Super
calculations
In
the last column of So Super we examined retirement benefit options
for members of the Military Superannuation Benefits Scheme (MSBS).
Those options provide for payment of your member benefit and allow
you to choose how you want to receive your employer benefit. You
have the option to convert all, or at least half, of your employer
benefit into an indexed pension. This week we look at practical
examples of how this conversion is calculated.
Firstly you need to know the ‘pension conversion factor’
specified in the scheme rules that applies to you. It is based
on your age at retirement.
These
factors are:
| Age |
Factor |
| 55 |
12.0 |
| 56 |
11.8 |
| 57 |
11.6 |
| 58 |
11.4 |
| 59 |
11.2 |
| 60 |
11.0 |
| 61 |
10.8 |
| 62 |
10.6 |
| 63 |
10.4 |
| 64 |
10.2 |
| 65 |
10.0 |
|
| For
each year of age under 55, the pension factor increases by
0.2 |
Your pension factor is determined by your age at the time of claiming
your benefit and takes into account years and days. For example
if you retired at age 56 years and 135 days your pension conversion
factor would be 11.7260.
Let’s assume that your lump sum employer benefit on retirement
retired at age 56 years and 135 days is $396,315.75. (This is
achievable if your final average salary at retirement is $56,215
and you had been a member for exactly thirty years). To convert
all of that employer benefit to a pension, the amount of pension
would be calculated as follows:
$396,315.75 = $33,798.03p.a. 11.7260
You would be entitled to receive a pension of $33,798 (each year
for the rest of your life). Even upon your death, a reversionary
pension may be payable to your eligible spouse. This type of benefit
will be covered in a future article.
Pensions paid under the MSBS are increased twice a year - January
and July - in line with increases in the Consumer Price Index
(CPI).
You have the option of only converting half of your employer component
to pension. In that instance, as well as receiving a lump sum
payment of $198,157.87 (over and above your member benefit), you
would receive a pension calculated as:
$198,157.88 = $16,899.02 p.a. 11.7260
Alternatively, on retirement you may have some debts that you
wish to pay off, but also want to claim a pension.
Let’s assume that you want to receive a lump sum of $100,000
from your employer benefit to satisfy those debts, but wish to
convert the remainder of your employer benefit to a pension. In
that case your pension would be calculated as:
$296,315.75 = $25,269.98 p.a. 11.7260
To exemplify the way that the pension factors work for different
retirement ages, let’s use the example of a member with identical
service and salary history (hence using the same employer benefit
of $396,315.75). In this instance you are retiring at age 57 years
and 84 days (i.e. a slightly older age than the first example).
In this scenario, your pension conversion factor would become
11.5540 and your pension, in the case of a full conversion, would
be calculated as follows:
$396,315.75 = $34301.17 p.a. 11.5540
Compare this rate of pension to that of the person that retires
aged 56 years and 135 days (i.e. $33,798.03 p.a.) who has otherwise
identical service and earnings.
These examples demonstrate you have a significant degree of flexibility
when claiming your employer benefits.
