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How does the Military Superannuation and Benefits Scheme (MSBS) Work?

This article provides general advice only and does not consider your personal objectives and financial situation. Before acting on any advice and taking into account your financial needs, you may wish to consult with a licensed financial adviser. Consider getting a copy of the relevant Product Disclosure Statement and consider it carefully before making any decisions. 

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The Military Superannuation and Benefits Scheme (MSBS), also known as MilitarySuper, was initially established for qualifying Australian Defence Force (ADF) members. It officially launched on 1 October 1991 and ceased accepting new members as of 30 June 2016. 

Despite no longer enrolling new participants, MSBS remains operational, actively investing to safeguard the financial future of its members. A successor, ADF Super, has been introduced and is available for members of the ADF who joined after 30 June 2016. 

Who is MSBS for?

MSBS is a superannuation fund for members of the ADF. The Commonwealth Superannuation Corporation (CSC) manages the fund and other superannuation schemes for government employees.

MSBS offers competitive fees and investment options. It is one of the last defined benefit superannuation funds in Australia to stop accepting new members.

How is my MSBS super balance calculated?

Your MSBS super balance is a hybrid fund and contains three main benefits:

  • Member Benefit
  • Ancillary Benefit
  • Employer Benefit

While your Member and Ancillary Benefit balances are based on contributions and investment earnings, the Employer Benefit is a calculated value, which will be discussed further on. 

What does hybrid fund mean?

The hybrid fund structure of MSBS offers both accumulation and defined benefits. The Member and Ancillary Benefit (if applicable) accrues through fund contributions and investment earnings. This is the accumulation part. The Employer Benefit is based on a set formula of the member’s service period and final average salary.

Explanation of the three types of benefits 

The three different benefits that make up MSBS have specific conditions around how their value is calculated and contributed to. 

Member Benefit

ADF members in MSBS must contribute between 5 and 10% of their super salary towards their superannuation until they reach their Maximum Benefit Level (MBL). This makes up the Member Benefit. 

Your super salary refers to the total yearly pay you receive, considering your rank, increment level, and pay group. This amount encompasses the yearly rate of any allowances you are entitled to.

Member Benefit contributions are deducted directly from your pay. The nominated rate must be a whole percentage or it will default to the basic contribution rate of 5 percent of the super salary. 

Once you have reached your MBL, you aren’t entitled to make any further member contributions unless you discharge and re-join the ADF. 

Ancillary Benefit 

Ancillary contributions can also be made to your MSBS fund. This includes salary sacrifice, spouse contributions, transfer amounts and personal contributions. These contributions will form your Ancillary Benefit. Your Ancillary Benefit includes government or ADF contributions or rollovers that cannot be paid into your Member or Employer Benefits.

Employer Benefit 

The Employer Benefit is calculated based on a formula. Your Final Average Salary (FAS) is multiplied by your Employer Benefit Multiple (EBM) to determine your Employer Benefit. 

Your FAS is calculated based on the last 1,095 days of service. The FAS calculation is based on your total service if you have served for a shorter period. 

Your EBM starts at zero when you join the ADF, and is calculated as follows:

  • First seven years of service: EBM increases by 0.18 per year
  • Years 8 to 20 of service: EBM increases by 0.23 per year
  • Years 21+ of service: EBM increases by 0.28 per year

What about productivity contributions?

The ADF usually pays productivity contributions at 3% of your super salary until a member reaches their MBL or unless they stop contributing earlier. These contributions grow under the default balanced investment option. This forms part of your Employer Benefit, the total value of the Employer Benefit is calculated based on the formula described above. 

How much will I be paid when I retire?

The amount a member will receive from MSBS upon retirement is dependent on factors such as their length of service, level of contributions and investment earnings. 

Your Member and Ancillary Benefit must be taken as a lump sum. The employer Benefit can be a pension or lump sum. 

There may be cashing restrictions on a lump sum, meaning some of the money may not be able to be paid as cash all at once, and may have to be rolled over to the next year.

In addition, you cannot withdraw your Employer Benefit as a lump sum until you reach your preservation age, which will be explained further on. 

The annual pension entitlement calculation involves dividing your employer Benefit amount you want to convert to a pension by your pension conversion factor. Your pension conversion factor is based on the age at which you claim your benefit. 

The pension conversion factor is calculated based on your age below: 

Age  Pension Conversion Factor
55 12 
56 11.8 
57 11.6 
58 11.4 
59 11.2 
60 11 
61 10.8 
62

10.6 

63 10.4 
64 10.2 
65+ 10

The pension conversion factor is prorated between your last and next birthdays. 

Reaching your preservation age

The term ‘preservation age’ refers to the age at which a retired member can access their preserved superannuation. This age varies according to the member’s date of birth. For instance, under the MSBS, a person can access a pension-only benefit at age 55, but the option to receive a lump sum only becomes available after the person reaches their preservation age.

