Chapter 4:                  A New Military Superannuation Scheme

Accumulation retirement plan

Death and disability element

Scheme membership

Transitional arrangements

 

To meet the Guiding Principles, the proposed new scheme should have a contemporary approach to providing for retirement income by being a taxed, funded, defined contribution scheme. Unlike many contemporary schemes, however, it should offer a range of retirement benefit options including indexed pensions. In view of the unique nature of military service, it must also retain generous defined benefits for death and disability.

Recommendation 2 Defence should close the Military Superannuation and Benefits Scheme to new members of the ADF and introduce a new superannuation scheme for all new members of the ADF comprising an accumulation scheme for retirement and separate defined benefits for death and disability.

In designing such a scheme, the Review Team has also taken into account:

The Review Team has also included features which will be particularly attractive to ADF members and their families as they recognise the nature of military service and its impact on families.

In broad terms, the proposed new scheme will comprise:

The proposed new scheme will also allow membership beyond ADF members. Membership, without administrative fees, will be available to the spouse and dependent children of a serving ADF member. Membership will also be open to all Reservists, without administrative fees. Members from these groups will have their own individual accumulation accounts.

Details of these design arrangements are set out below, and a description of their impact on ADF members, and on the ADF, is set out in Chapter 5.

The scheme will operate as an Australian Prudential Regulation Authority licenced, complying superannuation scheme. Governance of the scheme will be conducted by a board (see Chapter 6). Contributions, both employer and voluntary employee contributions, will be credited to individual members' accounts and be invested by the board for the benefit of members.

Accumulation retirement plan

 Recommendation 3 The new superannuation accumulation scheme for retirement should be fully funded and taxed with the following key elements:

a.             employer contribution rates of 16% of superannuation salary for the first six years of completed service, 23% for the next nine years of completed service and 28% after 15 years of completed service (with recognition of prior military service);

b.             flexibility for members to set their own contribution rate, if any (with a default rate of 5% from after tax salary), select their investment risk profile and to make contributions following separation from the ADF;

c.             members to have choice over the superannuation scheme into which their contributions will be invested whilst maintaining membership of the mandated death and disability benefits under the new scheme;

d.             options for members with 15 years or more service, from age 55, to purchase indexed pensions (with a choice of indexation factors, at an unsubsidised price determined periodically by a Government-approved actuary) and/or an account based pension;

e.             a range of options for the way members can access their benefits after preservation age, including through an account-based pension. This would allow members to take advantage of the Government’s transition to retirement provisions; and

f.               flexibility for spouses and children of members to contribute (personally and/or from an external employer).

 

The proposed new retirement arrangements are summarised in the diagram at Figure 4–1.

Employer contributions – ADF members

Employer contributions will be made to the fund fortnightly for members who are serving ADF members or who are Reservists on continuous full-time service. Contributions will be a percentage of superannuation salary (base salary plus Service Allowance) increasing with longer periods of service. The percentage will be:

·         on initial enlistment, 16%:

·         increasing to 23% after six years of completed service; and

·         increasing again to 28% after 15 years of completed service.

There will be no separate recognition of the 3% Productivity Benefit which features as a separate element in the current defined benefit schemes.  The new employer contribution rates will be all encompassing. 

Leading Seaman Jefferies is in her tenth year of service and is on a salary of $43,251 and receives Service Allowance of $10,098, providing a total superannuation salary of $53,349 ($2046.26 per fortnight).

As LS Jefferies is in her tenth year of service employer contributions are made at 23% of superannuation salary to her superannuation account. The employer contribution paid by Defence to the accumulation plan for LS Jefferies will be:

                        $470.64  (i.e. 23%  x  $2046.26) per fortnight or $12,270 per year

When LS Jefferies enters her 16th year of service her contribution rate will increase to 28%.

 

The period of service relates to any time during which the employer contribution was being paid. It does not include periods of leave without pay. Periods on part-time pay count in full.  For members re-enlisting, the rate of the employer contribution will take into account their previous service.

