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How does invalidity retirement cover work?

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Introduction

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This seminar will attempt to shed some light on how invalidity retirement works in the DFRDB scheme and demystify a couple of the areas where we get the most questions.

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What is the DFRDB?

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The Defence Force Retirement and Death Benefits Scheme (DFRDB) is a fully defined unfunded superannuation scheme which was closed to all new members on 1 October 1991.

The Scheme is a contributory superannuation scheme under which the benefits are jointly financed by you and your employer, the Department of Defence. The Scheme provides benefits for Members who entered the Defence Force between 1 October 1972 and 30 September 1991, and also for contributors to the Defence Forces Retirement Benefits (DFRB) Scheme who were transferred to the DFRDB Scheme from its inception in 1972.

ComSuper administers the DFRDB scheme on behalf of the DFRDB Authority.

The DFRDB Scheme provides you with an immediate or deferred income when you leave the Defence Force, and also with security during your working life, by covering you and your dependants in the event of your invalidity retirement or death.

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What is the role of the DFRDB when a Member is medically discharged from the ADF?

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First it is necessary to explain the different roles of the government agencies who are involved in medical discharges from the ADF.

The mode of discharge from the ADF is determined by the Department of Defence.
Delegates of the DFRDB Authority (staff of ComSuper) determine (and may later review) your invalidity classification (more on that process in a moment).

The Department of Veterans’ Affairs handles compensation and repatriation matters and administers the Military Compensation Rehabilitation Scheme (MCRS).

The word from members is that there is a fair bit of confusion in relation to how the invalidity benefit process works and who is responsible. If you’re being discharged medically, and the condition is military-related, you may find that you’re dealing with compensation and superannuation. Don’t confuse the two. If your condition is  related to your Military Service, and you are taking a compensation claim available to you from MCRS, you are still entitled to any DFRDB invalidity benefit which you are assessed as eligible to receive.

The basis of ComSuper assessments is different from criteria used by MCRS. Whole body impairments assessments and loss of lifestyle ratings are not relevant for DFRDB purposes.

This can be a stressful time, so if you are discharging medically, and you are starting to look at this process, you should be contacting us to make sure you get the correct information on who is responsible for what. We will point you in the right direction. As noted, ComSuper is the DFRDB’s administrator and our contact details are available on our web site. They will also be provided at the end of this Seminar.

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Eligibility for an Invalidity Benefit with DFRDB

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If you are retired from the ADF because of invalidity, you may be eligible to receive a DFRDB invalidity benefit.

However, it is important to note that in certain circumstances a DFRDB Invalidity benefit may not be payable to you.

There will be no invalidity benefit if the DFRDB Authority (or its delegate) determines that your invalidity:

  • Has occurred within the first year of your re-entry to the service and was caused by, or substantially contributed to by, a condition that was present on entry and not materially aggravated by your service; or
  • Was, in the opinion of the Authority, a result of your own wilful action to obtain an invalidity benefit; or
  • Was caused by or substantially caused by an injury which occurred while you were absent without leave, otherwise known as AWOL, for a period over 21 consecutive days and your salary and allowances for that period had been forfeited under the regulations made by the Defence Act 1903.
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How invalidity is determined

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A number of factors are considered in determining whether an Invalidity Benefit from DFRDB is payable to you.

These include:

  • Medical Documentation from the ADF;
  • Information provided on your D40 application form;
  • Information on suitable civilian occupations; and
  • Any consultant medical assessments.
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How does the invalidity classification process work?

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While you may have numerous medical conditions, for DFRDB purposes, usually only the primary of these conditions will be taken into account for classification purposes.That is, only the conditions severe enough to cause non-deployability in accordance with Defence’s guidelines. Other government organisations may recognise many more conditions in line with their legislation.

If you are discharged on medical grounds, your case will be assessed to determine the kinds of civil employment that you could undertake if you were 100% fit. The DFRDB Authority (in practice a delegate) then decides the degree to which your incapacity diminishes your ability to undertake those kinds of employment. The result is an ‘Invalidity Classification’.

If you are retired on invalidity grounds, the DFRDB Authority will decide whether you are entitled to an invalidity benefit. If you are entitled, the Authority is then required to determine the percentage of your incapacity in relation to your ability to perform civilian employment.

When deciding whether or not you are entitled to an invalidity benefit, the Authority has regard only to the following:

  • your vocational, trade and professional skills, qualifications and experience;
  • the kinds of civil employment which a person with the skills, qualifications and experience referred to in (a), disregarding their impairment, may reasonably undertake; and
  • the degree to which the physical or mental impairment that was the cause of the invalidity retirement has diminished your capacity to undertake the kinds of civil employment referred to in (b).

Having determined the degree of your incapacity, the Authority then classifies you in accordance with a percentage of incapacity.

Because there are high fitness standards for retention in the Defence Force the scheme provides for three classifications. Under the Defence Force Retirement and Death Benefits Act, a member is classified according to the percentage of incapacity in relation to relevant types of civil employment. The DFRDB Act uses a sliding scale of 0 to 100 to establish a member’s incapacity as a percentage. On the scale, 0% means no incapacity and 100% means total incapacity. Within the scale, there are three separate classifications:

Class A is for members who are 60% or more incapacitated for civilian employment for which you are reasonably qualified, or, in other words incapacitated to a large degree for civilian employment.

