Death benefits
General
Your membership of the DFRDB Scheme not only provides you with a superannuation benefit for your retirement, but it also guarantees a benefit for your eligible dependants or your estate in the event of your death. The eligibility criteria are set out in the DFRDB Act. The DFRDB Authority will decide whether or not your dependants satisfy the conditions in the Act and qualify for the payment of a benefit.
Your dependants may also be entitled to claim benefits from DVA or under the Social Security Act as well as from the DFRDB Scheme.
Who is eligible?
In the event of your death, benefits are payable to spouses and children (including orphans) of deceased Members of the Scheme, and differ according to whether you die in service or after you retire. Examples of how these benefits are calculated and the eligibility requirements that need to be satisfied are explained below.Top
DFRDB Death Benefits - quick guide 1
Death in service (i.e death while a contributor)
Membership of the DFRDB provides benefits for your eligible dependants and/or estate when you die. The DFRDB Authority decides whether your dependants are entitled to benefits.
TopDeath in service
If you die in service, your spouse’s benefit will be five-eighths of 76.5% (or 47.8125%) of your salary for superannuation purposes at the time of your death.
In addition, your spouse is entitled to commute (that is, exchange) part of his or her future pension to a lump sum. The maximum amount that your spouse can commute is twice the amount of your annual salary for superannuation purposes that you were receiving immediately prior to your death. If your spouse chooses this option, the initial rate of pension is determined by dividing the commutation lump sum by 25 and deducting the resultant amount from the annual pension that would have been received if there had been no commutation.
The following example shows how this is worked out.
Example E: Calculation of a spouse’s commutation benefit
Brian, a Petty Officer, dies in service, and is survived by an eligible spouse and one child. At the time of his death he was receiving an annual salary of $63 784. Jenny, Brian’s spouse, decides to commute the maximum portion of her future pension. Her benefit is calculated as follows:
Step 1. $63 784 × 47.8125% = $30 496.73
In this step, we calculate Jenny’s pre-commutation pension by multiplying Brian’s annual salary at the time of his death by 47.8125%.
Step 2. $63 784 × 2 = $127 568
Here, we simply multiply Brian’s salary at the time of his death by two, in order to get the maximum lump sum amount payable to his spouse.
Step 3. $127 568 × 4% = $5102.72
This step calculates the reduction to apply to the initial pension by multiplying the lump sum (calculated in step 2) by 4%.
Step 4. $30 496.73 – $5102.72 = $25 394.01 per year
In this step, we subtract the cost of commutation (Step 3) from the pre-commutation amount (Step 1). The resulting figure is Jenny’s annual pension, before tax.
In summary, Jenny will receive a lump sum payment of $127 568, as well as an annual indexed pension of $25 394.01 before tax. The lump sum payment is tax free and she would not lose her spouse’s pension should she remarry.
As well as receiving a spouse’s benefit from the Scheme, Jenny is also entitled to claim a benefit on behalf of her child. This is calculated in Example F on page 34. Top
Spouses’ benefits
Generally, your spouse will be eligible for a benefit if he or she has been living with you in a marital relationship as your husband or wife for a period of at least three years before your death. A marital relationship, for the purposes of the Scheme, is a permanent and bona fide domestic relationship between a Scheme Member and another person of the opposite sex. Your spouse may still be eligible for a spouse’s benefit if the marital relationship had existed for less than three years, at the discretion of the DFRDB Authority.
From 1 January 2008, if after becoming a pensioner you commence a marital relationship after your sixtieth birthday, that relationship must exist for at least three years for your spouse to be eligible for a full spouse’s benefit. Relationships of less than three years will result in a pro-rata reduction in the pension payable. In instances where the resulting pension is very small, an option for a lump sum exists.
The final category of eligibility for spouses concerns a situation where you are legally married, but you are not living in a marital relationship at the time of your death. To receive a spouse’s benefit in these circumstances, your husband or wife will have to prove to the DFRDB Authority that he or she was wholly or substantially dependent on you at the time of your death.
