Mr Ken Marsh
17 June 2012
The Minister for Veterans Affairs
Parliament House,
Canberra, ACT 2600
Dear Minister
The 2008 ‘Review of Pension
Indexation Arrangements in Civilian and Military Superannuation Schemes’
authored by Mr Trevor Matthews gives every impression of being a carefully
crafted document designed to mislead the reader into supporting a position that
cannot be substantiated by an understanding of the historical context in which
the indexation method for the Defence Force Retirement and Death Benefits
Scheme (DFRDB) was arrived at. In fact, when all the evidence is considered it
seems more than likely that an unbiased person would arrive at a conclusion
other than that reached by Matthews.
Serving military members, unlike
their fellow Australians, cannot take industrial action regarding their
conditions of service. More than any other workers they rely on the good will
of the Australian Government to maintain those conditions. It is paramount to
the relationship between the Government and current serving members that the
Government be seen to honour commitments made to former service men and women.
Any Government reliance on misleading reports to justify inaction to redress
existing wrongs can only undermine the level of trust existing between it and
its military servants. It therefore follows that the Government must act
quickly to redress wrongs when it becomes aware of these.
Below I outline my reasons for
believing that the Matthews document is inaccurate and misleading. In preparing
this letter I have accessed the Jess, Pollard and Pollard/Melville reports plus
the Hansard and an industrial relations text book.
In chapter 3 of his report
Matthews supposedly discusses the purpose of the indexation arrangements of
Australian Government civilian and military superannuation schemes. While he
mentions the ‘Joint Select Committee on Defence Forces Retirement Benefits
Legislation Report of May 1972’ (hereinafter referred to as ‘Jess’ or the ‘Jess
Committee’) he draws on the reviews carried out first by Professor Pollard
(March 1973) and then Pollard and
Melville (1974). Neither of these reviews considered military superannuation or
the recommendations of the Jess Committee. Therefore it cannot be fairly stated
that he examined the purpose underlying the indexation of military
superannuation arrangements.
Following the release of the Jess
report Prime Minister McMahon announced that he had referred the matter of
indexation ‘to independent expert investigation’ because military and civilian
pensions had historically been adjusted on a similar basis and he wanted DFRB
pensions considered within the broader context (Hansard, House of
Representatives, 26 Oct 1972). The soon-to-be-elected Prime Minster, Gough
Whitlam was critical of this move, accusing the government of shelving ‘once
again’ this ‘unanimous report, which has never been criticised in the Parliament’
(Hansard, 26 Oct 1972). In Government he did not carry through with this. I
quote Mr Hamer from the Hansard of 30 May 1973: ‘The present Government did not
follow through on this matter so that Professor Pollard's report covers only
the Commonwealth superannuation scheme.’
It is clear from reading the
Pollard report that he did not address the matter of military superannuation.
In his opening paragraph he states: ‘Superannuation schemes have been
introduced … in part to enable officers of long standing to maintain a
reasonable standard of comfort after retirement.’ This is markedly different to
the intent of Jess, which recognised the unique nature of military service as
being ‘so different’ to that applying to ‘civilian employment’ that superannuation
arrangements required a ‘totally different approach’ (Jess, para. 52). In fact,
‘retirement’ within the Jess context meant life after separation from the
military. Jess recognised the challenges that those who gave the best years of
their life to the military faced, both during their service career and in their
transition to civilian life, including the difficulty of finding permanent and
suitable employment. It must also be understood that by far the majority of
service men and women who reached the age of 55 were mandatorily retired. This
meant that if they were unable to find other employment or were faced to take
low-paid, casual and unsuitable work they were denied the final ten years of
working life available to public servants to plan for retirement. There was a
stark contrast between the needs of the two groups.
As for the 1974 Melville/Pollard
report, it is clear from the letter to Mr Melville dated 28 March 1974 by the
then Treasurer Frank Crean (included as Appendix A in the report) that the scope
of his task was limited to the proposed ‘new superannuation scheme for
Australian Government employees’. The DFRDB legislation was enacted in 1973.
Matthews makes no mention of the
fact that the DFRDB Scheme was enacted for a different purpose to that of the
Commonwealth Superannuation Scheme or of the conditions of service that Jess –
and the Parliament of the day – sought to address.
Matthews is correct when he says
Jess proposed that ‘pensions … should be indexed annually to maintain relativity
with average weekly earnings’ to ‘provide increases in line with changing
community standards’ and that this proposal was ‘not implemented by the
Government of the day’ (3.2). (Jess preferred ‘retired pay’ to ‘pension’ (Jess,
49)). He then discussed the recommendations of first Pollard, and then
Melville/Pollard. It is in this commentary that he neglects critical facts and
in doing so makes what can only be seen as misleading statements.
