Retirement Benefits after 20 years or more service including re-entry and tax changes
- Introduction
- Entitlements and Benefit
- How is My Benefit Calculated?
- Completed Years of Service
- Retirement Pay Example
- Retirement Pay Example: Step 1
- Retirement Pay Example: Step 2
- What is Commutation?
- Commutation Election
- Commutation Example
- Commutation Example: Step 1
- Commutation Example: Step 2
- Commutation Example: Step 3
- Commutation Example: Step 4
- Commutation Example: Step 5
- Commutation/Retirement Pay Increase
- Re-Entering the ADF: Part 1
- Re-Entering the ADF: Part 2
- Re-Entering: Less than 12 Months
- Re-Entering: 12 Months or More
- Re-Entering the ADF: Sumary
- Not Making a Valid Election
- Tax Changes
- Tax Free Contributions
- Non-Concessional Contributions
- Concessional Contributions
- Salary Sacrifice
- Benefits and Tax
- Forms and Fact Sheets
- Starting Retirement Pay
- DFRDB Contacts
Introduction
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Briefly, the DFRDB Scheme offers:
- retirement benefits that become available when you have completed 20 years’ service, or 15 years’ service and you have reached your retiring age for rank
- invalidity benefits if you retire from the ADF for medical reasons
- benefits for your dependants when you die.
Some Members contacting the Customer Service Centre are interested to know what retirement benefits are payable to Members leaving the Australian Defence Force (ADF) after 20 years service or longer, how those benefits are calculated and what happens to benefits should they choose to re-enter the ADF.
This online seminar will address these queries and clarify a couple of the areas where we get the most questions such as what forms need to be lodged and in what circumstances. For information on invalidity and/or death benefits, or retirement with less than 20 years service, please refer to the other online seminars available on this site.
The seminar is designed to help you gain a general understanding of your entitlements as a DFRDB Scheme Member with more than 20 years service, or a DFRDB Scheme Member with more than 15 years’ service who has reached their retiring age for rank. However, should you need any additional information, please ring ComSuper on 1300 001 677, or continue looking through this web site.
Entitlements and Benefit
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If you retire on non-medical grounds and have 20 or more years of effective service, or have 15 or more years of effective service and have reached your retiring age for rank, you are entitled to retirement pay, payable fortnightly, and there is an option to commute part of your future retirement pay to a lump sum (more on that in a moment).
Since DFRDB Membership closed in October 1991 it is likely that current Members have indeed completed 20 or more years of effective service but that may not be the case if you have ceased continuous full time service in the ADF for a period and later returned. You can find out how much effective service you have by looking at your most recent Annual Member Information Statement and then adding the effective service that you have accumulated since the date of that statement.
How is My Benefit Calculated?
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Your retirement pay is worked out as a percentage of your annual rate of pay when you retire. The two factors which are used to work out your retirement pay are your annual rate of pay and your completed years of effective service.
Your annual rate of pay, for the purposes of calculating your retirement benefit, is the maximum rate of pay which applies to your rank and pay level at the date of your discharge, including any service allowance or recognised environmental allowance.
Effective service is the total of your continuous full-time contributory service, plus any periods of past service you may have bought back.
Completed Years of Service
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Remember: Benefits in the DFRDB Scheme are calculated on the basis of COMPLETED YEARS OF SERVICE.
The table below shows the amount of retirement pay that you can expect to receive, depending on your annual rate of pay and your completed years of effective service.
| Completed Years | % | Completed Years | % |
|---|---|---|---|
| 20 | 35.00 | 31 | 53.25 |
| 21 | 36.50 | 32 | 55.50 |
| 22 | 38.00 | 33 | 57.75 |
| 23 | 39.50 | 34 | 60.25 |
| 24 | 41.00 | 35 | 62.75 |
| 25 | 42.50 | 36 | 65.25 |
| 26 | 44.00 | 37 | 67.75 |
| 27 | 45.75 | 38 | 70.50 |
| 28 | 47.50 | 39 | 73.50 |
| 29 | 49.25 | 40 (or more) | 76.50 |
| 30 | 51.25 | ||
Retirement Pay Example
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As an example of how retirement pay is calculated (before commutation) let’s look at Deb, a 42-year-old Squadron Leader with 22 years of effective service, who has decided to retire from the Defence Force.
