9.1.1 DRCA

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'; and

• receives a pension under a superannuation scheme as a result of their retirement.

See section 9.3.1 for key dates and information on treatment of superannuation under relevant Acts prior to 1 December 1988 (the commencement date of the SRCA). 

9.1.2 MRCA

Current members

Part 3 of Chapter 4 of the MRCA, which deals with serving members, contains provisions to reduce incapacity payments by any amount of Commonwealth-funded superannuation pension or lump sum a member receives or has received under a Commonwealth superannuation scheme.

Former members

Part 4 of Chapter 4, dealing with former members, contain provisions to reduce compensation where a person;

• retired voluntarily, or is compulsorily retired, from his or her work; and

• receives a pension or lump sum under a Commonwealth superannuation scheme as a result of their retirement.

9.1.3 Commonwealth Superannuation Schemes

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

A ‘Superannuation Scheme’ is defined in section 4(1) of the DRCA 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 (DRCA) or a member (MRCA) in the relevant legislation).

The definitions 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.

9.1.4 Meaning of 'retired'

A person must be both retired and receiving superannuation benefits as a result of that retirement to satisfy the superannuation provisions of the DRCA and MRCA (with the exception of current members under MRCA).

The DRCA and MRCA do not define what retired, or retirement is. Generally, retirement is linked to eligibility to receive the age pension or access to superannuation. In the context of the DRCA and MRCA, retirement includes any separation from Defence or Commonwealth employment (when relevant for Reservists), if that separation ultimately results in the person receiving Commonwealth-funded superannuation.

9.1.5 Superannuation received 'as a result of retirement'

The DRCA and Part 4 of the MRCA (for former members) superannuation provisions require that the superannuation is received as a result of retirement.

Although superannuation is money invested for a person's retirement (and eligibility relies on the person reaching their preservation age) there are some circumstances when a person may access supeannuation early.

Typically these are:

• Severe financial hardship
• Specified compassionate grounds; and 
• Medical grounds.

For incapacity purposes, delegates need to consider whether the person is retired and whether the superannuation received was as a result of that retirement.

As guidance, superannuation received on the grounds of severe financial hardship or specified compassionate grounds would not be considered to be superannuation received as a result of retirement, i.e. it is received as a result of the person suffering financial difficulties, alternatively a person may still be working but receiving superannuation on compassionate grounds.

Superannuation received based on medical grounds is considered to be received as a result of retirement as the critieria to access this superannuation requires the person be retired from the workforce due to disability. In this case the person is retired from employment (including Defence) and receives superannuation due that retirement. These superannuation amounts are taken into account.

Superannuation received due to medical retirement (discharge) from the ADF i.e. resulting in a Class A or B pension payment is considered received as a result of retirement and is taken into account.

MRCA current members

The wording of the MRCA provisions (Section 89A) in relation to current members require that any superannuation received under a Commonwealth superannuation scheme should be taken into account in calculating incapacity payments, regardless of the reason for that superannuation payment.  

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). A new 'transitional' approach to recover these overpayments has been developed by DVA, the Australian Taxation Office (ATO) and CSC. The transitional approach should be applied to cases from July 2019 and is to be applied until a final process is established between the three agencies. The transitional approach is applicable to incapacity payment calculations under both MRCA and DRCA.

Broadly, under the transitional approach DVA will recover the gross incapacity overpayment from the net CSC pension in arrears payment (overpayments within the same financial year can be recovered at the net amount). The CSC will first repay to DVA any 'pre 2005' amount, and apply a new (more beneficial) tax rate to any remaning arrears.

For cases where the CSC arrears is not enough to repay the full incapacity overpayment, DVA is required to recover the remaining overpayment from the veteran. Once the overpayment is repaid in full or DVA is satisfied repayment of the full amount will occur under a formal repayment arrangement, the ATO will reassess the tax paid in previous financial years and refund any overpaid tax to the veteran.

The relevant procedures are provided in the Incapacity Procedures Manual Ch 5 in CLIK and can be accessed here.

