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EYE-BALL’s Guru on – Australia’s Parliamentary Remunerations – Part III – Superannuation – “The Future Fund”

April 4, 2013
Latest GURU Posts:

– 3rd Apr – Government not happy about its tax collect – Claims Tax Minimisation deserves ‘Naming and Shaming’ –

– 31st Mar – The Cyprus Bail-out

– 31st Mar – Australia’s Debt – and the idiots Managing the Treasury –

– 20th Feb – Australia’s Parliamentary Remunerations – Part II – Entitlements and Allowances –

– 13th Feb – Australia’s Public Sector Remunerations Part I – Parliamentarians “Base-Salary” and “Additional” entitlements –

– 31st Jan – The Devil is in the Detail, there is none – Gillard chooses shock, awe & Spin over Policy –

– 23rd Jan – The Turmoil is Already here – We just have to accept what is coming –

– 22nd Jan – The Turmoil is beginning – Japan’s Economic Stimulus to tip the scales –

– 20th Jan – Wayne Swan Tips his hat at New Yorker’s

– 10th Jan – The ANZ Whitehaven Hoax –

– 5th Jan 2013 – Financial ‘Ghosts’ from the Past – Hawke and Keating v Gillard and Swan –

– 29th Dec – The Great Big Financial Swindle – Part II – The ‘Budget Surplus’ Backflip – Swan tells his own Porkies …

– 22nd Dec – The Great Big Financial Swindle – Part 1 – The ‘Budget Surplus’ Backflip – Swan serves up Senator Wong

– 14th Dec – The Walls are crumbling – Government admits High A$ policy is hurting –

– 4th Dec – Retailers and bureaucrats don’t understand – high A$ value responsible for off-shore purchases –

– 19th Nov – Government Expenditures Part I – Department of Prime Minister and Cabinet – DPMC – STAFFING –

– 3rd Nov – Shareholders – Holding back the world – scared money – scared boss’s –

To see more GURU posts: – click here …

– Australia’s Parliamentary Remunerations –
– Part III – Superannuation – The Future Fund –
| Author: EYE-BALL Guru | 4th Apr 2013 |
Continuing the Series – Australia’s Parliamentary Remunerations:

  1. Part I … Parliamentarians “Base-Salary” and “Additional” entitlements – and …
  2. Part II … Entitlements and Allowances –
  3. Part III … Superannuation – “The Future Fund” continues below:
  4. Part IV … Superannuation – MP’s and Senator benefits … coming soon.

For a long time there has been a desire to dissect and examine the Parliamentary remunerations structure, and the perks attached to being a ‘Member of Parliament, and a Senator – in Federal and at State levels.

Superannuation – ‘The Future Fund’:

Some interesting data has come forth from a long-term research investigation into Superannuation and in particular,  the ‘Future Fund’, and other Public Service Superannuation Funds, namely Federal, State, and municipal.

Before we go to the ‘Future Fund’ – I want to put the macro jigsaw puzzle in play and how this research is endeavoring to put the pieces of that puzzle and how it relates to the Australian Public Sector Superannuation landscape.

A well respected Financial Markets source in wrote an article in the ‘Business Speculator‘ published in Oct’ 2012.   The story provides commentary about the total ‘$’ value liability of Australia’s ‘unfunded’ Public Sector Superannuation schemes.

Mr Gottliebsen’s numbers paint a frightening landscape for Australian taxpayers whose task it will be to donate the revenues to provide for these future liabilities – i.e. Parliamentarians and other Public Servants retirement pensions.   His story appears below:

Canberra’s great superannuation rort

| Author: Robert Gottliebsen | Date: Oct 1st, 2012 | Link to On-Line Story. |

Former superannuation minister Nick Sherry has blown the lid on Australia’s greatest rort – the $210 billion unfunded public sector defined benefit superannuation schemes.

The Canberra public service beneficiaries of this rort are often the very people who are attacking legitimate savers in the private sectors who put money aside to pay for their retirement.

As we all know the public servant rorters are mounting another attack on legitimate private savers. This has led former ACTU boss Bill Kelty to demand that the public servants and their weak ministers stop attacking Australian savers. Now in The Australian, Nick Sherry advocates scrapping the generous super scheme enjoyed by public servants and politicians, pointing out it will raise billions of dollars in budget savings.

Defined benefit superannuation – particularly pensions – is a huge burden on the community because returns are now much lower than expected (the looming interest rate reductions will make returns even worse) and in the case of unfunded pensions people are living much longer.

