Defence super scheme to close

The government plans to close the existing defence super scheme to new members and replace it with a less generous scheme which costs the taxpayer much less.

The Abbott government plans to close the existing defence superannuation scheme to new members and replace it with a less generous scheme which costs the taxpayer much less.

This shift to a new fully-funded scheme called ADF Super will reduce the growing taxpayer liability for unfunded public sector superannuation by $126 billion by 2050.

The Military Superannuation and Benefits Scheme (MSBS) opened in 1991 and will close to new members from July 1, 2016.

This, like its predecessor military schemes and older public service super, is a defined benefit scheme, paying retirees a percentage of final salary as a fortnightly pension for life. It's also indexed twice yearly in line with the consumer price index.

MSBS employer contributions are generous, rising to 28 per cent of final salary after 20 years service. But they come from consolidated revenue, hence the growing debt for future generations.

ADF Super will be fully funded and managed by the Commonwealth Superannuation Corporation, with employer contributions set at 15.4 per cent, rising to 18 per cent during periods of warlike service.

Defence Minister David Johnston said the new arrangements would allow defence members to choose their own superannuation fund.

For the first time, they will be able to transfer their accumulated benefit to a new fund if they leave the defence force.