Veteran superannuation: an uphill battle

With all eyes fixed on the royal commission, the commission’s notable exclusion of the Commonwealth Superannuation Corporation (CSC), the superannuation fund for military personnel, raises questions around CSC's adequacy, and the broader veteran pension system at large.

“It’s pretty brutal.”

Ryan King is a financial planner and ex-military. He has an easy smile and a steady manner.

He’ll turn 27 this year but six of his friends and four of his military colleagues won’t be there to celebrate.

They all committed suicide. They were also all ex-military.

“At one stage it was just one after the other, so that was pretty full-on. And I said, ‘How can I help here?’”

The question led him to study the connections between mental health and financial stress in ex-military Australians.

Fifty-eight hours of interviews later and a correlation became clear. Around 50 per cent of respondents who were suffering from a mental illness said it began with financial stress.

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But this is where things began to get tricky. The financial stress manifested into depression, drug addiction, gambling, alcohol abuse and anxiety. This much was clear.

Where the financial stress came from was the harder question to answer.

'The worst thing is about it is that the whole system...is killing people'

“The new legislation is creating this whole underlying hatred of the Department of Veterans Affairs (DVA). And the worst thing about it is that the whole system – and it’s proven beyond a doubt – is killing people.”

That’s according to national military compensation expert at Slater and Gordon Lawyers, Brian Briggs.

“84 veteran suicides last year.”  

Compounding the issues of mental illness stigma is the sheer complexity of the DVA’s various pension and compensation structures, Mr Briggs argues.

“The legislation is all over the shop,” he says. “The Guide to the Assessment of Rates of Pensions (GARP) in itself is a nightmare to deal with. Now, for the poor average Joe, punter veteran, coming across this is like, “Oh my god, what does all this mean to me?”

It doesn’t help that, in addition to the GARP, there are a number of separate legislations governing the compensation schemes for veterans.

The Veterans’ Entitlement Act (VEA), he explains, deals with pensions.

The Defence-related Claims Act 1988 (DRCA) covers injuries or conditions sustained between 1988 and 2004. This was previously the Safety, Rehabilitation and Compensation Act (SRCA) 1988.

The Military Rehabilitation Compensation Act 2004 (MRCA) covers injuries and conditions from 2004 onwards.

Then there’s the Commonwealth Superannuation Corporation (CSC). The CSC covers the Commonwealth Superannuation Scheme, MilitarySuper, the Defence Force Retirement and Death Benefits Scheme, Australian Defence Force Superannuation and Australian Defence Force Cover.  

“Already you can see how confusing this is,” he says, adding that this complexity is apparent before questions around whether injuries or conditions were sustained during or after service, working ability and age are factored in.

Ex-military could require compensation under one, some or all the different schemes, but the problem is that DVA delegates are all siloed with out-of-date communication systems, Mr Briggs argues. So, when a tricky compensation claim comes up, the buck keeps getting passed.

"That's one of the problems that we've been screaming about for years. Having all these different pieces of legislation and all of these different hoops and jumps and overriding principles and factors that they've got to meet - if they get caught in this complicated system, that's when we get issues."

It doesn't help if the ex-military client is suffering from a mental illness or facing off against drug or alcohol problems. 

"They could have personality disorders created by the military, or aggravated by their military service," Mr Briggs says. "They could have adjustment disorcers adjusting to life outside the military. So, all of these things are just dumped on top of them and then they have to cope with this system."

"Their quality of life is going to be affected."

The federal government in March announced it would establish an independent inquiry into the existing compensation and rehabilitation systems for Australian veterans.

But this could be too little, too late, Mr Briggs claims.

“This latest announcement from the Productivity Commission is the government trying to head off the Indians at the pass,” he says.

Nevertheless, he hopes it will at least do something. In a media statement to mark the announcement, he said, “I trust that this inquiry will result in some positive moves to improve how our veterans and service personnel are being treated by the department.

“Time and time again, the way the DVA operates has directly contributed to the frustration, anger and despair within the veteran community. 

“The complicated nature of the legislation, the use of factors to deny claims and delays due to lack of time periods for the DVA to make decisions has taken a heavy toll on our serving and ex-serving defence members.”

Older vets are more satisfied than younger

According to the DVA’s 2016 Client Satisfaction Survey, 83 per cent of veterans are satisfied with the DVA – a fall of 6 per cent on its 2014 results.

Satisfaction increased with age. Veterans 65 and over were 92 per cent satisfied.

