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Thursday, 18 May 1972
Page: 1784


Senator MAUNSELL (Qld) - I present the report of the Joint Select Committee on the Defence Forces Retirement Benefits Legislation.

Ordered that the report be printed.


Senator MAUNSELL - by leave- I move:

That the Senate take note of the report.

The report which I have just presented recommends the repeal of the existing defence forces retirement benefits legislation and the immediate introduction of a new scheme. In the report the Committee outlines a scheme which it considers should meet the requirements of: the defence force for the foreseeable future. The Committee's conclusions were greatly influenced by two considerations. Firstly, the special nature of a career in the defence force. Very few members indeed are permitted to continue to serve until the age of 60, and the risk of death or injury, in peace as well as war, is far higher than in civilian employment. For these reasons we do not believe that the Commonwealth superannuation scheme is an appropriate foundation on which to base a retirement benefits scheme for the defence force. Secondly, the need for simplicity and comprehensibility. We found that few members of the defence force have a clear understanding of the present DFRB scheme. The Committee believes that retirement benefits are significant factors in both recruiting and retention, and that any scheme which is not comprehensible to the average servicemen will fail in one of its main purposes.

After intensive consideration of the present DFRB scheme, the Committee came unanimously to the conclusion that the post-1959 scheme is quite unsuited to the needs of the Services and could not be modified to make it suitable. A completely new scheme is required. This is in no sense a criticism of the members of the present DFRB Board, who have at all times cooperated with the Committee and have been of great assistance to it, but rather of the Acts they have been required to administer. The following is an outline of the more important features of the scheme the Committee proposes:

All members should contribute a flat 5i per cent of their pay. The present post- 1959 scheme has a varying rate of contribution based on age of entry. This varying scale has certain actuarial advantages, but the Committee decisively discarded it in the interests of simplicity and comprehensibility.

Both officers and other ranks should be entitled to receive a pension - which we prefer to call retired pay - when retiring after 20 years or more of effective service.

Retired pay should be expressed as a percentage of final pay, on an accelerating scale, ranging from 35 per cent of final pay after 20 years service to 76.5 per cent after 40 years service.

All existing contributors should be transferred to the new scheme. The transfer arrangements are set out in detail in the report.

There should be automatic adjustments of retired pay in accordance with fluctuations in average weekly earnings.

A possible way of achieving this would be to maintain retired pay as a percentage of current active pay.

There should be an unfettered right to commute a portion of retired pay as a lump sum on retirement. Members should have the right to commute a maxium of four times the annual retired pay payable to them on retirement and this amount should not be subject to reduction either on grounds of the member's life expectancy or for any other reason.

These are some of the more significant features of the scheme. The full proposals are set out in the report.

The present legislation provides an elaborate system of gratuities, which in our view have contributed to complexity and have caused confusion about the purpose of the scheme. We recommend that gratuities should, in future, be provided as an ordinary condition of service and removed from the scheme. The Chairman has put this suggestion informally to Mr Justice Kerr. We consider that the Committee of Inquiry into Services Pay and Conditions might profitably examine the whole question of gratuities, and would suggest to the Minister for Defence (Mr Fairbairn) that he refer this matter to that Committee.

Assessment of invalids should, in our view, be undertaken by an independent assessment tribunal, and there should be provision for an appeal by an aggrieved person either to a court, on questions of law, or to an appeal tribunal which could substitute its own assessment for that of the first tribunal. Invalid pay should no longer be subject to suspension when the member's civilians earnings have reached two-thirds of the current equivalent of his pay at retirement.

The Commonwealth Actuary prepared a report for the Committee explaining the financial and actuarial basis of the present DFRB scheme. We have included this document among the appendices to our report. We have concluded that a much simpler method of providing finance is desirable. We propose that instead of accumulating the contributions of members in a fund, the contributions should be used as needed to pay the benefits. Contributions should be paid to the Government, which should guarantee the benefits at the level proposed and meet any additional cost. Our reasons for proposing this course are set out fully in our report.

Our proposals do not envisage a funded scheme, although the Government might wish to establish a fund to hold unexpended contributions and to meet its long term liability. The new scheme should be administered by the Department of Defence and the Minister for Defence should be the responsible Minister. It seems to us that there would be substantial administrative savings in having Service pay authorities responsible for the payment both of their active members and of their retired members and dependants.

We have been very anxious to obtain estimates of the cost of our proposals. We asked the Commonwemalth Actuary for estimates of the cost of the present scheme compared with the cost of the Committee's proposals. The necessary information was not available to the Actuary when this request was first made, and in an interim report presented to Parliament last December it was explained that the Committee's Report would be delayed until this information was obtained. We have not yet received any satisfactory estimate of the emerging cost of the proposed scheme, but we would point out that the Commonwealth Actuary was also unable to provide us with an estimate of the emerging cost of the present scheme. The Committee would, however, like to emphasise that we believe that the contributions required, and the benefits provided, in the proposed scheme are reasonable, and that the cost to the Commonwealth will not be unacceptably greater than that of the present Scheme.

The Committee has been very conscious of the importance of the defence forces retirement benefits legislation to the recruiting and morale of the defence forces. We believe the scheme we have proposed is fair and comprehensible, and will not impose any undue financial burden on the Commonwealth. We strongly commend the report to the Senate.







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