Retirement Pay Example: Step 1
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Deb has an annual rate of pay of $78 916 (the highest increment for her rank is always used).
Using the retirement pay table, we see that, as Deb has 22 years of effective service, the percentage to apply to her final salary is 38.
Therefore, Deb’s annual retirement pay is 38% of her annual salary of $78 916, which equals $29 988.08
This figure is her annual retirement pay, before tax, and any commutation (more on that later).
Retirement Pay Example: Step 2
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Fortnightly entitlements are worked out by multiplying the annual retirement pay by 14 and then dividing it by 365. In Deb’s case, she would be paid a fortnightly benefit of $1 150.23, before tax, and any commutation.
What is Commutation?
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In short Commutation is the lump sum prepayment of part of your future retirement pay.
The maximum amount that you may commute is five times your annual rate of retirement pay on exit. The minimum amount is four.
Note: Commutation of a benefit results in a PERMANENT REDUCTION in your pension. In other words, if you outlive your life expectancy, your retirement pay does not return to the pre-commutation amount.
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 the D20 form - Application for Retirement Pay, Commutation & Superannuation Productivity.
Commutation Election
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A commutation election becomes effective on the later of:
- the date the election is received by ComSuper; or
- the date following retirement
For taxation purposes a commutation election should be made within six months of exit.
Commutation Example
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For an example of how commutation may be calculated, meet Nick, a 43 year old Sergeant in the Army. He has decided to retire after 25 years in the Defence Force. Nick elects to commute the maximum amount allowable of his future retirement pay to a lump sum. His annual rate of pay is $56 543.00, and his commutation factor is 5, and his life expectancy factor is 29.14.
Note: The life expectancy factors used for determining scheme benefits are set out in the DFRDB legislation.
Commutation Example: Step 1
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The first step to calculating commutation is exactly the same as used for Deb earlier and is the multiplication of Nick’s annual rate of pay and a percentage relating to his years of effective service.
Therefore, Nick’s annual retirement pay, before commutation and before tax is $24 030.78.
Commutation Example: Step 2
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Step two calculates Nick’s commutation lump sum by multiplying his annual retirement pay and the current maximum commutation factor of five as chosen by Nick.
Commutation Example: Step 3
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In Step 3, we calculate the reduction in Nick’s retirement pay after electing for the commutation lump sum. We divide the lump sum arrived at in Step 2 by Nick’s life expectancy factor, which for a 43-year-old male is 29.14.
Commutation Example: Step 4
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In Step 4, we subtract the retirement pay reduction calculated in Step 3 from Nick’s Annual Retirement Pay before commutation calculated in Step 1. This figure, $19 907.45, is his annual retirement pay after commutation, but before tax.
Commutation Example: Step 5
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Finally, step five simply converts Nick’s annual retirement pay into a fortnightly amount of $767.57, before tax.
Commutation/Retirement Pay Increase
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You can choose how much of your annual retirement pay to commute, up to a maximum of five times your annual retirement pay. If you elect to commute between four and five times your retirement pay, the total amount of the remaining retirement pay is indexed according to the Consumer Price Index (CPI). In Nick’s example, $19 907.45 will be indexed according to the CPI.
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. Your notional retirement pay is the rate that would be payable if you had elected to commute four times your retirement pay.
Re-Entering the ADF: Part 1
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Don’t forget, just because you’ve left the Defence Force for now doesn’t mean you won’t ever want to go back.
If you do decide to return to the Defence Force, there is action you MUST take before your service begins, in order to make sure you join the scheme you want, and to safeguard your super entitlements.
If you are receiving DFRDB retirement pay and you re-enter the ADF on continuous full-time service, you must elect to become a Member of DFRDB or MilitarySuper before re-entry. If you don’t make an election before the start of your new engagement, you will automatically become a member of MilitarySuper. Membership of MilitarySuper is FINAL AND IRREVERSIBLE. Your retirement pay may also be affected. If you make an election after your first day of service it will not be valid.
