Investigation into the administration of the Defence Force Retirement
and Death Benefits (DFRDB) Scheme
The Commonwealth Ombudsman, Mr Michael Manthorpe, today released a report on the historic
administration of the Defence Force Retirement and Death Benefits (DFRDB) scheme, the compulsory
Australian Defence Force retirement scheme that began operating in 1973 and closed to new members in
1991. The Ombudsman’s investigation followed
an approach from the Minister for Veterans and Defence
Personnel, the Hon Darren Chester MP, earlier this year, which in turn arose from complaints that
scheme members had been misled about its operation. At law, eligible ADF members were required to
make a choice between a defined pension for life, or a lump sum upon retirement together
with a lower
pension for life. The second option is often referred to as ‘commuting’ part of the pension in exchange
for the lump
sum. Most members did, and still do, choose to commute.
‘Many members complained they were told that if they commuted, their pension would subsequently increase to
the higher rate when they reached a defined life expectancy age,’ Mr Manthorpe said. ‘This was false, and
created an expectation of a more generous long term outcome
than the law provided.’
The Ombudsman found that many members were in fact given misleading and incorrect advice about this issue
by
Defence. He recommended that the Chief of the Defence Force and the Secretary of the Department of
Defence apologise to members for this historic maladministration, and they have done so. Their apology
is
published in the report.
The Ombudsman considered whether the incorrect advice created a situation of ‘financial detriment’.
Informed by
the work of independent actuaries, he found that this appears unlikely to have occurred. This is because, even
though the incorrect
advice may have led some members to opt for the commuting option rather than the full
pension, the actuarial analysis suggests that for most, if not all, members the commutation option was more
beneficial in the long run than the other available option.
‘I also considered whether, in the light of the incorrect advice some form of compensation
or reparation payment
should be offered to those who commuted’, Mr Manthorpe said. ‘However, I have stopped short of making such a
recommendation
because it would be contrary to Parliament’s original design of the scheme; and because it
would place those who commuted at a further advantage over those who did not commute, which would be
inequitable for the second group. I note that many members who did fully understand the scheme still chose to
commute.’
While the actuarial analysis shows the commutation option was more beneficial for most members, the
Ombudsman’s report also noted the availability of the Compensation for
Detriment caused by Defective
Administration (CDDA) scheme should an individual member be able to demonstrate specific financial detriment.
The
Ombudsman also looked at information provided by the Commonwealth Superannuation Corporation, both
currently and historically. While he found the information published by CSC was at all times correct,
he
recommended updates to certain CSC documents to further clarify these issues, which the CSC has accepted.
‘This investigation relates
to matters that happened many years ago,’ said Mr Manthorpe. ‘But the lessons from
that time are equally relevant today—getting communication right, so people can make informed choices,
is a
critical part of every aspect of government service delivery.’
The report is available on the Ombudsman’s website at ombudsman.gov.au/dfrdb,
along with the reports from
the independent actuaries.