His bland statement that the
methodology recommended by Pollard (pension increases of 1.4% times CPI
increases applied to the Government funded portion of the pension) was adopted
for the ‘1922 [Public Service] Scheme and the DFRB from 1 July 1973 and
subsequently for DFRDB’ (3.2) is in part contradicted by his next paragraph
where he correctly refers to the Pollard/Melville recommendation of increases
in line with those of the CPI.
More importantly he ignores the
intent of the 1973 DFRB increase. Speaking to this Bill on 25 May 1973 the then
Minister for Defence, Mr Barnard explained: ‘As there has not been an
adjustment of DFRB pensions since 1 October 1971, the Government has decided
that rather than delay the granting of a much needed increase, an early
adjustment should be made in the pensions of those who retired under the
conditions of the old scheme, that is, before 1 October 1972.’ Explaining the
reason for not adopting the indexation methodology proposed by Jess he said:
The main
reason for this is that there have been recent developments in pension updating
arrangements in other Commonwealth pension schemes and I want these
developments investigated and assessed in relation to their implications for
the defence forces scheme. The investigation is proceeding but it may be some
little time before a method can be found which is suitable for application to
persons who retired under the old scheme and for those who retire under the new
scheme.
It is clear from this statement
that a decision regarding a permanent indexation method had not yet been made.
There is no commitment in this statement to adopting the same method as that
applied to these other schemes.
Matthews also fails to mention
the 1974 increases granted to members of the DFRB and DFRDB schemes. This was
‘related to the 16.2 per cent
increase in average weekly
earnings during the 12 months ending 31 March 1974’ (Barnard, 13 Nov 74,
Hansard). Speaking to this Bill on 28 November, Senator Maunsell said that the
opposition supported the Bill. He then said that ‘the Jess Committee,
recommended that there be automatic annual adjustments based on average weekly
earnings. So far the Government has not been able to bring down legislation to
give effect to that recommendation. I can understand that there are problems
associated with it.’ He then queried ‘whether the 16.2 per cent increase of
these pensions is sufficient to combat the galloping inflation which is taking
place in this country at present.’
Maunsell’s comments in this
regard are significant given that it was the Fraser Government that finally
introduced permanent indexation of the DFRDB scheme in 1977. Speaking to the
Bill that introduced automatic indexation Mr Bonnett said that he had ‘waited a
long time for this Bill to be introduced and I shall not detain its passage
through this House for any longer than is necessary.’ (Hansard, 23 Feb 77). In
1977 Bonnett was a member of House of Representatives but had previously served
on the Jess Committee that recommended indexation in line with increases in the
average weekly earnings (as had Maunsell quoted above).
Did acceptance of the CPI by
Bonnett represent an about turn on his behalf or, for that matter, the
Government of the day?
Jess rejected the Consumer Price
Index as the basis for indexation because it considered ‘the index does not
fairly represent changes in general community standards (para. 124). It was
clear to Jess that if ‘retired pay’
did not retain relativity with average weekly earnings its ‘real value’ would
be ‘quickly eroded’ (para . 115). Figures available to Jess demonstrated that
average weekly earnings had increased at ‘almost double that of the Consumer
Price Index’ in the period 1954 to 1970 (Figure X, p. 34, para. 125).
The reason for this disparity
between the CPI and wage increases is found in the national wage case of 1953
when the Industrial Relations Court abandoned its long standing practice of
granting quarterly wage increases based on increases in the cost of living. By
the early 1970s the Industrial Commission had lost its ability to control wages
with the rate of increases being of real concern to economists and employers.
The Whitlam Government sought to address this and beginning with the first wage
case of 1975 the industrial commission reverted to wage indexation based on
increases in the CPI. Wage increases for each quarter of 1975 were capped at
the increase in the CPI. After this the commission began the practice of
partial indexation, which meant that not all workers received the full CPI
increase each quarter. This was the practice in place in 1977 when the CPI was
adopted as the method for increasing DFRDB and DFRB incomes. (Australian
Industrial Relations, 2nd Ed., S. Deery and D. Plowman, 1985, chapter 11)
Relevant to this matter is the
Whitlam Government’s policy to first increase and then maintain the maximum
rate of aged and like pensions to 25% of average weekly earnings. This proved
to be a difficult policy objective, one that was never fully realised.
During the second reading speech
of the Social Services Bill on 15th Oct 75, Mr Stewart, the Minister Assisting
the Minister for Social Security, reiterated the Government’s intention of
raising pensions to 25% of average weekly earnings and increasing them every
six months. He went on to say ‘the Budget proposes to increase, as a temporary
measure, the standard rate of pension by the percentage increase in the
consumer price index between the December quarter in 1974 and the June quarter
in 1975 and to base the increase payable in the autumn of 1976 on the increase
in the CPI between the June and December quarters of 1975.’
On the 22nd Oct Dr Klugman, ALP
stated:
The
honourable member for Hotham then turned to the general argument as to moving
the relationship of pensions or benefits in general away from average weekly
earnings to the consumer price index. I support that move. The last increase in
average weekly earnings for the June quarter was 1.1 per cent. The increase in
the consumer price index for the same quarter was something of the order of 3.6
per cent. Therefore pensioners and other beneficiaries are better off by having
their pensions related to the consumer price index.
