A recent study by State Super has revealed many fund members remained in the public sector due to the attractiveness of being in a defined benefit pension scheme.
Based on discussions with members at forums across New South Wales, State Super’s white paper reveals super was not a driving factor when these members made early career choices around what occupation to select or whether to become a public servant.
Yet, over time, as members began to take more interest in their super and retirement, the certainty of a defined benefit scheme became a strong motivation to remain a public servant.
Some members spoke about considering a career shift to the private sector but said they stayed in the public sector because of the advantages of their defined benefit scheme. Others revealed that they stayed in the public sector on a part-time basis to retain the benefits of the scheme.
Some also suggested that a defined benefit super option might ease the problems experienced in attracting younger people into public service, especially into careers such as teaching and nursing.
That could be an option for those public sector entities facing large staff shortages after a decade of staffing cuts and as private sector wages and conditions have pulled ahead of the public sector.
Centrelink, for example, is currently operating 500 staff below the level of staff they are funded to have and is reportedly struggling to fill those vacant positions, which is resulting in unanswered calls and increasing wait times.
Managing dual schemes
State Super, which had close to $38 billion in assets on 30 June 2022 and 90,123 members, closed its schemes to new members in the late 1980s and early 1990s but continues to manage the defined benefit super and pension schemes.
Its members are current and previous NSW government employees and public sector workers such as police, teachers and nurses.
State Super’s chief experience officer Nada Siratkov says a recurring theme of the forums was the high level of certainty and comfort that comes with a defined benefit scheme and receiving a guaranteed income in retirement.
She says members emphasised that a defined benefit allowed them to confidently plan for life in retirement, as their retirement income was not subject to the volatility of investment returns and the stock market.
Siratkov believes other defined benefit schemes may also be experiencing similar trends. For example, she notes that some of her friends have stayed at banks like Commonwealth Bank and Westpac because they were in defined benefit schemes as they approached retirement.
The US experience
Research in the US confirms defined benefit pensions play an important role in retaining workers in the public sector. One study found that 84 per cent of millennials working in state and local governments said their pension benefit was the reason they stayed in the public sector.
In addition, 71 per cent said that cutting their pension benefits would make them more likely to leave their state or local government job. That despite 80 per cent thought they could earn more in the private sector.
At least one state in the US also believes reintroducing a defined benefit pension scheme could help ease its skills shortages and attract much-needed staff.
In March, state senators in Alaska introduced a bipartisan bill that would create a new defined benefit pension system for state employees as a way of addressing a shortfall of nearly 20 per cent in state workers.
Alaska closed its defined benefit retirement system in 2006 and replaced it with a defined contribution plan. The new bill will allow current employees to choose between the new defined benefit and the current defined contribution plan.