How Does Invalidity Retirement Cover Work?
- Introduction
- Who are MilitarySuper?
- MilitarySuper Member Discharge
- Eligibility for MilitarySuper
- How Invalidity is Determined
- Invalidity Classification Process
- Invalidity Classification Levels
- MilitarySuper Benefits
- Class A Payments
- Class B Payments
- Class C Payments
- Indexation of Pensions
- Invalidity Classification Review
- Does this Apply?
- Superannuation Splitting
- Benefit Application Forms
- Important Points
- MilitarySuper Contacts
Introduction
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As soon as you join the Australian Defence Force (ADF) you also become a Member of MilitarySuper which is designed specifically to meet the needs of members of the ADF. It is not open to the general public.
MilitarySuper came into effect on 1 October 1991 and all ADF personnel who first joined the services after 30 September 1991 are members. Prior to this, service personnel were covered by the Defence Force Retirement and Death Benefits (DFRDB) Scheme. Some personnel who entered the ADF prior to 1 October 1991 may have chosen to transfer across to MilitarySuper during a 12 month period in 1991-92. If you transferred across, you became a Member on 1 October 1991 though your entire period of service is recognised for the purpose of determining benefits.
Membership of an employer-sponsored superannuation scheme like the Military Superannuation and Benefits Scheme (MilitarySuper) guarantees you an income when you leave the workforce, as well as giving you the security and peace of mind that comes with being covered for invalidity retirement and death. This is at no additional cost to you.
This seminar will attempt to shed some light on this subject and demystify a couple of the areas where we get the most questions.
Who are MilitarySuper?
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MilitarySuper is managed by a Board of Trustees holding an Australian Financial Services licence issued by the Australian Securities and Investments Commission in the interests of protecting investors and consumers. The Board also holds a Registered Superannuation Entity Licence issued by the Australian Prudential Regulation Authority which recognises that the Trustees have the skills to manage the scheme, so you know you're in safe hands.
Though we are happy to answer questions regarding your options and entitlements we must ensure that you are aware that any advice presented during this seminar is general advice only and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any such general advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation or needs. You may wish to do so with or without the assistance of a licensed financial advisor.
What is the Role of MilitarySuper when a Member is Medically Discharged from the ADF?
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First it is necessary to explain the different roles of the government agencies who are involved in medical discharges from the ADF.
The mode of discharge from the ADF is determined by the Department of Defence. MilitarySuper determines and reviews your invalidity classification in accordance with MilitarySuper scheme rules (more on that classification process in a moment). The Department of Veterans' Affairs handles compensation and repatriation matters and administers the Military Compensation Rehabilitation Scheme (MCRS).
The word from members is that there is a fair bit of confusion in relation to how the invalidity benefit process works and who is responsible. If you're being discharged medically and the condition is military-related you may find that you're dealing with compensation and superannuation. Don't confuse the two. If your condition is related to your Military Service and you are taking a compensation claim available to you from MCRS you are still entitled to any MilitarySuper invalidity benefit which you are assessed as eligible to receive.
This can be a stressful time so if you are discharging medically, and you are starting to look at this process, you should be contacting us to make sure you get the correct information on who is responsible for what. We will point you in the right direction. ComSuper is the Board's administrator and contact details are available on our web site. They will also be provided at the end of this Seminar.
Eligibility for a MilitarySuper Invalidity Benefit
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If you are retired from the ADF because of invalidity, you may be eligible to receive a MilitarySuper invalidity benefit.
However, it is important to note that in certain circumstances a MilitarySuper Invalidity benefit may not be payable to you.
There will be no invalidity benefit if the Military Super Board of Trustees determines that your invalidity:
- Has occurred in your first two years of service and was caused by, or substantially contributed to by, a condition that was present on entry and not materially aggravated by your service, or
- Was, in the opinion of the Board, a result of your own wilful action to obtain an invalidity benefit, or
- Was caused by or substantially caused by an injury which occurred while you were absent without leave for a period over 21 consecutive days and your salary and allowances for that period had been forfeited under the regulations made by the Defence Act 1903
How Invalidity is Determined
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A number of factors are considered in determining whether an Invalidity Benefit from MilitarySuper is payable to you.
Factors considered when determining benefits:
- Medical documentation from the ADF,
- Information provided on your M40 application form,
- Information on suitable civilian occupations, and
- Any consultant medical assessments
How Does the Invalidity Classification Process Work?
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If you are discharged on medical grounds ComSuper will review the medical documents to determine the kinds of civilian employment that you could undertake if you were 100% fit and then decide the degree to which your incapacity diminishes your ability to undertake those kinds of employment. This is called an 'Invalidity Classification'.
The classifications take into account not only your condition but also any formal qualifications, experience and skills, including those gained pre service.
For example, Adam, a Private in the Royal Australian Army has discharged medically unfit after a period of 5 years in the Army as a medical assistant. His pre-service qualification is as a dental assistant, which he was employed in for a period of 3 years.