Class B is for members who are 30% to 59% incapacitated for civilian employment. In other words, you are incapacitated to a moderate degree for civilian employment.

Class C is for members who are 0 to 29% incapacitated for civil employment. In other words, you are incapacitated to a small degree for civilian employment.

The classifications take into account not only your condition but also any formal qualifications, experience and skills, including those gained pre service.

For example, Adam, a Sergeant in the Royal Australian Army was discharged as medically unfit after a period of 15 years as a medical assistant. His pre-service qualification was as a dental assistant, which he was employed as for a period of 3 years.

The delegate must take into account Adam’s pre service and in service skills, qualifications and experience when assessing his invalidity classification. The delegate will take into account both employment kinds of medical assistant and dental assistant in assessing the kinds of civilian employment Adam is qualified to undertake. The delegate might also take into account the length of time that Adam spent in each employment and the length of time it has been since he has performed each job.

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So how are Benefits calculated?

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If you are classified Class A, you will receive invalidity pay based on 76.5% of your annual rate of pay for Scheme purposes. Plus your productivity benefit must be preserved in a rollover fund until you reach your preservation age. Any surcharge debt remaining at the time invalidity benefits are payable is normally recovered from the productivity lump sum but you can request that it be recovered from your retirement pay.

If you are classified Class B, you will receive invalidity pay based on half a Class A pension (38.25%). However, if you have completed 23 or more years of effective service and are classified Class B, your invalidity pay will be higher as it is based on the number of years you have actually served, up to a maximum of 40 years. Plus your productivity benefit must be preserved in a rollover fund until you reach your preservation age. Any surcharge debt remaining at the time invalidity benefits are payable is normally recovered from the productivity lump sum but you can request that it be recovered from your retirement pay.

If you are classified Class C, and you have less than 20 years service, you will receive a lump sum benefit and, in some cases, a gratuity as well. Your lump sum will consist of a refund of your contributions from the Scheme multiplied by 1.5.

As with Class A and B, your lump sum productivity benefit must be preserved and any surcharge debt is normally recovered.

If you are classified Class C but you would have been entitled to retirement pay if you had retired on grounds other than invalidity (that is you have 20 years of service or have reached retirement age for rank you), will receive a benefit equivalent to retirement pay, at a rate determined by your length of service if this is greater than your invalidity benefit. In this situation, if you are classified Class C, the commutation option is available. This means you can elect to receive a lump sum prepayment of part of your future invalidity pay, up to a maximum of five times, and your future retirement pay will be reduced to offset the commutation.

As with Class A and B, your productivity benefit must be preserved, and any surcharge debt remaining at the time invalidity benefits are payable is normally recovered from the productivity lump sum, but you can request that it be recovered from your retirement pay, or even in your case from your commutation. If this situation applies to you, please contact ComSuper.

Please note: A Member who is classified Class A or Class B has no entitlement to elect to commute.

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Let’s look at the cases of Ben and Danielle.

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Danielle, a Leading Seaman, and Ben, an Able Seaman, are both injured in a training accident.

Danielle is classified by the DFRDB Authority as Class B invalidity, while Ben is classified Class A.

In Ben’s case, as he has been classified Class A, his benefit will be based on 76.5% of his annual salary for DFRDB purposes ($45,469).

To calculate his annual benefit, we simply multiply his annual salary by 76.5%

$45,469 × 76.5% = $34,783.79 per year

As Danielle has been classified as Class B invalidity, her benefit will be based on
38.25% of her annual salary for DFRDB purposes ($50,552).

Again, to calculate Danielle’s invalidity benefit, we simply multiply her annual salary by 38.25%

$50,552 × 38.25% = $19,336.14 per year

In both cases—as with all ongoing benefits from the DFRDB Scheme—the benefits may increase twice annually, if there is an upward movement in the Consumer Price Index (CPI).

Don’t forget, if you are being discharged due to a military related condition, you may also be receiving an additional compensation payment, through the Department of Veterans’ Affairs (DVA). However that remains entirely a DVA determination and the DFRDB Authority has no consideration in that issue. Any queries in this regard, including whether any DFRDB invalidity benefit will impact on any DVA entitlement, should be directly addressed to DVA. In determining your benefit, the DFRDB Authority does not take into account DVA or any Commonwealth entitlement which you might be receiving.

An example of how the review system works is as follows. Imagine you’re a mechanic with the Army. While on routine duty one day you attempt to lift a heavy piece of machinery and in doing so damage your back. You are then discharged from the ADF on invalidity grounds. You may receive an initial invalidity classification of Class B because there is a moderate impact on your ability to be a mechanic in the civilian workforce. Five years down the track you may find that the condition has deteriorated to such a state that you simply cannot do anything required of a mechanic. Through the review process, if the Authority is satisfied that your condition has incapacitated you to a large extent for civilian employment, you will be upgraded to a Class A. Then, if after, for example, another five years, treatment is found to be successful, you may be reclassified down to a Class B or a Class C invalidity classification, depending on how successful your treatment has been in reducing your incapacity for civilian employment.

