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Division 1: Military Superannuation and Benefits Scheme retention benefit

Purpose

G3.47 This Part describes the conditions applying to the retention benefit of the Military Superannuation and Benefits Scheme (MSBS).

Legal authority

G3.48 The legal authority for the retention benefit is Part 8 of the Military Superannuation and Benefits Act 1991.

G3.48A Members who join on or after 6 October 2005 are not eligible for the MSBS retention benefit as repealed by Schedule 4 of the Defence Legislation Amendment Act (No 1) 2005.

Definitions

G3.49 In this Division:

benefit means the retention benefit of the Military Superannuation and Benefits Scheme (MSBS).

benefit computation day has the following meaning:

  1. subject to subparagraph b below, for a member who is an eligible member and completes 15 years of continuous eligible service, the benefit computation day is the day the 15 years of continuous eligible service is completed; and

  2. for a member who becomes an eligible member through being promoted to the ranks of Major or Sergeant, having completed between 15 and 20 years of continuous eligible service, the benefit computation day is the day the member becomes an eligible member.

continuous eligible service means all periods of eligible service, if continuity of those periods of service has been maintained. Continuity is taken to have been maintained in the following circumstances:

  1. during any period of paid leave;

  2. during any period of leave without pay or absence without leave that does not exceed 21 days;

  3. during any period of leave without pay that does exceed 21 days, being a period when the member continues to contribute to the Military Superannuation and Benefits Scheme (MSBS) (see paragraphs G3.71 to G3.74); or

  4. if a member retires, resigns or discharges and immediately afterwards re-enters the ADF.

[Only periods of continuous eligible service are to be considered when calculating a member's benefit computation day. It should be noted that if a break in continuity occurs, the 15-year eligibility period must commence again from the date of resumption of eligible service.]

continuous effective service means effective service for Defence Force Retirement and Death Benefit (DFRDB) purposes, excluding repurchased service (see paragraph G3.70).

eligible member means a member of the Military Superannuation and Benefits Scheme (MSBS) who is:

  1. an officer holding a substantive or provisional but not acting rank not lower than Major:

  2. an officer (other than an officer referred to in subparagraph a. who immediately before becoming an officer, was a sailor, a soldier or an airman (as the case may be).

  3. Note: Members who held the rank of Air Cadet prior to 1985 can be eligible members under this subparagraph.

  4. a Chaplain entitled to be paid a salary at a rate that is not less than the minimum rate at which salary is payable to an officer holding the rank of Major;

  5. a member (other than an officer) holding a substantive or provisional but not acting rank not lower than Sergeant;

  6. a person declared, in writing, by the Minister to be an eligible member (generally specified categories – see paragraphs G3.75-82).

eligible service means service which is eligible service for the Military Superannuation and Benefits Scheme (MSBS). In the case of transferred members this includes continuous effective service.

recommending authority means a commissioned officer holding the rank of Captain or higher.

salary means a member's military salary which includes Service allowance (if applicable) but excludes any other allowance payable to the member.

transferred member means a member who elected to transfer from the Defence Force Retirement and Death Benefits (DFRDB) scheme to the Military Superannuation and Benefits Scheme (MSBS).

trustee means a member of the Military Superannuation and Benefits board of trustees.

The benefit

G3.50 The purpose of the benefit is to provide a payment to an eligible member after 15 years of continuous eligible service, to encourage the member to continue to serve until completing 20 years of continuous eligible service. It is designed to duplicate the retention factor of the Defence Force Retirement and Death Benefits (DFRDB) scheme that encouraged a member to serve for 20 years.

G3.51 The benefit is an amount equal to a member's annual salary on the benefit computation day. A pro-rata amount is payable if:

  1. member has completed between 15 and 20 years of continuous eligible service and becomes an eligible member through being promoted to Major or Sergeant; or

  2. a member has completed 15 years of continuous eligible service and will reach statutory retirement age before completing 20 years of continuous eligible service.

G3.52 The pro-rata amount will be proportional to the number of days the member can serve until completing 20 years of continuous eligible service or reaching the statutory retirement age. The benefit is fully taxable and the tax will be deducted at the time of payment. In accepting the benefit the member must sign an undertaking to serve until 20 years of continuous eligible service has been completed or to statutory retirement age.

Eligibility

G3.53 If an eligible member completes 15 years of continuous eligible service in the Permanent Forces, the member can receive the benefit.

