Public servants deserve better retirement options

Last month's Informant criticised the Public Sector Superannuation Accumulation Plan's failure to offer transition-to-retirement income- stream options to its members. In response to that column, members of other, older funds the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme complained of similar discrimination.

Informant research confirms this certainly is the case, but, unlike PSSap members, CSS and PSS members can increase their employer-provided benefits by delaying the time from which they begin drawing their benefit. This is a result of the defined-benefit structures of both of these funds, which ultimately led to their closure to new members in 1990 and 2005 respectively.

In the case of the CSS, members aged 55 or older can substantially increase their employer- provided pension by obtaining a higher salary, especially by being promoted before they retire. The extra pension obtained from this can, and often does, provide sufficient compensation for not being able to access their CSS pension while they are still working. There is one important exception to this general position.

This is the 54-year-11-month resignation option in the CSS, which can provide and in the past, when investment returns were higher, often did provide a much larger pension at 55 than from working longer. For these lucky employees, resigning from the CSS and drawing a preserved pension at 55 provides a more generous benefit than any transition-to-retirement income-stream arrangement could.

Moreover, unlike in the PSS, CSS members can draw an indexed pension any time after the age of 55, even if they remain in the workforce after retiring from their Commonwealth job. Given such financial incentives in the CSS, it's understandable federal employers have not introduced transition-to-retirement income- stream arrangements for CSS members.

For several reasons, the situation for PSS members is starkly different and highly discriminatory compared with that for CSS members and the general public. PSS members can cease their contributory membership at any time and preserve their benefits in the fund.

The Superannuation Industry Supervision Act and its regulations permit the general public and CSS members to access a pension from their preserved super any time after they reach preservation age (presently 55 but increasing to the age of 60 for people born after July 1, 1960), even if they are still working. This is the legal basis under which transition-to-retirement income-stream pensions can be drawn by people who are still working.

In stark contrast, the PSS rules are draconian. The PSS informs members that, for the most part, super benefits cannot be accessed in full until they retire permanently from the workforce and not simply when they stop contributing. However, the Informant's enquiries reveal that the PSS rules require members with preserved benefits to access these benefits at the age of 65.

Thus, the longest period that PSS members are currently denied access to their benefits while still working is 10 years that is, between the ages of 55 and 65. The Informant was unable to discover just why the Commonwealth discriminates against PSS members by applying much harsher access rules than for all other super fund members.

The explanation could merely be inertia, given that the Treasury and the Finance Department designed the PSS rules in 1990, when super laws generally allowed access to preserved benefits only after retirement. If this is the case, PSS members have good reason to be upset by the harsh provisions that limit their access to benefits until the age of 65 or their retirement from the workforce.

Another possible reason is that allowing access to preserved PSS benefits as a pension after the preservation age would increase budgetary outlays. This is a distinct possibility because of the law's harsh treatment of preserved PSS benefits.

While preserved member and funded productivity benefits attract interest at the fund earnings rate, the unfunded employer-provided benefit increases only at the rate of inflation. Under this arrangement, the longer the government can delay access to the preserved benefit, the lower the budgetary cost of paying the benefits because the accumulated debt attracts no interest.

Whatever the explanation for the harsh treatment of PSS members compared with other fund members, it is another example of the scope for improvement in the way Commonwealth employers' super arrangements are designed and implemented.

Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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