DEFENCE COMPENSATION ADVICE - NO. 69

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Safety Rehabilitation and Compensation Act 1988

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DEFENCE FORCE RETIREMENT & DEATH BENEFITS ACT 1973 & MILITARY SUPERANNUATION BENEFITS ACT 1991 - PENSION AND LUMP SUM BENEFITS SECTIONS 20, 21, 131, 132A & 135

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1.  The main purposes of this DCA are to:

a.  inform delegates of the various Commonwealth superannuation benefits available to retired members of the Australian Defence Force under the DFRDB Act 1973 and MSB Act 1991;

b.  clarify apparent confusion arising from DCA No.54 of 20 March 1992; and

c.  establish a standard process for obtaining superannuation details from claimants and the Retirement Benefits Office (RBO).

2.  Attachment A to DCA 69 outlines the various benefits payable under the DFRDB Act 1973 and MSB Act 1991 in the case of medical and non medical discharges. Attachment A also provides "RULES" to assist delegates to decide how and when a particular superannuation benefit should be dealt with when assessing compensation payable for incapacity for work.

3.  Attachment B to DCA 69 lists some commonly asked questions concerning the interaction between SRC Act benefits and superannuation benefits, and provides answers to these questions. The list of answers and questions is by no means exhaustive. Answers to delegates' questions not found in DCA 69 should be referred to ERMC section for consideration and advice.

4.  The following procedures for obtaining superannuation details are aimed at minimising the number of standard requests to the RBO for superannuation details and take effect immediately:

a).  New Claims for Incapacity:

All discharged members in receipt of a superannuation benefit receive a "new grant letter" from the RBO. The "new grant letter" outlines, among other information, details of the "member benefit" and initial "employer benefit", be it, a lump sum benefit in the case of MSBS, or a pension benefit in the case of DFRDB.

Where required, to enable weekly compensation benefits to be assessed and payment commenced, superannuation details should be sought, in the first instance, from the member.

Copies of typical "new grant letters" used by the RBO in the case

of DFRDB and MSBS are provided at Attachments C and D, respectively.

NOTE: Only in the case where superannuation details cannot be obtained from the claimant should a request be sent to the RBO.

b).  Existing Claims for Incapacity:

Superannuation benefits under DFRDB and MSBS are indexed annually  in line with the Consumer Price Index. Adjustments to superannuation  benefits apply from the first day after the last pension pay day in  June of each year, and are payable on the first pension pay day in July of  the same year (note that superannuation pension pay days fall on public  service off-pay weeks).

Advice of the percentage adjustment (usually an increase) can be  obtained from ERMC section. The percentage adjustment is to be  applied to the known superannuation pension benefit, 80% of which is  already being taken into account for SRC Act purposes. See Question 4  on Attachment B for advice of how to obtain the employer/employee  portion of the pension after a DFRDB pensions increase.

NOTE: Details of pension increases/updates in individual cases   should not be sought from the RBO as a matter of course.

c).  Confirmation of Superannuation Benefits:

Arrangements have been made for the RBO to provide ERMC section  with data confirming the amount of superannuation benefits received  by discharged members. This data will in turn be distributed to  Defence Compensation sections, for review and necessary attention.

It is recommended that, at the time of determining and advising  claimants of their weekly compensation entitlement, those that are in  receipt of a superannuation pension from the RBO be requested to  inform the compensation section of any changes to the rate of their  superannuation entitlement, particularly where the pension has been  reclassified, immediately. The letter to the claimant should also advise  that failure to do so may result in an overpayment of compensation  benefits and the need to institute recovery action.

5.  Attachment E to DCA 69 provides a sample standard letter for requesting superannuation details from the RBO, together with copies of standard responses proposed by the RBO. Again, superannuation benefit details should only be sought from the RBO where the claimant is unable to provide the required information.

