Public Sector Super Scheme

The complexities of the defined benefit and accumulation plans managed by the Commonwealth Super Scheme including the Commonwealth Government, Defence Forces and some state Government Employees are many and varied.

Scott Malcolm has been working with clients who have government defined benefit superannuation memberships since commencing in the industry in 2000 so knows the ins and outs of these schemes.

In order to maximise your retirement income, it is important to start planning early to ensure that you maximise the benefits provided by the superannuation funds while also staying within your contribution limits. Each fund has benefits and limitations with regards to contribution amounts, insurance and disability protection and estate planning, transfer of benefits into the fund and how to maximise your retirement benefits based on your career plans and life goals.

Money Mechanics have experience working with clients who have the following public sector super scheme memberships:

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Public Sector Super Scheme

Commonwealth Superannuation Scheme (CSS)

A superannuation fund which is a hybrid scheme where benefits derive from a member and an employer component. CSS has a combination of two types of funds, including accumulation and the defined benefit fund.

The accumulation fund consists of member and productivity contributions where the value of the contributions and investments determines the benefits.

The defined benefit fund is the employer component which is unfunded and generally paid as a lifetime non-commutable indexed pension.

Contributions
When it comes to contributions, members can make both basic and supplementary contributions to the scheme from their income after-tax.

The productivity component is where the employers pay a fortnightly contribution into the scheme and this amount is reflected on an individual member’s super salary.

Benefit Payments
The benefit payments include lump sums and pensions, which are both paid when the CSS member has exited the scheme. These benefits can’t be paid until the minimum retirement age is reached which is usually around the age of 65.

Lump sums are generally paid to former members of the scheme due to their retirement and preserving their benefit for later payment. Summaries are paid from the CSS fund and by the Australian government.

CSS also provides partial invalidity, full invalidity and death benefits. In addition to any current medical conditions, the member will receive benefits based on the amount they would have received if they had worked to their maximum retirement age. When the salary of a contributing member is permanently reduced by medical conditions, a partial invalidity pension – a form of income maintenance – is paid.

Public Sector Superannuation Scheme (PSS)

A defined benefit superannuation plan where benefits generally derive from two components including a member and employer component.

The member component consists of member contributions and Fund earnings. PSS members can make contributions of between 2 and 10% of members’ salary for super purposes or they can choose to elect no contributions.

Contributions
Contributions are made from net income and members on retirement can usually convert 50% or more of their final benefit to a lifetime non-commutable indexed pension paid by the Australian Government.

Those contributions are, in most circumstances, paid each fortnight into the PSS Fund. When you contribute your employer also pays an employer productivity contribution of approximately 3% of superannuation salary into the PSS Fund. The defined benefit also includes an unfunded component that depends on the level of your contributions.

The employer component includes two parts being employer productivity contributions plus Fund earnings and the unfunded benefit balance. These are determined when the member leaves their eligible employment. The productivity component is where the employers contribute a fortnightly pay into PSS with the amount being based on an individual member’s super salary. The remaining employer portion is finalised when a member terminates their contribution to the scheme.

Benefits
Although benefits are generally paid as a lump sum, members can opt for a pension option. As a member of the scheme you are entitled to a retirement benefit that depends on the time you have been contributing to it, your average superannuation salary over your last three birthdays and the contributions you have made throughout that time.

Benefits are generally paid when a member exits the scheme at retirement and preserves their entire benefit for payment at a later date. It is usually not possible to obtain these benefits until a member has permanently retired from working and reached the minimum retirement age

Partial invalidity, full invalidity and death benefits are also offered by PSS where contributors can choose to purchase additional death and invalidity cover, subject to those members meeting underwriting requirements.

Assuming the individual worked until the age of 60, the benefits would be based on what the individual would have received if they had worked until then. Contributors who reach age 60 receive a pension based on the retirement salary they would have received at that age.

Partially invalidity pensions are paid when a medical condition permanently reduces a member’s salary.

Public Sector Superannuation Accumulation Plan (PSSap)

This is the current superannuation plan for new employees to the public sector and is a standard accumulation benefit where members and employers pay money into the fund.

Following the deduction of fees and taxes, investment returns are calculated as compounded average returns. Employers that participate in the scheme contribute 15.4% of their employees’ pay on their behalf.

Additionally, PSSap offers an ancillary membership to eligible CSS and PSS members who can make additional contributions and transfers, and a retirement income product known as CSCri (Commonwealth Superannuation Corporation retirement income) to eligible public sector scheme members.

Contributions
PSSap includes member, ancillary and employer contributions. A member can make before-tax and after-tax voluntary contributions, while ancillary contributions can be made by contributing CSS and PSS members who also join PSSap to build a separate superannuation benefit. They will receive their PSSap benefit at the same level as the overall investment returns of the scheme, and the PSSap benefit will not affect their CSS or PSS benefits.
Benefit payments
The two most common reasons for withdrawing superannuation benefits from PSSAP are retirement and consolidating funds into another fund.

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Defence Force Retirement & Death Benefits Scheme (DFRDB)

The DFRDB Scheme provides an income stream after set service periods for members of the Australian Defence Force. There are additional benefits and limitations with this membership such as options around returning to work for a period and having your pension recalculated after your service period. The DFRDB a fully defined untaxed benefit superannuation scheme.
Contributions
A contribution of 5.5% of their fortnightly super salary must be made to the members DFRDB fund until they reach 40 years of effective service. Once this is reached, they can no longer contribute. Members can also make voluntary payments into MilitarySuper, known as ancillary contributions
Payment Benefits

DFRDB customers are entitled to lump sum and invalidity benefits.

DFRDB members finishing a period of ADF service can convert a portion of their DFRDB retirement pay to obtain a lump sum payment, upfront. If a customer decides to commute, their retirement pay is permanently reduced no matter how long they live for. There is a possibility for retirees to commute their pensions up to a maximum of 5 times its value.

DFRDB also offers invalidity and death benefits. When a customer is medically transitioned from the ADF, they may be allowed to claim the invalidity benefits. The invalidity benefit includes 3 classifications which are:

  • Class A: Significant incapacity
  • Class B: Moderate incapacity
  • Class C: Low incapacity (no entitlement to an invalidity pension)
Public Sector Superannuation Scheme

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