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Effect of Commonwealth Superannuation on Incapacity Payments

Document
Last amended 
14 July 2017

6.6.1 Legislation

6.6.1.1 SRCA

Sections 20, 21 and 21A provide for reduction of weekly payments where the person is in receipt of superannuation benefits (pension and/or lump sum) under a Commonwealth superannuation scheme and the person:

  • is incapacitated for work as a result of an injury; and
  • 'retires voluntarily, or is compulsorily retired, from his or her employment'.

See section 6.6.3.1 for key dates and information on treatment of superannuation under relevant Acts prior to 1 December 1988 (the commencement date of the SRCA). 

6.6.1.2 MRCA

Part 3 of Chapter 4 of the MRCA, which deals with compensation for incapacity for work for members, and Part 4 of Chapter 4, dealing with former members, contain provisions to reduce compensation where a person receives or has received a Commonwealth superannuation benefit under a Commonwealth superannuation scheme.

6.6.1.3 Commonwealth Superannuation Schemes

The SRCA and MRCA reference superannuation benefits received from either a ‘superannuation scheme’ (SRCA) or a ‘Commonwealth Superannuation scheme’ (MRCA).

A ‘Superannuation Scheme’ is defined in section 4(1) of the SRCA and a ‘Commonwealth Superannuation Scheme’ is defined in section 5 of the MRCA. Generally it is any superannuation scheme under which the Commonwealth makes contributions on behalf of a person (referred to as either an employee (SRCA) or a member (MRCA) in the relevant legislation).

The definition encompass those schemes applicable to defence members i.e. ADF Super/Cover; Military Superannuation and Benefits Scheme (MSBS); and Defence Force Retirement and Death Benefits Scheme (DFRDB) (including the Defence Force Retirement Benefits (DFRB)), as well as the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation (PSS), and the Public Sector Superannuation accumulation plan (PSSap) - for those reservists engaged in Commonwealth employment. 

Commonwealth employment is employment in the Australian Defence Force (ADF), Australian Public Service (APS) or employment by a 'Commonwealth authority' or a 'licensed corporation' including most Commonwealth statutory authorities and Commonwealth-owned corporations.

Superannuation payments may be directed to any retirement savings account of the employee’s choice though and it is not essential that the Commonwealth administers the scheme only that contributions are being made by the Commonwealth. A private super fund, which accepts only the employee’s own personal contributions would not be included by the definition.

 

6.6.2 Reducing incapacity payments by superannuation benefits

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.

6.6.2.1 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.

On and after 15 December 2016

The policy from the 15 December 2016 is that 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.

This policy is applicable to all incapacity payment calculations from the 15 December 2016. Delegates are not expected to seek out and correct calculations where the pre-settlement superannuation amount has been held but should correct these calculations (from the 15 December 2016) as they are identified i.e. during the regular review process.

6.6.2.2 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.

6.6.2.3 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 SRCA 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.

6.6.2.4 Conversion of lump sum amount to weekly amount

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

SRCA 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.

SRCA 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.  

6.6.2.4.1

Example 1 - Converting the SRCA 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

 

6.6.3 Key dates affecting treatment of superannuation benefits and incapacity benefits

6.6.3.1 SRCA

  • 30 November 1988: A person who 'immediately before' the commencement of the SRCA on 1/12/1988 was in receipt of weekly incapacity payments and had ceased to be a serving member is a former employee under the SRCA and has a different set of weekly incapacity payment entitlements to that of current employees (non-former employees).

Under the 1971 Act, superannuation was taken into account in incapacity calculations under S45(7) only where the member was retired as a result of an injury. In these cases, the Commonwealth- funded portion of the DFRB/DFRDB pension was calculated as 80% of the total and the remaining 20% (thereafter fixed as a dollar amount) was disregarded as an employee-contribution.

In cases other than invalidity retirement (e.g. age retirement), the whole of the superannuation pension was disregarded for incapacity calculation purposes.