The delegate must take into account pre service and in service skills, qualifications and experience when assessing Adam's invalidity classification. The delegate will take into account both employment kinds of medical assistant and dental assistant in assessing the kinds of civilian employment Adam is qualified to undertake. The delegate would also make a subjective decision, taking into account the length of time that Adam spent in each employment and the length of time it has been since he has performed each job.
About the Invalidity Classification Levels
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Because there are high fitness standards for retention in the Defence Force the scheme rules provide for three classifications.
Class A is for members who are 60% or more incapacitated for civilian employment for which you are reasonably qualified, in other words incapacitated to a large degree for civilian employment.
Class B is for members who are 30 to less than 60% incapacitated for civilian employment. In other words, you are incapacitated to a moderate degree for civilian employment.
Class C is for members who are 0-30% incapacitated for civil employment. In other words, you are incapacitated to a small degree for civilian employment.
So, Once You've Been Classified, What Will Your MilitarySuper Benefit Comprise?
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Your MilitarySuper Benefit is comprised of a Member Benefit, an Employer Benefit and possibly an Ancillary Benefit. You can find out more information about the payment of Ancillary Benefits in 'Publications'. We will now talk about your Member and Employer Benefit.
You will receive a lump sum of your Member Benefit as at 30 June 1999 and your post 30 June 1999 Member Benefit will remain preserved in the Military Super Fund, or Fund of your choice, until you reach preservation age. Should you not wish to take your Member benefit at 30 June 1999 as a lump sum payment when you discharge from the Defence Force this may also be preserved in MilitarySuper.
| Date of Birth | Preservation Age |
|---|---|
| Before July 1960 | 55 |
| July 1960 - June 1961 | 56 |
| July 1961 - June 1962 | 57 |
| July 1962 - June 1963 | 58 |
| July 1963 - June 1964 | 59 |
| After June 1964 | 60 |
Let's Look Now at How Class A Employer Benefits are Calculated.
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When we're calculating your Class A Benefit, we look at the Employer Benefit you have whilst you're in service and we then look at the prospective service. In other words, what could your Employer Benefit have been had you not been medically discharged and instead stayed in the service until the age of 55.
The Employer Benefit is paid as an indexed pension using the conversion factor of 12. This can be lower if your retiring age for rank is greater than 55. Check with us if you are unsure.
Meet Corporal Dawson
Corporal Dawson joined the ADF at age 20 and enjoyed ten good years of service. Unfortunately, he was involved in a serious car accident which led him to retire on invalidity grounds at age 30 and classified class A. On retirement he received a lump sum of his 30 June 1999 Member benefit and his post-30 June 1999 Member benefit remains preserved in MilitarySuper (he could also have rolled this preserved amount over into a Fund of his choice).
Cpl Dawson was also entitled to an immediate indexed pension, based on his actual service (10 years) and his prospective service from age 30 to age 55 (25 years).
Employer Benefit is calculated by applying a multiple derived from length of service (actual and prospective in invalidity cases) to your Final Average Salary or 'FAS'.
So first let's explain FAS. This is calculated to be one third of the amount of salary payable during the last three years of service. Let's say for Cpl Dawson this was:
Calculating Final Average Salary
Super Salary:Year 1 = $49,000
Year 2 = $50,000
Year 3 = $51,000
Total = $150,000 ÷ 3 = $50,000 Final Average Salary (FAS)
Now, let's consider your Employer Benefit Growth Rate
Employer benefit growth table
| Years of Service | % of FAS per Year |
|---|---|
| Enlistment to 7 years | 18% |
| 7 tears 1 day to 20 years | 23% |
| 20 years 1 day onward | 28% |
7 years service @ 18% growth = 1.26 x FAS
13 years service @ 23% growth = 2.99 x FAS
15 years service @ 28% growth = 4.20 x FAS
Total = 8.45 x FAS
Corporal Dawson's Employer Benefit
8.45 x $50,000 = $422,500
Cpl Dawson's Annual Pension
$422,500 ÷ 12 = $35,208
As he is being discharged due to a military related condition he may also be receiving an additional compensation payment, through the Department of Veterans' Affairs (DVA). However that remains entirely a DVA determination and ComSuper has no consideration in that issue. Any queries in this regard, including whether any MilitarySuper invalidity benefit will impact on any DVA entitlement, should be directly addressed to DVA. In determining your benefit MilitarySuper does not take into account DVA or any Commonwealth entitlement which you might be receiving.
Class B Payments
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In most cases a Class B pension is half of Class A, unless your Employer Benefit, when calculated based on your actual service, gives you a greater pension. In which case we grant you that higher amount.
For instance, if Corporal Dawson was classified as Class B, his pension would be calculated by comparing his notional Class A payment divided by two to his actual service of ten years.
Notional Class A Payment ÷ 2
$35,208 ÷ 2 = $17,604
Employer Benefit for 10 years Service
7 years service @ 18% growth = 1.26 x $50,000
3 years service @ 23% growth = 0.69 x $50,000
Total = 1.95 x $50,000 = $97,500.
Employer Benefit for Actual Service ÷ Conversion factor at retirement age = pension
or
$97,500 ÷ 17 = $5,735
Class C Payments
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Finally, Class C is a non pensionable classification. Your MilitarySuper benefit is exactly the same as if you'd resigned.
