Case Study: PSS

Mick's story

Mick is 64 years old and is a contributing member of PSS.

He’ll be retiring at age 65 after 30 years as a journalist with the ABC.

Having travelled extensively during his career, Mick’s looking forward to having more time to spend on his hobby. He paints large-scale landscapes as a way of recording his journeys around the world. Mick’s dream is to have his own studio, a light-filled space in which to work and room to store his art equipment.

Mick knows he can choose a PSS pension when he retires, and that he could live comfortably on that income. But he wonders how it would affect his pension if he took a lump sum to help pay for construction of a studio.

He’s contacted his adviser because he’s hoping there may be a way to have a comfortable income for life and some cash in hand for building and buying more art gear.

Mick meets with his adviser

Mick’s adviser explains that his final benefit amount is calculated by considering the average of Mick’s last three birthday super salaries and his contribution history. They then provide Mick with retirement options for his final benefit. He can:

• take the entire amount as a lump sum
• convert the entire amount to a full pension
• withdraw a portion as a lump sum and convert the remainder to a pension; or
• roll over the entire amount to a complying super fund of his choice.

Any lump sum will be subject to cashing restrictions applicable at the time of claiming.

Mick's retirement options

Mick wants to have a pension, so he won’t take the $787,500 as a lump sum, and as he needs to access his benefit as soon as possible, rolling over the full amount is not an option for him. This gives him two options:

• a full pension; and
• a part pension with a lump sum payment.

Calculating a PSS retirement pension

A PSS retirement pension is calculated by multiplying the final benefit amount by the relevant Pension Conversion Factor (PCF). Note that the actual PFC used in calculating a pension will be based on the member’s age in years and days, on the day they claim their benefit.

For Mick, who will take his benefit when he turns 65, the PCF is 10.

If Mick chooses the full pension with no lump sum, the calculation is $787,500 ÷ 10 = $78,750 gross. This gives him an annual CPI-indexed pension of $78,750.

Part pension, part lump sum

For this option, at least 50% of Mick’s final benefit amount must be converted to a pension with the remainder claimed as a lump sum, subject to cashing restrictions.

Mick has confirmed construction costs per square metre and has decided that $125,000 would be enough to build a small studio and still have cash left over. This leaves $662,500 for conversion to a pension.

Using his PCF of 10, Mick’s annual CPI-indexed pension would be $66,250.

This option suits Mick as it gives him a comfortable income and the cash to build his studio.