The comments in /etc/login.defs really need to be updated.

Here is an updated version of the section on login configuration
initialisation:

--8<----- cut here ----------
#
# Login configuration initializations:
#
#       ERASECHAR       Terminal ERASE character ('\010' = backspace).
#       KILLCHAR        Terminal KILL character ('\025' = CTRL/U).
#       UMASK           Default "umask" value.
#
# The ERASECHAR and KILLCHAR are used only on System V machines.
# Prefix these values with "0" to get octal, "0x" to get hexadecimal.
#
ERASECHAR       0177
KILLCHAR        025
#
# On PAM-enabled systems pam_umask uses UMASK as a global default.
# (Global and per user overrides are possible, see man pam_umask.)
# Therefore setting the umask in shell rc files (i.e. /etc/profile and
# others) is discouraged in favour of the pam_umask mechanism.
#
# On non-PAM systems setting the umask in shell rc files, in addition
# to the UMASK setting here, can catches some more classes of user
# entries to system. (Logins through su, cron, ssh etc.)
# At the same time, using shell rc to set umask won't catch entries which use
# non-shell executables in place of login shell, like /usr/sbin/pppd for "ppp"
# user and alike.
# For discussion, see #314539 and #248150 as well as the thread starting at
# http://lists.debian.org/debian-devel/2005/06/msg01598.html
#
#
# UMASK 022 is the "historical" value in Debian,
# 027 or even 077 could be considered better for privacy if the users
# in their groups can not trust each other. There is no 
# One True Answer here: Each sysadmin must make up his/her mind.
# 
# Note that with login's USERGROUPS_ENAB feature, or the usergroups
# feature of pam_umask, if a user has a user private group
# the user's group permission umask byte is adjusted to match 
# the user permission byte.
# This enables flawless collaboration of users in group directories
UMASK           022

--8<---------------

** Changed in: shadow (Ubuntu)
       Status: Invalid => Confirmed

-- 
/etc/login.defs umask cleanup
https://bugs.launchpad.net/bugs/71295
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