Almost 12 months later (14 Oct
76), Mr Hayden, then in opposition said:
Another
point that concerns me is the failure of the Government to carry out its
election promise to legislate for immediate and automatic increases in pensions
and benefits in line with the consumer price index. … I draw the attention of
honourable members to a statement made on this topic in December last year at
the time of the federal election campaign. The Hon. D. L. Chipp, who was a
spokesman for the coalition parties, issued a Press statement on Liberal Party,
letterhead dated 8 December 1975. It states:
Both parties
have undertaken to increase
pensions in line with the Consumer Price Index. We propose to bring in
legislation which will allow increases in pensions to be made instantly and
automatically -
Those words
should be stressed and underlined in Hansard - as soon as the new index is
announced. This will eliminate the procedures now necessary of having to debate
a Bill in Parliament in order to
increase pensions.
The system
we had, of course, was one that did take a little time because it was related
to average weekly earnings. Historically the benefits related to average weekly
earnings would be of a much higher order because with very odd exceptions they
always have moved at a faster rate than the consumer price index. Delay arose
solely because average weekly earnings statistics are delayed a few months
before they come out. Consumer price index statistics have a delay of no more
than two or three weeks on average at the completion of a relevant quarter.
Under the proposals in this legislation there will certainly be automatic
adjustments but the adjustments will take place, for instance, in November and
will be in accord with movements in the CPI in the March and June quarters
earlier in that year. The next adjustment will take place in May and will be in
accord with movements in the CPI in the September and December quarters of the
preceding calendar year; that is, in each case there will be a delay of about 5
months before the adjustment takes place in the
pension rate.
Note firstly that Hayden’s
objection is not to the method of indexation. Rather, he believes the approach
taken by the Fraser Government unfairly delays the passing of increases on to
pensioners. Secondly, he spoke of the delay the ALP, when in Government, faced
in obtaining average weekly earnings statistics. The CPI allowed increases to
be more quickly passed on which meant that pensioners would not fall so far
behind as they would if waiting for increases based on wages.
Again Matthews appears to
misrepresent the facts. At 5.5 he claims that it has been ‘a policy objective
of successive governments since the 1970s that Aged Pensions should reach the
equivalent of that [25% of MTAWE] benchmark using a similar waged based index’.
In fact, Don Chipp shortly before the dismissal of the Whitlam Government
stated categorically in the House ‘that pensions should be tied to the consumer
price index- is in the Opposition's social security policy. But we have never
promised 25 per cent of average weekly earnings’ (22 Oct 75). In Government,
Fraser introduced automatic indexation of aged pensions in line with increases in
the CPI (see Howard, Hansard, 9 Sep 76). Matthews gives the impression that the
aged pension was increased on an ‘ad hoc basis from time to time’ to achieve
the 25% objective. Clearly it was believed that when the CPI was adopted it
would in fact achieve that objective.
Matthews mentions nothing of the
historical context within which the DFRDB legislation was first introduced and
the method of indexation finally settled on. The Jess committee, at a time when
wage increases were soaring out of control, recommended that the service man or
woman who completed 20 or more years’ service should receive ‘retired pay’
indexed annually in line with increases in average weekly earnings. This was in
recognition of the unique nature of military service.
The recommendations of first
Pollard, and then Pollard and Melville, related solely to Public Service
superannuation and they did not consider in any way the uniquely different
needs of those in the armed services.
With the introduction of wage
indexation in 1975 wage increases were capped at increases in the CPI. It was
only after this time that wage increases dropped out of the debate on military
superannuation. It is clear that by the time the automatic indexation of
military ‘retired pay’ was legislated, both sides of Parliament believed this
was a method that would be more beneficial to not only military superannuants,
but social welfare recipients as well.
While there were statements from
both sides of the Parliament from time to time regarding the desirability of
indexing military and public service retirement incomes to a similar formula
this was never debated. The significant change in wages policy in 1975 negated
the necessity for this. The 1974 debate on DFRDB increases clearly demonstrates
that indexation in line with wage increases was still very much in the mind of
the Parliament and, given the words of Senator Maunsell on the 28th November
any move on behalf of the Fraser Government to align DFRDB ‘retired pay’ to
anything less than the better of increases in either the CPI or wages growth
would represent a complete turnaround by the Government.
In light of the above I believe
it is imperative that the Government move quickly to distance itself from the
Matthews report. One final quote from Jess: ‘In our view, confusion can only
result and has resulted in the attempt to maintain a link between the D.F.R.B.
scheme and the Commonwealth Public Service Superannuation Scheme’ (51).
In the spirit in which the Jess
committee completed its work I can only encourage you to consider the needs of
military superannuates with a prime focus on the unique nature of their service
and that you do this with haste.
Yours Sincerely,
Ken Marsh