Tax amendments and debt repayment

When a person has received both incapacity payments from DVA and a retrospective supeannuation pension (an arrears payment) from the CSC they may incur a debt to DVA. Once the debt is repaid the person is able to seek an amendment of their tax and may receive a refund.

Three different scenarios may occur:

1. The debt is repaid in full by CSC (via the arrears payment);
2. The debt is repaid in full by a combination of CSC (via the arrears payment) and the veteran (via a lump sum payment i.e. from incapacity payment or permanent impairment payment) at the same time; or
3. The debt is partially repaid by CSC and a portion of the debt remains with the veteran to repay via a repayment arrangement with DVA. 

To facilitate a tax amendment DVA is required to furnish the ATO with either; 

1.  a letter confirming that the full amount of the debt has been repaid (scenarios 1 and 2 above); or
2.  a letter confirming that DVA is satisfied repayment of the full amount will occur under a formal repayment arrangement with the  veteran (scenario 3); and 
3.   an amended payment summary for each relevant year that the debt has been repaid for (this may be a payment summary or the information contained in a letter). 

There is an element of risk to being satisfied that the debt will be repaid as compared to being certain it has been repaid after the fact of repayment. The intent of (2) is to allow the veteran to access a refund sooner (even though the debt has not been fully repaid) and potentially use that refund to repay the remaining debt owing to DVA. However, DVA cannot compel a person to pay a debt from a refund or garnish a refund directly.

Debt recovery

There are a variety of mechanisms available to DVA to recover a debt. These include recovery from DVA payments an recovery directly from the person. DVA cannot garnish wages or tax refunds to recover a debt.

What is a formal repayment arrangement?

1. Person is still receiving incapacity payments and an amount is withheld each pay.
2. Person is not receiving incapacity payments but has agreed to pay periodic amounts either from other DVA payments or a regular deposit.
3. Person has agreed to repay any outstanding debt from an upcoming PI lumpsum payment (i.e. claim is outstanding). Consultation with the appropriate PI processing team should be undertaken to identify timing and likely outcome of the PI claim.
4. Person has agreed to repay any outstanding debt from a tax refund issued following a tax amendment (facilitated by DVA).

When is DVA satisfied repayment of the full amount will occur under a formal repayment arrangement with the veteran?

This will vary case by case and depend on the amount of the debt outstanding i.e. smaller amounts would be more likely to be recovered. It is anticipated that most debts could be recovered in full.

Factors to consider in establishing that the repayment of the full amount will occur under a formal repayment arrangement include;

• The amount of the debt
• Whether the person agreed in writing to a repayment plan
• How much the person is repaying periodically
• If the person is repaying via their incapacity payment, how much longer the person will be eligible to receive incapacity payments for, including;
  • whether they will continue in payment after 45 weeks. After 45 weeks has the person agreed to continue repayments?
  • age of the veteran. At the rate of current repayments, will the debt be repaid before they are age pension age?
• If the person is repaying via a withholding of another DVA payment, i.e. a supplement, at the current rate will the debt be repaid in their lifetime?
• Does the person have any other debts with DVA?

If the person has agreed to repay the debt from an outstanding PI lum sum, delegates would also need to consider how many PI points the person currently has i.e. high/maximum points already will limit additional payments.

What to do when DVA is not satisfied the full amount will occur under a formal repayment arrangment with the veteran

Seeking a tax amendment for the full debt amount repaid is simpler for the veteran rather than seeking a tax amendment for the portion of the debt repaid by CSC and then separately seeking an amendment for the portion of the debt repaid or under repayment by the veteran. While the preference is for a single amendment, it remains open to the veteran to seek multiple amendments from the ATO. In this case multiple tax amendment letters may be sent to the ATO.

The tax amendment letter can be sent for the portion of the debt repaid by the CSC before the remainder of the debt is repaid. In this case that repayment should be apportioned back over financial years, starting at the latest year. The veteran may use the refund to repay DVA, subsequently generating additional amendments. Otherwise an amendment should only be sought when the remaining debt is repaid. This will lead to a higher administative cost across agencies should multiple amendments be undertaken. It may also restrict the veterans ability to actually repay the debt if the amendment is not done for the full amount.