Indexation of Pensions
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You should also be aware that all pensions are indexed automatically twice yearly with effect from the first pension paydays in January and July. The adjustment is based on the movement in the Consumer Price Index (CPI) for the six months ending 31 March and 30 September each year. If you have not been in receipt of a pension for the entire six months you will receive a proportion of any increase.
Invalidity Classification Review
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If you leave the ADF on invalidity grounds and you are classified as either Class A or Class B, your classification may be reviewed from time to time. If your condition changes, you may be reclassified and this would affect your pension. The types of civilian employment considered suitable may be varied over time depending upon skills and experience gained since leaving the Defence Force.
If when you left the ADF you were classified as either Class A or B, you can ask for a review yourself at any time up to the age of 65 if you think your condition has deteriorated. This right of review applies also if you have been reclassified from Class A or Class B down to Class C. If you were classified Class C on discharge, there is no right to seek a reclassification at a later time. However, you will have an opportunity to ask for reconsideration of the initial classification.
You may ask the Board to reconsider decisions made regarding your classification within 30 days of being notified. Again, we strongly encourage you to contact us with any queries in this regard. Most concerns are easily addressed by our helpful and knowledgeable staff.
An example of how the review system works is as follows. Say you're a mechanic with the Army. While on routine duty one day you attempt to lift a heavy piece of machinery and in doing so damage your back.. You are then discharged from the ADF on invalidity grounds. You may receive an initial invalidity classification of Class B because there is a moderate impact on your ability to be a mechanic in the civilian workforce. Five years down the track you may find that the condition has deteriorated to such a state that you simply cannot do anything required of a mechanic. Through the review process, if the Board is satisfied that your condition has incapacitated you to a large extent for civilian employment, you will be upgraded to a Class A. Then, if after another five years, treatment is found to be successful, you may be reclassified down to a Class B or a Class C invalidity classification, depending on how successful your treatment has been in reducing your incapacity for civilian employment.
If you are reclassified down to a Class C, your pension will stop. However ComSuper will refund your Employer lump sum back into MilitarySuper and then add 10 years worth of interest, as if you've not been receiving the pension at all. In other words you're not financially worse off simply because you needed to take some pension payments now to assist you in transitioning out of the military and into the civilian workforce.
Plus, you are able to work and still receive a pension benefit from us.
So, Does All of This Still Apply if you Transferred from the DFRDB?
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Yes. As soon as you transferred schemes you became eligible for all MilitarySuper benefits following the exact same classification and review processes applied to other members.
Family Law Superannuation Splitting Arrangements
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New arrangements for the splitting of superannuation entitlements on divorce came into effect in December 2002. Superannuation benefits are now treated as property in the event of a marriage breakdown and invalidity payments are not immune. Any members likely to be affected by these arrangements are advised to seek legal advice.
Benefit Application Forms and Processing Times
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All forms are available here on the MilitarySuper website or from your pay unit. The initial form required for Medical Discharge is Form M40 - Invalidity.
The timing for providing your form is crucial. You will need to complete this form no earlier than three months before and no later than three months after the date of discharge.
Pending the outcome of the assessment, any lump sum payment will usually be paid 8 - 10 working days after the later of either the discharge date or receipt of the benefit application form. Pension payments usually commence about 3 weeks after all relevant papers are received.
Sometimes Members will experience delays and this can be frustrating. To help avoid such problems make sure you:
- Do not lodge your application earlier than three months before your discharge date,
- Include the correct discharge date and advise if it changes,
- Include correct bank details,
- Use the right benefit application form,
- Be sure your address details are correct, and
- Provide your Tax File Number
It's also possible that a Benefit Application could be delayed/mislaid in your pay unit, pay office, orderly room or similar. For this reason we strongly advise you to mail your application directly to Comsuper if possible.
Please note that ComSuper does not acknowledge receipt of applications, so, if you wish to confirm receipt, please ring the enquiry service on 1300 006 727 about one week after mailing.
Following are a Couple of Important Points to Remember About Medical Discharge
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- A large percentage of cases are classified Class C due to very high military fitness standards.
- It is important to send in an invalidity application (Form M40) as soon as your discharge date is known.
MilitarySuper Contacts
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And finally, the best place to seek information, answers to questions and initial advice is the MilitarySuper Customer Service Centre.
To speak to an experienced information officer about your superannuation entitlement, the payment of your Invalidity Benefit or any other superannuation related matter, please ring 1300 006 727 or 1300 001 877 (for pensioners).
Members overseas, please call the switchboard on 02 6272 9000.
Fax forms and queries to us on either (02) 6272 9617 or (02) 6272 9618 or pop it in the mail.
You can also email your enquiry by following the link on the MilitarySuper web site under 'Contact Us'.
MilitarySuper Contacts
Phone
Members: 1300 006 727
Pensioners: 1300 001 877
Members Overseas, please call the switchboard on 02 6272 9000.
Fax
Members: (02) 6272 9617
Pensioners: (02) 6272 9618
Postal Address:
MilitarySuper
PO Box 22
BELCONNEN ACT 2616