G3.54 Members who are within five years of statutory retiring age when they complete 15 years service will only be entitled to a proportion of the benefit. The benefit payable will be proportional to the period of time the member can serve until they reach the statutory retiring age.

G3.55 An eligible member must elect to accept the benefit, within 90 days before becoming eligible to receive the benefit. The election must be made on Form AB 867 – Military superannuation and benefits scheme retention benefit election, which can be found on the DEFWEB Forms System.

G3.56 An eligible member who has elected to accept the benefit, and who subsequently reconsiders, can revoke the election at any time before the end of the 90-day period. The application to revoke the election must be in minute form signed by both the member and the member's recommending authority.

G3.57 If a member completes 15 years of continuous eligible service before reaching the rank of Major or Sergeant, the member is not an eligible member and is therefore not eligible to receive the benefit. The exceptions to this are:

  1. if members are in employment categories which have been declared specified categories, including the inter-employment category (see paragraphs G3.60 and G3.70); or

  2. if they are eligible members under paragraph b of the definition of eligible member.

G3.58 If a member attains the rank of Major or Sergeant, with between 15 and 20 years service, the member will be eligible to elect to receive the benefit on a proportional basis. The benefit will be apportioned using a factor which is the period between the day of promotion and the day the 20th year of continuous eligible service would be achieved, as a proportion of the normal five-year undertaking for further service. The member must elect to accept the benefit within 90 days after being promoted. The election must be made on Form AB867 – Military superannuation and benefits scheme retention benefit election. The member cannot then revoke the decision to accept the benefit.

Example: A member enlisted on 1 June 1977. The member became an eligible member by being promoted to Sergeant, on 31 August 1994 after having completed 17 years three months of continuous eligible service. If the member elected to accept the benefit, the member would be entitled to a proportional benefit based on the two years nine months (1005 days) period remaining until the member completed 20 years of continuous eligible service. The amount of the benefit would be 1005/1826 multiplied by the member's annual salary on 31 August 1994. The member would then be required to undertake to complete an additional two years nine months of continuous eligible service (see undertaking for further service, paragraph G3.61).

G3.59 Members who are in an employment category which has been declared a specified category by the Minister may be eligible to receive the benefit even if they are below the rank of Major or Sergeant, when they complete 15 years of continuous eligible service (see paragraphs G3.75-82). An employment category is only declared a specified category if:

  1. there are structural impediments to members being promoted to the rank of Major or Sergeant, by the time they complete 15 years of continuous eligible service;

  2. the category is considered to be of significant importance to the ADF; and

  3. the category has skill and training requirements which are specific to the Defence function.

G3.60 A member of a specified category becomes an eligible member on the day the Ministerial declaration is gazetted, or the day the member completes 15 years of continuous eligible service, whichever is the later. The benefit computation day for a specified category eligible member is the day the member completes 15 years of continuous eligible service.

Further service

G3.61 Undertaking for further service. An eligible member accepting the benefit must undertake to serve in an arm of the Permanent Forces until the member completes 20 years of continuous eligible service. In normal circumstances, this undertaking for further service will be a period of five years of continuous eligible service. The exceptions are:

  1. if a member's benefit computation day occurs after the member has completed 15 years of continuous eligible service, in which case the undertaking for further service will be the period between the benefit computation day and the day the member is expected to complete 20 years of continuous eligible service; and

  2. if an eligible member's statutory retirement age will be reached before the member can complete 20 years of continuous eligible service, in which case the undertaking for further service will be the period between the benefit computation day and the day the statutory retirement age for the member's rank will be reached.

G3.62 The undertaking for further service must be documented on the Form AB867 – Military superannuation and benefits scheme retention benefit election, Part B – Undertaking for further service and Part C – Explanatory notes. This form must be completed at the time the member elects to receive the benefit.

G3.63 The undertaking for further service may be subject to the effect of a return of service obligation (see paragraph G3.66).

G3.64 If the member leaves the ADF voluntarily or is discharged for disciplinary reasons before completing the undertaking for further service, the member is required to repay a part of the benefit. The amount to be repaid will be proportional to the length of the undertaking for further service outstanding at the time the member leaves the ADF (refer Part 6, paragraph G2.185). If the member dies, is discharged on invalidity grounds, is subject to Service initiated early retirement, or is made redundant during the undertaking for further service, no repayment of the benefit is required.