 

Figure 4–1: Scheme Design - Contributions & Retirement/Resignation Benefits

 

Lateral recruits, Reservists and transferees from the military of other countries may be given a 'notional' length of service on commencement in recognition of their military or work experience. Employer contributions paid to the scheme for those members will be at the rate applicable to the notional length of service.

At the completion of nine years of service, FLTLT Smith, having joined as an Officer Cadet at age 18, will have accumulated a benefit of $100,156 (or $80,197 in 2007 prices) on conservative assumptions[4]. The benefit will have accumulated along the following lines:

 

Note         Employer contributions shown are after the 15% contributions tax has been deducted

Member contributions – ADF members

Members will be able to make voluntary contributions to the scheme. Contributions may be made from post-tax entitlement or as pre-tax superannuation contributions through salary sacrificing arrangements. Members will also be able to transfer funds from other complying superannuation funds.

Member contributions will not be mandatory. An initial default position will apply to newly commencing ADF members and Reservists on continuous full-time service. The default position will require members to make an after-tax contribution of 5% of superannuation salary. This will help eligible members to access the Government's co-contribution for lower income taxpayers. Members can elect to opt out of the default member contribution at any time, or vary the rate, or pay the member contribution through a salary sacrifice arrangement.

Private Patterson enlists and is in receipt of a salary of $36,585 plus Service Allowance of $10,098, providing a total superannuation salary $46,683 ($1790.58 pf). An employer contribution of $286.49 (i.e. 16% x $1790.58) per fortnight will be paid by Defence to his superannuation account.

Unless PTE Patterson elects to cease or reduce his rate of member contributions, he will be required to make the following personal contribution to his superannuation account from his after-tax salary:

                        $89.53 per fortnight (i.e. 5%  x $1790.58) or $2334 per year.

PTE Patterson will continue to make member contributions at the 5% rate until he elects not to contribute or varies his rate of contribution.

 

Employer contributions - other members

Employer contributions from other sources will also be accepted by the scheme. Typically this would be from the employers of spouses or dependent children of ADF members. Reservists might also choose to have contributions from their normal employers directed to their individual scheme account.

Members who leave the ADF but have retained funds in the scheme might also utilise this option. In this case, Defence would no longer meet the administrative costs involved. Similarly, the spouse and dependent children of someone who is no longer in the ADF, and who wish to remain active members of the scheme, will no longer have the administrative costs met by Defence.

Member contributions – other members

Spouses, dependent children and Reservists (not on continuous full-time service) will be able to make after-tax member contributions to the scheme.

Investment options

Members will be offered a suite of investment options from which to choose. Each investment option will provide a different risk profile. A default option will apply for those members who do not notify the board of their preferred option.

ADF members will also have the option to direct the employer contribution into a fund of their choice, including a self-managed superannuation fund. Of course, they can only have access to the new scheme’s benefit options if they have funds in the retirement accumulation plan. They will, however, be fully covered by the new scheme’s death and disability benefits.

Retirement benefits

Member benefits will continue to accumulate with investment earnings over the lifetime of the member's employment, not just over the period of employment with the ADF. On retirement, members will have options to convert the accumulated lump sums to retirement income streams:

o        convert all or part of their lump sum at any time before age 65 into an indexed pension payable for life: members will be able to choose the method of indexation for their pensions (Consumer Price Index (CPI) or wage based) with the conversion factor changing according to the choice; and/or

Indexed Pensions: As noted above, ADF members with 15 years or more service (including any years of receiving disability income) will be able to convert their accumulated lump sum into an indexed lifetime pension at any time between ages 55 and 65. The conversion rates will be regularly reviewed by a Government-approved actuary and will represent an actuarially fair price. That is, they will be cost neutral to the Government. Based on current market conditions, it is expected that these conversion rates will be 20-40% lower than the rates available in the commercial market.

Table 4–1 shows conversion rates that may be appropriate in today’s market. For example, it shows that for each dollar of the initial CPI indexed pension at age 55, $20.10 of the accumulated lump sum would be required. Conversion rates are based on current conditions and will be subject to change by the Government-approved actuary.