However, veterans younger than 45 were only 49 per cent satisfied, while 69 per cent of veterans between 45 and 64 were satisfied.

It’s a reflection of the different pension systems, Mr Briggs argues.

The majority of older veterans would have the top pension rates and Gold Cards, as determined by the GARP, which cover all medical expenses, he says.

“It’s now the younger veterans who are the ones having the fights with DVA. And they're the ones that are caught up with the new legislation.”

Personal responsibility

Ryan King, financial planner at Announcer Group, is one of those younger ex-servicemen. While he agrees that some of his peers are dissatisfied with the DVA, he rejects the argument that it’s all down to the DVA’s poor systems.

“My passion is helping defence but I’m pretty brutal and honest as well on the fact that there’s a lot of self-pity in ex-defence members and a sense of entitlement.”

He considers this level of entitlement a big problem and argues ex-defence need to shoulder a certain amount of personal responsibility for their financial security in post-military life.

“The problem is a lot of military won’t go and use the benefits they’re entitled to, so the budget then doesn’t reallocate that money to that fund again because it hasn’t been used up.”

Navigating the compensation systems isn’t necessarily that tricky either, he contends. Recognising that chasing up compensation is difficult for people suffering depression or other mental illnesses, Mr King says that for most ex-servicemen it’s just a matter of filling in the correct forms and putting in the leg-work.

"I think there's a big false sense of complexity. It's just a formula. The complex part is the formula, once you've figured that out the rest is pretty simply. People just put it in the too-hard basket."

However, the pension payouts are a different matter.

The indexation problem

"The pensions aren't that bad now, we're talking almost full incomes and you're on a good wicket when you're in the military," Mr King says. 

"But it's the indexation that's the problem because in 20 years' time they're probably not going to keep up with the rate of inflation, which means they're going to fall behind."

This is where the real challenge is, Mr King argues. The complex nature of the system, the energy required to navigate it and the financial literacy required to understand it pale in comparison with the genuine problem besetting the CSC. A reminder, the CSC covers military and Commonwealth pensions which are indexed to the consumer price index (CPI).

“Over a 30-year period you’re going to be severely underpaid,” Mr King says.

“The problem isn't the pension system, it's the indexation of the pension… they're struggling now because their pensions aren't keeping up with day-to-day costs.”

In a piece for The Conversation, RMIT University’s Mark A Gregory noted that aged and other welfare pensions moved away from CPI indexation in 1997 because it was recognised that the CPI didn’t protect purchasing power for pensioners.

Commenting on the indexation, Mr King says, “The pensions aren't that bad now. We're talking almost full incomes and you're on a pretty good wicket when you're in the military. But it's the indexation that's the problem, because in 20 years' time they're probably not going to keep up with the rate of inflation, which means they're going to fall behind.

“That's what we're seeing now with the other pensions. It probably was a good wicket when they left, but it hasn't been indexed enough to keep up with today's dollar. Now they're struggling. Now they need to access the age pension as well before retirement.

“That’s the conversation that needs to be had.”

It doesn't stop at indexation

To Gulf War veteran and veterans’ advocate Rod Thompson, the problems around veterans pensions aren’t limited to indexation.

Mr Thompson is national entitlements officer at the Australian Peacekeeper and Peacemaker Veterans' Association.

Noting that any superannuation under CSC is offset against any payouts from the Department of Veterans' Affairs, Mr Thompson argues the superannuation ultimately becomes worthless. 

Building on this theme, the Defence Force Welfare Association (DFWA) in December last year called on the government to include the CSC in the royal commission.

The DFWA argued CSC warrants the same scrutiny as it “often appears as non-compliant with the Superannuation Industry Supervision Act, and is seen by the veterans’ community to be regularly misreporting to both the Australian Taxation Office and to the Family Court the nature of invalidity benefits paid to ADF members who have been discharged for medical reasons.”

The DFWA was joined by the RSL and Alliance of Defence Service Organisations (ADSO) in expressing concerns that the CSC was not fully compliant with the Superannuation Industry Supervision Act. These groups raised that MilitarySuper doesn’t allow employer-paid monies to be transferred out of the fund, effectively trapping the monies.

To Mr Thompson this is a critical issue, especially for veterans who may be facing mental illnesses and may find it difficult to work a "traditional" job. These veterans could be employed in the gig economy or may have a work history that includes up to 20 jobs with associated superannuation funds. Naturally, the erosion of their unconsolidated superannuation is compounded by an inability to bolster a single fund with their defence super.

