is the measure used to determine increases in Australian Government income support pensions, including the Service Pension, and is determined in accordance with statistics provided by the Australian Statistician. For the purposes of this Bill, the single pension MBR amount reflects changes in MTAWE. This section provides the method for indexing a DFRDB member’s pension if the MBR method is found to be the highest of the three applicable indices (CPI, MTAWE or PBLCI).

 

Item 6 also inserts section 98BC, Percentage increase using the LCI method . This section acts in a manner similar to section 98BB and provides the method for indexing a DFRDB member’s pension if the LCI method is found to be the highest of the three applicable indices.