Terms of Reference

Return to the Military Superannuation Review homepage

 

Principles

Two interconnected principles should guide the conduct of the Review of Military Superannuation Arrangements and form the philosophical context within which the Terms of Reference are addressed.  These are the ‘unique nature of military service’ and the need to compensate members of the Australian Defence Force (ADF) for that uniqueness in their superannuation, invalidity and death benefits, as with other conditions of service, thereby ensuring that joining and staying in the ADF remain attractive propositions.  Detail on both principles appears below.

  

Terms of Reference

Having regard to the unique nature of military service and the importance of superannuation, invalidity and death benefits provided by the military superannuation schemes:

 

1.       Review the current military superannuation arrangements and the suitability of those arrangements in light of:

a.       The contemporary legislative and regulatory framework within which superannuation benefits are provided in Australia;

b.       The need to efficiently manage the unfunded liability for military superannuation and associated emerging and extant Government policy related to Commonwealth superannuation schemes;

c.       The current and likely future demographic profile of the ADF;

d.       The changing demographics of current members of the military superannuation schemes;

e.       Wider remuneration for permanent and reserve members of the ADF;

f.         The current and future costs associated with providing, managing and administering military superannuation arrangements;

g.       State, national and international best practice in the provision and funding of occupational superannuation, invalidity and death benefits in comparable military and civilian public and private sector organisations whose members are subject to relatively early retirement;

h.       Rehabilitation and compensation arrangements provided under the Military Rehabilitation and Compensation Act 2004;

i.         The appropriateness of the Defence Force Retirement and Death Benefits Authority’s current constitution and governance structure;

j.         Possible future changes in the governance and administration of Commonwealth superannuation;

k.       The appropriateness of, and potential for, the MSB Fund to be accorded public offer status[1]; and

  l.        The Review Team’s evidence based assessment of the links between military superannuation and ADF recruitment and retention rates.

  

2.       Having regard to the above, analyse the following specific issues which have been highlighted by emerging and extant Government policy and member feedback:

·         The operation of the Maximum Benefit Limits;

·         Recognition of interdependent relationships;

·         Indexation of military superannuation pensions;

·         The operation of life expectancy factors;

·         Transition to retirement provisions;

·         Preservation arrangements;

·         Portability arrangements;

·         Superannuation splitting;

·         The calculation of final salary for retirement, invalidity and death benefits;

·         The implications of the complexity of the military superannuation schemes for members and the administrator;

·         The impact of the Compulsory Retirement Age given the role of preservation ages and the 2006-07 Budget superannuation proposals;

·         The appropriateness of the three-tiered invalidity classification system.

 

3.       Consult widely within Government and the financial services industry as well as the Defence Force Retirement and Death Benefits Authority, the Military Superannuation and Benefits Board, representative Ex Service Organisations, advocacy groups and members of the ADF.

 

4.       Make recommendations about the future for military superannuation in light of all the considerations above, including potential alternative arrangements, that:

a.       Are consistent with the spirit and requirements of the regulatory environment for superannuation;

b.       Are not detrimental to former and current members of the ADF (that is, the recommendations will not force change to the retirement benefits already established for former and current members of the ADF);

c.       Are consistent with broad Government superannuation and budgetary policy;

d.       Are fully costed with detailed implementation and transition plans;

e.       Are sufficiently flexible to account for potential changes in the ADF workforce associated with the ageing of the population;

f.         Account for permanent and reserve members of the ADF;

g.       Account for contributors, pensioners and those with preserved benefits in open and closed schemes;

h.       Account for defined invalidity and death benefits either in their existing superannuation framework or an alternative framework; and

i.         Account for any accepted recommendations of the Review of the Corporate Governance of Statutory Authorities and Office Holders and the Review of the Government’s Role in the Administration of Superannuation for Commonwealth Employees.

 

5.       Present those recommendations to the Minister Assisting the Minister for Defence in writing within six months of announcement.  The Review Team is also authorised to make recommendations to the Defence Ministers and the Chief of the Defence Force on issues which are sufficiently distinct and reasonable to address in isolation prior to final reporting. 

 

6.       The Review Team is required to furnish the Defence Ministers and Chief of the Defence Force with information about the progress of the review on a regular basis and to support the ADF in the provision of policy advice to Government. A reference committee comprised of, but not limited to, representatives of Defence, the Treasury, the Department of Prime Minister and Cabinet and the Department of Finance and Administration will provide the review team with guidance as needed.