Table 4–1. Examples of possible conversion rates for indexed pensions

Age at conversion

CPI indexation

Wage indexation

55

20.1

25.7

56

19.8

25.1

57

19.6

24.5

58

19.3

23.9

59

19.0

23.2

60

18.6

22.6

61

18.3

22.0

62

18.0

21.3

63

17.6

20.7

64

17.3

20.1

65

16.9

19.4

The same conversion rates should be used for all ADF members (i.e. males or females, married or single) thereby simplifying the process and removing any possible claim of discrimination, which has arisen in respect of the DRFDB commutation rates. (The Review Team considered varying the rates for single and married, but such rates would only be distinguishable if the rates were varied for males and females, which was not supported.)

Commander Morris retires from the Navy at age 55 in 2007. His accumulated benefit is $825,000.

Having served for 15 or more years CMDR Morris has the option to convert all or part of his lump sum to a CPI Indexed pension.

As he has already reached his preservation age he may take all of his benefit immediately as a lump sum. Alternatively, he may wish to receive the entire benefit in the form of a CPI indexed pension. If he wanted to convert the entire lump sum into a CPI indexed pension he would receive:

$41,045 ($825,000 ÷ 20.1) indexed over his lifetime.

As this pension is paid from a taxed plan it is tax-free from age 60.

CMDR Morris wishes to discharge a mortgage on retirement and have some additional lump sum to cover other commitments for the future. He might opt to take $300,000 as a lump sum and convert the rest to a CPI indexed pension. In this instance he would receive:

            a lump sum of $300,000.00; and

            pension of $26,119 ($525,000 ÷ 20.1) indexed over his lifetime.

CMDR Morris may choose the ratio of lump sum to pension balance that best suits his future needs.

 

Indexed pensions will incorporate a reversionary component on the member’s death. That is, in the event a member in receipt of an indexed pension dies, their surviving spouse would continue to receive 62.5% of the relevant pension.

Using the example of CMDR Morris (above), had he elected to convert all his lump sum to a pension on retirement, upon his death his spouse will be entitled to a reversionary indexed pension of 62.5% of his current pension. If he died in the first year this would be $25,653 pa (62.5% x $41,045) indexed over her lifetime.

 

Access to transition to retirement provisions

On reaching preservation age, members of the scheme will be able to draw on their accumulated superannuation benefit without having to retire permanently from the workforce. This may apply where the member continues to work in a part-time arrangement and uses part of their superannuation to supplement their income, instead of leaving the workforce altogether.

The scheme will offer a non-commutable income stream to allow members to access the Government’s transition to retirement rules.

Under these transition to retirement provisions, the scheme will similarly allow members to access their benefits from age 55 or preservation age (as appropriate to the individual) without having to leave the ADF. In these circumstances, the relevant benefit will be paid to the member and a new account will be established into which subsequent employer contributions will be made until the member retires from the ADF.

Resignation benefits

Members will have two benefit options available to them when they resign prior to the age of 55. They may choose to:

·         transfer their accumulated funds to another complying fund under portability arrangements; or

·         retain their funds in the scheme.

In the first circumstance the member severs all existing ties with the fund.

Members whose funds remain invested in the scheme will continue to accrue investment earnings in accordance with the performance of their chosen investment profile. No fees will be levied upon such members.

Members with funds in the scheme may also choose to add to their existing account through personal contributions or by directing their future employers’ contributions into the member's account. Defence will not subsidise administrative fees in cases where members' accounts continue to operate with the addition of further contributions.

Private Kowalski enlists on his 18th birthday and serves for eight years as a rifleman (see table below). On leaving the ADF he retains his employer-financed accumulated benefits which would be $74,791 (or $61,360 in 2007 prices) assuming a fund earning rate of 6.5% each year[5]. On his 55th birthday his ADF employer-financed benefits will have grown to $186,221 in real terms.