Please contact ComSuper immediately if you are considering re-entering the ADF.
Re-Entering the ADF: Part 2
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There are two possible situations and the consequences are slightly different for each.
Situation 1 – Reserves on Continuous Full Time Service of less than 12 months
Situation 2 – Reserves on Continuous Full Time Service of 12 months or more, or Permanent Forces for any length of time
Let’s have a closer look at each of these situations.
Re-Entering: Less than 12 Months
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If you are returning to the Reserve Forces for less than 12 months you must elect whether or not to join MilitarySuper BEFORE you rejoin the ADF. You do this by completing Part C of the D100 form. If you make a valid election not to join MilitarySuper, you continue to receive DFRDB retirement pay but you do not re-join the DFRDB Scheme as a Contributor. You will accrue a productivity benefit however, you will not be entitled to the death and invalidity benefits of a Contributor
In this situation it is important you claim the productivity superannuation benefit within 2 months of your discharge.
If you do not claim the benefit within 2 months, it will be rolled over to:
AMP Eligible Rollover Fund
GPO Box 5400
PARRAMATTA NSW 2124
Re-Entering: 12 Months or More
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You must elect whether to join MilitarySuper, or rejoin DFRDB as a Contributing Member BEFORE you rejoin the ADF. You do this by completing Part D of the D100 form. If you make a valid election to re-join the DFRDB Scheme as a Contributing Member, your retirement pay is not paid during the period of service . Contributions are payable and you are entitled to the death and invalidity cover of a Contributor. After discharge, your retirement pay will be recalculated based on your total years of service, including your re-entry period, and will recommence.
Re-Entering the ADF: Sumary
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When re-entering the ADF, there are two important things to remember…
You must make a valid election. You can do this by completing the D100 form available from the DFRDB website.
You must make a valid election before any of the following events:
- Every time you come back into the ADF in the Permanent Forces, or on continuous full time service in the Reserves, you must make a valid scheme election before you start your ADF service.
- Every time you have a break in service in the ADF, you must make another valid scheme election before you start your next period of ADF service.
- If you complete continuous full time service of less than 12 months in the Reserve then, without a break in service, you change to the Permanent Forces, or continuous full time service of 12 months or more in the Reserves, you must elect again before the start of the continued service.
Not Making a Valid Election
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If you don’t make a valid election:
- You automatically join MilitarySuper as a Contributor, and you will accrue a MilitarySuper benefit. This will happen if your election is made after you return to the ADF, or if you make no election at all.
- Membership of MilitarySuper is FINAL AND IRREVERSIBLE, for your period of service and all future periods of ADF service. This means you can never return to DFRDB as a Contributor for any future ADF engagement
- Your DFRDB retirement pay is suspended for the duration of your MilitarySuper membership effective from the date of your re-entry. You will have to repay any overpayment. Payment will resume after your service ends.
For more information please visit the DFRDB website or contact the Customer Service Centre.
Tax Changes
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New legislation that affects all members of the DFRDB Scheme came into effect on 1 July 2007.
The main changes include:
- the amounts you can contribute without paying additional tax
- the tax you pay when you claim your benefit, and
- the introduction of proportioning to partial benefit payments.
Tax Free Contributions
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You can make two types of contributions. These are concessional and non-concessional contributions.
Concessional contributions are those contributions where a tax deduction has been claimed, in your case by your employer.
Non-concessional contributions are those contributions where no tax deduction has been claimed.
Non-Concessional Contributions
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Changes in relation to non-concessional contributions (these used to be called undeducted contributions)
The tax changes set a cap, or a limit, on the amount of non-concessional contributions you can make without incurring additional tax.
The non-concessional contributions cap across all your superannuation funds is:
- $150 000 per year, or
- $450 000 over three years for members under 65. For example, $300 000 in year 1, $100 000 in year 2 and $50 000 in year 3.
Your after-tax contributions up to the cap are paid in tax-free. You must have provided your Tax File Number for these contributions to be accepted.