State and federal public servants until the last decade enjoyed one of the greatest superannuation schemes ever devised. While they put money into a conventional fund there was a much larger benefit provided by future taxpayers which promised benefits irrespective of returns. In the private sector, savers take the return risks. In these bonanza schemes public servants were guaranteed benefits linked to their salary and/or the CPI irrespective of returns.

For a long time no money was set aside. Later former treasurer Peter Costello set up a future fund and state governments put money aside. Moreover, in most jurisdictions the bonanza defined benefit schemes have been frozen to new members but new pensions are still available to certain groups including politicians, judges and military personal.

Most senior public servants still have their enormous entitlements and appear oblivious to the irony that they are attacking those whose retirement benefits depend on the returns on the money they have set aside.

According to Joelle Fong, John Piggott, and Michael Sherris of the ARC Centre of Excellence in Population Ageing Research at the University of New South Wales, unfunded liabilities of Australian state and federal public service pensions rose from $136 billion in 2007 to $210 billion in 2011. With interest rates and returns falling my guess is that they will soon rise beyond $250 billion.

In the US and Europe public servants also went on sprees to commit future taxpayers to fund their retirement with unfunded schemes. These schemes are coming unstuck. The latest group in the US to find that they can’t pay is the US Post Office.

In Australia our wealth has enabled us to keep up the payments but as the University of NSW research shows we are falling behind.

That’s why it is outrageous that “protected” public servants should be plotting against private savers whose level of retirement savings depends on investment returns. If the public servants succeed in convincing weak politicians (who have their own defined benefit schemes) to attack genuine savers then its only fair that the public service unfunded liabilities be capped at $210 billion and that the public servants be told that their pension entitlements will be reduced in years when returns are down.

They will then be in the same position as those in the private sector and be required to use their own money. There will then be no more Canberra plotting against private superannuation funds.

Yip-pity-doh-dah-day – are you now sufficiently engaged and understand how much you and every other Australian owes to our illustrious Political Leaders …   $210 billion … maybe up to $250 billion by now … divide that by the 14 million eligible voters and it equates to $18,000 – yes that is right … $18,000 smackaroos is how much each one of us eligible voters owes our MP’s, Senator’s and other leeches feeding of the Federal Superannuation system.

This is the mother of all ‘Ponzi’ schemes.  It makes all others pale into significance … Madoff’s efforts were kindergarten stuff and they jail him forever …

The meaning of a ‘Ponzi’ scheme in the true sense of the word – ‘the future liabilities for present day entitlements’, and how does the Parliamentary Superannuation not fit this meaning.  All MP’s and their superannuation like entitlements are to be paid for by future taxes stripped from future taxpayers to pay for decade old superannuation schemes,  as legislated and voted for by these same MP’s who are to benefit from the scheme.

You – the taxpayer already donated $60+ billion to the Future Fund in 2006-07  when Treasurer Costello handed over Telstra shares and sale proceeds, and again in 2008 under Treasurer Swan when more Telstra shares were handed over.

Before these payments were made to the newly formed ‘Future Fund’, the previous superannuation entity only had $123 million in assets to cover the $91 billion liability – hence the ‘Ponzi’ scheme analogy.

A statement made in the 2005-06 ‘Future Fund’ Annual report allows speculation and opinion that up until 2005-06 – the Federal Government had not been funding is future superannuation obligations.   This in a corporate sense would have been pursued by regulators as criminal intent and a breech of employer employee guarantees.

That ‘Future Fund’ statement appears in highlight below:

Establishment of the Future Fund

The decision to maintain a CGS market while continuing to achieve a number of budget surpluses has allowed the Australian Government to accumulate significant financial assets, which have been used to assist in meeting within year financing requirements and to reduce the cost of its debt portfolio.

The outstanding stock of CGS is not the only significant liability on the Australian Government’s balance sheet. The Australian Government has never fully funded its superannuation liabilities which are now valued at around $91 billion. To offset these superannuation liabilities, the Government will use budget surpluses to build a dedicated financial asset fund — the Future Fund (the Fund). This will reduce calls on the budget in the future, at a time when significant intergenerational pressures are expected to emerge.

The Fund is expected to be established later this year with seed capital sourced from the 2004-05 Budget surplus and from previous surpluses held on deposit at the Reserve Bank, once the Final Budget Outcome for this financial year is known. The Fund will be invested in a broad range of financial assets and will be managed by an independent statutory agency governed by an appropriately qualified board. Contributions to the Fund will be made from future budget surpluses and assets sales with the aim of offsetting the superannuation liability by around 2020. Details of the financial implications of the Fund are in Statement 2.