G3.65 A return of service obligation and an undertaking for further service are to be served consecutively, the return of service obligation first. If a member is under a return of service obligation at the time the benefit is approved, the member is still eligible to receive the benefit but the undertaking for further service will not commence until the current return of service obligation period has been completed. If the member incurs a return of service obligation during the undertaking for further service, the undertaking for further service is suspended until the return of service obligation is completed at which time the remainder of the undertaking for further service must be completed.

G3.66 Notwithstanding the above, a member with a service commitment associated with payment of the pilot retention bonus or the air traffic controller retention bonus is eligible for the Military Superannuation and Benefits Scheme retention benefit. The periods of undertaking for further service and service commitment are to be served consecutively, with the undertaking for further service being served first.

G3.67 The Permanent Force (tri-Service) pay manual contains instructions on Military Superannuation and Benefits scheme and retention benefit – reporting procedures, describing the process for recording the 'due date' on the ADF pay system. The due date is the date the undertaking for further service will be completed. If a member has incurred a return of service obligation having already received the benefit, the due date must be re-calculated and amended on the pay system by the pay representative, to accommodate the suspension of the undertaking for further service for the period of the return of service obligation.

G3.68 If a member is under a return of service obligation on the benefit computation day, and the member will reach statutory retirement age before completing the undertaking for further service, the member will only be paid the proportion of the benefit equal to the period of undertaking for further service that can be completed before statutory retirement age is reached.

Example: A 42 year old member (with a statutory retirement age of 47) is eligible to receive the benefit after 15 years effective service. The member is under a return of service obligation at the 15 year mark and will not complete the return of service obligation until the 16 and a half year mark. The member is therefore only entitled to three and a half years worth of the benefit. The benefit is payable at the 15 year mark.

Calculation of length of service

G3.69 Members who have had previous service and have purchased that service for Defence Force Retirement and Death Benefits (DFRDB) scheme pension purposes will only have that service counted for the Military Superannuation and Benefits Scheme superannuation benefit. Previous service which has been purchased is not included when calculating a member's eligible service for retention benefit purposes.

G3.70 Members who took leave without pay when they were members of the Defence Force Retirement and Death Benefits (DFRDB) scheme will not lose continuity of service to count towards the benefit. A member's continuous effective service for Defence Force Retirement and Death Benefits (DFRDB) scheme purposes will be added to calculate the period of eligible service for the benefit.

Example: A member enlisted on 30 May 1976 and took leave without pay from 16 June 1980 to 15 January 1981. The member's continuous effective service is:

30 May 1976 to 15 June 1980 – four years 17 days.

PLUS

16 January 1981 to 30 September 1991 – 10 years eight months 15 days.

Total continuous effective service is 14 years nine months two days.

G3.71 However, a member who takes leave without pay for a period which exceeds 21 days, can elect to contribute to the Military Superannuation and Benefits Scheme (MSBS) for the whole of that period. Approval of the Military Superannuation and Benefits Scheme board of trustees is required in circumstances described in sub-paragraphs b, c and d, below. The member will then accrue an employer benefit at the same time for a designated part of that period – that period of contributory leave without pay which also counts towards the accrual of the employer benefit is eligible service for the purposes of the benefit. Circumstances where a member may elect to contribute are:

  1. in connection with the birth of a child of the member, termination of the pregnancy of the member, or the adoption of a child – eligible service for the benefit may not exceed nine months;

  2. engagement in approved full-time employment if the organisation concerned agreed to fully meet the employer contributions – eligible service for the benefit is the period that the employer continues to meet the employer contributions;

  3. undertaking further education, or training, or some other activity relevant to the needs of the ADF – eligible service for the benefit may not exceed 12 months; and

  4. physical or mental incapability – eligible service for the benefit may not exceed 12 months.

G3.72 Any of the periods of contributory leave without pay described above, which exceed the limits for being treated as eligible service for the benefit, but are not more than two years, will not break continuity of service. In addition, continuity will not be broken if:

  1. the leave without pay extends beyond two years but is not more than four years; and

  2. the member has contributed for any period of two years within that period of leave without pay.

G3.73 If a member is obliged to take leave without pay:

  1. for compassionate reasons; or

  2. in order to relocate with his or her Service spouse to a location where the member cannot be employed,

the member can elect to make contributions to the Military Superannuation and Benefits Scheme (MSBS) for up to two years, but would not accrue an employer benefit during that time. If a member in this position does elect to contribute, the period of contributory service will maintain continuity of service but will not be eligible service for benefit purposes.

G3.74 If a member elects not to contribute while on leave without pay in any of the circumstances described above, the member's continuity of service is broken.

