One immediate issue is should any increases apply to those who have never heard a shot fired in anger and if so why should such increases not apply to Public Servants who may have?

I admit I have a vested interest in this matter since i am about to discharge from the ADF and take advantage of the DFRDB scheme. Nevertheless, i feel that this issue is hampered in the article by use of overly emotive language.
There are a number of ex-service persons who are reliant on a pension for funding some or all of their retirement. These people are at risk of financial disadvantage due to their pension not being indexed with CPI and the gap to the aged pension not being adequately catered for. This should be addressed irrespective of nature/degree of active service or some 'covenant' with the country. In the same way that any pension should be adequately future proofed.
The situation is not necessarily as dire as the author makes out in all circumstances, however. For example, for a serviceperson who enlisted in 1975 and served 20 years they may have elected to stay in the DFRDB scheme (pension), served in the interregnum between major hostilities (not that this is particularly relevant but it seems to be a sticking point for some commentators), left the ADF and gained employment at a similar or higher wage than when they left. Consequently they will/may be currently employed, paying into superannuation now and also having a pension from their service in the military (and having that pension payed to them whilst working for the last 17 years). Unless this person was particularly profligate I find it difficult to see how they or their families would be in 'penury'.
The alternate circumstance is that they may have elected to change to the MSBS scheme in 1991, in which case they are now like every other employee in Australia: on a superannuation scheme, suffering the same vicissitudes or benefits as any other superannuant.
So it is true that long term ADF members (ie those who served until retirement) may certainly be disadvantaged by lack of CPI indexing it may not be as dire for all ex-servicepersons, particularly those who left after 20 years and were young enough or able enough to secure a second career, or who elected to change to the MSBS super scheme in 1991. This is not an argument against CPI indexing i just think the flag waving and appeals to emotion could be toned down somewhat. The focus should be on what contract the serviceperson signed on enlistment/appointment and whether indexation fulfills the letter, intent or spirit of that contract. Furious jingoism muddies the debate and leaves it open to the likes of John Coochey who widely generalises because he once saw a sea-sick seaman.

I agree with your premise that the indexing rate for military super is not on par with the rest of society, and I have skin in that with 10 years of unfunded military super indexing slower than it should :( But career Defence Members have one of the best super funds in the country.

But this fact requires some clarification: "The median Defence Force Retirement and Death Benefits Scheme (DFRDB) pension for a couple is under $20,000 and the mean is about $22,000"

This number is so low because DFRDB is that military pension fund where you can take your pension after 20 years service. It has been illegal to join since 1991, but no-one has been forced out. Every DFRDB member had the option to join the new military super fund, MSBS.

So when someone on DFRDB leaves the military at 38 years of age with a $15k/year pension, they still have 23+ working years of their life left. You cannot claim they are living below the poverty line by virtue of being a ex-serviceperson, they would only be below the poverty line if they couldn't find another job and so then by virtue of being unemployed.

The other military super fund, MSBS, which every Defence member who has joined the Defence Force since 1991 has been force to joined, has some very generous features which you haven't mentioned which ensure that soldiers do not live in poverty.

For example, the unfunded contribution rate is not a set amount, but a percentage of a members 'average salary for the final three years of their career' multiplied by a multiplier based on their years of service:

0-7 years 18% of salary
8-20 years 23% of salary
20+ years 28 % of salary

So in effect, the disadvantage of the lower indexation only kicks in once the members career has ended and the unfunded liability has been funded.

I think the title of this article is quite disingenuous: no career member of the Defence Force (if we are talking super we should only be talking about careers, otherwise responsibility for super is shared) under MSBS will ever live under the poverty line when they retire, and the only way that would happen with DFRDB is if they started spending their super long before their official retirement age (which is why the government made the fund illegal for new members to join 21 years ago).

As a beneficiary of the Commonweath Super Scheme I agree the approach to indexation is poor but you have to look at the operation of these schemes as a whole. Overall they provide many benefits and guarantees that aren't available from commercial schemes. For instance my pension does not eat away at my lump sum at times like the GFC as would happen with a commercial super fund. Its very definition as a defined benefits scheme means these benefits are built in and not subject to normal commercial fluctuations. You must examine benefits as a whole not pick one poor element.

Well done Mark. When we leave the Defence Force, assuming that we have served 20 years or more and are therefore eligible to receive "retirement pay", more commonly called superannuation, we are not allowed to roll our super into another fund of our choice, like most other Australians. Unlike other Aged Pensioners we continue to pay tax on our "super" and will do so until we die. In other words, even though we may have been retired for 20 years or more, we remain finacial slaves to the Government. We are denied our normal rights, enjoyed by most other Australians. In addition, when we die, our surviving partners receive only 62.5% of our super, unlike most other Australians who can access 100% of their deceased superannuant's super. They can roll it over or take it as a lump sum. Not us!! By the way this paltry 62.5% is indexed against the CPI so it gradually but inexorably loses its purchasing power. Where does that remaining 37.5% go? To the Government of course. I could write a whole column on this blatant discrimination. Thanks for brining this National disgrace, this terrible injustice and this blatant discrimination to the attention of your readers. No wonder we feel as though we have been betrayed by our Government, by our Nation!!!