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. This policy has now ceased and should not be applied regardless of the date of the family law settlement.

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 prior to 15 December 2016, but should correct these calculations as they are identified i.e. during the regular review process. For example, in a case where the pre 15/12/2016 policy had been applied to a family law settlement in 2013, incapacity payments will need to be recalculated back to the date of the family law settlement.

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.  http://auth-clik.dvastaff.dva.gov.au/military-compensation-mrca-manuals-and-resources-library/actuary-tables-used-age-adjusting-lump-sum-payments

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.

9.3.1 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 but after 1 December, 1988 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.]

• Note: Where a person discharged prior to the commencement of the SRCA on 1 December, 1988, superannuation benefits are not taken into account and the 75% reduction is not applied (as incapacity entitlement is calculated in accordance with Section 19).

• 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.

9.3.2 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.

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.

9.4.1 Establishing the Commonwealth-funded component of superannuation benefits received from a scheme other than those administered by the CSC

From 1 July 2016 serving members can have their Commonwealth-funded superannuation credited to any superannuation scheme or retirement savings account they choose. This may be a scheme administered by the Commonwealth or a Commonwealth authority or an industry or private super fund. For the purposes of the legislation these are all considered to be the ‘superannuation scheme’ or ‘Commonwealth superannuation scheme’.

Alternatively, a person may roll their Commonwealth-funded superannuation over to any superannuation scheme or retirement savings account they choose after their retirement from the ADF.

In these cases the scheme may have contributions relating to both the person’s ADF employment (Commonwealth-funded contributions) and other employment. 

The legislation (MRCA - section 135-6 and DRCA - section 4) outlines that the superannuation amount to be held in calculations is equal to:

1.       the amount the employee’s superannuation contribution scheme identifies as employer-financed; or

2.       if the superannuation scheme cannot identify the employer’s contributions, the amount the Commission assesses to be attributable to employer contributions, or

3.       if the Commission cannot assess an amount to be attributable to the employer’s contribution, the amount of the pension in the week, or the lump sum the employee receives.

Once a person 'receives' (see section 9.8) a superannuation pension or lump-sum, delegates will need to establish how much of that pension or lump sum is Commonwealth-funded. 

If a person voluntarily elects to roll over their Commonwealth-funded superannuation into another fund after they have reached their preservation age, the Commonwealth-funded superannuation has 'been received' and the full amount that was rolled over would be used to offset incapacity payments from the date of roll-over.

When a veteran accesses a payment from a superannuation fund that is not administered by the CSC and this payment is from (all or part) Commonwealth-funded supeannuation contributions, delegates will need to establish the value of the Commonwealth-funded portion of that payment.

Delegates will need to establish the total value of the superannuation in the fund and the current value of the Commonwealth-funded amount rolled over or orignially deposited to the fund (this is supplied by the superannuation fund).

A few possible scenarios exist;

• If the veteran accessed all of the superannuation held in that fund, then the current value of the Commonwealth-funded amount will be used to offset incapacity payments.
• If the veteran only accesses a portion of the total amount held in that fund, a ratio is applied to determine the amount to be offset.
• If the superannuation fund cannot provide the current value of the Commonwealth-funded superannuation, the same methods will be applied as above but will be based on the original value of the Commonwealth-funded amount rolled over.

Example:

A veteran accesses $50,000 from their private superannuation fund of $100,000. Prior to preservation age the veteran had rolled over $20,000 of Commonwealth-funded super into the private fund. The scheme identifies that the super that was rolled over is now worth $25,000. As one quarter of the total amount in the private fund is Commonwealth-funded, one quarter of the amount accessed (in this case $12,500) is used to offset incapacity payments.

i.e. $25,000/$100,000 = 25% (25,000/100,00 x 100)

25% x $50,000 = $12,500 (amount to be offset)

If the private fund was not able to identify the current value of the original amount rolled over, the amount used to offset incapacity payments would be $10,000 (as the original amount of Commonwealth-funded superannuation rolled over is one fifth of the total amount in the fund).

i.e. $20,000/$100,000 = 20%

20% x $50,000 = $10,000 (offset amount)

Delegates can request assitance from Benefits and Payments Policy via the Delegate Support Framework. 

