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9.8 Reducing incapacity payments by superannuation benefits that have been ‘received’
Only superannuation benefits that have been received by a person can be included in incapacity payment calculations. A superannuation amount which the person cannot access at the time of their retirement i.e. is preserved in a fund until certain conditions are met (age and permanent retirement from the workforce) is not 'received' and is not taken into account in calculating incapacity payments until it is actually paid to the person. Examples of this are a compulsorily preserved productivity benefit or an employer benefit which cannot be accessed until preservation age (see section 18.104.22.168).
A preserved employer benefit 'has been paid' to the member when:
the member actually receives the lump sum payment from the Commonwealth Superannuation Corporation upon age or invalidity retirement (mere eligibility to receive the payment is not taken to be receipt of the benefit);
another person receives the lump sum payment from the Commonwealth Superannuation Corporation at the direction of the member, or because the member's financial affairs are under supervision, or
the member, although entitled to receive and expend the payment from the Commonwealth Superannuation Corporation, voluntarily elects to roll it over into different superannuation scheme, rollover fund or other form of retirement investment (e.g. an annuity or allocated pension).
Where a member leaves Commonwealth employment after preservation age but goes straight to other employment, then they can preserve their benefit in Commonwealth superannuation until they retire. This means where the member, although entitled to receive and expend the payment from the Commonwealth Superannuation Corporation (because of age and having retired from the ADF), voluntarily retains the amount in their existing Commonwealth superannuation scheme (MSBS, DFRDB, PSS and CSS), the benefit cannot be taken to have been received by the member.
An employer benefit should not be taken to have been paid to the member where it is compulsorily rolled-over into a superannuation scheme or rollover fund and is 'preserved' until the member retires on or after 'preservation age'. In such cases, the benefit is taken to be paid to the member when he or she actually permanently retires from the workforce and accesses their preserved benefits or exercises a decision on how that superannuation is disposed of, such as rolling the benefit into another approved fund. Mere eligibility to access the preserved funds is not sufficient to establish the funds have been 'received'.
Whether a person has a choice in a particular situation depends on the particular circumstances of the case and will vary from fund to fund. The administrators of the relevant Commonwealth superannuation scheme should be contacted to establish the precise nature of the entitlement.
Example 1 – Superannuation benefits preserved in the same fund
Q. A person has reached their preservation age and has retired from the workforce (i.e. they are not working and not participating in a rehabilitation program). They preserve their super benefit in either the DFRDB or MSBS. Are their incapacity payments reduced by the preserved superannuation benefit?
A. No. Their incapacity payments are not reduced until the person actually receives the benefit in hand (is paid the benefit) or exercises a decision on how that superannuation is disposed of.
Similarly, if benefits are compulsorily preserved because the person has not yet reached preservation age, the superannuation amount cannot be held in incapacity payment calculations. The case should be reviewed when the person reaches preservation age to check if they have received the benefit.
Example 2 –Rollover of superannuation benefits to another fund
Q. A person’s superannuation amounts are compulsorily moved to another scheme or fund without the employee having the discretion to access the funds. Should their incapacity payment be reduced by the superannuation amount?
Q. A person elects (chooses) to roll the superannuation amounts into another scheme or fund when they had a choice to receive the superannuation amounts. For example, where a person (an MSBS member) who at age 55 chooses to roll his superannuation into a private fund. Should their incapacity payment be reduced by the superannuation amount?
A. Yes. This would be considered as has having been received, as the person has exercised a choice on how the superannuation is disposed of.
Q. The superannuation amounts are compulsorily moved to another scheme or fund and the person later becomes eligible to access the funds but chooses not to. Should their incapacity payment be reduced by the superannuation amount?
A. No. As mere eligibility to access the funds is not sufficient to establish receipt of the benefit.
Example 3– Payment of superannuation benefits after preservation age
Q. A person has reached their preservation age (e.g. 55 years) and has retired from the workforce (i.e. they are not working and not participating in a rehabilitation program). They choose to preserve their super benefit in either the DFRDB or MSBS. At age 62 the person chooses to be paid their super benefit. Should their incapacity payment be reduced by the superannuation amount?
A. Yes. But not until the person chooses to receive the amount at age 62. The person needs to actually receive the benefit or make a decision to roll it over into another scheme or investment fund before incapacity payments are reduced.