Where two surviving spouses meet the criteria for eligibility for benefits for example, a dependent legal spouse and a dependent de facto spouse the benefit will be apportioned at the rate of a minimum of 37.5% of the total benefit to each spouse, with the remaining portion allocated at the discretion of the DFRDB Authority, which will have regard to the financial needs of each of the spouses. In these circumstances, the total of the two pensions cannot exceed the total of the pension that would have been payable if there had only been one eligible spouse.Top
It is a common misconception that spouses lose their eligibility and have their benefits stopped if their circumstances change. However, you can be assured that once the Authority decides that your spouse is eligible to receive a benefit, then he or she will get that benefit for life and it will not be stopped under any normal circumstances (for example, in the event of your spouse's remarriage).
With effect from 1 January 2008 widows whose pensions previously ceased upon remarriage may request that the pension be reinstated prospectively at the rate it would now be payable had it not ceased. Please note that you may lodge your application before 1 January 2008 for the pension to be restored.
Childrens’ and orphans’ benefits
A child is defined as either:
- your natural child, stepchild, adopted child, foster child or ward who is under 16 years of age or is a full-time student aged between 16 and 25 and not ordinarily in employment or engaged in work on his or her own account. or
- an ex-nuptial child of your spouse, who satisfies the age criteria above, and who was wholly or substantially dependent upon you at the time of your death.
A child’s benefit is payable as a base rate per annum, plus an amount equal to one-sixth of your spouse’s entitlement. It is based on your spouse’s original uncommuted pension, regardless of whether or not your spouse chooses to commute. The base amount is adjusted twice yearly in accordance with upward movements in the Consumer Price Index (CPI).
An orphan is an eligible child where there has not at any time been an eligible spouse under the Scheme. An orphan’s benefit is calculated as a base amount per annum, plus an amount equal to one-eighth of your spouse’s entitlement prior to any commutation. The base amount is also adjusted twice yearly in accordance with upward movements in the CPI.
If the number of eligible orphans who are entitled to receive a pension exceed the benefit on which it is based, then each orphan’s pension is calculated by dividing the number of orphans into that rate.Top
Example F: Calculation of a child’s benefit
Following on from Example E, as Jenny’s child is aged under sixteen, the Scheme provides the following benefit:
Step 1. $30 496.73 x 1/6 = $5082.79
An eligible child is entitled to receive one-sixth of the annual pension that your spouse can receive, prior to any commutation. Therefore, in this step, we multiply Jenny’s pre-commutation pension (see Step 1 of Example C) by one-sixth.
Step 2. $523.26 + $5082.79 = $5606.05 per year
Under the Act, there is also a fixed pension component due to eligible children. In this step, we simply add the fixed amount applying for the period January to June 2007 $523.26 to the figure that we arrived at in Step 1.
The pre-tax figure, $5606.05, will increase each January and July with upward movements in the CPI. The child will be eligible to receive a benefit until the age of 16, or the age of 25 if involved in full-time study.
Similar steps are followed when working out an orphan’s benefit. The main exceptions are that an orphan’s benefit is calculated using one-eighth of your spouse’s benefit and a different fixed amount component applies ($8385.44 for the period January to June 2007).
Based on the above example, in the period January to June 2007 the pension payable in respect of one orphan is $12 197.53.
Whilst there is no upper limit placed on pension payable in respect of eligible children, the pension payable in respect of orphans cannot exceed 76.5% of the former member’s DFRDB salary at date of death. Top
Death after retirement
If you die after retirement, your spouse’s benefit will be paid at the rate of 62.5% (five-eighths) of the benefit you were receiving at the time of your death, disregarding any previous commutation reduction. However, for the first seven paydays following your death, your spouse will be paid at the same rate you were receiving at the time of your death, before changing to the spouse’s rate.
Advising your dependants
It is important that your dependants are aware that a benefit may be payable from the Scheme in the event of your death.
DFRDB Death Benefits - quick guide 2