Hi Mark,

I'm pretty sure I can prove that you are worse off under MSBS than you would have been if you had of had UniSuper as your super fund during your Military Service, but only by a relatively small amount.

Of course your cause is worth fighting for, but you made a comment that you feel you have been robbed $500k by the government and this must be a horrible feeling. I hope I can help rid you of some of that feeling.

Of course, the numbers are rough and pulled together from data you have given in this thread, but please bear with me...

If MSBS claims your benefits when you discharged after 12 years in 1992 were $100k, then it must have calculated your final average salary at around $36k, which seems about right for a 10-12 year officer back then (about double that now: http://www.defence.gov.au/dpe/pac/AB7578507.pdf)

The MSBS contribution rate for 8-20 years service is 23% of salary

$36,000 * 12 years * 23% = 100k at 1992

Now this MSBS unfunded 100k 'future promise' is only going to be indexed to CPI. That is why this figure is so large to begin with. It is a promise to pay in the future. That is why this fund has a contribution rate of 23% and not 9%, and on final salary not actual salary as you go - to take this into account.

Now what about the hypothetical UniSuper fund you mention in your article? Let's make some reasonable assumptions.
1. That the employer contributes 9% in line with todays standards (obviously a standard that did not exist in the 80's, and far more generous)
2. That we calculate the interest based on actual past performance of the fund. So for the fund you quote that is 4% (http://www.unisuper.com.au/investments/options-and-performance/super-performance)
. Nah, just kidding, lets use the average of all funds since the introduction of the super guarantee, 7.1%. http://www.superguide.com.au/boost-your-superannuation/20-years-of-sg-delivers-7-a-year

3. That your hypothetical salary progresses like my table. I know it is not so constant, but it should average out.

Year | Salary | Contribution | Total (after interest)
1981 | $16,000 | $1,440 | $1,440
1982 | $18,000 | $1,620 | $3,162
1983 | $20,000 | $1,800 | $5,186
1984 | $22,000 | $1,980 | $7,535
1985 | $24,000 | $2,160 | $10,230
1986 | $26,000 | $2,340 | $13,296
1987 | $28,000 | $2,520 | $16,760
1988 | $30,000 | $2,700 | $20,650
1989 | $32,000 | $2,880 | $24,996
1990 | $34,000 | $3,060 | $29,831
1991 | $36,000 | $3,240 | $35,189
1992 | $38,000 | $3,420 | $41,107

So at 1992, a normal 'funded' super fund would have left with with around $41k of real money ready to reap the magic of compound interest. Which at 7.1%, 20 years later in 2012 would be

$41,107 * (1.071) ^ 20 = $162,073 in 2012

So in 2012:

Your MSBS: $160k
Hypothetical UniSuper: $162k

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Of course this hypothetical fund with real money in it will now continue to grow much faster than the unfunded fund, 7.1% vs CPI.

It is not fair how much the Military Super will lag behind, but the government hasn't robbed you... yet :) Don't get me wrong, you are about to lose out, but you have only just reached the inflection point, and yes it is worth fighting for.

Some bits of this are wrong or misleading.

Age pensions, etc, did not abandon CPI indexation because it failed to keep pace with the cost of living. Instead they formalised a long standing link to wages growth as a measure of community living standards, not cost of living. The argument is that community living standards are rising faster than the cost of living. A pension that is properly indexed to cost of living increases will retain its purchasing power, but may still fall behind overall standards. If the gripe is that people "signed up" to a scheme that maintains purchasing power then the issues is to go to something like PBLCI instead of or as well as CPI. It's a shift in the argument to go from saying the issue of cost of living and then moving to some notion of community standards.

Age pensions are not tax free. They are taxable income. People of age-pension age can get a tax rebate (Senior Australian and Pensioner Tax Offset), not just age pensioners. DFRDB and age pensions are both taxable in the same way (except DFRDB probably also picks up a small super rebate). Age-pension-age DFRDB pensioners getting anything like the median rates you suggest would also get age-pension (or perhaps the service pension equivalent), so the comparison with age pension rates in a way that suggests its one or the other is misleading.

As I understand it the MSBS benefit involves conversion of a (notional) number of lump sum dollars into an annual pension, at factors varying from 1/12 at age 55 to 1/10 at age 65. These are already very generous, since the brochure given me about the PSS (which uses the same factors) says, as I recall, that the value of an indexed pension varies from 20 to 15 times, at those ages, for a married person (less for a single).

If they were indexed on a more generous principle, obviously the appropriate factors (to maintain an equally generous outcome) would be a lesser initial pension for a given notional lump sum.

Mark Gregory, on the other hand, seems to be arguing for a more generous treatment of military pensioners. In this connection it should be noted that the military MSBS scheme already is considered to cost 24.7% of employee's salary (based on the NECRs in the Matthews review, see http://www.finance.gov.au/superannuation/pension-indexation-review.html )