Case Study: CSS

Deferred benefits

Matt’s story

Matt is 53 years old and a contributing member of CSS.

His super is invested in the Cash Investment Option.

Matt’s been a police officer in Canberra city for nearly 20 years.

Matt and his wife Natalie have always wanted to travel around Australia. Lately, they’ve been talking about Matt retiring early so that they can start travelling in the next few years.

He’d like to have some regular money coming in while he’s on the road. Then he wouldn’t have to look for part time work to boost his finances while he’s travelling.

He’s called his adviser because he’s hoping there may be a way to set up a pension even though he’ll be retiring at a relatively early age.

Deferred benefit pension: keeping Matt and Natalie on the road

Matt’s adviser talks to him about setting up a deferred benefit, also known as a 54/11 strategy. This is where the member and employer components of his super are preserved in CSS, with benefit payments deferred until Matt reaches his minimum retirement age of 55.

Conditions apply, including Matt having ceased eligible employment and the timing of his resignation.

Having a deferred benefit means that Matt can claim his benefit at 55 and receive a fortnightly pension. This strategy fits perfectly with Matt and Natalie’s dream of travelling without having to worry about money.

Matt can choose a later age to claim his deferred benefit. However, deferred benefits must be claimed by age 65. If a claim is not submitted within 3 months of a member’s 65th birthday, earnings and CPI indexing will not accrue beyond 3 months after that birthday.

Man in his 30s smiling at work, sitting at desk

“I just want to retire early, hit the road with Natalie, and not worry about money while we’re travelling. That’s the dream.”

—Matt

This section contains:

Considerations and implications

Before Matt’s adviser can confirm that the 54/11 strategy is right for Matt, there’s a lot to be considered.

Matt and Natalie need to know how their financial situation and lifestyle will be affected if Matt retires early and takes up a pension.

Matt’s adviser will compare the outcome of applying the 54/11 strategy with a benefit assessment of Age retirement, which he’ll obtain from CSC. This will allow him to choose the best retirement option for Matt.

Matt asks his adviser about what would happen if his circumstances change, such as if he claimed his deferred benefit as a pension and then decided to rejoin the workforce. He also wants to know what happens to his deferred benefit if he is made redundant, or is too sick to work, or dies.

Going back to work

If Matt has claimed his deferred benefit as a pension and then decides to rejoin the workforce, including eligible employment, his pension will continue to be paid each fortnight. It’s payable for life and will not need to be transferred or changed if he goes back to work with any other employer.

Matt’s adviser reminds him that receiving the pension and an income from work may affect the tax he has to pay. See Will Matt's pension be taxed?

Being retrenched before age 55

If Matt’s role is made redundant and he’s retrenched before he turns 55, he can still set up a deferred benefit. However, he will have to wait until he turns 55 before claiming his benefit.

Retiring because of a permanent medical condition

If Matt has not claimed his deferred benefit and becomes totally and permanently incapacitated, he may claim his deferred benefit on invalidity grounds. If Matt is already receiving a CSS pension, no additional benefits are payable.

If Matt dies

Before claiming his benefit	The pension paid to Natalie (as Matt’s eligible spouse) and any eligible children would be a percentage of the invalidity pension that would have been paid to Matt if he had been retired on invalidity grounds at the time of his death.
While receiving a pension	Natalie (as Matt’s eligible spouse) and any eligible children would be entitled to a percentage of the pension being paid to him at the time of his death.
No eligible spouse or eligible children	The benefit would be paid to children otherwise considered ineligible or to Matt’s estate.

See the CSS Death benefits factsheet.

Will Matt’s pension be taxed?

Matt’s pension would be treated as assessable income. This means that tax would be applied if the total of his CSS pension and any other assessable income he might receive exceeds the tax-free threshold, although he may be eligible to receive tax concessions or offsets. Matt can ask CSC to withhold more tax from his pension if needed.

See Tax and your CSS super.

When does Matt have to make a decision about preserving his benefits?

