Defined benefit plan: what does retirement look like for you?

Amelia Stephenson27 March 2018
 Old couple are watching the sunset on the beach.

A few small changes to how you manage your super contributions can leave you far better off when you reach retirement.

Most people adopt a ‘set and forget’ approach to managing their super, but if you’re a Public Sector Superannuation Scheme (PSS) or Commonwealth Superannuation Scheme (CSS) super fund holder, there are a few changes you need to be aware of.

On 1 July 2017, a reduction in contribution limits came into effect along with the introduction of the Total Superannuation Balance Cap, which may restrict the amount members can contribute to their fund.

To demystify what the new changes mean for defined benefit super (DBS) plan holders, I caught up with Financial Planners, Chris Oates and Lindsay Walker, from RSM Financial Services in Canberra to find out more.

Thanks for taking the time to catch up with me. Firstly, can you tell me what the key changes for DBS holders are?

The key things DBS holders need to be aware of are the changes to contribution limits and the introduction of a Total Superannuation Balance Cap.

There has been a reduction in contribution limits for the 2017/18 financial year, with the limit for concessional contributions reducing from $35,000 to $25,000 and the limit for non-concessional contributions reducing from $180,000 to $100,000. A Total Superannuation Balance Cap of $1.6 million was also introduced where it didn’t previously exist.

Chris, you specialise specifically in Defined Benefit Superannuation planning. What would be your number one piece of advice for DBS plan holders?

When people ask me what they should be doing with their defined benefit scheme, I always tell them there is a reason these schemes are closed to new members and they need to plan ahead to maximise their benefits. It will make all the difference at the other end (retirement).

What are the things your clients most often say they want when nearing retirement?

Flexibility. People want to be able to do what they want, when they want. The most common request is whether they can afford overseas travel. Making sure you are doing everything you can and making the most of your money in the lead up to retirement has the potential to make your retirement more fulfilling.

What do you picture yourself doing when you reach retirement?

Having lived in Canberra for a number of years now, I can imagine myself spending quite a bit of time on the South Coast. What I do now will make the difference of whether I will own a yacht or a dingy. Being able to travel when and where I want would be a real luxury as well.

I’m told the CSS, PSS and the ATO recently sent out notices to selected DBS plan holders about the changes. What were these about?

These were warning letters which were sent to a number of CSS and PSS members to let them know they’re either at risk of exceeding their contribution limits, or their total superannuation balance is going to exceed the new balance cap. They were used to notify members that they may need to cease or reduce contributions, or there could be significant impacts on the accumulation of benefits within their respective schemes.

Are there any catches people need to be aware of when considering the new thresholds?

There are a few areas where contributing members have been getting caught out because of the recent changes.

The first is that PSS and CSS members previously only had a relatively small amount that would count towards the concessional contributions cap. This was an amount called the productivity component, which is paid by their employer. Since the changes have come in, an increased amount counts towards the annual limits. The amount that is counted is based on a formula which is quite complex and causing confusion. We’re finding that a lot of people are unaware that they are contributing too much.

The second catch members need to be aware of is that only their account balance appears on their annual statements from CSS and PSS, however, when applying the new $1.6 million total superannuation balance limit, the actual amount is generally higher than the amount recorded on their statement. If a member has money in another super fund, then these amounts also count towards the limit. If people are impacted by this new limit then they may not be able to continue paying money into CSS and PSS which will have a significant impact on how their fund grows.

If you’re nearing retirement, isn’t it too late to change your superannuation arrangements to account for the changes?

One of the most important times for CSS and PSS members to seek financial advice is as they are approaching retirement. If you exceed your contribution limits you will pay extra tax and if you’re trying to save as much money as possible for your retirement, you won’t want any extra unnecessary costs such as excess contributions tax.

There are also a range of options when it comes to pension and lump sum payments. You only get one go at deciding how to claim your benefit, so you want to get it right the first time—this is where seeking some financial advice will be the most valuable.

If you have any other investments, the most important time to make sure you have a diverse portfolio is the period before and after you retire. This is the worst time for your retirement savings to be impacted by a market downturn, so if you’re not prepared and the value of your portfolio goes down at the wrong time, you’ll end up playing catch-up for your whole retirement.

Given Canberra is the Public Service capital, I’m sure there are plenty of DBS plan holders that could benefit from some of your expert advice. What kind of solutions have you developed for your other DBS clients?

With the recent changes, we’ve been able to help our clients by reviewing their retirement savings strategies to ensure they’re not exceeding their CSS and PSS contribution limits.

We’ve been helping them calculate the amounts that are counting towards their limits to determine the optimal amount to salary sacrifice into another superannuation fund.

Recently, a client came to us after receiving a letter stating they will exceed their concessional contribution limit. They thought they had made the necessary changes to compensate for the new rules, so the letter came as a surprise. An extra layer of confusion came from the last pay period for the 2016/17 financial year (on 29th June) with their last salary sacrifice payment being paid in the next financial year, which will impact the amount they can contribute this year. We helped them calculate the amount that PSS were counting towards the contributions limit and adjusted their salary sacrifice contributions to ensure they achieve the best possible outcome.

How can DBS holders contact you if they want help with their superannuation?

It’s as easy as picking up the phone or emailing one of us.

We’re also hosting a seminar in Deakin on Tuesday 20 March 2018, where we’ll provide more information on the issues discussed in this article. Go to for more details and to register.

Chris Oates CFP® BCom DipFP is a CERTIFIED FINANCIAL PLANNER® with significant experience providing advice on superannuation, managed investments and retirement income streams. His deep knowledge of Commonwealth defined benefit superannuation schemes has helped enhance the lives of many public sector employees and their families, allowing them to achieve the best possible outcomes and giving them the freedom to enjoy the things they care about most.

Phone: (02) 6217 0335

Email: [email protected]

Lindsay Walker CFP® BEc (Hons) DipFP is a CERTIFIED FINANCIAL PLANNER® with over 30 years’ experience providing superannuation and retirement planning advice to Canberra public sector clients. His broad technical knowledge, including defined benefit superannuation, has enabled Lindsay to provide tailored solutions for his many long-term clients. This has enabled them to optimise their scheme benefits leading to a more fulfilling and stress-free retirement.

Phone: (02) 6217 0337

Email: [email protected]

Original Article published by Amelia Stephenson on The RiotACT.

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