In the case of the group of former employees who were caught by this expansion of the superannuation rules on 1 December 1988, the original weekly amount of the superannuation pension should be calculated as at 1 December 1988 and not at their earlier date of retirement or resignation. The effect of this policy approach is beneficial to the former employees concerned as the amount of pension disregarded as an employee-contribution (20% of the total) will be larger than if the split is based on the date of retirement.

  • 1 December 1988: the reduction provisions in S20 and S21 only apply if the person retired on or after the commencement of the SRCA on 1 December 1988. If the person was discharged before that date, their superannuation benefits are not taken into account. If a person discharges before 1 December 1988 and claims incapacity payments after this date, superannuation benefits are not taken into account.
  • 24 December 1992: S21A, which deals with the situation where a member receives both a superannuation pension and a superannuation lump sum benefit, commenced on 24 December 1992. If the member retired before that date, only the superannuation pension can be taken into account, the superannuation lump sum benefit is not caught by the reduction provisions of the Act.
  • 7 April 1994: the Military Compensation Act 1994, which commenced on 7 April 1994, provided that a person continues to receive weekly incapacity payments at 100% of normal weekly earnings for the first 45 weeks of incapacity, whether or not they are discharged from the ADF during this period. However, for a person who retired before 7 April 1994 and received Commonwealth superannuation, incapacity payments are reduced to 75%* of NWE immediately upon discharge from the ADF.
    [* the percentage of NWE may be higher if the person engages in suitable employment.]
  • 1 July 1999: MSBS Members are able to access that portion of their ‘Member Benefit’ that accrued prior to 1 July 1999. The remaining benefit is compulsorily preserved.
  • 27 April 2007: the notional Superannuation Contribution (SC) amount is 5% of NWE for all clients who discharge on and after 27 April 2007.
  • 27 April 2007: for clients who have received a superannuation lump-sum benefit – for incapacity calculations prior to 27 April 2007 the lump-sum is converted to a weekly amount by multiplying the lump-sum amount by 10% and dividing by 52.

For incapacity calculations on or after 27 April 2007, the lump-sum is converted to a weekly amount by multiplying the amount by an interest rate set by the Minister for employment (in line with the 10 year government bond rate) and then dividing the amount by 52.

6.6.3.1.1

Example 1 – SRCA - Date of discharge before 1/12/98

Q. A person retires from the ADF before 1 December 1988 after 20 years’ service and receives a DFRDB retirement pension. The person is classified as a 'current employee' for the purposes of the SRCA.

Should the incapacity payment be reduced by the superannuation pension?

A. No. The superannuation pension cannot be taken into account. Incapacity benefits must be assessed in accordance with Section 19 of the SRCA. Sections 20 and 21 refer to retirement, be it voluntary or compulsory, which occurs 'at any time after the commencement of this section'. The commencement date for sections 20 and 21 is 1 December 1988. Since the person’s superannuation pension is paid as a result of retirement occurring before 1 December 1988, the superannuation pension cannot be taken into account in accordance with Section 20 or 21.

Example 2 – SRCA - Date of discharge before 24/12/92

Q. A person discharges from the ADF voluntarily in 1991 after 20 years’ service and receives a DFRDB retirement pension. The person elects to commute part of his pension benefit to a lump sum. After receiving the lump sum, the person’s pension benefit is reduced. The person is a 'current employee' for the purposes of the SRCA.

Should the incapacity payment be reduced by the superannuation pension?

A. Yes but only the reduced superannuation pension.

Only the reduced superannuation pension benefit can be taken into account in accordance with Section 20 of the SRCA. Although the person has received a lump sum as well as pension, Section 21A does not apply because retirement occurred before Section 21A came into force on 24 December 1992. 20% of the reduced pension is deemed to be the person’s own contributions to the pension and is not taken into account (the 20% amount deemed to be the employee's contributions remains constant for all future calculations). If the retirement had occurred after 23 December 1992, Section 21A would have applied.