6.  There are two important concepts to be aware of when determining the application of the SRC Act 1988 to ADF superannuation benefits. These are:

a.  that DFRB and DFRDB are pension schemes. However, in some circumstances, part of the pension may be commuted to a lump sum (see paragraph 1b of Attachment A and Question 2 of Attachment B); and

b.  that MSBS is a lump sum scheme (except in the case of a Class A or B medical discharge, in which cases an invalidity pension is granted). In some circumstances (not including invalidity pension cases), part of the lump sum benefit can be converted to a pension - see paragraph 3 on Attachment A. (Note: Because of the apparent taxation implication for ADF members, the term "convert" rather than "commute" is used by the RBO in MSBS cases.)

7.  Any enquiries concerning the issues covered by DCA 69 can be directed to Mr Paul Reis on 2668637.

Klaus U Popp

DERMC

        October 1993

DFRDB

1.  Non Medical Discharge (resigns/retires)

Period of Service	Benefit
a) Less than 20 yrs	Member gets a refund of his contributions in a lump sum - no interest is paid.
	Member gets a gratuity
	(this is not a "superannuation benefit")

RULE:

Do not take the above benefits into account when assessing compensation payable for incapacity for work. Section 19, 132, 132A(3) or 136 applies.

Period of Service	Benefit
b) 20 yrs or more	Member gets a pension benefit.
(or 15 yrs	Member can commute part of the pension.
Having reached age	to a lump sum (ie. He/she may receive an advance
retirement for rank)	of a portion of the pension in the form of a lump    sum).
	Member's pension reduces after commutation.

RULE:

80% of the initial pension is deemed to be government/employer financed and must be taken into account when assessing compensation payable for incapacity for work.

20% of the initial pension is deemed to be the employee's own contributions to the pension and must not be taken into account. The 20% amount remains constant and does not change except if a reclassification of the pension occurs, ie. from Class B to Class A.

Section 20, 131, 132A(2) or 135 applies.

DFRDB

2.  Medical Discharge

Members who are medically discharged are classified Class A, B, or C.

a).  Class A or B:

Members classified Class A or B receive an invalidity pension benefit. Class A pensions represent 76.5% of the annual rate of pay applicable to the member immediately before his or her discharge from the ADF. Class B pensions represent 38.25% of the member's rate of pay immediately before his or her discharge.

The Class A or Class B pension cannot be commuted to a lump sum and the member does not receive a separate refund of his/her contributions.

RULE:

80% of the initial Class A or Class B pension is deemed to be government/employer financed and must be taken into account when assessing compensation payable for incapacity for work.

20% of the initial Class A or Class B pension is deemed to be the employee's own contributions to the pension and must not be taken into account. This amount remains constant in all future calculations and is not subject to change except in the case of  a reclassification of  the pension.

b).  Class C:

Members classified Class C receive one and one-half times their own contributions as a lump sum. No pension is payable.

RULE:

The amount taken into account where a member is classified Class C is the "one-half times" portion of the lump sum.

In other words, 2/3 of the lump sum represents the member's own contributions and must not be taken into account.
(Attachment A continued)

1/3 of the lump sum represents the government financed portion of the lump sum and is the "lump sum benefit". The lump sum benefit must be taken into account in assessing the compensation payable for incapacity for work.

Section 21 applies to Class C benefits.

Example:

Class C	$3000
	$2000 (member's contributions)
	$1000 (lump sum benefit)
	"SA" -$1000

("SA" is the superannuation amount for the purposes of section 21)

MSBS

3.  Non Medical Discharge

Members who resign or retire are eligible for 2 benefits:

a).  Member Benefit:

The member receives a refund of his/her own contributions plus interest.

The "member benefit" can be taken immediately or preserved as the member wishes.

The "member benefit" is paid as a lump sum and cannot be commuted in part or in whole to a pension.

RULE:

Do not take the "member benefit" into account when assessing the compensation payable for incapacity for work. If the ex-member is not receiving the "employer benefit" (see below), section 19 applies.

b).  Employer Benefit:

The member receives a government financed lump sum benefit (employer benefit) which can be taken as a whole lump sum.

Alternatively, the member may elect to receive the "employer benefit" as a part pension/part lump sum.

