In 2008 the then Minister for Superannuation and Corporate Law, Senator Nick Sherry, asked Mr Trevor Matthews, a well known Australian actuary now based in the UK, to conduct a review of pension indexation arrangements for Australian government civilian and military superannuation schemes. The Report was completed in December 2008 and released by the Commonwealth Government in August 2009.

The review was prompted by disquiet and agitation by many retired public servants and military personnel that their CPI indexed pensions were losing value when compared to general wage movements within the community.

The terms of reference required Mr Matthews to consider and report on whether the indexation methodology should be changed having regards to the nature of the schemes, the form and value of the benefits and other related matters.

Although the vast majority of the submissions to the review sought a change to the indexation methodology on the grounds of fairness and equity, Mr Matthews recommended that the civilian and military pensions should continue to be indexed against the effects of inflationary price increases.

Mr Matthews concluded that there was a fundamental difference between the purposes of indexing Age and Service Pensions and indexing employer-financed pensions. In particular he could not sustain an argument that an employer should be required to update a former employee’s retirement income in line with changes in community living standards - that is, to provide former employees with a share of productivity improvements.

In respect of the most appropriate price index, Mr Matthews recommended that the pensions continue to be indexed by the CPI as the most suitable index to protect pensions against inflationary price increases available at this time. Notwithstanding this recommendation, he also recommended that if a robust index which reflects the price inflation experience of superannuants better than the CPI becomes available in the future, then the Australian Government should consider its use.

Although the scope of this report was limited to Commonwealth superannuants, we believe that the findings and recommendations are relevant to all public sector superannuation schemes that pay indexed pensions.

A full copy of the report is available at www.finance.gov.au/superannuation/pension-indexation-review.html