6.6.3.2 MRCA

  • 1 July 2013: Those members receiving Commonwealth funded superannuation who have applied for incapacity payments prior to 1 July 2013 do not have their superannuation benefits reduced from their incapacity payments until they discharge from all forms of ADF employment, including the standby Reserve service or are considered to be a former member for the purposes of the MRCA via a determination under section 10.
  • If a person has applied for incapacity payments prior to 1 July 2013 but subsequently ceases payment and then reapplies/submits a new claim after 1 July 2013, the persons superannuation benefits are reduced from their incapacity payments. They are not treated under the pre 1 July 2013 provisions.

 

6.6.3.2.1

Example  – Date of claim for incapacity payments – either before or after 1 July 2013

Q. A male MSBS member retires from the Permanent Forces at the age of 55 on 1 July 2013. He receives a pension of $421.73 per week and a lump sum of $156,000. At the same time he transfers to the Reserves, having been provided with a skills waiver, and applies for incapacity payments. Is the superannuation pension and/or lump sum reduced from incapacity payments?

A. Yes because he has applied for incapacity payments on 1 July 2013 or later.

His incapacity payments will also be reduced by the amount of his actual earnings (AE) from Reserve service.

 

6.6.4 Employer Benefit or Employee Benefit?

The Commonwealth funded portion of superannuation benefits is called the ‘employer benefit’ and is considered in incapacity payment calculations.

Any part of the superannuation benefit that is attributable to a person's own contributions, the ‘employee benefit’, must be disregarded in calculations i.e. ancillary benefits.

Under the SRCA the employer benefit is added to the notional super contribution (the ‘SC’ amount) under S20, 21 and S21A.  See section 6.6.6 for further information on the SC amount.

Under the MRCA the portion of a person’s superannuation pension or lump sum that is ‘employer benefit’ is used as the “person’s superannuation pension amount” or “person’s superannuation lump sum amount” in calculations under S116A – 116E and S134 -136.

 

6.6.4.1 Defence Force Retirement and Death Benefits Scheme (DFRDB)

The DFRDB Scheme is a contributory scheme for 'eligible members of the Defence Force’ i.e. all members of the ADF on continuous full-time service for a period of at least one year. The DFRDB scheme is essentially a pension scheme. 

Non-medical discharge benefits

There is no employer benefit if the person has served less than 20 years. In this case, the person will receive a refund of their own contributions and a gratuity (none of which is an employer benefit). The employer benefit only accrues for those members who reach 20 years of service (or 15 years if he or she reaches compulsory retiring age for rank – see section 6.6.4.2) or who are medically discharged. 

Where the person has served more than 20 years (or 15 years if he or she reaches compulsory retiring age for rank) a pension or part pension/part lump sum is paid upon discharge. The employer benefit is taken to be 80% of the initial superannuation benefit (20% is considered to be the employee benefit and this 20% amount remains constant throughout calculations). 

The pension benefit is calculated by the number of years completed service (20 years = 35%).  A portion of the pension benefit can be commuted to a lump sum by multiplying the annual pension amount by 4.9.  The commutation amount is divided by the member’s life expectancy to calculate the amount by which the pension is reduced to compensate for the commutation lump sum.

Medical discharge benefits

The member will receive an invalidity pension if they are classified Class A or B.  80% of the pension is considered employer benefit and held in calculations. There is no refund of contributions. 

The invalidity benefits are calculated as follows:

Class A: a pension of 76.5% of the member’s final salary for DFRDB purposes.  Final salary includes service allowance and in some instances may include higher duties allowance, however all other disability allowances are excluded from their final salary for superannuation purposes.

Class B: is generally half the Class A pension (38.25%).  If the member has greater than 23 years of service their Class B benefit is based on years of actual service and not half of the Class A benefit.

Class C: is generally 1.5 times the member’s contributions, paid in the form of a lump sum. 1/3 of the lump sum benefit is considered to be the employer benefit. If the member has in excess of 20 years’ service then the benefits are calculated as if they had elected their own discharge.  This applies only to members who are medically discharged and subsequently classified as Class C.  Therefore, they have entitlement to a pension benefit, and can commute a portion of that benefit to a lump sum.