Here are the preservation ages based on the date of birth:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 1 July 1964 60

When a member reaches their preservation age, it means they are eligible to access their superannuation benefits either as a lump sum or continue with a pension. It is important to note that annual reviews should be completed from age 55 and thereafter until the person’s entitlement has been paid or rolled over.

When can I access my super?

You are eligible to fully access your superannuation once you’ve reached your preservation age and have retired from the ADF.

However, your employer benefit can be converted into a pension at or after the age of 55, as long as you have left the ADF. This benefit is not tied to the standard retirement conditions and does not rely on you reaching your preservation age.

If you wish to withdraw your super, you must complete your application within three months of your retirement or discharge date. The standard processing time is between 10 and 15 days. Remember that payment can only be made to an Australian bank account, and your name must be on the nominated account, even if it is a joint account. 

You can also choose to preserve your whole benefit in MSBS. This means you can maintain the defined and accumulation benefits of the fund, even if you are outside the ADF. While your benefit is preserved, your Member and Ancillary Benefits will accrue investment earnings. 

The Employer Benefit is annually adjusted to keep up with increases in the Consumer Price Index (CPI). But it is important to note that you must claim this preserved benefit by 65. 

If you decide to leave the ADF, your access will depend on how you exit. Otherwise, it will remain preserved in the fund until you meet a condition for release. 

Can I access my super before I’m 55?

There are many financial considerations if you leave the ADF. Generally speaking, MSBS works like any other super fund where you cannot withdraw your money before you reach your preservation age unless there are exceptional circumstances or medical reasons. You’re also only able to access your employer benefit as a pension if you turn 55, but have not yet reached your preservation age. 

The Member Benefit consists of the member’s contributions and investment earnings. Members can access the part of this benefit that accrued before 1 July  1999. The remaining balance is compulsorily preserved in their superannuation account until the member reaches their preservation age.

If you wish, you can transfer your Member and Ancillary Benefit to another super fund if you are transitioning from the ADF into the civilian workforce. 

What happens if I discharge for medical reasons?

If you are discharged for medical reasons, you may be able to take your super as a pension under certain circumstances. This is called an invalidity pension and is classified as either Class A or B

A Class A invalidity means you are at 60% or more incapacity, while Class B refers to 30% or more incapacity but less than 60%. Class C invalidity refers to less than 30% incapacity and is often the same as non-medical discharge. 

The Class A pension is based on the value of the employer benefit you would have had if you had stayed in service until age 60. 

A Class B pension is either half the Class A rate or the Invalidity Benefit calculated on your actual service up to the time of discharge, whichever is greater. 

What is the Maximum Benefit Limit?

MSBS sets boundaries on the total benefit you can accumulate (excluding your Ancillary Benefit). MSBS has two Maximum Benefit Limits (MBLs)  – the pension MBL and lump sum MBL.  The lump sum MBL is lower than the pension MBL. 

When your MSBS super balance reaches the lump sum MBL, you can cease making contributions to your Member Benefit from your fortnightly pay. 

Once your MSBS super balance has reached the pension MBL you will not be able to continue making member contributions. 

If you discontinue member contributions, the productivity contributions made by Defence also cease.

The lump sum and pension MBLs are calculated based on your Final Average Salary. 

How is my money invested? 

MSBS invests the fund in five broad categories: cash, shares in companies, property,  infrastructure and government bonds. 

Members can choose four investment options – cash, income-focussed, balanced and aggressive. Remember, you can only invest your Member Benefit and Ancillary Benefit in one or more options. 

If you don’t choose an investment option, your super is invested in the default balanced option. Again, remember that your investment choice is only applicable to your Member and Ancillary Benefits. 

Does MSBS include life insurance?

MSBS provides partial and full invalidity and death benefits for members of the ADF. This means that members who cannot continue their service due to a death or disability will get benefits. ADF members may be retired due to invalidity if they cannot perform their duties. The invalidity benefit received will be based on their incapacity for civilian employment in the future. As such, those who are severely incapacitated will receive a greater invalidity benefit than a regular retiree of a similar rank. 

Death benefits will vary based on whether you die in service as a contributing member, a pensioner or if you leave the ADF before you receive your employer benefit. This benefit is usually paid to an eligible spouse, children or legal personal representative. 

Speak to a veteran financial adviser to secure your future

The Military Superannuation and Benefits Scheme (MSBS) provides a variety of benefits to ADF members, including a lump sum payment and pension based on your Final Average Salary. However, it is important to have a plan in place for your future retirement and any potential unexpected events. That’s where we can help.

At National Service Financial, our team of experienced veteran financial advisers understand the unique challenges faced by ADF members. We can work with you to develop a tailored financial plan that takes into account your MSBS benefits and helps you achieve your long-term goals.

Don’t leave your financial future to chance. Contact one of our financial advisers today to secure your future and ensure that you and your loved ones are financially protected.