Non-concessional contributions made above the cap will be taxed at the top marginal tax rate (plus Medicare levy).
The following contributions are classed as ‘non-concessional contributions’ for taxation purposes:
- Member Contributions
- Additional Personal Contributions
- Co-Contributions
Concessional Contributions
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The tax changes also set a cap, or a limit, on the amount of concessional contributions you can make without incurring additional tax.
The concessional contributions cap across all your superannuation funds is:
- $50 000 per year, or
- a transitional limit of $100 000 per year for five years (financial year 2007/08 to 2011/12) for members over age 50 on or after 1 July 2007.
Contributions above this cap will be taxed at the top marginal tax rate (plus Medicare levy), and will also count towards the non-concessional contributions cap.
If you contribute over the cap the ATO will advise you of your options.
Salary Sacrifice
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Salary sacrifice contributions are classed as ‘concessional contributions’ for taxation purposes.
If you are Contributing Member of the DFRDB scheme you can make salary sacrifice contributions into MilitarySuper. They are taxed at 15% when entering the fund, unless you have made concessional contributions above the cap, or you have not provided your Tax File Number.
A salary sacrifice contribution is a type of ancillary contribution.
Benefits and Tax
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The tax you pay when you claim your benefit varies depending on a number of factors such as your age, the source of your pension, your assessable income and whether you are exempt from the Medicare levy. Further details are available on this website or you can contact the Customer Service Centre.
Forms and Fact Sheets
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Retirement pay becomes effective on the day after the date of your discharge from the Defence Force, and it will be paid to you for the rest of your life, unless you re-enter the Defence Force.
First, you need to obtain a benefit application form from your Pay Office or this website, or from the Customer Service Centre. There are different forms and fact sheets to cater for different types of exit and for re-entry and each of them gives information on the range of benefit choices open to you.
Relevant forms and fact sheets are:
- The D20 form - Application for Retirement Pay, Commutation & Superannuation Productivity
- The DM10 form - Application for Superannuation Productivity Benefit. Use this form if you are receiving DFRDB retirement pay and have completed a period (or multiple consecutive periods) of re-engagement of less than 12 months.
- The D100 form - Re-entering the ADF Scheme election. This is needed if you are in receipt of retirement pay and intend re-entering the ADF
- About to Leave the ADF Fact Sheet (DB07)
- Re-entering the ADF Fact Sheets (DF09A & DF09B)
Starting Retirement Pay
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Generally, retirement pay is paid fortnightly by direct deposit to an account with any approved bank, building society or credit union. The account must be with a financial institution in Australia and must be in your name. It may be a joint account, provided your name is one of the account holders.
If you have chosen to receive a lump sum as part of your benefit, the amount is generally paid to your nominated account within 15 working days of your discharge date or the date we receive your correctly completed paperwork, whichever occurs later. You may choose to take that lump sum (minus tax) or roll over all or part of it to a suitable superannuation fund of your choice if you are under 65.
Your pension will generally commence on the first available pension payday after your discharge date or the date that we receive all your correctly completed documentation, whichever date is later.
Please bear in mind that processing times are subject to workloads at the time a benefit application is received. Ensuring that you have completed the paperwork properly will help to lessen the likelihood of delays.
If you are anxious to know how the processing of your benefit is proceeding, you can ring the Customer Service Centre.
DFRDB Contacts
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More detailed information on anything discussed in this seminar can be obtained by contacting the Customer Service Centre.
Our helpful staff can also provide benefit estimates, general information, tax information and initial advice.
To speak to an experienced information officer about Retirement and resignation Benefits 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 this web site under Contact Us.
And don’t forget you can also check out the scheme benefits of MilitarySuper on their website.
And finally…
Leaving work is one of the biggest decisions you will have to make and there are lots of things that you should consider before that final day. However, if you plan for your retirement and consider all your available options, you should be able to look forward to a long, happy and financially secure retirement.
We hope that this seminar has given you a few ideas to consider. Remember, only you can decide what you really want from your retirement... so start planning now.