Canberra's great superannuation rort

Former superannuation minister Nick Sherry has blown the lid on Australia's greatest rort – the $210 billion unfunded public sector defined benefit superannuation schemes.

The Canberra public service beneficiaries of this rort are often the very people who are attacking legitimate savers in the private sectors who put money aside to pay for their retirement.

As we all know the public servant rorters are mounting another attack on legitimate private savers. This has led former ACTU boss Bill Kelty to demand that the public servants and their weak ministers stop attacking Australian savers. Now in The Australian, Nick Sherry advocates scrapping the generous super scheme enjoyed by public servants and politicians, pointing out it will raise billions of dollars in budget savings.

Defined benefit superannuation – particularly pensions – is a huge burden on the community because returns are now much lower than expected (the looming interest rate reductions will make returns even worse) and in the case of unfunded pensions people are living much longer.

State and federal public servants until the last decade enjoyed one of the greatest superannuation schemes ever devised. While they put money into a conventional fund there was a much larger benefit provided by future taxpayers which promised benefits irrespective of returns. In the private sector, savers take the return risks. In these bonanza schemes public servants were guaranteed benefits linked to their salary and/or the CPI irrespective of returns.

For a long time no money was set aside. Later former treasurer Peter Costello set up a future fund and state governments put money aside. Moreover, in most jurisdictions the bonanza defined benefit schemes have been frozen to new members but new pensions are still available to certain groups including politicians, judges and military personal.

Most senior public servants still have their enormous entitlements and appear oblivious to the irony that they are attacking those whose retirement benefits depend on the returns on the money they have set aside.

According to Joelle Fong, John Piggott, and Michael Sherris of the ARC Centre of Excellence in Population Ageing Research at the University of New South Wales, unfunded liabilities of Australian state and federal public service pensions rose from $136 billion in 2007 to $210 billion in 2011. With interest rates and returns falling my guess is that they will soon rise beyond $250 billion.

In the US and Europe public servants also went on sprees to commit future taxpayers to fund their retirement with unfunded schemes. These schemes are coming unstuck. The latest group in the US to find that they can't pay is the US Post Office.

In Australia our wealth has enabled us to keep up the payments but as the University of NSW research shows we are falling behind.

That's why it is outrageous that "protected” public servants should be plotting against private savers whose level of retirement savings depends on investment returns. If the public servants succeed in convincing weak politicians (who have their own defined benefit schemes) to attack genuine savers then its only fair that the public service unfunded liabilities be capped at $210 billion and that the public servants be told that their pension entitlements will be reduced in years when returns are down.

They will then be in the same position as those in the private sector and be required to use their own money. There will then be no more Canberra plotting against private superannuation funds.