Chapter 5
Government Senators' report
5.1 As noted in the second chapter of this report, the main purpose of
this legislation is to allow the Commonwealth's employees to participate
in the Government's choice of fund arrangements, described at length in
the Committee's previous report, Choice of Fund.
5.2 The Australian Government Actuary, Mr Craig Thorburn, advised the
Committee that it is difficult to operate an open defined benefit scheme
in the context of choice of fund:
I think the provision of choice is a difficult thing to do in that context
of open defined benefit schemes, and the provision of choice is seen as
a substantially important option for employees to have. [1]
5.3 Accordingly, a precondition for the extension of choice of fund to
Commonwealth employees is closure of the remaining Government employees
defined benefit fund, the PSS, to new entrants.
5.4 Government Senators are satisfied that the Prime Minister's undertaking
to Commonwealth public servants prior to the last election has been honoured
in the Bill. All existing public sector employees can choose to retain
all existing superannuation entitlements. All future public sector employees,
after 1 July 1998 will choose their complying superannuation scheme
and their employer agency will be budget funded, to enable their employer
to contribute no less than current contributions to existing employees.
5.5 Government Senators note that closure of the PSS will also, over
the longer term, reduce the Commonwealth's unfunded superannuation liabilities
in respect of its employees. The Australian Government Actuary has reported
that as at 30 June 1996, these liabilities amounted to $42 billion, or
approximately 0.5% of gross domestic product. [2]
5.6 In its third report, entitled Super and the Financial System,
the Committee noted that if these unfunded liabilities are allowed to
grow at a rate commensurate with the national stock of superannuation
assets, it is likely that governments will experience difficulty, especially
in those years when demographic characteristics dictate that a high number
of payouts occur and/or a large number of former public servants are in
receipt of a pension, in meeting these obligations in the context of tight
budgetary conditions. The Committee considered that it was therefore in
the interests of the Federal and State governments to act to curtain this
burgeoning debt. Should they be unsuccessful, it is likely that public
sector borrowing will need to be expanded. Under this scenario, a link
between pressure on interest rates and the growth of public sector superannuation
debt could be established.
5.7 The Committee further noted that pressure on interest rates could
be further intensified if ratings agencies take superannuation debt into
account in assessing credit rating for public sector borrowing activities.
[3]
5.8 The Department of Finance and Administration advised the Committee
that as a result of closing the PSS to new entrants, the Commonwealth's
unfunded liabilities would decrease one third by 2025. [4]
Government Senators consider that closing the PSS to new entrants is a
responsible initiative.
5.9 Following the passage of this legislation, the Government will fully
fund its superannuation liabilities in respect of new employees and those
who elect to leave the PSS or CSS after 1 July 2000. Employer contributions
will be directed to accumulation schemes chosen by the employees. Superannuation
arrangements for new Commonwealth employees will then be similar to those
that cover the vast majority of private sector employees. Consequently,
benefits will generally be paid as lump sums.
5.10 Government Senators note comments made by this Committee in earlier
reports that 'Australia has to go through the process of being "weaned
off" lump sums'. [5] Shifting retiring
government employees from pensions to lump sums will not advance this
process. Methods of encouraging government employees to return to taking
their retirement benefits in an income stream should be encouraged.
5.11 Government Senators consider that a reasonable time should be allowed
for former employees to lodge appeals concerning late election to preserve
contributions where insufficient or incorrect advice may have been provided
by the employer.
5.12 As noted in the previous report, Government Senators recognise that
the Government's timeframe for introducing choice of fund for its own
employees, as well as employees generally, is tight in terms of delivering
a comprehensive education program about choice.
Recommendation
Government Senators recommend that the bills be passed without delay.
Senator John Watson Senator Alan Ferguson Senator Julian McGauran
Chairman
Footnotes
[1] Evidence, p. 33.
[2] Public Sector Superannuation Scheme and
Commonwealth Superannuation Scheme (PSS and CSS), A review of long
term costs carried out by the Australian Government Actuary using data
as at 30 June 1996, p. 4.
[3] Super and the Financial System, third
report of the Select Committee on Superannuation, October 1992, p. 25-26.
[4] Submission, p. 14.
[5] See, for example, Options for Allocated
Pensions Within the Retirement Incomes System, a preliminary paper
prepared by the Senate Select Committee on Superannuation for the Minister
for Social Security, March 1994, para. 1.2.
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