The Productivity Benefit

A productivity benefit has accrued on behalf of DFRDB members since 1 January 1988. The productivity benefit is paid separately to other DFRDB benefits. It may be paid at retirement from the ADF but in most cases is paid on or after preservation age.

The whole of the productivity benefit is Commonwealth-funded.

Further information about the DFRDB scheme can be found at http://www.dfrdb.gov.au/your-future/withdraw-benefits/discharge/

6.6.4.1.1

Example  – Calculating a DFRDB pension increase

A person initially receives a DFRDB pension of $300. An increase of 1.1% is to be applied to the rate of pension.

A. Original weekly pension = $300

Employee contribution = $300 x 20% = $60

Employer benefit = $300 x 80% = $240

After application of 1.1% increase

Current CPI adjusted pension = $303.30 ($300 x 1.1%)

Employee contribution = $60 (20% of initial pension - this does not change)

Employer benefit = $243.30 ($303.30 - $60)

6.6.4.2 Retirement Age for Rank 

In the DFRDB Scheme, a member can qualify for a pension after 15 years’ service (rather than the usual 20 years) if the member has reached retirement age for his or her rank.

The retirement age for a member's rank is determined by regulations made under the Defence Act, the Naval Forces Regulations and the Air Force Regulations. This may be complicated, in individual cases, by amendments to the Regulations and savings provisions arising from those amendments.

In general, retiring age for rank is now 60 years, with a range of later dates for officers of the rank of Major-General, Rear Admiral and Air Vice-Marshal and above.

6.6.4.3 Table of Superannuation Benefits Payable under DFRDB

 

Method of discharge

Benefit received

Commonwealth funded?  

Medical

Class A

Pension.

80% of the original pension amount.

Class B

Pension.

80% of the original pension amount.

Class C

Refund of 150% of contributions.

If member would have been entitled to a retirement pension but for the medical discharge, an invalidity pension at the same rate as the retirement pension is paid rather than the lump sum refund of contributions. This pension may, in part, be commuted to a lump sum.

 

1/3 of lump sum or

80% of the total initial superannuation benefit if client receives invalidity pension equal to retirement pension.  

 

Non- Medical

Over 20 years service* 

Pension. Part of the pension can be commuted to lump sum. 

80% of the original amount (pension and/or lump sum)

Discharge under preservation age

Refund of own contributions plus a gratuity  (in some cases the benefit may be preserved).

Nil. 

Discharge at or after preservation age

Pension. Part pension can be commuted to lump sum.

80% of the original amount (pension and/or lump sum)

AllDischarge at or after preservation ageProductivity benefit.100%

* or 15 years and reached retirement age for rank.

Note: A person may also access their superannuation prior to preservation age on the grounds of financial hardship or permanent invalidity. In these cases we reduce the persons’ incapacity payment by the employer funded component of the benefit received from the date it is received.

 

6.6.4.4 Military Superannuation and Benefits Scheme

The MSBS applies to members of the Permanent Forces who commenced service on or after 1 October 1991 and also is open to members of the Emergency or Reserve Forces who:

  • undertake full-time service for 12 months or more
  • undertake full-time service for 3 – 12 months and elect to join the Scheme, or
  • undertake full-time service in an operational area and elect to join the Scheme.

MSBS is primarily a lump sum scheme with two basic components:

  1. The member benefit which is made up of the member’s contributions and interest.  The member can access that part of this benefit that accrued prior to 1 July 1999.  The balance is compulsorily preserved in the superannuation system until their minimum retirement (preservation) age.
  2. The employer benefit is a multiple of the member’s final average salary over the preceding 3 years, based on the member’s length of service.  The benefit is calculated as follows: 1-7 years = 18%, 8-20 years = 23%, and 20+ years = 28%.

Non-medical discharge benefits

The employer benefit is preserved and cannot be paid (unless in special circumstances) until the person has reached preservation age and retired permanently from the workforce.  The member can access the member benefit that accrued prior to 1 July 1999 and may access ancillary benefits if certain conditions are met. Ancillary benefits are the members own voluntary contributions and are not an employer benefit.