The "employer benefit" can be taken as a lump sum or part lump sum/part pension once the member reaches age 55 and is retired permanently from the work force.

RULE:

If the member has not received the "employer benefit", ie. the member is less than age 55 and has not retired permanently from the work force, section 19 applies (remember that the "member benefit" must not be taken into account).

If the member receives the "employer benefit" as a whole lump sum benefit, or part lump sum/part pension, section 21 applies (as MSBS is a lump sum scheme).

Standard letters requesting details of MSBS pension benefits are provided at Attachment C.

MSBS

4.  Medical Discharge

Members who are medically discharged receive 2 benefits:

a).  Member Benefit:

The member receives a refund of his/her own contributions plus interest.

The "member benefit" can be taken immediately or preserved as the member wishes.

The "member benefit" is paid as a lump sum and cannot be commuted to a pension.

RULE:

Do not take the "member benefit" into account when assessing the compensation payable for incapacity for work.

b).  Invalidity Pension:

i).  Class A or B:

Members classified Class A or Class B receive an invalidity pension benefit immediately.

Class A or B invalidity pension benefits cannot be commuted in part or in whole to a lump sum.

RULE:

Class A or B:

Class A or Class B invalidity pension benefits are government/employer financed and must be taken into account in their entirety when assessing compensation payable for incapacity for work. Section 20 applies.

Note: The 80%/20% formula is not applicable to the "employer benefit" in MSBS case.

ii).  Class C:

Members classified Class C receive the same benefits as if discharged for non medical reasons (ie through resignation or retirement).

Members classified Class C are eligible for 2 benefits, the "member benefit" and the "employer benefit" (refer to "MSBS Non Medical Discharge" on page 4 for more details).

RULE:

Class C:

The "member benefit" must not be taken into account when assessing the compensation payable for incapacity for work. If the ex-member is not receiving the "employer benefit", section 19 applies.

The "employer benefit" is payable on the member reaching age 55 and retires permanently from the work force and must be taken into account once paid to the member.

If the member is receiving the "employer benefit" as a whole lump sum benefit, section 21 applies. If the member chooses to receive the employer benefit as a part pension/part lump sum, again, section 21 applies because MSBS is a lump sum scheme.

(Note: Section 21A does not apply to MSBS cases).

Attachment B - INTERACTION BETWEEN SRC ACT & SUPERANNUATION BENEFITS

COMMONLY ASKED QUESTIONS

(PLUS ANSWERS)

Question 1:

An ex-member, injured in 1986, retires from the ADF before 1 December 1988 after 20 years service and receives a DFRDB pension as a result of the retirement. Should the ex-member's superannuation pension be taken into account when assessing the compensation payable on/after 1 December 1988 (the ex-member is classified as a "current employee" or "non former employee" for the purposes of the SRC Act)?

Answer & Reason:

No, the superannuation pension cannot be taken into account in this instance. Compensation must be assessed in accordance with section 19 of the SRC Act.

Since the ex-member is a "current employee" for the purposes of the SRC Act, section 20 or 21 would normally have applied.

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 ex-member'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.

Question 2:

An ex-member has a compensable injury and discharges from the ADF (voluntarily) in 1991 after 20 years service. The ex-member receives a pension benefit under the DFRDB Act as a result of the discharge. The ex-member elects to commute part of his pension benefit to a lump sum. After receiving the lump sum, the ex-member's pension benefit is reduced. The ex-member is a "current employee" for the purposes of the SRC Act.

Can the superannuation pension benefit and/or lump sum be taken into account when assessing weekly compensation? If so, how is it done and what section of the SRC Act applies?

Answer & Reasons:

The initial superannuation pension benefit must be taken into account in accordance with section 20 of the SRC Act. Care should be taken to ensure that the amount taken into account is not the reduced pension after commutation.

Although the ex-member has received a "lump sum", sections 21 and 21A do not apply because the "lump sum" is merely an advance payment of a portion of the pension benefit rather than a "lump sum benefit". The RBO can provide details of the employee's initial pension, if necessary.