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Indexation of pensions

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You should also be aware that all pensions are generally indexed automatically twice yearly with effect from the first pension paydays in January and July. The adjustment is based on upwards movements in the Consumer Price Index (CPI) for the six months ending 31 March and 30 September each year. If you have not been in receipt of a pension for the entire six months you will receive a proportion of any increase.

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Invalidity Classification Review

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If you leave the ADF on invalidity grounds and you are initially classified as either Class A or Class B, your classification may be reviewed from time to time. If your condition changes, you may be reclassified, and this will affect your pension. The types of civilian employment considered suitable may also vary over time depending upon skills and experience gained since leaving the Defence Force.

If you have a Class A or Class B invalidity classification, the Authority may require you to undergo a medical examination and to provide information about possible employment. In the event that you do not comply with such a request, your pension may be suspended for a period pending compliance with the request.

If when you left the ADF you were initially classified as either Class A or B, you can ask for a review yourself at any time up to the age of 65 if you think your condition has deteriorated. This right of review applies also if you have been reclassified from Class A or Class B down to Class C.  If you were classified Class C on discharge, there is no right to seek a reclassification at a later time. However, you will have an opportunity to ask for reconsideration of the initial classification.

An example of how the review system works is as follows. Imagine you’re a mechanic with the Army. While on routine duty one day you attempt to lift a heavy piece of machinery and in doing so damage your back. You are then discharged from the ADF on invalidity grounds. You may receive an initial invalidity classification of Class B because there is a moderate impact on your ability to be a mechanic in the civilian workforce. Five years down the track you may find that the condition has deteriorated to such a state that you simply cannot do anything required of a mechanic. Through the review process, if the Authority is satisfied that your condition has incapacitated you to a large extent for civilian employment, you will be upgraded to a Class A. Then, if after, for example, another five years, treatment is found to be successful, you may be reclassified down to a Class B or a Class C invalidity classification, depending on how successful your treatment has been in reducing your incapacity for civilian employment.

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Reconsideration rights

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You may ask the DFRDB Authority to reconsider decisions made regarding either your initial classification or any subsequent reclassification within 30 days of being notified of the decision. Again, we strongly encourage you to contact us with any queries in this regard. Most concerns are easily addressed by our helpful and knowledgeable staff.

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Family Law superannuation splitting arrangements

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New arrangements for the splitting of superannuation entitlements on divorce came into effect in December 2002. Superannuation benefits are now treated as property in the event of a marriage breakdown, and invalidity payments are not immune. Any members likely to be affected by these arrangements are advised to seek legal advice.

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Benefit Application Forms and Processing Times

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All forms are available here on the DFRDB website or from your pay unit. The initial form required for Medical Discharge is Form D40 – Application for Invalidity Benefits and Superannuation Productivity.

The timing for providing your form is crucial. You will need to complete this form no earlier than three months before, and no later than three months after, the date of discharge.

Pending the outcome of the assessment, any lump sum payment will usually be paid 8 – 10 working days after the later of either the discharge date, or receipt of the benefit application form. Pension payments usually commence about 3 weeks after the latter of either the date of discharge or receipt of all required documentation.

Sometimes Members will experience delays and this can be frustrating. To help avoid such problems make sure you:

  • Do not lodge your application earlier than three months before your discharge date;
  • Ensure that your completed DM42 and accompanying medical documentation has been forwarded to ComSuper by Department of Defence;
  • Include the correct discharge date and advise if it changes;
  • Include correct bank details;
  • Use the right benefit application form;
  • Be sure your address details are correct; and
  • Provide your Tax File Number.

It’s also possible that a Benefit Application could be delayed/mislaid in your pay unit, pay office, orderly room or similar. For this reason we strongly advise you to mail your application directly to ComSuper if possible.

Please note that ComSuper does not acknowledge receipt of applications, so, if you wish to confirm receipt, please ring the enquiry service on 1300 006 727 about one week after mailing.

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Following are a couple of important points to remember about Medical Discharge

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  • It is important to send in an invalidity application (Form D40) as soon as your discharge date is known.
  • It is important to ensure that Defence send your DM42 and accompanying medical documentation to ComSuper as soon as possible.
  • Due to the high level of fitness required for ADF service, an injury causing your medical discharge from the ADF may not have the same degree of impact in the civilian world as far as employability is concerned and a classification of Class A or Class B (pensionable level of benefit) should not be assumed.
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DFRDB Contacts

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And finally, the best place to seek information, answers to questions and initial advice is the Contact Centre

To speak to an experienced information officer about your superannuation entitlement, the payment of your Invalidity Benefit or any other superannuation related matter, please ring 1300 001 677 or 1300 001 877 (for pensioners).
Members overseas, please call the switchboard on 02 6272 9000.

Fax forms and queries to us on (02) 6272 9617 or pop it in the mail

You can also email your enquiry by following the link on the DFRDB web site under ‘Contact Us’