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Recommendations
Future military superannuation arrangements
Recommendation 1 The Australian Defence Force should continue to have
its own mandated superannuation scheme with benefits that reflect the unique
nature of military service.
Recommendation 2 Defence should close the Military Superannuation
and Benefits Scheme to new members of the ADF and introduce a new
superannuation scheme for all new members of the ADF comprising an
accumulation plan for retirement and separate defined benefits for death and
disability.
Recommendation 3 The new superannuation accumulation plan for
retirement should be fully funded and taxed with the following key elements:
a.
employer contribution rates of 16% of superannuation salary for the
first six years of completed service, 23% for the next nine years of
completed service and 28% after 15 years of completed service (with
recognition of prior military service);
b.
flexibility for members to set their own contribution rate, if any
(with a default rate of 5% from after tax salary), select their investment
risk profile and to make contributions following separation from the ADF;
c.
members to have choice over the superannuation scheme into which their
contributions will be invested whilst maintaining membership of the mandated
death and disability benefits under the new scheme;
d.
options for members with 15 years or more service, from age 55, to
purchase indexed pensions (with a choice of indexation factors, at an
unsubsidised price determined periodically by a Government-approved actuary)
and/or an account based pension;
e.
a range of options for the way members can access their benefits after
preservation age, including through an account-based pension. This would
allow members to take advantage of the Government’s transition to retirement
provisions; and
f.
flexibility for spouses and children of members to contribute
(personally and/or from an external employer).
Recommendation 4 Death and disability benefits under the new
superannuation scheme should have the following key attributes:
a.
Defence as employer should continue to
meet the costs.
b.
Compensable and non-compensable
arrangements should be brought under one assessment and administration regime
with an emphasis on rehabilitation, under the auspices of the Department of
Veterans’ Affairs.
c.
Compensable disability benefits should
be fully the responsibility of the Military Rehabilitation and
Compensation Act 2004 (MRCA) until age 60 at existing rates of benefits.
d.
For non-compensable disability, the
current three-tiered invalidity benefits should be replaced by a single
benefit for loss of earnings, akin to the Military Rehabilitation and
Compensation Act 2004 (MRCA) benefits and conditions, with a minimum of
40% and maximum of 70% of final salary (based on actual and prospective
service), indexed to Defence earnings and payable to age 60.
e.
Employer contributions to the
superannuation retirement fund should continue whilst a person is in receipt
of either MRCA or superannuation disability benefits at a rate of 23% of the
‘salary maintenance’, up to age 60.
f.
Death benefits from the superannuation
scheme should supplement the accumulated benefit on the basis of 23% of final
salary for each year of prospective service to age 60, payable in addition to
any MRCA death benefits. Where there is a surviving spouse, the
superannuation death benefit may be converted to an indexed pension with
additional payments for up to three dependent children.
g.
In the case of terminal illness, early
access to the death benefit should be allowed.
Recommendation 5 Superannuation for Reservists should be along the
following lines:
a.
Reservists should be allowed to contribute
personally and/or from an external employer into the new scheme.
b.
Reservists on full-time service should
continue to be included in normal Defence superannuation arrangements
including the proposed new scheme.
c.
Reservists not on full-time service
whose pay is tax-exempt should not be included in normal Defence
superannuation arrangements and should not receive the proposed employer
contributions under the new scheme.
Recommendation 6 Defence should meet the costs of administration of
the scheme for individuals in receipt of an ADF employer contribution or a
benefit from the scheme, family members of these individuals and Reservists
who choose to use the scheme.
Recommendation 7 Contributing members of current schemes should be
offered the choice, for a limited period, of remaining in their current
scheme or having their existing accrued benefits funded and then taxed on
transfer to the new scheme, or to a scheme of their choice.
Recommendation 8 Preserved members of the MSBS should be given the
option, for a limited period, to have the current face value of their benefit
funded and then taxed on transfer to the new scheme, or to a scheme of their
choice.
Recommendation 9 A single governance structure should be put in
place for the DFRDB and MSBS, as well as the new scheme, along the following
lines:
a.
The structure should be established
under legislation, with a Trust Deed for the MSBS and new scheme.
b.
There should be a seven member board
of trustees comprising two employee representatives, two employer
representatives and three independent representatives, including the
chairperson.
c.
A committee structure is to be
determined by the Board to assist with all the Board’s responsibilities for
the DFRDB, MSBS and new scheme.
d.
Pending establishment of the proposed
new governance structure covering all schemes, the DFRDB Authority should
have an independent chairperson, appointed by the Minister.
Recommendation 10 Defence, with the ADF Financial Services Consumer
Council and in consultation with the MSBS (or new) Board, should conduct an
extensive education and awareness campaign to support informed choice by ADF
members and MSBS preserved members to transfer to the new scheme or to remain
in their current scheme. This campaign should include access to computer
modelling to allow individuals to estimate the likely effect of transferring
or not transferring given their personal situation, and access for current
ADF members to subsidised financial advice.
Recommendation 11 The new superannuation board, in consultation with
Defence and the ADF Financial Services Consumer Council, should develop an
ongoing education and awareness program to ensure ADF members are able to make
informed choices about their superannuation investments (including member
contributions) and benefits, with access to subsidised financial advice, for
serving members, at key career points (including after six years service, 15
years service and on approaching age 55).
Technical
issues concerning the schemes
Recommendation 12 The MSBS Maximum Benefit Limits should be
abolished.
Recommendation 13 The proposed new scheme should recognise
interdependent relationships. Recognition of interdependent relationships in
the existing military superannuation schemes should be consistent with, and
reflect, Government policy for the other Commonwealth defined benefit
superannuation schemes.
Recommendation 14 If the Government is willing to go beyond the
envelope of current costs, it should consider indexing DFRDB/DFRB pensions
for those over 55 on a similar basis to that applying to age pensions.
Because of the costs involved, this option does not warrant the priority
attached to the other recommendations. An alternative option the Government
could consider is to limit this change to pensions paid from age 65.
Recommendation 15 There should be no change to the MSBS pension
indexation arrangements.
Recommendation 16 There should be no change to the DFRDB scheme life
expectancy factors.
Recommendation 17 MSBS death and disability benefits should be
calculated on the member’s final salary or highest salary for superannuation
purposes rather than the current final average salary.
Recommendation 18 Benefits for members or persons imprisoned because
of a criminal offence should not be suspended, other than for those offences
specified in the Crimes (Superannuation Benefits) Act 1989. The Review
Team notes that State authorities may consider recovering amounts from
prisoners’ income to offset accommodation and administrative expenses, and/or
to contribute to victim compensation.
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