The decision to establish the Future Fund will not affect the issuance strategy adopted by the Government as a result of the review of the CGS market in 2002-03. Issuance in 2004-05 and planned issuance for 2005-06 reflects the continuing policy stance consistent with maintaining liquidity in the CGS market. The transfer of assets to the Future Fund is likely to necessitate some additional use of Treasury notes to manage the Government’s within year financing requirements… continues

Very interesting indeed – the comment – ‘has never fully funded‘ – I would ask why The Federal Government would not cover its obligations in funding the Superannuation liabilities of all those covered under the Parliamentary Superannuation schemes – up until Costello and Swan stripped taxpayer owned assets/funds to do so in 2006-08..

Who is a member of the Future Fund:

Superannuation Schemes for Federal employees from the Site index above are listed below:

  • Arrangements for Australian Government employees – There is a variety of superannuation arrangements applying to Australian Government employees and statutory office holders. The linked page above describes the superannuation options available with links to the relevant Acts and further information on the superannuation schemes available.
  • Commonwealth Superannuation Scheme,  [CSS] – is a superannuation scheme for employees of the Australian Government and other participating employers… is largely ‘unfunded’.
  • Commonwealth Superannuation Corporation [CSC] – provides superannuation services and products to Australian Government employees and employers through nine Schemes covering the public sector and the defence forces.
  • Public Sector Superannuation Scheme [PSS] – provides defined benefits that are usually based on the average of the member’s superannuation salary on the member’s last three birthdays, multiplied by an accrued benefit multiple (which is dependent on the level of the member’s contributions and length of membership). The PSS was closed to new members from 1 July 2005,
  • The Defence Force Retirement and Death Benefits Scheme [DFRDB] – is a fully defined unfunded superannuation scheme which was closed to all new members on 1 October 1991. The Scheme is administered by ComSuper.
  • The Military Superannuation and Benefits Scheme [MSBS] – was established by the Military Superannuation and Benefits Act 1991 (the MSB Act). The MSBS is a defined contribution/defined benefit scheme administered by ComSuper.
  • ComSuper – ComSuper administers the major superannuation schemes available to Australian Defence Force members and the majority of Australian Government employees, under authority from the Commonwealth Superannuation Corporation.
  • The Public Sector Superannuation Accumulation Plan [PSSAP] – is set up to provide superannuation to employees of the Australian Government and participating employers.
  • Govenor General’s Superannuation Scheme – The Scheme is unfunded and no assets are held. Benefits are financed from Consolidated Revenue as they become due for payment. Current and former Governors-General do not contribute to the Scheme and the Commonwealth meets the costs of benefits.
  • The Judges Pensionn Scheme – the Scheme is unfunded and no assets are held. Benefits are financed from Consolidated Revenue as they become due for payment. Judges and retired Judges do not contribute to the Scheme and the Commonwealth meets the costs of benefits. The scheme covers the following office holders:

The Fed’s have a superannuation deal where the taxpayers pay 15.4% of their salary as a superannuation entitlement.  Whether this includes the 9% employer contribution is still a question not answered.   If it is – that means a 6.4% super windfall that no Australian workers can count on.   Why not … that is one of my questions – with many more to come.

For information purposes to help with what follows –

  • an ‘Unfunded’ Superannuation scheme is a scheme funded by employer contributions,
  • a ‘Funded’ superannuation scheme is one funded by employee contributions.

Linked here is a Government website offering an indexed Superannuation Site map.

Parliamentary Superannuation Act 2004:

Overview …

  • The Parliamentary Contributory Superannuation Scheme (PCSS) was closed to new members from 9 October 2004 and superannuation accumulation arrangements were established for Parliamentarians joining Parliament on or after that date.
  • The accumulation arrangements were established under the Parliamentary Superannuation Act 2004 (2004 Act) and involve a Government contribution of 15.4% which is calculated on total parliamentary salaries. The Government contribution is payable into a superannuation fund chosen by the Parliamentarian.
  • The 2004 Act arrangements apply only to Parliamentarians joining the Parliament who were not sitting Parliamentarians on 31 August 2004. They also apply to such Parliamentarians who return to the Parliament after a break in service.
  • Existing members of the PCSS may not transfer to the 2004 Act arrangements.

The 15.4% employer funded [Unfunded scheme] is by far the best Superannuation scheme in Australia.  Why?

Early Access to Superannuation Entitlements:

How do politicians get the nerve to vote themselves such a generous pension scheme, allowing themselves full pension access from whenever they leave parliament regardless of age.   The debate is of course about when an MP is voted out and has to re-establish a career and needs seed capital – you tell me how the public differ when loss of career happens through natural market place events, and often caused by Government policy.

