Commutation
General
Commutation is the lump sum prepayment of part of your future retirement pay. If you have retired and are entitled to retirement pay, you can elect to commute (that is, exchange) a portion of that retirement pay for a lump sum. Similarly, if you are classified Class C after being discharged medically unfit for further service (see invalidity benefits quick guide), and you would have been entitled to receive retirement pay had you voluntarily discharged, you can elect to commute a portion of your benefit. If you have an entitlement to a deferred benefit (see 'Preserved benefits'), you may also elect to commute a portion of that benefit.
An election to commute a portion of your retirement pay may be made up to three months before, or up to six months after your retirement or the date on which a deferred benefit becomes payable. An election to commute can only be made by completing form D20.
From 2002, the maximum amount that you may commute is five times your annual rate of retirement pay on exit. The maximum commutation factor was progressively increased from four in 1982 to five from 2002 onwards.
Note: Commutation of a benefit results in a permanent reduction in your pension even if the Member attains or exceeds his or her life expectancy. (See factors at Table 3 in 'Commutation' section). TopDate of effect
A commutation election becomes effective on the later of:
- the date the election is received by ComSuper or
- the date following retirement or
- the date a deferred benefit becomes payable.
For taxation purposes a commutation election should be made within six months of exit.
Commutation amount and retirement pay increases
You may commute less than the maximum entitlement if you elect to commute between four and five times your retirement pay the total amount of the remaining retirement pay is CPI indexed.
However, if no election is made to commute, or you elect to commute less than four times your retirement pay, CPI indexation will only be applied to your notional retirement pay, which is the rate of retirement pay that would be payable if you had elected to commute four times retirement pay.
Example B: Calculation of commutation
David is 43 years old and a Sergeant in the Army. He retires on 17 November 2006 after 25 years in the Defence Force. David elects to commute a portion of his future retirement pay to a lump sum. His final salary for superannuation purposes is $56 543.00, his commutation factor is 5 and his life expectancy factor is 29.14 (See Table 3 in 'Commutation' section).
Step 1. $56 543 × 42.50% = $24 030.78 (retirement pay before commutation)
This step is exactly the same as in Example A, and is the multiplication of David's annual salary on retirement and a percentage determined by his years of effective service. The resultant amount, $24 030.78, is his annual retirement pay, before commutation and before tax.
Step 2. $24 030.78 × 5 = $120 153.90
This step calculates David's commutation lump sum by multiplying his annual retirement pay and the maximum commutation factor that applies to Members leaving the Defence Force from 1 July 2002 onwards (see Table 1 in 'Introduction' section).
Step 3. $120 153.90 / 29.14 = $4123.33
In this step, we divide the lump sum arrived at in Step 1 by David's life expectancy factor, which for a 43-year-old male is 29.14 (see Table 3 on page 16).
Step 4. $24 030.78 - $4123.33 = $19 907.45
Here, we subtract the figure resulting from Step 3 from David's pre-commutation annual retirement pay (Step 1). This figure, $19 907.45, is his annual retirement benefit after commutation and before tax.
Step 5. $19 907.45 × 14 / 365 = $763.57
This step simply converts the annual retirement benefit into a fortnightly amount, before tax.Top
Notes:
If David decided to commute only four times retirement pay his gross commutation lump sum would reduce from $120 030.78 to $96 123.12. His remaining CPI indexed pension would then increase from $19 907.45 to $20 732.11.
If David decided not to commute any retirement pay, the commencing rate of retirement pay would be $24 030.78, of which only $20 732.11 would be CPI indexed. Similarly, if he elected to commute less than four times retirement pay, only $20 732.11 of the remaining retirement pay would be CPI indexed.
| Age: | Factor - Male: | Factor - Female: |
|---|---|---|
| 30 | 41.12 | 46.49 |
| 31 | 40.18 | 45.53 |
| 32 | 39.25 | 44.57 |
| 33 | 38.31 | 43.61 |
| 34 | 37.38 | 42.65 |
| 35 | 36.45 | 41.70 |
| 36 | 35.51 | 40.75 |
| 37 | 34.59 | 39.81 |
| 38 | 33.67 | 38.86 |
| 39 | 32.75 | 37.92 |
| 40 | 31.84 | 36.99 |
| 41 | 30.93 | 36.06 |
| 42 | 30.03 | 35.13 |
| 43 | 29.14 | 34.21 |
| 44 | 28.25 | 33.29 |
| 45 | 27.38 | 32.38 |
| 46 | 26.51 | 31.48 |
| 47 | 25.65 | 30.58 |
| 48 | 24.80 | 29.69 |
| 49 | 23.96 | 28.80 |
| 50 | 23.13 | 27.92 |
| 51 | 22.31 | 27.05 |
| 52 | 21.51 | 26.18 |
| 53 | 20.72 | 25.32 |
| 54 | 19.94 | 24.47 |
| 55 | 19.18 | 23.63 |
| 56 | 18.43 | 22.79 |
| 57 | 17.70 | 21.96 |
| 58 | 16.99 | 21.13 |
| 59 | 16.29 | 20.32 |
| 60 | 15.60 | 19.51 |
| 61 | 14.94 | 18.72 |
| 62 | 14.29 | 17.94 |
| 63 | 13.67 | 17.17 |
| 64 | 13.06 | 16.42 |
| 65 | 12.47 | 15.68 |
* Note: The life expectancy factors used for determining scheme benefits are set out in the DFRDB legislation.