Military retirement reform: an Australian perspective

Abstract

As the U.S. military looks to change its retirement foundation, either to address financial constraints or to realize more benefits in recruiting and retention, it is important that policy makers research and analyze all significant effects change could have on the military manpower system as a whole. In 1991, the Australian military moved from a system very similar to the U.S. model, where members were vested in a defined benefit scheme after 20 years of service to a scheme with defined benefits after only one year and compulsory contributions that were invested and returned to the member upon reaching retirement age and leaving the workforce. This paper conducts a qualitative review of the Australian and U.S. public, private, and military retirement paradigm and draws out similarities and lessons that can be learned, such as avoiding the complexity that has arisen in the Australian military retirement system. A quantitative analysis is then conducted on the last cohorts of the old U.S.-style retirement system and the first cohorts of the new system. Though the new system was found to change behaviors and produce a smoother separation profile it also raised questions about the effectiveness of retention bonuses and grandfathering.