There is no single percentage that determines every MilitarySuper pension. The calculation depends on the benefit being claimed, the member’s Final Average Salary, Employer Benefit Multiple, age and whether the entitlement arises through ordinary retirement or invalidity.
MilitarySuper, formerly known as the Military Superannuation and Benefits Scheme or MSBS, is a hybrid superannuation fund. It includes accumulation components and an MSBS defined benefit component. The Member Benefit and any Ancillary Benefit are generally based on contributions and investment earnings, while the Employer Benefit is calculated under a formula.
Start by identifying the type of benefit
Before attempting a military super pension calculation, it is important to identify whether the member is considering:
- an ordinary retirement benefit;
- a preserved employer benefit;
- a Class A or Class B invalidity benefit; or
- separate member or ancillary components.
The calculation for an ordinary retirement pension should not automatically be used to estimate a CSC invalidity pension. Invalidity benefits arise through a separate classification process and can involve different payment rules.
For an ordinary MilitarySuper retirement benefit, a member who meets the applicable conditions may be able to take the Employer Benefit as a pension, lump sum or combination. By contrast, where a MilitarySuper member is classified as Class A or Class B invalidity, CSC states that the Employer Benefit is paid fortnightly and cannot be taken as a lump sum.
How is the MSBS defined benefit calculated?
The Employer Benefit is the MSBS defined benefit component. CSC describes the formula as:
Employer Benefit = Final Average Salary × Employer Benefit Multiple
The Final Average Salary and Employer Benefit Multiple must therefore both be correct before the resulting Employer Benefit can be calculated accurately.
The Employer Benefit is a notional defined-benefit amount. It should not be confused with the Member Benefit or Ancillary Benefit, which are accumulation components affected by contributions and investment performance.
How is Final Average Salary worked out?
Final Average Salary, commonly shortened to FAS, is generally calculated using the member’s superannuation salary over the final 1,095 days, or three years, of service. If the current period of service is shorter than 1,095 days, CSC uses the total period of that service.
Superannuation salary generally includes the gross annual rate of pay for the member’s rank, increment level and pay group, together with recognised allowances that are payable to the member. It is not necessarily the same as total taxable income or the amount shown on an ordinary payslip.
When checking a calculation, relevant questions can include whether CSC used the correct:
- rank and increment history;
- pay group;
- recognised allowances;
- periods of service; and
- salary records across the applicable 1,095-day period.
An error in the salary history can affect the FAS and, in turn, the final Employer Benefit.
How does the Employer Benefit Multiple grow?
The Employer Benefit Multiple, commonly shortened to EBM, increases with the member’s aggregated service while they contribute to MilitarySuper.
CSC currently describes the annual EBM growth as:
- 0.18 for each year from enlistment to seven years;
- 0.23 for each year from seven years and one day to 20 years; and
- 0.28 for each year after 20 years.
For example, CSC explains that a member with eight years of service would generally accrue an EBM of 1.49. This consists of 1.26 for the first seven years and 0.23 for the eighth year. If that member had an FAS of $100,000, the resulting Employer Benefit would be $149,000.
This example demonstrates the Employer Benefit calculation. It does not, by itself, establish the annual pension the member will receive.
How is an ordinary MilitarySuper pension calculated?
Where the member is entitled to convert the Employer Benefit into an ordinary pension, CSC uses the Employer Benefit balance and the applicable Pension Conversion Factor.
CSC describes the formula as:
Annual pension = Employer Benefit ÷ Pension Conversion Factor
The Pension Conversion Factor is based on the member’s age at claim. CSC’s published factors range from 12.0 at age 55 to 10.0 at age 65, with a lower factor producing a higher annual pension from the same Employer Benefit balance.
CSC provides the example of a member aged 55 with an Employer Benefit of $500,000:
$500,000 ÷ 12 = $41,666.67 gross annual pension
That produces an illustrative gross fortnightly pension of approximately $1,602.56.
This is an ordinary retirement-pension example. It should not be applied automatically to determine a CSC invalidity pension.
