5.1
This chapter contains the committee's conclusions and recommendations.
Provision of information
5.2
The terms of reference asks the committee to focus on the information provided to DFRDB members. The committee believes this issue was comprehensively addressed through the investigation undertaken by the Commonwealth Ombudsman. The Ombudsman found many DFRDB members were provided with incorrect information by Defence which led them to believe that their commuted pensions would increase once they reached their life expectancy factor age.
5.3
There is no dispute that this occurred, it has been recognised as defective administration by Defence and an apology has been issued by the Secretary of the Department of Defence and the Chief of the Defence Force.
5.4
It is also clear that contrary to claims that all DFRDB members received incorrect information, this was not the case with the Ombudsman finding that Defence provided some correct as well as incorrect information to members on the long term impact of commutation. The committee also notes that it did receive submissions where the submitters indicated that they had full knowledge of the operation of the legislation and this was also found by the Ombudsman.
5.5
There were submitters who felt the DFRDBA/CSC were also to blame for not properly communicating the correct understanding of commutation to DFRDB members or that the information about how the scheme operates was somehow covered up. However, the committee notes that the Ombudsman found that the information provided by DFRDBA/CSC was at all times correct but not sufficiently clear to correct the misunderstandings that many members had as a result of their interactions with Defence. In addition, it is worth noting that it was and is always open to members to contact the DFRDB Authority/CSC to clarify issues and the Ombudsman found that Defence handbooks encouraged this.
5.6
As there appeared to be confusion about the role of the DFRDBA/CSC the committee emphasises that the CSC administers the scheme in accordance with the legislation as agreed by the parliament and the legislation itself is a matter for government. The CSC does not make or change policy in regard to any of the super schemes that it administers.
5.7
It also seems clear to the committee from the evidence and the statements to the committee and the Ombudsman that the vast majority of DFRDB members would have chosen to commute even if they had known about the reduction in retirement pay as they needed the capital to purchase a home or business after leaving the ADF.
5.8
The data in the Ombudsman's report shows that even after this issue was clarified the numbers choosing to commute remained high at or above 85 per cent. This appears to be at odds with the claim that very few DFRDB members would have accepted the lump sum benefit had they been aware of the reduced pension.
5.9
Following on from the finding that Defence provided incorrect information, the Ombudsman then investigated the question of whether members who relied on this advice suffered financial detriment. In summary, the Ombudsman did not recommend any compensation in a broad sense.
5.10
The committee also notes a number of submissions raised concerns about the complexity of the DFRDB scheme and the difficulty in navigating bureaucracy to access information on it. Some submissions proposed a formal education program on military superannuation schemes for ADF recruits and officer cadets, and ongoing updates for ADF personnel, as well as a dedicated website for members.
Financial detriment
5.11
Despite the findings of the Commonwealth Ombudsman, some DFRDB members remain strongly of the view that they have suffered financial detriment based on their understanding at the time, which is actually a misunderstanding of how the scheme operates. In other words, the financial detriment is perceived rather than actual as it compares their current financial situation to a scheme that does not exist in law, ie claiming an actual loss as opposed to a financial disappointment.
5.12
As noted by the Ombudsman 'missing out on a benefit to which a person is not actually entitled under the law does not necessarily mean that the person has suffered financial detriment'.
5.13
While this outcome is no doubt disappointing, to the committee, the most important question, as it was for the Ombudsman, is whether some DFRDB members suffered actual (as opposed to a perceived) financial detriment as a result of choosing to commute, based on the wrong advice from Defence.
5.14
The Ombudsman engaged two expert actuaries (the Australian Government Actuary and KPMG) which found commutation has resulted in a beneficial overall financial outcome for DFRDB members to date. This was based on the real life scenarios they ran which used conservative assumptions. The Ombudsman also undertook its own independent analysis of the modelling results.
5.15
While some submitters questioned the findings of the Ombudsman's investigation and the modelling undertaken, the committee does not question the professionalism of the Ombudsman or the actuaries engaged. Indeed it appears that by engaging two actuaries and conducting its own analysis, the Ombudsman took great care to answer this most important question about actual financial detriment.
5.16
In addition, the Ombudsman went a step further, acknowledging there may be outlying cases with circumstances they were not aware of at the time of the investigation. To address this possibility there is a process for DFRDB members to apply for compensation through the Compensation for Detriment caused by Defective Administration (CDDA) scheme.
