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Thursday, 13 September 2007
Page: 131

Mr GRIFFIN (10:28 AM) —In speaking on the Superannuation Legislation Amendment Bill 2007 today I have a number of points to make. As has been mentioned earlier, I do have an amendment. I would also like to pick up on some issues from the previous speaker. I would like to start by saying to the member for Lindsay: all the very best. I know she is retiring at this election. I am happy to consider her to be someone on the other side of the House who I have a good deal of time for, and I wish her all the very best with her retirement. I am sure she will keep busy and lead a productive life. Having said all that—that is the nice bit, but then here is the catch—there are a couple of things that she said which I would like to try and address in the context of the circumstances around superannuation and the history of this area.

There is no doubt that defence superannuation is a very important part of the benefits provided to our defence community, and there are very good reasons for that. There are also very good reasons why, in many cases, it should be treated differently to others, because of particular circumstances around defence service. Also, it is true to say that it is an area where there have been a range of urban myths and legends have grown over the years with respect to what has actually happened historically with defence superannuation. I would like to pick up on a couple of those on this particular occasion. There are many in the veterans community who have accused Labor of dismantling the former defence superannuation scheme—the DFRB, the Defence Forces Retirement Benefits Scheme—in the early seventies. The member for Lindsay referred to that. Again, that is not really the case and it is not really clear. We need to understand the history of what actually occurred with respect to the changes to defence superannuation at that time.

The chronology goes something like this. In 1970, the then Liberal government, headed by John Gorton, formed the Joint Select Committee on Defence Forces Retirement Benefits Legislation in September 1970 to examine the operation and suitability of the Defence Forces Retirement Benefits Scheme. The committee provided its report, which was commonly known as the Jess report, to the Liberal government in May 1972. It concluded that the DFRB was unnecessarily complex. Its recommendations covered a range of things that included: the establishment of an entirely new contributory military super scheme on the grounds that DFRB lacked simplicity and was incomprehensible to servicemen; a recommendation that the new scheme be an unfunded scheme; a recommendation that all contributors to the DFRB fund be transferred to the new scheme; a recommendation that the retired pension be indexed to average weekly earnings; and a recommendation that the existing DFRB scheme, comprising members’ contributions, be transferred to the Commonwealth.

As is not unusual for a conservative government, the McMahon government, as it was at that stage, sat on the report for some five months. Then, on 26 October 1972, the last sitting day before the election, the Prime Minister at the time, McMahon, outlined his response to the review. His response was that the government would amend DFRB without creating a whole new scheme but would not change it to an unfunded scheme, and the matter of indexation was referred to an independent expert. McMahon indicated that amending legislation was already being prepared. The point I would like to make in relation to that is that, on the question of funded or unfunded, it took the government of the day five months to come to a conclusion, and then, in the shadow of an election that they were expected to lose, they got scared and avoided that particular recommendation.

When the Whitlam government assumed office on 22 December 1972, it accepted several of the review’s recommendations that McMahon had not accepted, such as the need for a new, simpler military super scheme which would be funded on a pay-as-you-go basis and the need to transfer DFRB members to the new scheme to ensure administrative simplicity. It referred the issue of indexation to an independent expert. The new military super scheme at the time corrected several disadvantages in the old scheme. Under DFRB, a member only received the age pension at 60; the new scheme was based on length of service, not age, allowing for the early retirement of defence personnel. This meant that ex-service personnel could receive a stable income earlier. The new scheme also would allow the commutation of a lump sum and was far simpler.

It is important to remember that the committee that actually made the recommendations relating to this was set up by a conservative government, it reported to a conservative government and that conservative government accepted many of its recommendations but in fact only gave its hasty response on the last day that it could before an election that it was expected to lose. The Labor government then came in, acted upon the recommendations—not all of them, but more of the recommendations of that independent committee set up by the conservatives—and then this government, and conservative governments ever since, and there have been a few, never acted to reverse it. It will not address what it says is a fundamental problem with what occurred at that time. So it really is not quite the way the legends have built it up and it does not really take into account what really occurred. Members of the coalition have been very happy to spread far and wide some of those urban legends, as the previous speaker did. That is why I seek to mention it today. It is a subject on which I will have more to say in the future.