Medical discharge benefits

The member will receive an invalidity pension if they are classified as either Class A or B. 100% of the pension received is an employer benefit.

The Class A benefit is calculated by establishing the benefit multiple accrued at the time of discharge, and projecting the benefit multiple that would have accrued if the member had continued to serve until age 60.  This establishes the member’s notional lump sum, which is compulsorily converted to a pension by dividing the amount by 11.

The Class B pension is generally exactly half of the Class A entitlement.

The Class C benefit is the same as for a non-medical discharge.  The member is immediately entitled to the member benefit that accrued prior to 1 July 1999, with the remainder of the member benefit and the accrued employer component available at their minimum retirement (preservation) age.

The Productivity Benefit

A productivity benefit has accrued on behalf of MSBS members since it commenced on 1 October 1991. The productivity benefit is not paid separately to other benefits under the MSBS, instead it forms part of the employer benefit the person receives.   

Further information about MSBS can be found at https://www.militarysuper.gov.au/

6.6.4.5 Table of Superannuation Benefits Payable under MSBS

 

Method of discharge

Benefit received

Commonwealth funded?

Medical

Class A

Pension.

100% of the pension.

Class B

Pension.

100% of the pension.

Class C

Prior to age 55 - No employer benefit payable.

After age 55 - Can access a pension only.  

After preservation age - see “Discharge at or after preservation age” below for details of benefit after preservation age reached.

Can access the member benefit that accrued prior to 1 July 1999 as a lump sum.  The remaining is preserved until preservation age.

Can access ancillary benefits (voluntary contributions) as a lump sum if conditions of release satisfied.

Nil until the person meets a condition of release and receives their superannuation benefit.

Non- Medical

Discharge under preservation age

Benefits the same as for “Class C” invalidity benefits (as above).

 

Discharge at or after preservation age

Lump sum. Part lump sum can be converted to a pension.

100% of employer benefit.

Member benefit not Commonwealth funded.

Ancillary benefit not Commonwealth funded.

Note: A person may also access their superannuation prior to preservation age on the grounds of financial hardship or permanent invalidity. In these cases we reduce the persons’ incapacity payment by the employer funded component of the benefit received from the date it is received.

 

6.6.4.6  ADF Super and ADF Cover

ADF Super is replacing MSBS as of 1 July 2016. ADF super will be the default fund for anyone joining the permanent ADF for the first time, however members will be able to choose a different fund if they wish (though MSBS will be closed to new members from 1 July 2016). ADF Super is underpinned by a death and invalidity scheme called ADF Cover.

The amount of cover a former member receives is related to the period of time from the date of discharge to age 60. Under ADF Cover, a temporary ‘top up pension’ will be paid to invalidity pensioners until they turn 60 when they can then access their accumulated superannuation. Two rates of pension are calculated and the ‘basic’ pension plus ‘top-up’ pension is paid until the member turns 60, after which they will only receive the ‘top-up’ pension based on years of actual service.

ADF Cover will be managed by the Commonwealth Superannuation Corporation.

As per the MSBS and DFRDB a member can be classified following a medical discharge as either Class A, B or C. A person will receive a pension if they are classified as either Class A or B.

Basic Rate of Invalidity pension

The Basic Rate of Invalidity Pension is based on the prospective years of service to age 60.

Basic rate = prospective years of service to age 60 x Salary at Discharge x Incapacity Factor (where the incapacity factor is Class A - 2.2% or Class B - 1.1%).

Top-Up Rate of Invalidity pension

The Top-up Rate of Invalidity pension is based on the member’s actual years of service for the current period of service.

Top-Up Rate = Actual years of service for the current period x Salary at Discharge x Incapacity Factor (where the incapacity factor is Class A - 2.2% or Class B - 1.1%).

