Commonwealth Superannuation Scheme
Investment choice – what’s best for your future?
As a CSS member, your super benefit is made up of three parts:
- Your member component
- A productivity component
- An employer component
If you’re a contributing member of CSS, you can nominate for your member and productivity components to be invested into either the default growth style fund or the cash investment option. However, in the default fund your contributions will be exposed to the ups and downs of investment markets, so their value and your returns will fluctuate.
It’s important to remember that while the default fund is likely to out-perform the cash option over the long-term, you need to consider whether your money will have time to recover before you retire -- if markets fall. The cash investment option may provide lower returns over the long-term, but it might be suitable for you if you’re looking for capital stability and protection.
Of course, if you leave the fund as an age retiree, your CPI-indexed pension, which is based on the employer component of your benefits, won’t be affected by investment performance as it’s determined by a defined benefit formula.
How professional guidance could help
If you have a deferred CSS benefit, the value of your employer component (CPI-indexed pension), as well as the member and productivity components of your benefit, will be impacted by the fund’s earnings.
When you come to claim your deferred benefit, including those implementing a 54/11 option, your CPI-indexed pension (employer component) will be calculated at 2.5 times your basic contributions plus earnings, multiplied by a factor based on your age at the time you claim. As a result, any movement in the fund’s investment performance will impact your entire CSS benefit.
Which option to choose?
Deciding which investment option is right for you will depend on a number of factors such as:
- How you’re going to exit the scheme
- The level of risk you’re prepared to accept
- Your investment timeframe
- Your needs and objectives
Retirement decisions and the 54/11 option
If you’re a CSS member and approaching age 55, the 54/11 option may provide you with a better CSS benefit than under normal age retirement.
Generally, when you retire after reaching your retirement age (of 55) your employer component is converted to an indexed pension - calculated as a percentage of your final salary. The percentage is based on your age and years of contributory service.
The 54/11 option gives you the opportunity to resign prior to reaching age 55, preserving your benefit and claiming a deferred benefit after you reach 55. The employer component of your deferred benefit will be converted to an indexed pension using a different formula – 2.5 times your accumulated basic contributions plus earnings, multiplied by a pension factor based on your age at the time you claim.
Your circumstances and other options
In both cases (for example, with a deferred benefit or retirement benefit) at or after age 55, you’ll be able to take your member and productivity components as a lump sum (subject to preservation rules), or non-indexed pension if you’ve retired.
Depending on your circumstances it may be better to implement the 54/11 option in regards to your CSS benefit.
So should you resign prior to reaching age 55 and defer your benefit, or continue to work until age 55 or later and claim a normal age retirement benefit? The best option won’t be the same for everyone and will often depend on your years of contributory service and individual circumstances.
Concessional Contributions Cap for CSS Members
As a CSS member, there are special rules which apply to your super fund. One of these rules is that your personal contributions can only be made as after-tax contributions. As a result, only your employer contributions - which form part of the productivity component of your benefit - are counted towards your concessional (or pre-tax) contributions cap.
The employer contribution rates are calculated based on your fortnightly salary. The following rates apply from July 2015:
|$2,215.33 - $3,568.67||3% of salary|
|$3,568.67 - $5,353.00||$107.06|
|≥ $5,353.00||2% of salary|
Wait. There are a few more things to think about
If you are making any further pre-tax contributions (also known as salary sacrifice) to another super fund, you will need to keep the above amounts in mind, in order to stay below the concessional contributions cap.
For the 2015-2016 financial year the cap is $30,000, unless you were age 49 or older on 30 June 2015, in which case it is $35,000.
Can you relate to Joan’s situation?
Joan, age 55, is a CSS member earning $3,600 per fortnight. Her employer concessional contributions are $107.06 per fortnight or $2,783.56 per annum. Joan can therefore salary sacrifice up to $32,216.44 pa to another super fund in a tax effective manner.
Concessional Contribution Cap: $35,000.00 pa
Employer Contribution: $2,783.56 pa
Available Salary Sacrifice Contributions: $32,216.44 pa
Should Joan exceed her cap limit of $35,000 her excess contributions could be refunded and will be taxed at her marginal tax rate plus an interest charge.
See Building Your Wealth for more information on the concessional contributions cap.
At a time in your life when advice and direction is critical, it is essential to get the most accurate and helpful support possible.
It’s important you speak with your financial planning team at StatePlus to make sure you’re maximising the opportunities which come from being a CSS or PSS scheme member. Find out more by calling 1800 620 305 or send us an email.
The best decisions come from getting the right advice
Like many public sector schemes, the Commonwealth Superannuation Scheme is complex. StatePlus financial planners are experienced professionals who can help you make better decisions about the things that matter to you.
You can meet with one of our professional financial planners without cost or obligation. The fee you pay will reflect the advice you actually need and the level of service that you want.
So give your member services team a call on 1800 620 305 and speak to the experts who have an in-depth understanding of your CSS scheme choices, and what works best for you.
Visit one of our seminars to find out more about preparing for retirement.