Today I rise to speak particularly about issues relating to serving and former defence personnel and the Superannuation Legislation Amendment Bill 2007. The bill proposes a range of amendments to both the Australian government civilian superannuation scheme and the military superannuation scheme. Three provisions hold particular relevance for defence personnel and the ex-service community. Firstly, there is the provision from 1 January 2008 to allow for prospective restoration of previously cancelled spouse pensions. This applies to persons who had previously had their spouse pensions cancelled upon remarriage. Secondly, there is the provision to ensure that the entitlement to benefits in the Defence Force Retirement and Death Benefits Act 1973 scheme relating to post-retirement marriages is consistent with their treatment in the civilian schemes. Thirdly, there is the provision to address an anomaly in the treatment of the benefits payable in the DFRDB Act scheme upon marriage breakdown. These amendments are welcome but they do not go far enough.

I have been very concerned about defence superannuation over the last few months and the way in which the government seems to be operating under a veil of silence about the superannuation conditions of defence personnel. It is what is not in this bill that is relevant to defence superannuation and that particularly concerns Labor. There are a whole range of contemporary issues that need to be considered, particularly when set against the background of reforms to private sector superannuation that has occurred over the past 20 years.

What has been particularly alarming has been the government’s sluggish response to remedy the tax hike imposed by the Better Super reforms on Military Superannuation and Benefits Scheme members, who generally retire earlier, as a result of the new proportioning rule. People were left to wonder why the government was not acting when it was revealed on the military super website that some MSBS members, MSBS, would pay an increased tax on their partial commutation lump sum of up to 413 per cent. The government now says it will fix that, but when will this happen? I do not see such a guarantee in this bill. This is no small matter either. There are some 46,400 contributing members in the MSBS.

When Labor first raised this issue, it took several goes to prod the government into doing something about it. Initially, the government refused to guarantee that members of both the DFRDB Scheme and the MSBS would be protected from higher taxes imposed by the reforms. The government then protected DFRDB members from the tax increase but refused to explain why it did not extend that same protection to MSBS members. MSBS is the larger scheme, as I said, with more than 46,400 contributing members. Then the government refused to allow the military super review to consider the impact of the tax changes on defence superannuants.

Apart from the new proportioning rule, there are a whole range of other superannuation issues that concern defence personnel and the ex-service community. These include, but are not limited to, the indexation method for defence superannuation pensions; the appropriateness of the 10 per cent tax offset, in lieu of tax-free treatment upon reaching 60 years of age, under the Better Super reforms; the taxation treatment of non-super income for defence superannuants over 60; salary sacrifice arrangements for defence personnel; portability of super choice for defence personnel; outdated life tables used to calculate superannuation benefits; tax arrangements, including for those medically discharged who are in receipt of class A invalidity pensions and for those who fall under the compassionate or hardship provisions; and alignment between the preservation age of ADF members and the normal ADF compulsory retirement age.

We know that the minister has the report of the military superannuation review, which addresses a number of these issues. We also know it is likely that he has had the report since July. With an election just around the corner, what is the government doing? It is sitting on the report. The independent review, announced in February 2007, was to examine the suitability of current military superannuation arrangements in the DFRDB and MSBS in light of recent changes in the areas of superannuation and the Australian Defence Force.

Labor hopes that, in the absence of any action from the government, the review will provide crucial data regarding how these issues should be addressed and how military super can be improved. The proper consideration of these issues demands that the review be released immediately. Defence personnel and the ex-service community are entitled to know what the review says and what the government will do about it before the election. Are we going to see a repeat of what we saw with the McMahon government, when the response came only in the shadow of an election being called?

Labor’s second reading amendment reflects the range of concerns I have briefly outlined. However, let me quickly discuss two aspects of the bill: prospective pension restoration and reversionary benefits for post-retirement marriages. This bill will enable the prospective restoration of pensions for persons who have previously had their spouse pensions cancelled upon remarriage. By way of background, prior to 1977, under the Defence Force and Retirement Benefits Act 1948 and the DFRDB Act schemes, spouse pensions were cancelled on remarriage. This cancellation never applied to the Military Superannuation and Benefits Scheme. Spouses who remarried before these cancellation provisions on remarriage were removed from the DFRB Act and the DFRDB Act schemes in 1977 continued to be affected by the former provisions. From 1 January 2008 restrictions on the restoration of spouse pensions that were previously cancelled when a spouse remarried will be removed prospectively upon successful application. The changes will also apply to persons who have previously had their spouse pension only partially restored.