Why are they denied superannuation entitlement access yet parliamentarians are?

It was reported in a news story that Treasurer Swan would need a private Superannuation scheme with a $5.6 million balance for him to be able to draw his $166k per annum pension.   Because he is a Federal politician he does not have to contribute a cent to earn his Parliamentary pension.   Does anyone think that fair?   [See story link here.]

A further story on Gillard’s pension entitlements can be read here … this really will blow your mind in how much the MP’s superannuation is costing the Australian public.

Pre 1992 Superannuation:

Before 1992 – a great number of employers made tax deductible superannuation contributions to their employees as superannuation contributions.   Post 1992 the 3% Superannuation levee was introduced – i.e. award wage increase decisions were used as superannuation contributions as opposed to salary increases.

Laws on underfunded superannuation payments:

The laws pertaining to under-funding employee superannuation entitlements in the Private sector are quite specific.

… Where an employer fails to provide the minimum level of support, the employer is liable to pay a nondeductible charge called the Superannuation Guarantee Charge (SGC).

The ATO is charged with the general administration of SGC and collects the charge where employers do not provide a minimum level of superannuation support for their employees and redistributes the charge to the super fund of the employees impacted. Rules require employers to pay this penalty to the ATO if they don’t pay enough super or don’t pay within 28 days of the end of the quarter or don’t direct the contribution into the employee’s chosen fund.

Non-complying employers must lodge a statement and pay a penalty known as the Superannuation Guarantee Charge (SGC). SGC is the equal to the amount of required contribution, plus interest at 10% p.a. on the amount outstanding plus an administration charge of $20 per employee. It is important to make special note that the SGC is not a tax deductible business expense, unlike employer contributions that are paid fully and on time to the correct funds.

read more

Determining what component of the ‘Future Fund’s’ under-funding is a result of the employer employee contribution, and/or the penalty component as reference above is an impossibility.

A story published with detail about the Future Funds’s obligations had this to say:

Feb 06, 2013 …

… THE Future Fund’s healthy return of 12.8 per cent last year has boosted its coffers to more than $82.3 billion.

But this leaves it more than $8bn short of where it would have been had it met its official long-term target rate of return. And it still leaves the fund well short of meeting the federal government’s superannuation liabilities of more than $138bn as of June last year.

read full story on-line

This comment suggests the Future Fund is still some $56 billion short of funding the total obligations of the Public service superannuation entitlements.

In an extract from the 2011-12 Annual Report background the following is claimed: [Page 11 of Report.]

… Contributions totalling $40.4 billion in cash were made to the Fund in the period from May 2006 to June 2007 with a further $10.9 billion being contributed by June 2008. This brought the total cash contributions to the Fund to $51.3 billion. No further cash contributions have since been made.

In addition, 2,105 million shares in Telstra (ASX:TLS) were transferred to the Fund in February 2007 and a further 57 million shares were transferred during 2007 and 2008. The total value of these shares on their respective transfer dates was $9.209 billion. All transferred shares were subject to a restriction that they could not be traded until 20 November 2008, subject to certain limited exceptions including disposal through a dividend reinvestment plan (DRP) initiated by Telstra. 126 million shares were disposed of via this mechanism during the Lock-up Period. During the 2011/12 year the Board announced that it had completed its strategy for rebalancing the portfolio and reduced its holding in Telstra to market weight or 100 million shares.

Under the Future Fund Act 2006 withdrawals may not be made from the Fund (apart from meeting operating costs) until at least 1 July 2020 unless the value of the Fund exceeds the target asset level (TAL). This is the amount that is expected to offset the present value of projected unfunded superannuation liabilities. The office of the Australian Government Actuary, in its 2010 report, specified the TAL for the years to 2013/14. The assets of the Future Fund at year end were below the TAL and, at this stage, no withdrawal before 2020 is expected. …

link to Annual Report

Again referring to  report above – his report of a $91 billion ‘Future Fund’ shortfall refers to the gap from the start balance of the transferred funds to the Future Fund in 2005-6 of less that $200 million, and the outstanding liabilities.

In the first year of the ‘Future Fund’s‘ operations the Federal Government handed over $18 billion in May 2006,  the June 2006 balance date showed total assets of $18.163 billion.

