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Thursday, 9 March 1972
Page: 608

The PRESIDENT -- Is there any objection? There being no objection, leave is granted.

Senator Sir KENNETH ANDERSON - With the concurrence of honourable senators I incorporate the statement in Hansard.

Last week the Treasurer received from the Superannuation Board the report by the Commonwealth Actuary, who was appointed by the Board under section 17 of the Superannuation Act to make the ninth quinquennial investigation of the Superannuation Fund covering the period of 5 years ending 30th June 1967. A further report expressing the Board's views accompanied the Actuary's report. Having in mind the time that has passed since the end of the quinquennial period and the great interest that has been shown by honourable senators, staff associations and individual contributors and pensioners in the outcome of this investigation, the reports are being tabled in advance of their being considered by the Government.

While the completion of this investigation has taken longer than is customary, this does not reflect on the Commonwealth Actuary or the Board. I think honourable senators already know that the main reason for the delay was the need to introduce an extensive computer system and to transfer te it the detailed records of contributors and pensioners retrospectively to the date of their entries into the scheme, in some cases as far back as 1922. But, while the re-organisation of the Board's records delayed completion of the ninth investigation, it will facilitate greatly future investigations. The Board has slated in its report that all the statistical and valuation data for the next investigation covering the 5 years ending 30th June 1972 should be available to the Actuary by November of this year and that the Actuary's investigation should be completed during 1973.

May I first very briefly sum up the conclusions reached by the Actuary and the Board. The Actuary has advised that, in his view, there was a gross surplus of assets over liabilities of $14,779,000 in the Fund as at 30th June 1967 and has recommended a conversion from the present unit purchase pension scheme to a new superannuation arrangement based on percentage of salary rates of contribution. He considers that the surplus should be applied to facilitate the transfer of existing pensioners and contributors to the new scheme he has proposed and to assist in meeting the cost of new benefits under that scheme. The Board also does not favour a cash distribution of the surplus but has concluded that the balance of advantage to members would lie in applying the surplus assets at 30th June 1967 to the payment of selected additional benefits under the proposed percentage of salary contribution scheme or the present scheme.

The Board considers that, if a percentage Of salary contribution scheme were introduced, it would be appropriate for any remaining surplus assets to be applied for the benefit of eligible contributors and pensioners with an equity in the Fund as . at 30th June 1967 who transfer to the new scheme. Alternatively, if the existing unit of pension scheme were to be retained, the Board suggest that any remaining surplus assets should be applied to a further extension of pension benefits with particular reference to those provided for widows and children.

As I have already said, the Actuary's investigation led him to the view that there was a surplus of assets over liabilities of $14,779,000 as at 30th June 1967. The surplus is largely due to the adoption of an increased interest valuation rate of 5 per cent compared with the previous rate of 3i per cent as at 30th June 1962 and the interest rate adopted for the distribution of surplus assets at 30th June 1962 in accordance with the Superannuation Act No. 97 of 1965, namely 5i per cent for the period 1962 to 1972 and 4i per cent thereafter. It is not an accounting surplus. What it represents is the excess of the amount of the Fund at 30th June 1967 and the present value at that date of future contributions by contributors then in the scheme, a total of $471,398,000, over the present value at 30th June 1967 of future benefits payable to pensioners and contributors in the scheme at that date, an amount of $456,619,000.

Thus, in carrying out his valuation it has been necessary for the Actuary to make judgments about the course of things over a long period into the future. For instance, at present rates of longevity some persons contributing to the Fund at 30th June 1967, or their widows, could be drawing pension as late at 2050. But a scheme that commenced 50 years ago is not likely to be without its problems and attention has been directed to these by both the Actuary and the Board in their reports. Undoubtedly the most important problem is the burden that escalating contributions may represent in the final stages of a member's career.

As explained bv the Actuary this flows from the unit purchase basis of the scheme, the underlying principle of which is that the contribution for each unit of pension, when combined with other similar contributions, has to be sufficient to enable the Fund to pay its share of the benefits attached to units, whenever those benefits may become payable. Thus a unit taken out at a young age will be paid for over a long period and the fortnightly rate of contribution will be correspondingly low. Conversely, a unit taken out in the last few years before the selected age for retirement must be paid for over a much shorter period and the fortnightly rate of contribution will be relatively higher.

The present scheme has been modified in two respects so that members have an alternative to foregoing additional entitlements for which they cannot afford to pay. The first modification afforded members the opportunity of taking up a maximum of 12 reserve units that can be converted to active units at some later time. The second modification was to provide for non-contributory units, which are available to members who have reached age 40 and are able to meet certain conditions regarding the level of their contributions and active units held. But a consequence of electing to take noncontributory units is a reduction in the member's ultimate pension entitlement.