5.17
The committee notes that in the case of financial loss, the overarching principle used by the CDDA scheme to determine the appropriate level of compensation is to restore the claimant to the position they would have been in had the defective administration not occurred. However, the committee considers that where financial detriment as a result of defective administration can be shown that there is a case for the government to consider modest reparations or an ex-gratia style payment to recognise this.
5.18
The committee notes that currently, no CDDA claims by DFDRB scheme members have been successful. Therefore, more support may be required to assist DFRDB members to access the CDDA scheme and appeal any adverse decisions.
5.19
Further, the committee considers that for DFRDB members who were unsuccessful in their claims and any appeals under the CDDA scheme, some form of reparation payment may be appropriate as a fall back. This is broadly consistent with an option considered by the Ombudsman and discussed by him in the inquiry public hearing. This could operate along the lines of existing government reparation payment schemes, including for those who have suffered abuse in the Australian Defence Force.
5.20
These payments would also recognise the government’s moral obligation to address the confusion and distress suffered by DFRDB members as a result of defective administration. This could involve a streamlined and simplified application process for complainants.
5.21
The committee recommends that the Australian Government consider ways to improve members' understanding of DFRDB and other military superannuation schemes. This could include additional information and education for ADF recruits and officer cadets, and ongoing updates for ADF personnel. It could also comprise a dedicated website or webpage for members, including a summary of the scheme and information on a member's contributions history and any residual pension payable.
5.22
The committee recommends that the Australian Government consider more assistance for DFRDB members to make claims under the CDDA scheme and appeal any adverse decisions or a separate reparation payments scheme for DFRDB members who are unsuccessful under the CDDA scheme to recognise the government's moral obligation to address any confusion and distress caused by defective administration. Where a CDDA claim was successful, compensation could include any professional costs expended in preparation of the claim, and legal and other professional costs if a claimant successfully appealed an adverse finding. Further, where the claimant's CDDA appeal was unsuccessful, the Commonwealth should consider not applying for costs to be awarded against the claimant.
5.23
Given the criticism of the Ombudsman report in submissions, it is worth emphasising that the focus for the Ombudsman was, consistent with his remit, on the administration of the scheme and not the policy and design issues raised with him (see below). The committee also understands the Ombudsman could only look at financial detriment in relation to the DFRDB scheme in existence, not the scheme promoted to DFRDB members that does not exist in legislation.
Parliamentary Scrutiny
5.24
The Ombudsman and the committee received evidence questioning whether parliament understood what it was voting for and arguing that it should have been passing legislation that reflected all the findings of the Jess report.
5.25
The committee does not question whether parliament understood what they were voting for when they passed the DFRDB Act. The parliament deals with complex legislation all the time. The committee also notes that in relation to the Jess report, it is up to government to accept, reject or modify the recommendations in committee reports when bringing forward legislation.
Design of the scheme
5.26
In essence the issues raised with the committee centre on the design of the DFRDB scheme. DFRDB members believe that the scheme currently in legislation is either not what was recommended to government at the time the legislation was put in place or that regardless of that, it is unfair in a number of areas including the permanent reduction to retirement pay, use of life expectancy factor tables and indexation.
5.27
There was no consensus in the suggestions to the committee on a way forward on these issues. However, it is the case that the suggestions would all require the legislation to be amended as they all deal with policy settings determined by government.
5.28
Changing the legislation is an option open to the government of the day. However, the Ombudsman cautioned that the government should have regard to the potential impact on other members, namely those who did not commute or those who transferred to other schemes. There are a number of issues with this option which would:
place the cohort who chose to commute in an even stronger position than those who decided not to commute;
provide an unjustified windfall at taxpayer's expense for those who did understand the scheme and chose to commute; and
presume to contradict the intent of the parliament.
5.29
As pointed out by the Ombudsman, if further changes are made to the DFRDB scheme, this may cause unfairness to members who decided not to commute. It may also cause unfairness to other current and former ADF members, for example, those who chose to move to the MSBS scheme in the early 1990s based on the understanding that the scheme was closing and would not be significantly reformed. Changes may also affect people in other military or civilian schemes who would also call for the same options, treatment and reimbursement.
Senator Kimberley Kitching
Chair