Another $22.2 billion in cash was transferred in 2007, along with 8.1 billion Telstra shares worth $8.9 billion. In 2008, another $10.9 billion in cash, and 57 million Telstra shares worth $309 million was transferred from the Federal Government. This made the total Federal Governments cash contribution a total of $51.3 billion – and the share value of the Telstra stock valued at $9.209, totaling $60.509 billion of taxpayers funds was used to part fund the 2005-6 underfunded estimated of $91 billion.

There is irony here – politician’s voted themselves these very generous ‘unfunded’ superannuation schemes over time – they chose not to fund the scheme to its obligations on an ongoing basis, and then when a few Politicians get a little nervous they might miss out and their change of career entitlements – they legislate to strip taxpayer funds to cover the liability.

The Howard Government had control of both the Upper and Lower Houses, and this allowed them to push through this legislation.  Was it an abuse of the political position the Howard Government was given?  Some $60 billion of taxpayers fund used to provide retirement pensions for so few Federal Government employees.

Would it have happened if the Senate was not controlled by Howard at the time?   Did it have bipartisan support?

There have been no more funds transferred to the ‘Future Fund’ since the 2008 transfers.

The 2005-06 establishment of the ‘Future Fund‘ was only about addressing the Federal $91 billion under-funded problem.  The States and Local Government Superannuation form the balance of the $210 billion Gottliebsen talks about in his article above.   [Note: The $91 billion is a Federal 2005-6 estimate – the 2007 $136 billion used in Gottliebsen article above is an unconfirmed number – as is the 2011 $210 billion number.]  

Is this not frightening – some $210 billion – that is 80% of the total Government debt owed at the moment – the $210 billion could be as high as the current $265 billion Federal debt as no funds have been paid into the ‘Future Fund‘ since 2007.

If one was to add the Superannuation obligations to National debt – the current 25% Debt/GDP ratio that Wayne Swan and Treasury use as a reason to compare Australia favourably with the rest of the World, and a basis to justify more borrowing programs – suddenly looks less creditable.

Again – how did our State, Council, and Federal Leaders allow this taxpayer obligation to get so far behind?  On whose watch did it start – and why does this liability not form part of the State and Federal Budget structures as a debt liability owed by all State and Federal taxpayers?

We’ve known for decades the ‘rich vein of gold’ – i.e. apathetic taxpayers our Politicians draw from to create their own ‘super-duper’ pension entitlements –  has always been a contentious issue.  Perhaps by not exposing the depth of the unfunded problem they felt they could hide it forever.  Is it a case that the entitlements are just not sustainable?

Again – one of the claws that sticks is why are Parliamentarian’s allowed to trigger their pension payments when they leave the Parliament and not when they turn 55 or more?

Why do they only have to serve a minimum of 8 years if thrown out, or a minimum of 12 years to be eligible to receive a lifetime indexed pension linked to their remuneration at the time of their exit?

Available answers to questions like these are hard to find – or to find someone prepared to talk and answer questions like those being raised hereto.

This report shows some 67% of all investments are invested off-shore as at 30th June 2012. This investment strategy is wise if an expected fall in the A$ was imminent – the dividends off these off shore investments are subject to currency fluctuations and whilst the A$ remains high their value in A$ terms are neutral but driven by a higher rate of return that what is available in Australia.

I do find a conflict with the structure of the Future Fund – it has a targeted rate of return some 4.5-5% above the rate of inflation or around 8% as a benchmark. Investment has been driven off-shore to chase those types of returns.

This is the conflict – given the precarious Global Financial markets and the on-going GFC fallout – the risk attached to having 67% invested across Northern Hemisphere regions carries a risk greater that the shortfall in investment returns offered in Australia.

The other issue is that the Legislation provides no controls over how the investment portfolio is to be structured, either in a geographical nor ethical context – i.e. the Future Fund currently has a significant investment in American tobacco stocks.  This at a time when the Government is wagering a war against the effects of tobacco on health costs across the Nation.

There is much at play here – the research has uncovered so many abnormalities and further research is ongoing. Part IV will get a little bit more into the individual MP’s entitlements to super and pension …

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Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.

The EYE-BALL Guru …

  1. April 6, 2013 at 9:42 am

    On Sept 14, when Gillard gets thrown out she will be about, 51.75 years old. According to life expectancy factors, she will be entitled to just over 25 years of Federal Government Superannuation style Pension as a former PM. At $25,000 per month assuming time value of money @5%pa, her pension is worth $7,453,165 as a present value. Is it any wonder whatsoever that defined benefits for public servants are so grossly unfair compared to the average pensioner trying to get by on $25,000 per annum. They have no entitlement until age 65, assuming born before 1955 (age 67 if born thereafter).

    Scream it out loud “Ain’t going to take it anymore!”

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