 

The unique nature of military service

1.                   The Terms of Reference, among other matters, require the Review Team to have regard to the unique nature of military service.  In view of this requirement, the following paragraphs outline the characteristics of military service which, when taken collectively, distinguish it sharply from employment in broader society.

 

2.                   The main characteristics of military service are:

·                     liability for combat operations;

·                     a military discipline code;

·                     a regimented way of life;

·                     long and irregular working hours;

·                     statutory retiring ages well below the community norms;

·                     high standards of physical fitness;

·                     frequent relocation; and

                ·                     separation from family.

  

3.                   The principal distinguishing feature of military service is the liability for combat operations.  This liability is both compulsory and continuous and includes the very real possibility of being exposed to the risk of physical or mental invalidity or death.  No other form of employment has a similar liability.  Other special features flow from this liability. 

 

4.                   ADF personnel are subject to both the civil legal code and a separate Defence Force disciplinary code.  The disciplinary code supports the command structures necessary for effective conduct of combat operations and training.  The Defence Force disciplinary code imposes restrictions on personal conduct; it demands different standards from those generally acceptable within the community; and it impinges on the individual’s family life and leisure time.

 

5.                   The discipline code also impacts on the ADF collectively.  For example, ADF members are precluded from engaging in industrial action.  The creation of the Defence Force Remuneration Tribunal to determine pay and allowances for the ADF is recognition of the ADF’s unusual industrial situation.

 

6.                   Another industrial aspect of ADF service is the liability to work long and irregular hours.  Operational tasks, assistance to the civil community and training activities cannot be tied to set hours.  The requirement to work extra hours is unpredictable and often arises at short notice.  More importantly, ADF members are obliged to work whatever hours are demanded to complete an assigned task.  No overtime is payable but some allowances, particularly Service Allowance, recognise the disability and provide some compensation.

 

7.                   Allied to the long working hours is separation from families.  The periods of separation can be considerable, particularly for members in operational units.  Separation causes stress to both members and families. 

 

8.                   Another major cause of stress is the necessity to post members at irregular intervals to meet ADF manning requirements.  Not only do postings involve geographical relocations, sometimes to relatively unattractive places, but also employment in positions demanding acquisition and utilisation of new or different skills.  The limited capacity to laterally recruit exacerbates the posting frequency and employment in unfamiliar environments.  Family life in particular can be adversely affected.  Spouse employment opportunities and the quality and continuity of children’s education can be adversely affected.

 

9.                   Operational tasks and training for combat are demanding activities.  Technology in many cases reduces physical effort but ADF service requires that members maintain a high standard of physical and mental fitness.  The consequence of failure to satisfy the ADF standard is severe.  A member is discharged from military service where any medical condition precludes effective ADF employment.

 

10.                The demands of ADF service also lead to statutory retiring ages which are considerably lower than the community norm.  Most ADF personnel can serve to age 55.  However, most ADF members resign prior to attaining statutory retirement age as vocational options are perceived to diminish with age.  This suits current ADF personnel management practices.

 

11.                 Of the major characteristics of military service the liability for combat and the military discipline code are, of course, peculiar to the Defence Force.  Other characteristics of miliary service are derived from or related to these characteristics.  Some of these characteristics do also occur in other occupations but only individually.  It is the cumulative impact of all the features which constitutes the special nature of the ADF and which distinguishes it from other occupations.

 

12.               The special nature of military service makes it necessary for the ADF to design conditions of service that will continue to attract and retain personnel despite the hazards and hardships of military life.

 

The need to compensate members of the ADF for the unique nature of military service through their superannuation, invalidity and death benefits as with their other conditions of service.

 

13.               The unique nature of military service poses challenges for the ADF when recruiting and retaining personnel beyond those encountered by other employers in the economy.  The ADF has structured its conditions of service accordingly and those conditions, including the retirement, invalidity and death benefits, are generous relative to normal workforce standards.

 

14.               It is important to maintain that relative distinction so that people considering joining the ADF and those already serving can recognise the adequacy of their conditions, given the additional hardships and risks inherent in ADF service. A diminution in the relative value of these benefits could have adverse effects on the ADF’s ability to recruit and retain the personnel it needs to fulfil its functions.  This could affect the viability of the ADF workforce as a whole which would have significant implications for the Government’s ability to maintain its national security policies.

 

[1] This relates solely to considering the appropriateness of according public access to the MSB Fund and its investment options, to grow the size of the fund with the potential to provide a better scale of investment opportunities. It does not relate to extending membership of the MSBS and associated employer-funded retirement, invalidity and death benefits to members of the public.

 

 

Last updated: 24 December 2007