6.6.4.6.1

Example  – Calculation of ADF Cover benefits

A former member enlisted on 1/9/2015 and discharged on 13/9/2016 and therefore has 1 year of qualifying service. The member is classified as Class A and has a discharge salary of $80,000.

A. Top-up rate = 1 x $80,000 x 2.2% = $1,760.00 per annum (divide by 26 to calculate the fortnightly pension = $67.69)

The member’s prospective years of service start from the date after discharge i.e. 14/11/2016 to the date of their 60th birthday. In this case the member turns 60 on 3/6/2047 i.e. has 30 years of prospective service.

Basic rate = 30 x $80,000 x 2.2% = $52,800 per annum ($2,030.77 per fortnight).

The member would receive a total pension of $54,560.00 per annum until age 60 after which they will receive a pension of $1,760.00 per annum.

 

6.6.5 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 6.6.5.1).

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.

6.6.5.1

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?

A. No.

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. 

6.6.5.1 Preservation age

'Preservation age' – the age at which preserved superannuation can be accessed by a retired member – varies according to the date of birth of the member.

Under the MSBS a person can access a pension only benefit at age 55 (the option to receive a lump sum is only available after the person reaches their preservation age).

Date of birth

Preservation age

Before 1 July 1960

55

1 July 1960 – 30 June 1961

56

1 July 1961 – 30 June 1962

57

1 July 1962 – 30 June 1963

58

1 July 1963 – 30 June 1964

59

After 1 July 1964

60

6.6.5.2 Superannuation Reviews

Annual reviews should be completed from age 55 and thereafter until the person’s entitlement has been paid or rolled over.

6.6.6 Notional Superannuation Contributions ('SC' amount) - SRCA only

The ‘SC’ amount is only applicable to incapacity payment calculations under S20, 21 and 21A i.e. calculations where a person has received a Commonwealth superannuation amount.

The SC amount is “the amount of superannuation contributions that would have been required to be paid by the employee in that week if he or she were still contributing to the superannuation scheme”.

The SC amount is added to the superannuation amount (the ‘SA’) and reduced from the incapacity payment.  

As a result of amendments contained in the Safety Rehabilitation and Compensation And Other Legislation Amendment Act 2007 the SC amount is 5% of NWE for all clients who discharge on and from 27 April 2007.

6.6.6.1 Establishing the SC amount – SRCA only

The minimum contribution rates (i.e. the 'SC' amount) for the two military superannuation schemes are:

Defence Force Retirement and Death Benefits (DFRDB)

5.5%

Military Superannuation and Benefits Scheme (MSBS)

5%

The Incapacity Calculator calculates the appropriate SC amount.

6.6.6.2 Establishing the SC amount – Reservists - SRCA only

Generally Reservists will not be in receipt of superannuation under the DFRDB or MSBS military superannuation schemes unless they have undertaken a period of Continuous Full-Time Service (CFTS). However, it is possible that a Reservist may be in receipt of superannuation under another Commonwealth Government superannuation scheme and in some circumstances be subject to the superannuation rules (Ss20, 21 and 21A).

Where superannuation benefits are being received from a relevant Commonwealth Government scheme, it is necessary to establish the appropriate SC amount by contacting the Commonwealth Superannuation Corporation (for the CSS and PSS schemes) or the relevant Fund Administrator for other schemes or private funds to which the Commonwealth is making contributions to on behalf of the member.

Under some Commonwealth superannuation schemes, the rate of employee contribution is set by the member within a specified range (e.g. 2%-10% for the PSS Scheme), rather than being set at a uniform rate for all members of the scheme. The SC amount should be based on the minimum contribution rate at which the Reservist member was permitted to contribute, not on any higher actual rate at which the Reservist member was actually contributing.

If the person was discharged on or after 27 April 2007, the SC amount is 5% of NWE.

6.6.6.2.1 Example - Calculating the SC amount

Q. Member was part of the DFRDB Scheme, how much ‘SC’ should be held in calculations?

A. If the person retired prior to 27 April 2007 the SC amount is 5.5% as that is the amount they were required to contributeIf the person retired on or after 27 April 2007 the SC amount is 5% for everyone.