The scheme that the Actuary has proposed and which the Board has concluded should be adopted as the model for early development of revised superannuation arrangements for Commonwealth employees, expresses contributions as a constant percentage of salary throughout a member's service, the actual percentage rate being determined by the member's age when entering the scheme. Under such a scheme it can be expected that a member would pay more in his early years than he does at present but less in the years approaching retirement. The post-1959 Defence Forces Retirement Benefits Scheme incorporates this contribution principle.

On the benefits side the Actuary sees the primary objective of the scheme to be the provision of a pension benefit and proposes significant changes in the way benefits are determined. Some of the important features of the scheme he has put forward are as follows:

There would not be any provision for the tapering of the benefit when salary exceeds a particular level.

Pension at retirement would be a proportion of the average salary received in the 3 years before retirement, the proportion reflecting years of membership of the scheme.

Invalid pension would be calculated by reference to average salary and prospective years of membership had the member continued to serve until his normal retiring age.

Widow's benefit would be five-eighths of either the member's age or the invalid benefit.

Children's and orphans' pensions would be 10 per cent and 20 per cent respectively of the invalid benefit.

Persons who could not meet the prescribed medical standards would contribute for pension benefits on a limited basis.

There would be provision for pensions to be adjusted annually on the basis of changes in the consumer price index.

In ils comments on the proposed scheme the Board has indicated that it favours the inclusion of a commutation provision. It also observes that the scheme removes the right to purchase full pension at age 60 and that, as the pension benefit available would vary according to years of service, it follows that the scheme would, in some cases, provide lower benefits than are available under the present arrangements.

The Government is, of course, aware of problems with the present scheme and honourable senators will recall that the introduction of non-contributory units in 1969 was designed specifically to ease the burden on older contributors to the scheme. More recently, the Treasury commenced a full investigation of the scheme and is expected to complete this task later this year. As part of this investigation it will look closely at the Actuary's and the Board's proposals.

We also know that the Council of Commonwealth Public Service Organisations, with which many of the staff associations covering Commonwealth employees are affiliated, is developing proposals for a new superannuation scheme. We will of course give full consideration to any proposals that the Council puts forward as well as to representations regarding the present scheme and suggestions for change from other bodies and individuals.

In its report the Board has listed some of the proposals that have already come forward and has included estimates of .the extent to which the liabilities of the Fund would be increased as at 30th June 1967 if selected additional benefits were available to pensioners and contributors from 30th June 1967. For instance:

Increasing a child's pension from $4 to $8 a week and the minimum pension for an orphan from $10 to $15 a week would increase the liabilities by $2. 3m.

Increasing the widow's benefit from five-eighth pension to two-thirds would increase the liabilities by $llm.

Providing pension for the widow of a marriage after retirement would increase the liabilities by $16m.

Providing interest on refunds of contributions would increase the liabilities by $21m.

Automatically increasing pensions after retirement in accordance with changes in the cost of living would increase the liabilities by $ 180m.

Thus the estimated total increase in the liabilities of the Fund as at 30th June 1967 that would result from granting these additional benefits is $230,300,000 and may be compared with the disclosed surplus of $14,779,000. The increase in the liabilities of the Commonwealth flowing from the increases in pension benefits would, of course, be very much higher.

When existing superannuation pensions were increased last year orphans whose pensions are calculated by reference to the widows pension were the only children who benefited directly from the increases. Those in receipt of the fixed rates of pension specified in the Act that apply to future pensioner children and orphans as well, did not receive an increase. When introducing the Superannuation (Pension Increases) Bill, I said that the position of orphans and children would be given special consideration by the Government when the results of the quinquennial investigations of the superannuation and defence forces retirement benefits funds became available. Later, after considering representations from the Council of Commonwealth Public Service Organisations, the Treasurer told the Council that he would look at the situation of children and orphans again as soon as he received the Actuary's report on the Superannuation Fund. The matter is already being examined by his Department and he hopes to be in a position shortly to put proposals to the Government.

The Commonwealth . Superannuation Fund, with well over 190,000 contributors and 30,000 pensioners, . is the largest superannuation scheme in the country. As an employer the Government places great importance on the provision of sound and beneficial superannuation arrangements for its .employees and the many improvements in the present scheme that have been effected over the years are evidence of this. But the reports of the. Actuary and the Board give emphasis to 2 questions that are already in our minds. Can the present scheme be modified further so that it can continue to meet the needs of contributors and pensioners in the future or must it be replaced by a new scheme involving different contribution and benefit principles? These questions are of great importance and warrant careful and thoughtful consideration.

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