The govt can cut your super pension, but it won't

Not unexpectedly, former federal superannuation minister Nick Sherry's suggestion last month to remove billions of dollars from defined-benefit government pension schemes triggered several reader queries.

One retired pensioner asked whether legislation prevented any change to his entitlements. Another current public servant asked whether the benefits promised by the Public Sector Superannuation Scheme were guaranteed.

I've not found any proposals to reduce the benefits of members of any of the federal government's defined-benefit schemes. With the exception of MilitarySuper and the judicial pension scheme, all other federal defined-benefit funds - the parliamentary scheme, PSS, the Commonwealth Superannuation Scheme and the Defence Force Retirement and Death Benefits Scheme - are now closed to new members. Any action to reduce the benefits provided under these closed schemes would thus require legislative amendments that, with one exception, would need to be retrospective.

The exception is that it would be possible, as happened when Qantas and other, similar organisations were privatised, to terminate membership of the relevant fund for future employment. This would involve legislation to protect the benefits already accrued and the only resulting savings to the budget would be the lower, ongoing costs of future Commonwealth employment.

The savings gained by closing off future employees' access to existing benefits would be far less than if retrospective action was taken to reduce all benefits, including those of existing pensioners. Nevertheless, this action, if it was not to result in political outrage, would also involve closing MilitarySuper and the judicial pension scheme to new members. In addition, ministers are unlikely, based on their past record of not applying the contributions cap to themselves, to limit the future accrual of their own benefits.

While there can never be certainty about the actions of future governments, the political stress involved in reducing benefits promised under existing schemes is a major protection to these schemes' members. A considerable degree of comfort is also provided by the fact that the biggest (and costliest) of these schemes (CSS, PSS and DFRDB) have been closed to new members for years now.

Furthermore, even though the unfunded liability of the benefits already promised is still rising - due to lower investment returns and the fact that we live longer - the Future Fund will help pay for a considerable proportion of those liabilities.

For all of these reasons, it's difficult to understand why a former minister who receives a parliamentary pension identified public service benefits as a source of potential savings.

Far from suggesting cuts to public service super, Opposition Leader Tony Abbott has committed to further future outlays by changing the way military pension payments are indexed to reflect changes in wages as well as prices. His announcement would appear to confirm that cuts to the benefits promised to public servants are not on the Coalition's savings list if it is returned to government.

Apart from lobbying politicians and policymakers about the adverse effects of making retrospective cuts to benefits promised under superannuation legislation, another way to minimise such action would be to ensure the Future Fund is not accessed for non-super purposes.

The best protection would be to move the fund to a funded super account to help it meet future benefits. The Future Fund could then be augmented by current employer super contributions for pension fund members, which are now used as a below-the-line funding source. This would provide even more protection. Nonetheless, even without these changes, it would be very surprising if the government acted on Sherry's suggestions.

Next articles

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.

Read More

Share