 

6.6.7 Reducing incapacity payments by superannuation benefits when a person has multiple periods of service (and multiple sources of superannuation)

Where a person has multiple periods of service or sources of superannuation (i.e. Defence and Australian Public Service) only the superannuation that is derived from the same period of service that the NE or NWE is derived is taken into consideration in incapacity calculations. The calculation of NE or NWE is driven by the type of service that gave rise to the condition/s causing the incapacity.

Scenario (all scenarios assume the person has a compensable injury and is eligible for incapacity payments)

Reduce Incapacity Payments?

Comments

1.  An ex-full-time serving member voluntarily discharges (20 years+ service) and receives a DFRDB retirement pension. He transfers to the Reserve forces and is subsequently injured in that Reserve employment. Is the superannuation pension taken into account in incapacity calculations?

 

No.

The injury which results in the current incapacity for work was sustained during a different employment than the superannuation pension was derived from, i.e. a period of part-time Reserve service which commenced after discharge from the full-time service.  

The incapacity, injury, retirement and superannuation must all arise from the same period of employment.

Payment of the superannuation pension is not related to the Reserve service.  It is paid in relation to a separate and distinct period of 'Commonwealth' (permanent full-time versus part-time reserve) service.  

2.  A person discharges after 20 years’ service and receives a DFRDB retirement superannuation pension. The person later re-enlists in full-time service. The person is medically discharged and receives a MSBS invalidity pension from the second period of service as well as a pension from the first period of full-time service. Should the two pensions be taken into account in incapacity calculations?

Yes.

Treat the super from both periods of permanent full-time service as a single whole and reduce payments accordingly.

 

3.  A Public Servant in the Reserves and is injured during CFTS. The person is medically retired from the APS and Reserves due to the injury. The person's NE is based on ADF rank and pay during CFTS. The person receives PSS super. Should the person's PSS superannuation be reduced from incapacity payments?

 

Yes.

 

As the PSS super is derived from same period of employment from which NE is derived, i.e. Reserve service.

Depending on the duration of the CFTS service, the person may also get military invalidity superannuation benefits which should also be included in incapacity calculations.

4.  A person serves 20 years in the ADF and receives a DFRDB retirement pension. The person joins the APS after discharge but is ultimately retired from APS due to the service injury. Should the DFRDB and the PSS be reduced from incapacity payments as a single combined amount?

 

No.

The incapacity payments should only be reduced by the DFRDB pension as this period of permanent full-time service is where the person’s NE is derived from.

5.  A person serves in the Reserves and suffers a compensable injury. The person later enlists in permanent full-time service and is subsequently medically discharged for the compensable reserve service injury (and receives invalidity superannuation benefits). Should the invalidity superannuation pension be reduced from their incapacity payment?

No.

As the person’s superannuation is derived from a different period of service (permanent full-time) than NE is derived (Reserve). 

6.  A person serves in the Reserves and suffers a compensable injury. The person later enlists in permanent full-time service and then retires (and receives a retirement pension). Should the retirement pension be reduced from their incapacity payment?

No.

As the person’s superannuation is derived from a different period of service (permanent full-time) than NE is derived (Reserve). 

7.  A person is in permanent full-time service and subsequently transfers to the Reserves, during their Reserve service they have a period of CFTS.  The person receives a superannuation benefit (either retirement or invalidity). Should the superannuation benefit be reduced from their incapacity payment? 

See ‘Comments’.

This depends on the period of service the injury that is giving rise to the incapacity is from. If the injury was during permanent service, then NE is derived from the same service and superannuation will be reduced from the incapacity payment. If the injury is during part-time reserve service NE is derived from the same service and no superannuation is reduced from the incapacity payment. If the injury is during CFTS, then the portion of the superannuation derived from the CFTS service is reduced from incapacity payments.  If the amount of superannuation derived from the CFTS can’t be distinguished from the amount of superannuation derived from the permanent full-time service then the full amount of superannuation is reduced from incapacity payments.