Are you currently serving or have previously served in Defence and confused about your Military Super benefits?
The Basics
Military Super is different from most other funds as it is a “hybrid” super fund. Being a hybrid super fund, it has more components than a standard accumulation super fund, which can be difficult to understand, which is why financial advice may be important for your situation. Military Super, also known as MSBS or CSC, has three different components. The employer benefit is what is known as a “Defined benefit” and can provide you with a fortnightly payment for the rest of your life, which can commence at age 55. This benefit grows based on your final three years of service (not including additional benefits such as retention bonus, location allowances, or deployment pay) multiplied by a figure that increases with your time of service.
The Member Benefit and Ancillary Benefit both operate as standard accumulation benefits as per most industry funds. These benefits can be invested across four different investment options being, cash, income focused, balanced (default option) and aggressive, depending on your risk tolerance.
Understanding your Defined Benefit
Your Military Super Defined Benefit is calculated Once you turn 55 you may commence this portion of your superannuation as a fortnightly income stream that will pay you for the rest of your life. This payment increase is indexed twice yearly in line with inflation. If you have commenced your Defined Benefit income stream and you pass away, your spouse or children may be eligible to receive a portion of this income depending on their relationship to you.
The amount you will be paid for your fortnightly payment is calculated based on your Employer Benefit when you commence the income stream divided by the pension conversion factor (PCF) which is dependent on your age.
For example: If your Employer Benefit is $700,000 and you commence your income stream at age 55, you have a PCF of 12.
$700,000/12 = $58,333.33 p.a. which is $2,243.59 paid fortnightly
Your defined benefit is also subject to tax on the taxable untaxed component (which is typically most of your benefit) which you do receive a 10% offset for once you turn 60.
Once you commence your defined benefit, you cannot change your find and return the benefit which is why it is important to seek financial advice prior to making a decision.
Accumulation Benefits
Being a Government operated fund there are no administration fees associated with the fund, however you do still pay management fees on the investment of your choosing. You may switch between funds up to once per day with no buy/sell costs and also split your funds across different options.
You must add in 5% of your salary which makes up the Member Benefit of your fund and these contributions are made as non-concessional contributions. It is possible to increase these contributions up to 10% but before doing so you should contact a financial adviser as Military Super has a Maximum Benefit Limit (MBL) which if you reach the Pension MBL all contributions then cease.
Military Super also allows concessional contributions (before tax contributions), which make up the ancillary portion of your super fund. With most super funds you can do this via either salary sacrifice or making a lump sum contribution and lodging a notice of intent to claim the contribution as a tax deduction. Military Super however only allows for salary sacrifice arrangements and you are unable to contribute from your own bank account into the fund. If you are looking to make additional concessional contributions from your bank account, you may wish to contact your financial adviser to assist you to establish a super fund that allows this.
Invalidity – Class A, B, and C
If you medically discharge, or are retrospectively discharged from Defence, you will likely be on a Class A, B, or C pension. Class A and B pensions are reviewable while class C is not, but also does not offer any fortnightly payment.
It is important to note that if you are eligible and commence a class A or B pension, the payment is based on what your Employer Benefit would have been if you would have commenced it at age 60. Since it is based on your Employer Benefit, you will no longer have an Employer Benefit and your total balance on your statement will drop significantly.
These invalidity pensions can be paid in conjunction with any DVA payments such as Incapacity Payments, but DVA will take your pension into consideration.
How we can help
Military Super can be incredibly complex and there are far more things to consider than even what is mentioned above. At Lifelong Wealth, our financial adviser, Jared Nicholas, has served in Defence and has firsthand experience with Military Super and DVA. He has also helped numerous clients navigate their own experiences whether it be whilst still in Defence, transitioning out of Defence, or preparing for retirement with Military Super. He is passionate about helping fellow veterans, and given his experience, he can help explain everything in simple terms so that you can make an educated decision on your financial future.
Jared is able to provide comprehensive financial advice and can tie in your military benefits with any other strategies, investments, insurances etc. that you may require.
If you would like to explore how financial advice may be able to improve your retirement and help you achieve financial freedom, please feel free to contact us to book an obligation and cost free first meeting.