Specified categories

G3.75 Specified categories are employment categories in which members who have completed 15 years of continuous eligible service can be of a rank below Major or Sergeant, and be an eligible member for the purposes of the benefit, if they meet the relevant promotion eligibility criteria. An employment category must be declared a specified category by the Minister for Defence or the Minister Assisting the Minister for Defence under paragraph (f) of the definition of eligible member in Part 8 of the Military Superannuation and Benefits Act 1991.

G3.76 Each Service is to annually determine those employment categories that will be recommended for specified category status. This may lead to the creation of a new specified category or the removal of an existing specified category because that employment category no longer meets the eligibility criteria. Director Personnel Policy Reform seeks annual submissions from the Services and prepares a consolidated submission for Ministerial approval.

G3.78 In order to be granted specified category status, an employment category must exhibit clear structural impediments to its members being promoted to Major or Sergeant, before they achieve 15 years of service. All the criteria must be met if an employment category is to be considered worthy of specified category status. The criteria are:

  1. due to a hierarchical structure, members do not have the same opportunity for promotion to the required rank of Major or Sergeant, by the 15-year point when compared to the average for their Service;

  2. members would normally have been promoted to Major or Sergeant, if the category structure allowed; and

  3. members possess skills and training which are specific to the Defence function.

  4. Note: A declaration of a specified category will apply only to members of the rank of Captain, or Corporal, within that category.

G3.79 Aside from specifically addressing each of the above criteria, Service submissions are required to include the following information to assist in appraising the merits of the nominations:

  1. the normal career path from entry to exit including the minimum time in each rank, for example:

  2. Private
    3 Yrs
    Corporal
    5 Yrs
    Sergeant
    7 Yrs
    Warrant Officer
  3. the authorised establishment strength pyramid;

  4. all training requirements required for promotion to the designated ranks of Major or Sergeant;

  5. the number of members who are qualified for promotion but not promoted due to the lack of opportunity within the employment category; and

  6. justification for retention reasons, specifying the importance of the specified categories to Defence.

G3.80 The Minister has approved a specified category, called the inter-employment category, which caters specifically for members who have been prevented from being promoted after being forced to transfer to another employment category. Inclusion of members in this category, will be subject to the following conditions:

  1. that the member has been transferred from one employment category to another in response to a demand from the Service;

  2. that the member holds the rank of Captain or Corporal;

  3. that the member would normally be qualified for promotion to Major or Sergeant;

  4. but for the transfer, the member would have been promoted to Major or Sergeant, by the 15-year point; and

  5. retention of the member is to the benefit of the respective Service.

G3.81 Inter-employment category members (who are declared by name) will be notified by Staff Officer Military Super Benefits Scheme, and should then make an election to receive the benefit in the normal manner.

G3.82 If a Service is of the opinion that a specified category no longer meets the criteria, they may seek to have the Minister make a declaration deleting it as a specified category. Proposals to delete a specified category should be made to Staff Officer Military Super Benefits Scheme, for consolidation with proposals to declare new specified categories.

G3.83 When a specified category is deleted, members in that employment category who have already received the benefit will not be required to repay it. Those who were eligible to receive the benefit at the time the deletion took effect (ie. they had completed 15 years of continuous eligible service before the date of effect), will still be paid the benefit.

The specified categories are in Annex 3.5.A.

Administration

G3.84 The administration of the benefit is vested in SO MSBS. Members are required to elect to receive the benefit by completing Form AB867. Members with approximately 14 years service should seek confirmation of their continuous eligible service and possible eligibility for the benefit from their relevant administrative support staff.

G3.85 The recommending authority is the applicant's Commanding Officer, or any officer nominated by the Commanding Officer not below the rank of Captain.

G3.86 Administrative support staff should send the AB867 application to ADF.Delegations@defence.gov.au.

G3.87 Interest on a delayed benefit payment is payable only:

  1. when a member is initially found to be medically unfit for duty but subsequently found to be fit to resume duty; and

  2. if a member was subject to an order that the benefit not be paid because of disciplinary proceedings and that order is subsequently revoked.

G3.88 Payment procedures are contained in the current pay accounting instructions. The formula for calculating the amount of interest payable, as determined by the Minister, is as follows:

RB   x   L   x   (D ÷ 365)

where:

RB means the amount of benefit payable to the member exclusive of any interest payable;

L means the long term bond rate(s) applicable; and

D means the number of days from and including the benefit computation day to the end of the day preceding the day the benefit is paid.

