Thursday, February 25, 2010

The Public Service, the Future Fund and the Inter-generational issue

One of the questions Lindsay Tanner was posed on Q&A two weeks ago was a set up question on the declining value of indexed pensions. Tanner did a very good job of explaining why it was unfair on thos who'd taken lump sums to now vary the rate.

But the defined benefit scheme that is the public service scheme really is a big problem. This week saw the announcement of the retirement of Col Lyons as a Deputy Secretary at the Department of Broadband, Communications and the Digital Economy. This is a Department desperately short of experience and Col is one of the few to have a good understanding of the telco and broadcasting sides of the portfolio.

There is something weird in the superannuation scheme that encourages Public Servants to retire at 55. I think it is to do with the relatively small rate of additional increases in the final pension for any additional years of service, so the only equation left is whether the income foregone between salary and pension is greater tha the value of the leisure time gained.

Added to this is the possibility for the public servants to gain additional employment post retirement, often courtesy of the Department they have left.

Meanwhile we are being reminded in inter-generational reports that our greater life expectency and the movement of the "baby boo" bubble means the shape of the population pyramid changes and there are less labor force participants. That means, we are told, we all need to work longer.

On the flip side we have a Future Fund that isn't about funding anyone's future other than retired public servants.

Lindsay Tanner needs to get the expert who told him that he couldn't change the scheme to give him some different advice on how to change the scheme in such a way to retain public servants past 55. One suggestion that doesn't suffer from a retrospectivity problem is to change the index rate that applies to a pension depending upon how many years past 55 a public servant retires.

But there must be some other more creative ways to get the people who give advice to government that we all ned to work longer to work longer themselves!

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