20% of the initial pension is deemed to be the ex-member's own contributions to the pension and is therefore not taken into account (the 20% amount deemed to be the employee's contributions remains constant for all future calculation, except if a reclassification of the pension occurs).

80% of the initial pension should be calculated and taken as the government funded portion of the pension.

Example:

Initial pension:	$400 per week
Commutation:	$100 of the weekly pension.
	Ex-member receives, say, $50,000 as a lump sum
Reduced Pension:	$300 per week
"SA":	$320 (ie. 80% of the initial pension of $400 per week)

("SA" is the superannuation amount in section 20)

The employee's contribution to the pension is $80 and does not changes unless a re-classification of the pension occurs, ie. from Class B to Class A.

Question 3:

When calculating the "SC" amount, should we take 5.5% as the ex-member's contribution for DFRDB as well as MSBS?

Answer & Reason:

"SC" "is the amount of superannuation contributions that would have been required to be paid by the (ex-member) in that week (in which he/she is incapacitated for work) if he or she were still contributing to the superannuation scheme".

DFRDB:

In the case of DFRDB, members are required to contribute 5.5% of their fortnightly pay to the DFRDB scheme.

"SC" is therefore an amount equal to 5.5% of the member's fortnightly pay (divided by 2 to get a weekly amount).

MSBS:

Under the MSB Act, a member can elect to pay between 5% and 10% of fortnightly pay in contributions. However, the member is required to contribute a minimum of 5%.

"SC" is therefore an amount equal to 5% of the member's fortnightly pay (divided by 2 to get a weekly amount).
(Attachment B continued)

Question 4

When an increase in the DFRDB pension occurs, how do you calculate the 80% (government funded portion - GFP) and 20% (employee contribution to the pension)?

Answer & Reasons

Example:

Initial pension	$300 (from consolidated revenue)
Employee cont.	$60   (ie. 20%)
GFP	$240 (ie. 80%)
"Superannuation amount" =  $240 (ie. the amount to be taken into account)
% Increase	10%
New Pension	$330 (10% X sum of employee cont. and GFP)
Employee cont.	$60   (20% of initial pension ie. does not change)
GFP	$270

"Superannuation amount" =  $270(ie. the amount to be taken into account)

Attachment E

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Ref:

Ph :

Retirement Benefits Office

PO Box 22

BELCONNEN ACT 2616

Safety Rehabilitation and Compensation Act 1988 (the SRC Act)

1.  The following has submitted a claim for compensation:

Full Name            :

Service Office       :

Service Number    :

Date of Discharge :

Date of Birth        :

2.  Under the SRC Act, it is necessary to have regard to a claimant's superannuation benefits (employer portion) when granting weekly compensation. To assist in assessing the weekly compensation payable, please provide this office with details of superannuation benefits paid to the abovenamed in the format recommended in your correspondence of 14 July 1992 to the Defence Compensation Section in Canberra (your G62038 refers).

3.  In particular, please ensure that details of the initial benefit, subsequent increases and the type of benefit (ie. lump sum and/or pension benefit) are provided.

4.  Your early attention and assistance in this matter would be appreciated.

I can be contacted on the telephone number provided above if further information is required.

Delegate of Comcare

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Department   of   Defence

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MINUTE

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DM89-27677

ACT Claims

DC, Sydney

DC, Melbourne

DC, Brisbane

DC, Townsville

DC, Perth

DC, Adelaide

DC, Hobart

Attention: Manager Compensation & Rehabilitation

Safety Rehabilitation and Compensation Act 1988 - Defence Compensation Advice No.69

1.  Attached is a copy of DCA No.69 which deals with compensation benefits under the SRC Act and superannuation benefits paid by the Retirement Benefits Office.

2.  Please ensure that all action officers are provided with a copy of DCA No.69.

3.  Any enquiries about the matter addressed by DCA No.69 can be directed to Mr Paul Reis on (06) 2668637.

Paul Reis

Exec.Officer

Comp & Rehab

        October 1993