PTE Kowalski does not have 15 years ADF service and therefore is ineligible to take his benefit as a pension at age 55. Because he was born after 1964 his preservation age is 60 and he cannot access his lump sum until he turns 60. Assuming his funds remain in the scheme, on his 60th birthday his ADF employer-financed benefits will have grown in real terms to $225,506.

PTE Kowalski can claim his benefit as a lump sum at age 60, or may elect to take part, or all, of the benefit as an account-based pension. The benefit would be tax-free.

Age

Rank

Annual Salary

Employer Contribution rate

Employer Contributions
(less 15% contributions tax)

Accumulated Benefit

Accumulated Benefits in 2007 prices

18

PTEt

$26,552

16%

$3,611

$3,727

$3,636

19

PTEt

$31,216

16%

$4,245

$8,350

$7,948

20

PTE

$50,492

16%

$6,867

$15,979

$14,838

21

PTE

$52,512

16%

$7,142

$24,388

$22,094

22

PTE

$54,613

16%

$7,427

$33,638

$29,731

23

PTE

$56,797

16%

$7,724

$43,796

$37,765

24

PTE

$59,069

23%

$11,548

$58,560

$49,265

25

PTE

$61,432

23%

$12,010

$74,791

$61,360

55

$464,317

$186,221

60

$636,151

$225,506

 

Re-enlisting members who had previously opted to transfer their resignation benefits to another complying fund will be permitted to transfer their accumulated superannuation benefits back into the scheme.

Death and disability element

The proposed new scheme will provide a defined benefit where a member dies or is medically discharged from the ADF. This death and disability element will complement the accumulation plan. Serving ADF members who have elected to have their employer contributions directed to another scheme will remain eligible for the death and disability element.

The death and disability benefits arrangements will differ in structure from current arrangements under the MSBS and DFRDB for two reasons:

·         the need to complement the separate accumulation retirement plan (the MSBS and DFRDB defined benefit arrangements substantially merge the retirement and death and disability benefit arrangements and their funding); and

Recommendation 4 Death and disability benefits under the new superannuation scheme should have the following key attributes:

a.             Defence as employer should continue to meet the costs.

b.             Compensable and non-compensable arrangements should be brought under one assessment and administration regime with an emphasis on rehabilitation, under the auspices of the Department of Veterans’ Affairs.

c.             Compensable disability benefits should be fully the responsibility of the Military Rehabilitation and Compensation Act 2004 (MRCA) until age 60 at existing rates of benefits.

d.             For non-compensable disability, the current three-tiered invalidity benefits should be replaced by a single benefit for loss of earnings, akin to the Military Rehabilitation and Compensation Act 2004 (MRCA) benefits and conditions, with a minimum of 40% and maximum of 70% of final salary (based on actual and prospective service), indexed to Defence earnings and payable to age 60.

e.             Employer contributions to the superannuation retirement fund should continue whilst a person is in receipt of either MRCA or superannuation disability benefits at a rate of 23% of the ‘salary maintenance’, up to age 60.

f.               Death benefits from the superannuation scheme should supplement the accumulated benefit on the basis of 23% of final salary for each year of prospective service to age 60, payable in addition to any MRCA death benefits. Where there is a surviving spouse, the superannuation death benefit may be converted to an indexed pension with additional payments for up to three dependent children.

g.             In the case of terminal illness, early access to the death benefit should be allowed.

 

Notwithstanding the different structure proposed under the new scheme, the Review Team has tried to ensure in the design of the new scheme that the death and disability benefits are at least as generous as under the existing schemes unless, of course, a medically discharged member can be successfully rehabilitated.

Disability benefits

Disability benefits will be paid to members on medical discharge from the ADF. These disability benefits will constitute both a salary maintenance payment directly to the member (in the form of income) plus an employer contribution to the member's superannuation account. The purpose of the continuing employer contribution is to provide a separate retirement benefit for the member when the compensation and salary maintenance payments cease at age 60. Upon turning 60, members will be able to draw upon their superannuation account for benefits in retirement.

