APS superannuation schemes' billion-dollar blowout

Growing costs eventually saw cabinet step in later that year and effectively shut off the prized Public Sector Superannuation Scheme (PSS) to new members as a way to get around the Senate, who refused to support legislation closing the scheme down.

National Archives of Australia cabinet historian David Lee said the move marked a new era for public servants.

"Public servants, I think, probably felt that they weren't as maybe powerful as they were," Dr Lee said, adding it was the start of "harder times for the public service" going forward.

Cabinet minutes from April 2003 revealed the the estimated unfunded liabilities of the PSS and the then-closed Commonwealth Superannuation Scheme (CSS) totalled $58.4 billion, a whopping $4.8 billion more than the prior budget estimates update had forecast.

Employer contribution rates were also rising from July 1, 2003, and were expected to cost an extra $157.9 million in 2003-04 financial year alone.

Agencies were struggling to keep up with the rising costs, with about half budgeting losses across the next three financial years if the government didn't bail them out, the Department of Finance and Administration warned in a cabinet briefing.

"This results in agencies running down their cash reserves to fund the additional expenses and, in the absence of [government] supplementation, their financial positions will deteriorate," the briefing said.

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"Without supplementation, agencies will need to reduce other activities or financial resources by these amounts," the department warned elsewhere, adding because employer contribution rates varied across the APS, the losses would be "unevenly spread across agencies".

APS employees had been required to become members of the CSS, which closed to new members in June 1990 and was replaced by the PSS.

The benefits employees received on retirement consisted of a funded component, comprising contributions they and their employer had invested throughout their career; and an unfunded component, calculated on retirement based on various factors and paid out by the Commonwealth from the Consolidated Revenue Fund.

After just 12 years in operation, the PSS had already racked up $9 billion in unfunded liabilities as of June 2002 - a figure that would only grow as the scheme matured, cabinet heard.

The Howard government agreed to supplement agencies' budgets to fully cover the rising employer contributions, before deciding in September to convert the PSS to a fully funded accumulation scheme for all new employees.