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. 

9.5.1 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 9.5.3) 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.

9.5.2 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/

9.5.3 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.

9.5.4 Table of Superannuation Benefits Payable under DFRDB

* or 15 years and reached retirement age for rank.

As a result of changes to superannuation legislation in the early 1970's, DFRDB pensions paid from 19 June, 1973 were entirely Commonwealth-funded. However the decision to hold 80% of the benefit as Commonwealth-funded, and 20% as employee funded was determined by the Commissioner for Employees Compensation under the Compensation (Commonwealth Government Employees) Act 1971 (the '1971 Act'). In effect, as the initial pension increases over time, the 20% attributable to the employee contribution decreases in relation to the Commonwealth-funded portion.

Note: A person may also access their superannuation prior to preservation age on the grounds of financial hardship, compassionate, or permanent invalidity. See Chapter 9.1 for clarification on this issue here.

See Chapter 9.8 for clarification on when superannuation benefit has been 'received' here.

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%.

9.6.1 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.

9.6.2 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; Commonwealth Superannuation Corporation  

9.6.3 Table of Superannuation Benefits Payable under MSBS

Note: A person may also access their superannuation prior to preservation age on the grounds of financial hardship, compassionate, or permanent invalidity. See Chapter 9.1 for clarification on this issue here. 

For further infomation on when superannuation has been received, see Chapter 9.8 here.

ADF Super has replaced MSBS as of 1 July 2016. ADF Super is 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 has been 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 ‘basic’ pension.

The invalidity pension (both basic and top-up components) is 100% Commonwealth-funded.

ADF Cover is 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.

9.7.1 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%).

9.7.2 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%).

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 9.4).

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 a 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.

Note the distinction between preserving the benefit in the existing Commonwealth superannuation scheme, and electing to move the benefit to a different (non-Commonwealth) superannuation scheme/rollover fund/retirement investment.

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.

'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).

9.9.1 Superannuation Reviews

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

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 (SRCOLA) the SC amount is 5% of NWE for all clients who discharge/retire on and from 27 April 2007.

The intent of SRCOLA was to restore the original policy intent of the Act, so that eligible retired employees would receive a combined compensation and superannuation weekly benefit of no more than 70% of NWE.

The subtraction of the 5% is merely one step in establishing the entitlement amount. It is not a deduction in the same sense as taxation or debt recovery. There is a distinction between taking something away from a compensation entitlement (as occurs with taxation and debt recovery) and a compensation entitlement that is less than some fictional quantity. One implication of this is that, unlike a person's tax deductions, the '5% notional amount' is not allocated somewhere. Specifically, it is not money that would otherwise end up in a superannuation account. 

9.10.1 Establishing the SC amount – DRCA only

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

9.10.2 Establishing the SC amount – Reservists - DRCA 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 (e.g 2% under the PSS), not on any higher actual rate at which the Reservist member was actually contributing.

Where a Reservist retired from the ADF before 27 April 2007 (the commencement of SRCOLA), the SC amount is the amount they would have been required to pay in a week if they were still contributing to their civilian superannuation scheme i.e. a percentage (as confirmed by the relevant scheme) of the civilian component of NWE.

If the Reservist retired from the ADF on or after 27 April 2007, the SC amount is 5% of total NWE (Reserve + civilian component).

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 in which the injury was sustained 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.

9.11.1 When a person has multiple periods of the same service type, and multiple superannuation payments

Only superannuation received following retirement from the single period of service that gave rise to the veterans' injury can be used to offset incapacity payments. In cases where a veteran enlists and discharges multiple times in the Permanent Forces and receives superannuation after their retirement from each period, only the superannuation received after their retirement from the single period giving rise to the injury can be used to offset incapacity payments.

This may occur where a person has more than 20 years ADF service and a retirement pension is paid under DFRDB upon retiring. A portion of that retirement pension can be commuted to a lump sum such that a person receives a lump sum amount and a retirement pension following discharge. If a person re-enlists, that retirement pension ceases until they are once again retired (discharged) and may receive another superannuation amount.

Scenario table