Why an invalidity pension is different
A MilitarySuper invalidity benefit depends first on CSC’s assessment of the member’s incapacity for appropriate civilian employment.
CSC considers the member’s qualifications, skills and employment experience, the civilian employment they could reasonably undertake and the extent to which the retiring impairments reduce their capacity to perform that work.
The classification thresholds are:
- Class A for incapacity of 60% or more;
- Class B for incapacity between 30% and 59%; and
- Class C for incapacity below 30%.
A MilitarySuper member classified as Class A or Class B is generally paid the Employer Benefit fortnightly as an invalidity pension. CSC states that this component cannot be taken as a lump sum. A Class C classification does not ordinarily produce an immediate invalidity payment from the Employer Benefit, which generally remains preserved until the member meets an applicable condition of release.
The Member Benefit and any Ancillary Benefit remain separate from the Employer Benefit. Depending on the member’s circumstances and whether a condition of release has been satisfied, those accumulation components may be preserved, rolled over or paid as a cash lump sum.
This is why an ordinary pension estimate may not accurately predict a CSC invalidity pension after medical transition.
Medical discharge does not determine the classification
A decision by the ADF to discharge a member on medical grounds does not determine whether CSC will classify the member as Class A, B or C.
ADF medical fitness concerns the member’s capacity to continue serving. CSC invalidity classification concerns incapacity for appropriate civilian employment. A member may be unable to meet the ADF’s medical or operational requirements but retain significant capacity for civilian work.
The relevant medical conditions also do not necessarily need to be caused by service before CSC can consider them. This differs from DVA compensation, which generally requires an accepted relationship between the condition and defence service.
The same medical evidence may be relevant to both pathways, but CSC and DVA apply different tests.
What should be checked in the CSC calculation?
The Benefit Estimate and final Decision Notice should be compared with the member’s service, salary and classification records.
For an ordinary military super pension calculation, check:
- the Final Average Salary;
- the salary period used;
- recognised allowances;
- aggregated service;
- the Employer Benefit Multiple;
- the resulting Employer Benefit balance;
- the member’s age at claim; and
- the Pension Conversion Factor.
For a CSC invalidity pension, also check:
- the retiring impairments;
- the civilian occupations identified by CSC;
- the assessed level of incapacity;
- the Class A, B or C classification;
- the effective date of the benefit;
- the Employer Benefit calculation; and
- the treatment of the Member and Ancillary Benefits.
Small errors in service dates, salary records or recognised allowances can affect the Employer Benefit. Errors in the vocational or medical assessment can affect whether the member is classified as Class A, B or C.
DVA compensation is calculated separately
A CSC invalidity pension is a military superannuation benefit. It is not the same as DVA permanent impairment compensation or DVA incapacity payments.
DVA permanent impairment compensation considers accepted service-related conditions, impairment points and lifestyle effects. CSC considers incapacity for appropriate civilian employment under the applicable military superannuation arrangements.
A veteran may have entitlements through both CSC and DVA. However, CSC invalidity payments can affect the calculation of DVA incapacity payments, so the interaction should be considered before assuming the full value of both payments will be received independently.
Legal advice can address the CSC classification, entitlement and calculation. Financial advice can address tax, cash flow, the interaction with other income and the member’s longer-term financial position.
Before accepting a MilitarySuper calculation
The answer to how is MSBS pension calculated depends on whether the member is claiming an ordinary retirement pension or an invalidity benefit.
An ordinary pension calculation generally begins with the MSBS defined benefit, calculated using Final Average Salary and the Employer Benefit Multiple, before the applicable Pension Conversion Factor is applied. A CSC invalidity pension requires separate consideration of the member’s retiring impairments, civilian employment capacity and invalidity classification.
KSC Law can review the member’s CSC Decision Notice, Benefit Estimate, service history, salary data and invalidity classification. We can identify whether the correct calculation inputs were used and whether the medical or vocational evidence supports the classification CSC assigned.