The proposed new disability benefit arrangements are summarised in the diagram at Figure 4–2.

 

 

Figure 4—2: Scheme Design - Disability Benefits

 
Salary Maintenance

Where the injury responsible for the medical discharge is a compensable injury, the level of salary maintenance will be determined under the MRCA. Generally this is 100% of salary for the first 45 weeks, reducing to 75% thereafter. The current arrangement of a superannuation disability payment plus a top-up of compensation will be replaced by making MRCA fully responsible for these cases. This is in line with normal contemporary (workers compensation) practice, and will remove the duplication of assessment and payment arrangements that is the source of many complaints about inconsistency.

Where a non-compensable injury is involved, salary maintenance will be met under the new superannuation scheme, and will be determined taking into account the total service of the member along broadly similar lines as apply now in the MSBS. Total service is the sum of actual service undertaken by the member plus prospective service from date of discharge until the member's 60th birthday. The base salary maintenance rate is calculated at 2% of salary for each year of total service. To maintain consistency between the compensable and non-compensable entitlements the base rate has a maximum cap of 70%. To protect later entrants a minimum cap of 40% will also apply.

Like the MRCA salary maintenance, salary maintenance for non-compensable injuries under the new superannuation scheme will be indexed by Defence earnings, not just the CPI (as applies currently to MSBS and DFRDB payments).

Sergeant Green has been medically discharged at age 30 after 11 years of completed service due to an injury which does not qualify for compensation. At the time of his discharge his salary is $50,065 and he is in receipt of $10,098 Service Allowance. His total superannuation salary is $60,163.

At discharge he therefore has total service, for the purpose of determining his salary maintenance level, of 41 years (that is, 11 years of actual service plus 30 years of prospective service to age 60). The base rate for his salary maintenance is:

            41 years x 2% = 82%

As this exceeds the maximum cap, SGT Green's base rate for salary maintenance is 70% of superannuation. His base salary maintenance level is:

70%  x  $60,163 = $42,114 pa

This is a base rate which will be indexed with Defence earnings. The actual level of payment will take into account SGT Green's ability to work as determined by the economic and work test.

 

The actual rate of salary maintenance paid to members under the scheme's disability provisions will take into account the member's ability to undertake paid employment. This will be undertaken in a similar fashion to the economic and work test assessments currently undertaken under the MRCA.

For compensable injuries, the rate of salary maintenance is adjusted under the MRCA in accordance with an economic and work test administered by the Department of Veterans' Affairs. Table 4–2 details the effect the member's ability to earn income has upon compensable benefits.

Table 4–2: Compensable cases – effect of economic and work test

Actual Hours of employment

Rate of income/salary maintenance

Compensable conditions

Nil

75% of normal earnings minus actual earnings

25% or less of normal weekly hours

80% of normal earnings minus actual earnings

More than 25% but less than 50%

85% of normal earnings minus actual earnings

More than 50% but less than 75%

90% of normal earnings minus actual earnings

More than 75% but less than 100%

95% of normal earnings minus actual earnings

100% of normal weekly hours

100% of normal earnings minus actual earnings

For non-compensable cases, the new scheme will mirror these provisions. The same economic and work tests will be conducted (and it is the Review Team's recommendation that for consistency this also be undertaken by the Department of Veterans' Affairs). The ability of the member to be able to undertake employment will affect the amount of salary maintenance payment to the member according to Table 4–3.

Table 4–3: Non-compensable cases – effect of economic and work test

Actual Hours of employment

Rate of income/salary maintenance

Non-Compensable conditions

Nil

base rate minus actual earnings

25% or less of normal weekly hours

(base rate + 5%) minus actual earnings

More than 25% but less than 50%

(base rate + 10%) minus actual earnings

More than 50% but less than 75%

(base rate + 15%) minus actual earnings

More than 75% but less than 100%

(base rate + 20%) minus actual earnings

100% of normal weekly hours

(base rate + 25%) minus actual earnings

 

In the earlier example of SGT Green (above), his base rate for salary maintenance was set at $42,114 pa (i.e. 70% of $60,163).

