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Military Superannuation and Benefits Scheme retention benefit

Purpose

  1. This factsheet describes the conditions applying to the retention benefit of the Military Superannuation and Benefits Scheme (MSBS).

Legal authority

  1. The legal authority for the retention benefit is Part 8 of the Military Superannuation and Benefits Act 1991 (MSB Act).

  2. Members who join on or after 6 October 2005 are not eligible for the MSBS retention benefit as Part 8 of the MSB Act was repealed by Schedule 4 of the Defence Legislation Amendment Act (No 1) 2005.

Definitions

  1. In this factsheet the following definitions apply.

  2. benefit means the retention benefit referred to in section 29 of Part 8 (repealed) of the MSB Act.

    benefit computation day has the following meaning.

    1. 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.

    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 meets the following.

      1. Continues to contribute to the MSBS in accordance with the Military Superannuation and Benefits Rules.

      2. Employer contributions are payable in respect of the member under the Rules.

      3. Where the special circumstances in subsection 31(4) of the MSB Act apply (see paragraph 26 for more detail), in relation to a period of leave without pay of a member, the following are taken to be one continous period pf service.

        • A period of service of the member immediately preceding that period of leave.

        • The period of service (if any) of the member immediately following that period of leave.

    4. During the non-working periods of a flexible service determination (ie: SERCAT 6) provided the member continues to contribute to the MSBS.

    5. Where a member ceases to be a member of the Permanent Forces and, immediately after ceasing, again becomes a member of the Permanent Forces.

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

    continuous effective service means effective service for Defence Force Retirement and Death Benefit (DFRDB) purposes, excluding repurchased service (see paragraph 23).

    eligible member means a member of the Permanent Forces and MSBS who is one of the following.

    1. An officer holding a srank 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.

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

    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 (specified categories – see paragraphs 26-31).

    eligible service means service which is eligible service for the MSBS. In the case of members who transfer to the Permanent Forces, effective service may include a period of continuous full time service performed immediately before the transfer.

    flexible service determination is a determination made under subsection 23(2) of the Defence Act 1903.

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

    salary, for the purposes of Part 8, in relation to a member of the Permanent Forces, includes any service allowance payable to the member but does not include any other allowance payable to the member.

    transferred member means a member who elected to transfer from the DFRDB scheme to the MSBS.

    trustee means a person who holds office as a trustee of the Board (being the Military Superannuation and Benefits board of trustees No. 1 established by section 18 of the MSB Act) and includes the Chairman.

The benefit

  1. 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 DFRDB scheme that encouraged a member to serve for 20 years.

  2. The benefit is an amount equal to a member's annual salary payable to the member on the benefit computation day. A pro-rata amount is payable if either of the following applies.

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

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

  3. 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 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 retirement age.

  4. The amount payable for a member on a flexible service determination (ie: SERCAT 6) on benefit computation day is based on the member's full-time salary.

Eligibility

  1. If an eligible member completes 15 years of continuous eligible service in the Permanent Forces, the member may be eligible to receive the benefit.

  2. An eligible member must elect to accept the benefit, within 90 days before becomming eligible to receive the benefit. The election must be made on form AB867 – MSBS Benefit Election.

  3. An eligible member who has elected to accept the benefit under subsection 32(1) of the MSB Act, can revoke the election at any time before the end of the 90 day period.

  4. 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 not eligible to receive the benefit. The exceptions to this are as follows.

    1. If the member is in an employment category which has been declared a specified category, including the inter-employment category (see paragraphs 15 and 26).

    2. If the member is an eligible member under paragraph b of the definition of eligible member.

  5. 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 – MSBS Benefit Election. A member who makes an election under subsection 32(2) of the MSB Act cannot then revoke the decision to accept the benefit.

  6. 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 16).

  7. 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 26-31). An employment category is only declared a specified category if all of the following apply.

    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.

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

  8. A member of a specified category becomes an eligible member on the day the Ministerial declaration is gazetted. The benefit computation day for a specified category eligible member is the day the member completes 15 years of continuous eligible service. A member of a specified category who is promoted to the rank of Captain or Corporal after completing 15 years continuous eligible service is not eligible for a pro-rata payment of the benefit.