The bill also amends the DFRDB Act to improve access to reversionary benefits in circumstances where the retirement pensioner commences a marital relationship after age 60. Currently, a spouse’s pension under the DFRDB Act scheme is not payable if the pensioner, who commenced a marital relationship after age 60, dies within five years of the relationship commencing. The bill removes this restriction for post-retirement relationships. This change will provide consistency between the military schemes and the civilian schemes and is a positive measure supported by Labor. However, a pro rata rate of spouse pension will be payable where the relationship existed for less than three years immediately before the pensioner’s death. Where the resulting rate of pension is small, it may in some cases be commuted to a lump sum. I note that these amendments will likewise apply to the MSBS once the necessary changes are made to the MSBS trust deed and rules.

It is proposed that the new post-retirement marriage arrangements will commence on a day or days to be fixed by proclamation or six months after the act receives royal assent. However, for the sake of equity between the military and civilian schemes, Labor believes this should commence from the date it applied to the civilian schemes—1 July 2003. There was no satisfactory explanation given to the committee on why this did not happen. I understand that the parliamentary secretary has considered act of grace payments and that the number of persons affected by this would be very small—less than 10 a year—so the cost would be negligible. The government has been strangely silent on these issues. It has vacated the field. I know for a fact that veterans everywhere are expressing concern and anger over current indexation arrangements. I am receiving many emails every day about this issue. The level of concern within the veterans and defence community is high and is only building, due to frustration at the government’s neglect of them. The government is shutting its eyes in the hope that this will go away. Many of the matters I have raised today were canvassed at the Senate Finance and Public Administration Committee hearing on the bill. Sadly, few if any answers were received. Labor is particularly concerned that various actuarial and other modelling carried out by Treasury on a number of these matters has not been made public despite constant requests by our shadow minister, Senator Sherry, at many Senate committee hearings over many years. What is the government hiding? Why will it not be accountable to the public on this issue and why is it so scared of providing the necessary information for a full and frank debate?

The second reading amendment circulated in my name seeks to address some of the deficiencies in the bill that I have discussed today and calls on the government to do the right thing by defence personnel and ex-service members and to provide the data and reports necessary to hold informed and accountable policy debate on this important matter. Serving and former defence personnel deserve no less than a government that is accountable to them on their pay and conditions. I move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House notes that:

(1)   in the case of military schemes the restoration of a reversionary benefit, so called widow’s pension to these schemes is not to apply from the same date as civilian schemes, 1 July 2003, but supports Labor’s calls on the Government to apply the same date;

(2)   there is no provision to remove the tax increase that applies to members of the MSBS as a consequence of the recent Better Super changes but supports Labor’s calls on the Government to remove the tax increase;

(3)   there is no provision to implement equality of treatment on reversionary benefits for interdependent couples, a promise made by the Government, but yet to be implemented;

(4)   there are a range of contemporary issues that need to be considered in the light of reforms to private sector superannuation over the last twenty years, including;

(a)   indexation provision of pension entitlements;

(b)   interdependent relationship reversionary pension;

(c)   the tax increase that members of the MSBS will suffer as a consequence of the 1 July Better Super changes;

(d)   salary sacrifice provision for the public sector;

(e)   full portability for the public sector;

(f)   the value of the 10% rebate for untaxed schemes and income tax treatment of non-super income at age 60 and tax treatment of foreign defined benefit schemes such as Australian staff working for the United Nations, again consequences of the 1 July Better Super changes;

(g)   transition to retirement provisions; and

(h)   tax treatment for class A military invalidity pensioners.

(5)   Treasury has a range of studies, modelling and reports on issues listed above that at the direction of government, despite numerous requests at Senate Estimates it refuses to release and is keeping secret, and supports Labor’s calls on all these to be released publicly”.

I commend the amendment to the House.

The DEPUTY SPEAKER (Hon. BC Scott)—Is the amendment seconded?

Ms Hall —I second the amendment.

The DEPUTY SPEAKER —The original question was that this bill be now read a second time. To this the honourable member for Bruce has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.