The Federal Government has confirmed in documentation provided to members of the Public Service Superannuation Scheme (PSS) that unfunded liabilities were a major motivating factor for closing off the existing scheme and introducing a fully funded accumulation model from July 2005.
With the major Commonwealth public service unions reserving judgement on the Government’s move, the Department of Finance issued a question and answer document to members which states that over the time since its introduction, the PSS “has accrued over $9 billion in unfunded liabilities, which will double in size over the next 14 years if not addressed”.
The Government is hoping to sell the new arrangements to public servants and their unions by arguing that existing members of the PSS will not be disadvantaged and that the new accumulation scheme will be more equitable in terms of the employer contribution rate.
Both the Australian Labor Party Opposition and the Australian Democrats have expressed concern about the Government’s changes and have warned that they will be closely examined to ensure that public servants are not disadvantaged.
The ALP’s spokesman on Retirement Incomes, senator Nick Sherry, claims that the Government’s move represents a backdown from its previously announced position of a total shut-down of the fund.
The Democrats spokesman on Superannuation, senator John Cherry notes that while the move toward fully funding outstanding superannuation liabilities is welcome, the Democrats want to know how the change will affect those re-entering the public service after July 1, 2005 and the impact on death and disability insurance.
The Department of Finance, in supporting the original announcement made by Minister for Finance Nick Minchin, has issued an assurance that existing employees and people with an existing interest — including a deferred interest or preserved benefit — in the PSS or its predecessor fund, the Commonwealth Superannuation Scheme, will be unaffected by the changes as at June 30, 2005.
However, the Department of Finance has also placed pressure on individual Commonwealth Government departments and agencies by assuming that their budgets are already in a fully funded position with respect to their superannuation liabilities.
“Under the new arrangements, employers will pay a rate of 15.4 per cent of salary to the PSS. Agencies already pay the equivalent of 15.4 per cent of salary on average to cover the defined benefits for PSS members. As a result, Budget funded agencies should already be adequately funded for the costs of the new arrangements,” the Department says.
