Jane Prentice (Ryan, Liberal Party) Share this | Hansard source

I rise to speak in support of the Australian Defence Force Superannuation Bill 2015 and related bills. These bills seek to update and modernise superannuation arrangements for members of the Australian Defence Force. The intention is to ensure that superannuation benefits for ADF personnel continue to reflect the unique nature of service relative to other Commonwealth public servants. At the same time, the bills introduce the flexibility and portability that Australians have come to expect from contemporary superannuation schemes.

Since 1991, ADF members have been required to be part of the MSBS—also known as the 'Military Super' scheme. As a defined benefit superannuation scheme, participants are entitled to a defined benefit that is based on years of service and final salary. In contrast, private sector employees and, since 2005, new Commonwealth public servants are generally members of accumulation superannuation schemes. The structure of the MSBS has posed challenges both to ADF members and to the Commonwealth. For ADF members, it has restricted choice by preventing serving ADF members from choosing to be a part of an alternative scheme, a choice that is available to the vast majority of the Australian workforce. It has also restricted flexibility by preventing ADF members from being able to transfer their benefits to another scheme when they leave the Defence Force.

The MSBS has also imposed a significant funding challenge for government. As a defined benefit scheme, it is not fully funded by member contributions and therefore creates uncapped liabilities for government. These liabilities are difficult to manage because the nature of superannuation means that meeting obligations to a young employee today means incurring liabilities that will only be required to be paid in several decades time when that employee retires. In effect, this means that government is incurring debt obligations now and leaving future generations of taxpayers to pay for them.

Successive governments have grappled with the issue of how to ensure sustainability of ADF superannuation arrangements. In fact, these bills are the culmination of an exhaustive process of review and consultation that had its genesis under the former Howard government. In February 2007, the member for Dunkley, who was at the time the Minister Assisting the Minister for Defence, announced a review of military superannuation arrangements. Among the concerns the government noted at the time were the growing unfunded liabilities associated with the MSBS. The findings of that review—the Podger review—were released by the incoming Rudd government later in 2007. The review found that the MSBS fell well short of best practice and recommended its closure and replacement. The details of the replacement scheme were the subject of further consultation with stakeholders, and the successive Rudd-Gillard-Rudd governments were unable to obtain the necessary agreement from veterans groups and other stakeholders in order to proceed with reforms.

On coming to government, the coalition announced the establishment of the National Commission of Audit, which was tasked with, among other things, identifying potential future risks to the structural integrity of the budget. The Commission of Audit identified the MSBS as the only major Commonwealth superannuation scheme with unfunded defined benefits that remains open to new members. It recommended that the MSBS be replaced by an accumulation scheme for new ADF personnel.

The bills that comes before the House today are reflective of the many years of debate, discussion and consultation with affected stakeholders. The bills introduce new, modern and flexible superannuation arrangements for people joining the ADF on and after 1 July 2016. For the first time, ADF members will have the flexibility to change superannuation funds and join a superannuation fund of their choosing.

Importantly, ADF members will receive a generous employer contribution rate of 16.4 per cent, irrespective of their choice of superannuation fund. This exceeds the 15.4 per cent offered to Australian public servants and well exceeds the 9.5 per cent available to the majority of Australians through the Superannuation Guarantee. Under the new scheme, serving ADF members will no longer be required to contribute a portion of their salary to their superannuation scheme. Existing ADF members will have a choice as to whether to transfer to the new scheme or remain in the existing MSBS. However, ADF members who elect to transfer to the new scheme will receive an immediate increase of five per cent in their take-home pay—five per cent being the minimum amount that they were previously required to pay into the MSBS. As a consequence of the introduction of the new scheme, the MSBS will be closed to new members from 1 July 2016.

The changes proposed in these bills bring the Australian Defence Force superannuation arrangements in line with the realities of modern work. The workforce composition of the ADF has changed in recent decades, mirroring trends in the wider workforce. Increasingly, ADF recruits are spending shorter portions of their career in Defence. They are seeking to join the ADF, serve their country while gaining job skills and then use those job skills to transition to careers outside of Defence.

When it comes to recruitment, the ADF is beginning to move with the times. Particularly in specialist categories where recruitment is difficult, the ADF is now advertising itself as an option for young people who want to gain skills that they can use later in their career outside the ADF. As a consequence, generations of recruits coming through are not seeing a Defence job as a job for life. However, the old MSBS superannuation arrangements were acting as a barrier to ADF positioning itself as a modern employer. The unique nature of its defined benefit arrangements based on years of service act as a disincentive to leave the ADF, and the lack of portability of superannuation reduces the attractiveness of a Defence Force career for prospective recruits.

At the same time, these bills demonstrate the coalition government's commitment to charting a responsible course back to surplus. By closing the MSBS to new members, the government is taking action to minimise uncapped future liabilities that would otherwise have been borne by future generations of taxpayers. In the 2014-15 budget papers, it was estimated that the impact of the closure of the MSBS from 1 July 2016 will reduce unfunded superannuation liability by a staggering $126 billion by 2049-50.

The evolutionary nature of this legislation means that stakeholders have had ample opportunity to understand and accept the rationale behind the changes proposed. The government accepts that superannuation is a contentious area of policymaking and that change by its very nature advantages some more than others. However, I am advised that organisations such as the Defence Force Welfare Association, or DWFA, have expressed broad support for the closure of the MSBS and the establishment of an accumulation scheme for ADF members. I note that the DFWA and other organisations, such as the Alliance of Defence Service Organisations and the Returned and Services League of Australia, expressed concern at an earlier proposal to set the contribution rate at 15.4 per cent, the same as for other Australian public servants. In response to their feedback, the government has proposed an increased rate of 16.4 per cent in recognition of the unique nature of the Australian Defence Force service. In response to stakeholder feedback, the government has also elected not to proceed with a two-tiered contribution rate that distinguishes between 'warlike service' and other service.

The position that has been reached is one that, I am advised, is acceptable to the Labor Party and I acknowledge their support for these bills. To the extent that it is possible, I think that bipartisanship on matters relating to Defence is in the best interests of serving personnel. Bipartisanship on this issue is an indication that the government has the balance right on reform of ADF superannuation.

In reforming Australian Defence Force superannuation the government wants to achieve three objectives: firstly, it wants to ensure that ADF personnel remain adequately supported by a superannuation scheme that recognises their service to this nation; secondly, it wants to ensure that a Defence Force career remains an attractive proposition to young Australians; and, thirdly, it wants to ensure that future generations of Australian taxpayers are not saddled with debt obligations that this country cannot afford. These bills ensure that the government fulfils all three objectives and ensures that long awaited reforms to Australian Defence Force superannuation are responsibly delivered. I commend these bills to the House.

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