Case Study: PSS

Sanjay’s account balance will be calculated on his resignation date using the formula Final Average Salary (FAS) x Accrued Benefit Multiple (ABM).

Generally, FAS is the average of a member’s last 3 birthday super salaries calculated as at his or her last day of membership. A member’s birthday super salary is typically the full-time equivalent of their annual rate of pay, including any recognised allowances. For more information see Super salary and PSS

The ABM is based on a member’s length of employment and contribution rates. See the PSS Maximum Benefit Limit for the annual ABM accruals for different contribution rates.

Sanjay's preserved benefit (FAS x ABM)

• Sanjay’s last 3 birthday super salaries were $98,000; $100,000 and $102,000. His FAS is the average of these: $100,000. 
• He has contributed consistently at a rate of 5%, which has an annual ABM accrual of 0.21. Multiplying this by his 20 years of contributing service gives him an ABM of 4.2 (0.21 x 20).

Sanjay’s projected preserved benefit (FAS of $100,000 x ABM of 4.2) is $420,000.

His benefit will be preserved in PSS until Sanjay claims it after age 55 or meets a condition of release.

Growth of preserved benefits

Once preserved, Sanjay’s super will grow until he claims his benefit. Each component will accrue as follows:

• member and productivity components: accrue at the fund’s earning rate
• the employer component: accrues in line with the Consumer Price Index (CPI)
• co-contributions and transfer amounts: accrue at the fund’s earning rate.

Earning rates are an accumulation of the month to date returns for each of the investment options (Cash Investment Option and Default Fund). Returns are reset at the beginning of each month. Monthly earning rates are published at Earning rates.

Sanjay can also keep track of investment returns anytime by checking online at How we perform.

Choice of investment options

As a preserved benefit member, Sanjay can choose to invest in either the Cash Investment Option or the Default Fund. 

Cash Investment Option

• Focuses on preserving capital by investing in cash assets
• Low-risk rating (Band 1 under the Standard Risk Measure)
• Recommended minimum investment timeframe of 1 year
• A suitable option for members who prefer a low-risk investment and are comfortable with lower returns, and/or want to minimise fluctuations in the value of their super.

Default Fund

• Aims to provide a balance between higher-growth opportunities and capital-preserving assets by investing across a diverse group of assets: cash, fixed interest, equities, property, infrastructure and alternatives
• High-risk rating (Band 6 under the Standard Risk Measure)
• Recommended minimum investment timeframe of 10 years
• A suitable option for members who are prepared to accept a higher level of risk in exchange for potentially higher returns over the medium-to-long term.

For more information see the PSS Investment options and risk.

Everyone’s circumstances are different so the right choice for each person varies. Sanjay decides to stay in the Default Option, aiming for higher long-term growth. He understands the risks associated with each investment option and knows he can switch options if his circumstances or financial objectives change.

Switching between investment options

Two switches a year

Sanjay can switch from one investment option to the other twice in a calendar year, but only once in a calendar month. He must have at least $1,000 in his super and he’ll have to switch the entire amount—partial amounts cannot be switched.

Sanjay won’t be charged if he chooses to switch between investment options, no matter how many switches he makes between now and when he claims his benefit.

Cut-off date for requesting a switch—the last Friday in each month Switch forms and online switch requests need to be received by CSC before the last Friday of the month (choice cut-off date). If a request misses the cut-off date, it will be processed on the next available choice cut-off date. If Sanjay is posting a switch request form, he’ll need to allow enough time for the form to reach CSC by the cut-off date.

Switches take effect on the Wednesday following the cut-off date.

Submitting a switch request

Sanjay can submit his switch requests:

• online through CSC Navigator; or
• by completing a PSS investment option switching form and returning it:
  • by email to [email protected] (scanned and signed copy); or
  • by mail to Commonwealth Superannuation Corporation, Reply Paid 83319, Canberra ACT 2601.

Cancelling a switch request

Sanjay can change his mind about switching investment options after he’s already submitted a switch request. However, he must let CSC know in writing by mail or email before the cut-off date (the last Friday of the month in which the switch request was submitted). If his cancellation request is not received in time, his original switch request will be processed.