If he is unable to work, and hence is not earning any other income, his salary maintenance benefits under the scheme will be $42,114 pa ($1615.33 pf).

In the event his condition improves and he is able to undertake employment working 12 hours per week he will continue to qualify for salary maintenance.

His new employment has an annual full-time salary of $50,000 pa ($1917.81 pf). Working 12 hours a week he will earn $302.81 per week ($605.62 pf). Because he is working between 25% and 50% of normal hours, his entitlement to salary maintenance under the scheme becomes:

            (base rate + 10%) minus his actual earnings from the new employment

            = ($42,114  x  110%) minus actual earnings

            = $46325 pa ($1776.86 pf) minus actual earnings

= $1776.86 - $605.62

= $1171.24 pf

The $1171.24 paid from the scheme plus his actual earnings of $605.62 allow him to earn more than the base rate of salary maintenance.

 

Employer contribution

While the salary maintenance is being paid, an employer contribution will also be paid to the superannuation account of the member. Employer contributions are paid in both situations, compensable and non-compensable injuries. The rate of contribution will be 23% of the actual salary maintenance payments being made to the member.

The accumulation of these employer contributions and investment earnings will provide retirement benefits for the member at age 60. Members who have 15 years or more of service will be able to convert part or all of their lump sum into an indexed pension. This period of service includes actual service, plus periods during which the member qualified for salary maintenance.

 

SGT Green receives a salary maintenance payment of $42,114 pa ($1615.33 pf) where he is unable to undertake any employment (see above).

While receiving this rate of salary maintenance Defence will pay an employer contribution of 23% to SGT Green's superannuation account. Therefore he will receive an employer contribution of:

            $371.53 (23% of $1615.33) per fortnight or $9,686 over a year.

 

In the example of SGT Green undertaking 12 hours of employment a week, his salary maintenance under the scheme is $1171.24 per fortnight. In this example Defence will pay an employer contribution of:

            $269.39 (23% of $1171.24) per fortnight or $7,023 over a year

SGT Green will, of course, also be paid an employer contribution by his other employer which must comply with the Superannuation Guarantee (Administration) Act 1992.

 

Death Benefits

Death benefits will consist of the accumulated account plus 23% of superannuation salary (or salary maintenance) for each year of prospective service to age 60. Surviving spouses will have the option of converting the lump sum into an indexed pension, with additional payments for dependent children. These death benefits will be in addition to any compensation benefits available under the MRCA.

The particular arrangements will vary slightly according to the following possible circumstances of the death:

The scheme will also provide a terminal Illness benefit where a member has a terminal illness and is expected to die within two years.

A summary of the death benefit arrangements is set out in Figure 4–3.

Death in service

Where a serving member dies, the death benefit is the sum of:

·         the accumulated benefit at the time of death; and

·         a lump sum calculated at 23% of final superannuation salary for each year of prospective service to age 60.

 

Lieutenant Brown, who joined the scheme as a new entrant in 2007, dies after having completed eight years of service. At the time of her death, she had just turned 29. She was on a superannuation salary of $79,251 ($65,963 plus the then $13,288 Service Allowance).

At the time of her death LT Brown's accumulated benefits in the scheme were:

$89,067 (or $73,101 in 2007 prices)

LT Brown's prospective service from age 29 to age 60 is 31 years. Her lump sum for prospective service is therefore calculated as:

            23%  x  $79,251  x  31 years

            $565,060 (or $463,771 in 2007 prices)

Total lump sum on death is $89,067 plus $565,060:

            = $654,127 ($536,872 in 2007 prices)

 

 
 
Figure 4–3: Scheme Design - Death Benefits

 

Surviving spouses will be able to convert the lump sum benefit into an indexed pension at a single rate irrespective of the age of the spouse. The conversion factor to be utilised in these circumstances is that applicable to pensions taken by ADF members at age 60. Where a spouse elects to take a pension, an additional pension is payable in respect of eligible children. The benefit is a maximum of 8.5%6 of the member’s salary (per child) for up to three children. The additional pension will continue while the children remain dependant.

