Case Study: MilitarySuper Retirement options

Employer benefit calculation

Tracey’s Employer benefit can be taken as a lump sum and is also used in the calculation of pension amounts.

It’s calculated by multiplying Tracey’s Final Average Salary* (FAS) of $127,000 by her Employer Benefit Multiple (EBM) of 6.77.

This gives Tracey an Employer benefit of $859,790 ($127,000 x 6.77).

*FAS is the average of the member’s super salary over the last three years. Super salary is the member’s annual rate of pay plus certain recognised allowances.

Employer Benefit Multiple (EBM)

While contributing to MilitarySuper, Tracey’s EBM grows with her total years of service.

Benefit options

As the member and ancillary benefit is only payable as a lump sum that can be taken as cash or as a rollover*, Tracey can choose how her employer benefit is paid. Tracey can take her Employer benefit as a lump sum, a pension or a combination of both.

*subject to cashing restrictions

• Lump sum

  Tracey could take her entire Employer benefit as a lump sum. Since no income stream is provided with this option, Tracey would need to structure her finances to ensure she has financial security for the rest of her life.

  As well as the lump sums provided by her Member and Ancillary benefits, this option would give Tracey access to a significant amount of money on retirement. 

• Pension

  The pension is calculated by dividing Tracey’s entire Employer benefit by a pension conversion factor (PCF) of 11 (the PCF for age 60). See the PCF table. 

  This gives Tracey an annual pension of $78,162.73 ($859,790/11), as well as a lump sum made up of her Member and Ancillary benefits.

  Her pension will be automatically adjusted twice yearly in line with upward movements in the consumer price index (CPI) for the six months ending 30 June and 31 December each year.

  This option would provide Tracey with a regular income stream for the rest of her life, supported by immediate access to the cash provided by her Member and Ancillary benefit lump sums.

  Pension conversion factor (PCF)

  Age PCF Age PCF 45 14.0 56 11.8 46 13.8 57 11.6 47 13.6 58 11.4 48 13.4 59 11.2 49 13.2 60 11.0 50 13.0 61 10.8 51 12.8 62 10.6 52 12.6 63 10.4 53 12.4 64 10.2 54 12.2 65 10.0 55 12.0

• Combination of lump sum and pension

  Tracey could convert at least 50% of her Employer benefit to a pension (calculated as set out above), with the balance taken as a lump sum.

  This option would provide Tracey with a regular income stream for the rest of her life, supported by immediate access to the cash provided by the balance of her Employer benefit and her Member and Ancillary benefit lump sums.

Tax considerations

Understanding the tax implications of choosing a pension and/or lump sum is important for Tracey’s continued financial wellbeing as she heads into retirement.

• Taxed and untaxed sources

  The tax payable on pension and lump sum benefits will depend on whether the benefit is sourced from contributions paid to MilitarySuper and earnings on those contributions (taxed source) or from other sources (untaxed source).

  For more information about the tax treatment of each contribution type, see the MilitarySuper PDS Booklet - Tax and your MilitarySuper.

• Treatment of pensions

  Tracey’s pension will be subject to normal pay as you go (PAYG) tax deductions, in the same way her salary was subject to fortnightly tax deductions. However, she may be eligible to receive tax concessions or offsets.

  MilitarySuper is required to deduct tax from her benefit at the highest marginal rate if Tracey has not claimed the tax–free threshold and/or any other relevant taxation offsets.

  For more information about the effect of tax on MilitarySuper benefits, see the MilitarySuper PDS Booklet - Tax and your MilitarySuper, Tax and your MilitarySuper pension factsheet and Tax on super benefits - ATO.