Recent budget cuts across the Australian Public Service have lead to a significant number of public servants being presented with the opportunity to take a voluntary redundancy. While this is an easy decision for some employees, for many it is not always that simple.
Individuals who are in their final years of employment – with a full understanding of their retirement plans – may find the attractive redundancy packages and early access to their superannuation being offered a great opportunity to bring forward their retirement. The questions they are focussing on involve superannuation rules and tax effectively managing their cash flow in this new stage of their lives.
Whether retirement is just appearing on the horizon or it is nowhere in sight, a thorough review of their Commonwealth Superannuation Scheme (CSS) or Public Sector Superannuation Scheme (PSS) should be undertaken alongside their overall financial position.
Both of these funds are closed to new members, which should highlight the significant benefits they offer and the care to take in making a decision around these funds. While the rules allow members accepting a redundancy to start an indexed pension at any age (even before age 55), members need to review whether this is sufficient to compensate for the loss of future super growth and whether other employment opportunities exist. There are no second chances, once the scheme has been claimed upon there is no ability to return.
Of the two schemes, the concepts and strategies applicable to CSS members often take time to consider when you are making a decision. The main reason for this is the unique nature of the scheme which allows the choice between two calculation methods (Preservation or the Age Retirement option), when a redundancy occurs. In addition to the variety of pension and lump sum claim options, the complexity of the statements issued can lead to opportunities being lost.
An example we witnessed after the event was a 56 year old member who elected to claim his CSS benefit under the Age Retirement method and received an indexed pension of $46,000 per annum. However, with a thorough understanding of his claim options and knowledge of how the preservation method works, he would have been in a position to receive a far better indexed pension of $51,000 per annum. This difference of $5,000 per year equates to $100,000 over a 20 year period and would gradually increase each year as it grows with indexation.
With the generosity of defined benefit superannuation schemes rarely questioned and its ability to form the foundation for an individual’s retirement, the question of whether to seek advice from a qualified expert shouldn’t be a hard one.