Further service

  1. Undertaking for further service. An eligible member accepting the benefit must undertake to serve in 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 as follows.

    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.

    2. If an eligible member's 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 member will reach retirement age.

  2. The undertaking for further service must be documented on the form AB867 – MSBS 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.

  3. The nonworking period of a flexible service determination (ie. SERCAT 6) during the undertaking for further service is continuous eligible service provided the member continues to contribute to the MSBS.

  4. The undertaking for further service may be subject to the effect of a return of service obligation (see paragraph 20).

  5. A return of service obligation. 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 after they have accepted the retention benefit, it will not affect the member's period of prospective service.

  6. 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 MSBS 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.

  7. If a member is under a return of service obligation on the benefit computation day, and the member will reach retirement age before completing the undertaking for further service, they will only be paid a proportion of the benefit. The amount will be equal to the period of undertaking that can be served before reaching retirement age.

  8. Example: A 55 year old member (with a statutory retirement age of 60) 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 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

  1. Members who have had previous service and have purchased that service for DFRDB scheme pension purposes will only have that service counted for the MSBS superannuation benefit. Previous service which has been purchased is not included when calculating a member's eligible service for retention benefit purposes.

  2. Members who took leave without pay when they were members of the DFRDB scheme will not lose continuity of service to count towards the benefit. A member's continuous effective service for the DFRDB scheme purposes will be added to calculate the period of eligible service for the benefit.

  3. 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 as follows.

    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.

  4. For the purposes of the retention benefit and what will constitute continuity of service, the 'special circumstances' referred to in subsection 31(4) of the MSB Act, in relation to a period of leave without pay for a member, are as follows.

    1. Where all the following apply.

      1. The member has been on leave without pay for a period of more than 21 days but not more than two years

      2. The member has paid contributions in respect of that period in accordance with the Rules.

      3. Under the rules, employer contributions are not payable in respect of the member in respect of that period.

    2. Where all of the following apply.

      1. The member has been on leave without pay for a period of more than two years but not more than four years.

      2. In respect of any period of two years within that period the member has paid contributions in accordance with the Rules.

      3. Under the Rules, employer contributions are not payable in respect of the member in respect of that period.

    3. In the case of a transferred member – where the member was on leave without pay for a period of more than 21 days while they were an eligible member of the Defence Force for the purposes of the DFRDB Act.

Specified categories

  1. 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 MSB Act.

  2. 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 Military Conditions and Housing Policy seeks annual submissions from the Services and prepares a consolidated submission for Ministerial approval.

  3. 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 as follows.

    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.

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

  4. 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.

    2. Example
      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.

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

  5. 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. The member has been transferred from one employment category to another in response to a demand from the Service.

    2. The member holds the rank of Captain or Corporal.

    3. 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.

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

  6. 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.

Administration

  1. The administration of the benefit is vested in the Pay and Administration Centre – Victoria. Members are required to elect to receive the benefit by completing form AB867 – MSBS Benefit Election. 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.

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

  3. Completed applications should be sent to psc.msbs@defence.gov.au.

  4. Interest on a delayed benefit payment is payable only in the following circumstances.

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

    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.

  5. The formula for calculating the amount of interest payable, as determined by the Minister, is as follows.

  6. 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.

    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.

  7. 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 calculated using the above formula.

  8. 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 calculated using the above formula.

Benefit payment

  1. Payment of the benefit will be processed by the relevant Career Management Agency, following direct authorisation from the Pay and Administration Centre – Victoria. The payment will be made in the member's normal mode of pay.

  2. 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.

  3. Defence may seek partial repayment of the benefit if a member, before completing their undertaking for further service, meets any of the following.

    1. The member voluntarily requests a change to their period of service with the Defence Force.

    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 MSB Act.

    3. One of the following applies to the member.

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

      2. The member has been terminated under section 24 of the Defence Regulation 2016.

  4. 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 termination. The amount to be repaid is calculated using the following formula which is prescribed in the MSB Act.

  5. 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 termination.

    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 MSB Act, the member is required to repay approximately 7/10 or 3 ½ years' worth of the benefit.

  6. 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.


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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Further info

Contact

Defence Service Centre

1800 DEFENCE (1800 333 362)

YourCustomer.Service@defence.gov.au