Thousands of future military recruits could miss out on one of the most generous superannuation schemes in the country. Photo: Jeffrey Chan
THOUSANDS of future military recruits could miss out on one of the most generous superannuation schemes in the country, because of the cost-saving recommendations by the National Commission of Audit.
Buried in the detail of the commission's report, released on Thursday, is a proposal to close the Military Superannuation and Benefits Scheme to new members, a measure designed to slash about $200 million from the Commonwealth's unfunded superannuation liability bill by 2020.
While defence welfare organisations support reforms to the scheme, the Australia Defence Association executive director Neil James warned that, if adopted, the proposed changes could affect the Defence Force's ability to recruit and retain personnel.
''When the MSBS came in it was already worse than the scheme it replaced,'' he said.
''They are now talking about replacing the MSBS and there's two things at play here.
''The defence force wants to improve the MSBS because there're some problems with the scheme and the commission wants to get rid of it because they say it's too expensive. So, there is a clash of interests there.''
A previous report to government in 2007 recommended the MSBS be closed to new members. It was resisted by the Defence Force Welfare Association because the proposed replacement scheme would have limited the employer contribution by the Commonwealth to 16 per cent for ADF personnel during their first six years of service.
The association said that would have been 2 percentage points less than for the existing MSBS. There were also concerns about other aspects of the replacement program.
The commission of audit has recommended creating a scheme that would be based on an accumulation plan.
''The Military Superannuation and Benefits Scheme is now the only major Commonwealth scheme with unfunded defined benefits that remains open to new members and hence is generating uncapped and increasing unfunded liabilities,'' the commission's report stated.
''These liabilities will have to be paid for by future generations.''
The National Commission of Audit did not say what employer contributions for the new scheme should be, but estimated it could result in outlays over the first four years of about $400 million.
''Creating a new scheme would mean increased cash outlays now,'' it stated.
Dixon Advisory exectuive chairman Daryl Dixon said this was due to changes needed for an accumulation scheme.
''The MSBS is unfunded - they promise the benefit and don't put money away,'' he said.
''This new scheme will be more costly at first because the government would be forced to put money aside now, whereas with the existing scheme they are building up liabilities for the future.
''For many new recruits a scheme similar to that of the public service would be better because they can take their money with them if they leave the ADF at any age and take it to another super fund.
''Also they will not be required to contribute to the fund and will have more money to pay off their mortgage each pay period.''
The audit recommended getting the money to pay for the new scheme from the Future Fund.
Mr James warned that there were bigger things at play than money in military super schemes.
''The problem is the commission of audit is not considering factors [specific to] the military - of recruitment, retention and also encouraging people to retire early so the military does not get old,'' he said.
''There's no point having a defence force full of old people hanging on just for their super.''
Mr James said the Defence Force had a very young workforce but the MSBS did not allow members to access their fund until they reached 55.
He said this was unhelpful in encouraging early retirement.
''It's not just the physical stress, it's the mental stress - your ability to handle mental stress declines with age,'' he said.
''It's important to encourage ADF personnel to retire early.''
Defence Force Welfare Association executive director Alf Jaugietis said the government had promised to consult the organisation before making major changes and he did not expect changes in the coming budget.
''We have some problems with MSBS as it stands,'' he said.
''A young man or woman who joins the ADF, serves for say 10 years and then resigns, cannot withdraw their employer contribution and roll it into a super fund of their choice like most other workers in the nation.
''When they finally get access to their employer component, they are likely to find it could be as much as $360,000 less than what they could have earned by rolling it over into a private superannuation fund - that is even based on the government's own figures.
''Australian super funds have returned on average around twice CPI over the long term, which means not only that MSBS purchasing power of the preserved benefit over a long period is significantly eroded but that MSBS members do not benefit from long-term market conditions enjoyed by most other Australians.''