Opposition spokeswoman on veterans’ affairs and defence personnel Amanda Rishworth echoes Mr Thompson and the advocacy groups' calls. In a media release, she argued for CSC to be included in the royal commission. She said, “In neglecting to include CSC from the Terms of Reference our service men and women cannot be satisfied that CSC is working in their best interests.”

Productivity Commission could help

While the royal commission will not feature an investigation of CSC, the Minister for Veterans’ Affairs and Defence Personnel, Darren Chester says the Productivity Commission inquiry into the system of compensation and rehabilitation for veterans will go some way to addressing the issues.

In a statement marking the announcement, Mr Chester said, “As we mark 100 years of repatriation and continue caring for the next generation of veterans, this inquiry will help inform how we deliver services for our ex-service men and women and their families into the future.”

The inquiry will review the administrative processes, service delivery and governance arrangements of the veterans’ affairs portfolio.

Mr Chester has also announced $31 million in extra funding to boost mental health services for veterans and in mid-April launched a major study with an aim to improve veterans’ advocacy services.

“Veterans and their families deserve to have easy access to the best services available to them and this study has been established to ensure that happens,” Mr Chester said.

“This study will go a long way to helping our younger veterans and their families navigate the compensation claims and appeals processes and it will address a number of improvements to the current advocacy model which were recommended in the report.”

The former Minister for Veterans’ Affairs, Dan Tehan in June last year also acknowledged the DVA had “antiquated” ICT systems and pledged $166.6 million to the modernisation effort.

He said at the time, “The government wants to listen to the veteran community about how to improve the claims process to make their lives better.”

More recently, Mr Chester said the government recognised there was work to do in helping ex-defence transition into the workforce. In particular, help in addressing mental illnesses and employment assistance.

The solution: address financial literacy at enlistment

Which brings us back full circle; how much help will mental health services be without addressing the underlying financial stress first?

To Ryan King the issue should be addressed at the source.

“There is not enough financial education in the military,” he says. “It’s something I've been trying to implement for ages now. They are interested in it, but they just can't come up with something.”

He says there are software options in the fintech space that could be used to educate soldiers on their finances upon enlistment and remain an evergreen financial education resource for ex-defence once they’ve transitioned out.

The other option is to build financial planning divisions within the military.

“It'd be the best financial planning job in the world, by the way, because you wouldn't have to worry about conflicts of interest if you know your product, if you know your strategy.

“You wouldn't be worried about what insurance. You'd probably say, "You need this, you need that." Because the officer would get paid an officer's salary, they'd be a soldier and soldiers can go to them and get financial advice.”

For the soldiers themselves, either form of education would be a critical safeguard against the mental spirals that can accompany a sudden loss of wealth, as many ex-military experience.

“The ramifications of not having money are humongous, right? The two things you need in life to live are health and wealth. That's it. You're going to be healthy and have money. It doesn't have to be a lot, you've just got to have enough.”

However, Mr King emphasises that the lack of financial literacy and ramifications of it are a society-wide issue. It’s evident in all groups with insufficient levels of financial literacy.

It just happens that veterans are the flavour of the month.

His advice for veterans is the same advice most Australians have heard. Consolidate your super and consider what you need to live.

However the implementation of these pieces of advice does differ slightly. Ex-defence may have some portion of superannuation stuck in CSC funds and they could also be coming off higher salaries.

Nevertheless, the psychological benefits of a consolidated super are huge, he says. It’s just logical; if a veteran leaves the military, lands a job and has a super account set up for them with $0 in it, they won’t care about it and won’t monitor it.

Simply moving money across to an accumulation fund will have positive effects on the balance’s performance.

But ex-defence do need to be working first.

“I've got a couple of mates that left, depressed with their injuries and have been on incapacity payments class A (the highest) for a couple of years, didn't work or did very minimal work because they didn't want to trigger to go under.

“Five years later when they sort of get over it, they go, ‘Shit, I could have been earning a lot more, getting a lot more fulfilment in my world, doing something else, maybe taking the class B. I might have got downgraded because I was working, but I probably would have had more and I would have been happier.’

“A lot of soldiers in the army, or military, when they leave it's all that money. They think money's going to solve their problems, and that's a big conversation I have around these claims.

“Everyone comes and goes, "If I just got $100,000 from DVA, I'd be fine." I go, "No you wouldn't. You'd spend it. You probably would. You've got to stop focusing on financial outcome and focusing on your financial behaviours.

“Focus on your wellness, on your mental behaviours.”