As Matt intends to resign and take his benefits at 55, he must:

resign at least two calendar days before he turns 55 (his minimum retirement age for preserved benefits); and
let CSS know his retirement date within 21 days of stopping work.

If he doesn’t let CSS know in time, CSS will need to consider whether he is eligible for the pension or only the default option, which is a refund of accumulated member, productivity, and super guarantee contributions as a lump sum.

Calculating deferred benefits

Contributions

Matt has accumulated $326,000 in his CSS account, made up of basic, supplementary and productivity contributions.

Contribution type	Current balance
Accumulated basic contributions	$246,000
Accumulated supplementary contributions	$35,000
Accumulated productivity contributions	$45,000

Calculating each pension

Deferred benefit entitlements are calculated using formulas based on retirement age and the types of contributions.

Any component not included in a pension calculation will be paid as a lump sum when Matt reaches his preservation age or meets a condition of release, and will be subject to cashing restrictions applicable at the time.

Pension formulas

CPI-indexed pension	Basic contributions x 2.5 x age factor
Non-indexed pension	(basic contributions + supplementary contributions) × age factor
Maximum additional non-indexed pension	(basic contributions + supplementary contributions + productivity contributions) × age factor

Determining lump sum payments

Once the CPI-indexed pension has been calculated, Matt’s productivity contributions can be:

taken as a lump sum if he chooses to take the Non-indexed pension along with the CPI-indexed pension; or
included in the calculation of the Maximum additional non-indexed pension if he chooses to take this pension along with the CPI-indexed pension.

If taken as a lump sum, the amount would be available to Matt once he reaches his preservation age or meets a condition of release. Cashing restrictions will apply.

For more information see Accessing your benefit.

Age factor

The age factor increases as the member gets older, as shown in the table. This means that the later a member claims, the larger their pension. For Matt, who is claiming his benefit at age 55, the age factor is 0.0925.

Age at claim time	Factor	Age at claim time	Factor
55	0.0925	61	0.1020
56	0.0940	62	0.1040
57	0.0955	63	0.1060
58	0.0970	64	0.1080
59	0.0985	65	0.1100
60	0.1000

Matt's pension and lump sum entitlements

After going through all the considerations and implications with Matt and Natalie, Matt’s adviser is comfortable to go ahead and calculate Matt’s pension and lump sum entitlements.

Using the formulas set out in Calculating deferred benefits, Matt’s adviser tells him that he will be entitled to the CPI-indexed pension shown below, along with his choice of either:

the non-indexed pension with a lump sum payment of $45,000; or
the maximum additional non-indexed pension with no lump sum payment.

CPI-indexed pension

Using basic contributions

$246,000 x 2.5 x 0.0925

$56,887.50

Non-indexed pension

Using basic and supplementary contributions

($246,000 + $35,000) x 0.0925

$25,992.50

Maximum additional non-indexed pension

Using basic, supplementary and productivity contributions

($246,000 + $35,000) x 0.0925

$30,155.00

Matt’s decision

As Matt is looking for a strategy that will give him a pension for life and a significant amount of money to look forward to as a lump sum payment in the future, he chooses to take:

the CPI-indexed pension at age 55; and
the Non-indexed pension at age 55.

He will then receive a lump sum of $45,000 (his productivity contributions) once he reaches his preservation age or meets a condition of release.

Retirement resolution for Matt

By setting up a deferred benefit, Matt can retire early with the financial security of having an income for life.

✓ Matt decides to take the CPI-indexed pension along with the non-indexed pension, giving him a comfortable income for life.

✓ Matt knows that he’ll be free to travel around Australia with his wife Natalie without having to look for work to boost his finances.

✓ Matt understands that as the productivity component isn’t included in either of these pensions, Matt has the added confidence of knowing that extra money will be available once he reaches his preservation age or meets a condition of release.

CSC resources

Product Disclosure Statement

This document provides important information about the features, benefits, risk and cost of investing your super in the Commonwealth Superannuation Scheme. It includes references to the Investment options and risk, Fees and other costs, Tax and your CSS super and Death and invalidity benefits booklets which form part of the Product Disclosure Statement.

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