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9.2 Reducing incapacity payments by superannuation benefits

Last amended 
15 June 2018

Superannuation benefits may be paid in the form of a pension, a lump-sum benefit, or a combination of both pension and lump-sum. Incapacity payments are reduced dollar for dollar by the Commonwealth-funded portion of the pension (a weekly amount). Lump-sum benefits are converted to a weekly amount before incapacity payments are reduced dollar for dollar by the Commonwealth-funded portion.

If a person has an overpayment as a result of receiving incapacity payments and having an entitlement to superannuation for the same period, the overpaid incapacity amount can be recovered from the Commonwealth Superannuation Corporation (CSC). In this scenario the gross amount of the overpayment is recovered from the gross amount of the superannuation arrears payment owing to the person.   The CSC only recover tax from the arrears owing to the person after the overpaid incapacity payment has been recovered. The value of incapacity payments made prior to the recovery of benefits from CSC should be reflected on the payment summary from DVA. As the payment summary is not amended, there is no requirement to send tax amendment letters to the client. Payment summaries provided by the CSC will only reflect the arrears amount (less tax) paid to the client after the recovery.

9.2.1 Use of Superannuation benefit for a family law settlement

A person may have their superannuation benefit split and part of the benefit paid to their former spouse as a result of a family law settlement. Following a family law settlement, the member’s superannuation entitlement is reduced in line with the amount paid to their former spouse.

Prior to 15 December 2016

The policy prior to the 15 December 2016 was to reduce a person’s incapacity payment by the full (pre-settlement) amount of any Commonwealth-funded superannuation benefit that is derived from the ADF employment that gave rise to the incapacity.

From date of family law settlement

A person's incapacity payment can only be reduced by the Commonwealth-funded superannuation amount the person actually receives. Following a family law settlement only the reduced (post-settlement) amount of their Commonwealth-funded superannuation benefit (derived from the ADF employment that gave rise to the incapacity) can be included in calculations. The amount the person receives is as advised by the CSC. Any amount of superannuation paid to the spouse is no longer included in calculations.

Delegates are not expected to seek out and correct calculations where the pre-settlement superannuation amount has been held, but should correct these calculations as they are identified i.e. during the regular review process.

9.2.2 Indexation of Superannuation pensions

The 'current (CPI-adjusted)’ weekly amount of a person's superannuation pension is the amount of pension currently paid to the person, and includes all indexation adjustments to the relevant date. Commonwealth superannuation pensions, including DFRDB, MSBS and ADF Cover pensions, are indexed to protect the value of the pensions against cost/price inflation in the economy. Until 2001 pensions generally were increased each year on the first payday in July, with the increase taking effect from the first day of that pay period (e.g. in late June). The increase was an amount based on upward movement of the Consumer Price Index for the 12 months ending on 31 March of that year.

After July 2001, the Commonwealth-funded portion of all superannuation pensions paid by the Commonwealth Superannuation Corporation (formerly ComSuper) are adjusted twice a year – in January and June/July each year.

The 'original’ weekly amount of a person's superannuation pension is the amount of pension initially approved by the Commonwealth Superannuation Corporation (CSC) upon retirement from service or at the time of the date of effect of any reclassification.

9.2.3 Commutation of a DRFDB pension to a lump sum

A DFRDB superannuation pension can be commuted (converted) in part to a lump sum benefit. The person's superannuation entitlement after the commutation is regarded as comprising part pension and part lump sum.

Until 24 December 1992, the DRCA did not provide for the situation where a person received both pension and a lump sum (i.e. S21A). In such cases, the lump sum is to be ignored and S20 is applied.

Where the person retired after 24 December 1992, S21A applies and both the Commonwealth-funded portion of the pension and the lump sum are to be taken into account in the calculation of incapacity payments.

In the case where part of a pension entitlement is commuted to a lump-sum, and the balance of the superannuation benefit is paid at a reduced rate of pension, the reduced rate of pension is the 'original’ weekly amount.

9.2.4 Conversion of lump sum amount to weekly amount

Under the DRCA, the Commonwealth-funded portion of the lump-sum superannuation benefit is multiplied by a set interest rate and then divided into notional weekly payments.

DRCA lump-sum conversion calculation prior to 27 April 2007

For incapacity calculations prior to 27 April 2007, the superannuation lump-sum amount is multiplied by 10% and divided by 52 (or divided by 520) to establish an equivalent weekly amount.

DRCA lump-sum conversion calculation on or after 27 April 2007

For incapacity calculations on or after 27 April 2007, the superannuation lump-sum amount is multiplied by a rate in line with the 10 year Government bond rate and divided by 52 to establish an equivalent weekly amount. The rate is set by the Minister for Employment (who has primary responsibility for SRCA) by legislative instrument. A new rate is applicable from 1 July each year and is available via CLIK (the ‘specified weekly interest on lump sums’ rate). 

The date the person discharges has no influence on which interest rate is used. The interest rate used for the calculation is the rate that is applicable for the period of incapacity.  

MRCA lump-sum conversion calculation

Under the MRCA, an actuary table, prepared by the Australian Government Actuary, is used to convert the Commonwealth-funded portion of lump sum superannuation benefit to an equivalent weekly amount that can then be used to calculate incapacity payments (or SRDP). The actuary tables are available via CLIK.

For the purposes of section 135 and 136 the date used to determine which table is applicable, should be the latter of:

a) the date the person receives the lump sum (which is the first date section 135/136 is applicable), or;

b) the date from which the person is eligible to receive incapacity payments.

In situations where a person is paid incapacity payments retrospectively and for a period prior to receipt of the superannuation lump sum, the appliable date is that on which the lump sum was received, and the applicable section of the Act changes. 

Example 1 - Converting the DRCA superannuation lump-sum benefit to a weekly amount

A person receives a lump-sum superannuation benefit of $156,000. The current ‘specified weekly interest rate on lump sums’ is 3.26% (rate as at 1/7/15).

Equivalent weekly amount = $156,000 x 3.26% / 52 = $97.80

Example 2– Converting the MRCA superannuation lump-sum to a weekly amount

A 55 year old male receives a lump-sum benefit of $156,000. According to the current Actuary table his age based number is 737.2 (age next birthday is 56).

Equivalent weekly amount = $156,000/737.2 = $211.61