G3.89 An eligible member must be certified medically fit to continue to serve, to be eligible to receive the benefit. Members who were initially not certified fit but subsequently deemed fit for further service will retain their initial benefit computation day. If that benefit computation day had passed when the member was declared fit for further service, the member will be entitled to interest on the benefit in accordance with the above formula.

G3.90 If a member has been charged, or is standing trial on a charge of a service or civil court offence and the Service Chief or delegate believes on reasonable grounds that, if the member is convicted of the offence, the member's service is likely to be terminated, the Service Chief or delegate can order that payment of the benefit not be made. If the charge is subsequently not proceeded with or dismissed or the member is acquitted, the order is revoked and payment can be made. If the member's benefit computation day had passed when the order was revoked the member will be entitled to interest on the benefit in accordance with the above formula.

Benefit payment

G3.91 Payment of the benefit will be processed by the Defence Force Pay Accounting Centre, following direct authorisation from SO MSBS. The payment will be made in the member's normal mode of pay.

G3.92 The benefit is treated as if it were normal income for taxation purposes. The benefit is paid as a lump sum in conjunction with a normal fortnightly salary payment and the tax is deducted on the basis of the gross amount on that payday.

G3.93 Due to the significant increase in taxable earnings, members may be undertaxed and therefore may incur a tax liability at the end of the financial year. Members may also incur a superannuation surcharge for the year in which the benefit is paid. The surcharge is calculated by ComSuper and reported to the Australian Taxation Office annually.

G3.94 Receipt of the benefit could impact on other Government benefits. Members are advised to check with their local Centrelink office for advice on this matter.

G3.95 The benefit must be repaid if a member, before completing their undertaking for further service:

  1. has resigned or been discharged on request; or

  2. has been reduced in rank below Major or Sergeant, (for any reason) and as a result is no longer an eligible person as defined in the Military Superannuation and Benefits Act 1991; or

  3. has been:

    1. dismissed by a service tribunal for an offence under Part III of the Defence Force Discipline Act 1982;

    2. discharged under paragraph 115(1)(da) of the Air Force Regulations;

    3. discharged under paragraph 176(1)(q) of the Australian Military Regulations; or

    4. discharged under paragraph38(1)(h) of the Naval Forces Regulations.

G3.96 The amount to be repaid will be the proportion of the benefit which equates to the proportion of the undertaking for further service which was not completed at the time of reduction in rank, discharge or resignation. The amount to be repaid is calculated using the following formula which is prescribed in the Military Superannuation and Benefits Act 1991:

B   x    ((PPS – QPS) ÷ PPS)

where:

B is the gross (pre-tax) amount of the benefit which was paid to the member;

PPS is the number of days in the member's undertaking for further service;

QPS is the number of days in the member's undertaking for further service which have been served at the time of discharge or resignation.

Example: A Sergeant receives the benefit at the 15 year point. After serving for a further 18 months, the member is reduced to Corporal. As the member then becomes an ineligible member under the Military Superannuation and Benefits Act 1991, the member is required to repay approximately 7/10 or 3 ½ years' worth of the benefit.

G3.97 When a member is required to repay a proportion of the benefit, the Defence Force Pay Accounting Centre is to assess the amount to be repaid. Repayment procedures for serving and discharged members are contained in the Permanent Force (tri-Service) Pay Manual, which details the Military Superannuation and Benefits Scheme retention benefit reporting procedures.

G3.98 To be repaid is a proportion of the gross (pre-taxed) amount of the benefit. The fact that tax was deducted through the pay system at the time the benefit was paid to the member is irrelevant when determining the amount to be recovered.

G3.99 The member should be advised that it is possible to request an amended assessment from the Australian Taxation Office for the year in which that income was originally included in the member's tax return (1996-97 and later years of income). The payment of the retention benefit would not be allowable as a tax deduction in the year that it is repaid.

G3.100 The benefit is only ever payable once. Members who are reduced below the rank of Major or Sergeant, and who repay the proportion of the benefit, cannot reapply for the benefit if they are subsequently promoted to the substantive rank of Major or Sergeant. Members who are incorrectly paid the benefit and then repay it are not precluded from applying for the benefit again if they later satisfy the eligibility requirements.

Application to Reservists: No.



Forms

Copies of forms are available on the webforms system or through the Defence Service Centre.

  • AB867, MSBS Retention Benefit election

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