In all other circumstances the benefit will be paid as a lump sum to eligible recipients.

Lieutenant Brown's surviving spouse elects to convert 70% of the lump sum into a CPI indexed pension for life. The benefits payable are:

Lump sum $196,238  (30% of $654,127) plus

CPI Indexed pension (conversion factor 18.6) calculated as:

            (70%  x  $654,127)/18.6

            = $24,618 pa (or $20,205 on 2007 prices)

An additional pension will be paid in respect of her two children. Because the surviving spouse has chosen only to convert 70% of the lump sum to pension, the additional pension is calculated as:

            8.5%  x  $79,251   x  70%  x  2 children

            = $4,715.43  x  2 children

            = $9,431 pa (or $7,740 in 2007 prices)

Therefore, LT Brown's spouse will receive a lump sum of $196,238, plus CPI indexed pensions of $34,049 pa while the two children remain dependants. The pension will revert to $24,618 pa (as indexed by CPI) when the children are no longer eligible.

 

Where the death is caused by a compensable injury, additional benefits in the form of permanent impairment payments may also be paid in accordance with existing MRCA (or predecessor) provisions.

Death after medical discharge

Where a member dies while in receipt of salary maintenance payments as a result of medical discharge, the death benefit is the sum of:

·         the accumulated benefit at the time of death; and

·         a lump sum of 23% of the salary maintenance rate (at the time of death) for each year of prospective service to age 60.

Surviving spouses will be able to convert the lump sum benefit into an indexed pension (with additional payments for dependent children) in the same way as in the case of death in service.

In circumstances where a member dies within five years of having been discharged on medical grounds, and that death is due to a compensable condition, the lump sum payment for prospective service will be based on final superannuation salary (rather than the salary maintenance rate). A discount to that superannuation salary will apply according to the period elapsed between discharge and death according to Table 4–4.

 

Table 4–4: Salary for superannuation purposes to be used in the case of a compensable death within five years of medical discharge.

Number of years between medical discharge and death

Rate of final superannuation salary

Up to 1 year

100%

More than 1 year and up to 2 years

95%

More than 2 years and up to 3 years

90%

More than 3 years and up to 4 years

85%

More than 4 years and up to 5 years

80%

More than 5 years

75%

In these cases, additional benefits in the form of permanent impairment payments may also be paid in accordance with existing MRCA (or predecessor) provisions.

Death of a former ADF member

Upon the death of a former ADF member with accumulated funds retained in the scheme, the accumulated benefit will be paid to the member's beneficiaries. Surviving spouses may elect to convert that lump sum into an indexed pension on the same basis as if the death was in service (other than the availability of additional benefits for dependent children), provided that the deceased member had achieved at least 15 years of ADF service.

Death of a pensioner

In the circumstances of the death of a member in receipt of an indexed pension, a reversionary pension will be paid to the member's spouse. In this circumstance, a spouse would continue to receive 62.5% of the relevant pension.

Terminal Illness Benefit

A special provision will apply, in limited circumstances, where the member has a terminal illness and is expected to die within two years. In effect, the member will have early access to the death benefit, which comprises the accumulated benefit plus a prospective lump sum calculated on the same basis as a death after medical discharge. Salary maintenance payments will continue until the member’s death, but no employer superannuation contribution will be paid as this will have been accessed through the lump sum. Similarly there will be no option for a spouse to purchase a pension as the lump sum will already have been accessed.

Approval for such payment will be at the discretion of the Board subject to Superannuation Industry (Supervision) requirements.

Scheme membership

Reservists

All Reservists may become members of the scheme and make their own post-tax superannuation contributions to the scheme or have Superannuation Guarantee contributions from other employers made to the scheme.

While remaining active Reservists, they will be exempt from any administrative fees.

They will not be eligible for the defined benefit death and disability benefits from the scheme unless they are on conti