Preserve or not to preserve
We often get clients asking whether they should preserve their defined benefit super (including the CSS, PSSap and Military super scheme members) or not if they have been offered a voluntary redundancy. Should the take a PSS redundancy pension or lump sum?
So why is the PSS so special?
Why is it so important to consider the different options to preserve or not preserve the benefit on redundancy? Should you take the pension or not?
The Commonwealth Super Scheme (CSS), the PSS’s predecessor, was closed to new members in 1990 when the PSS opened. The PSS has been closed to new members since 2005. It was replaced by the PSSap which is an accumulation fund. The PSSap does not have many of the attractive PSS benefits. The thing about the PSS is that many members do not realise that they are sitting on a superannuation gold mine. The PSS and the CSS are generally perceived to be the most generous superannuation plans in this country.
What is the benefit of the PSS?
The PSS is very different to the usual superannuation plans that the majority of the Australian public can be members of. For example, on redundancy, regardless of how old you are, you are likely to be entitled to a very attractive benefit. You may be entitled to a CPI indexed pension that is paid to you for the rest of your life (and possibly your spouses’ life too).
You cant initially see the value of a PSS benefit by referring to your member statement. This is in contrast to an accumulation style account, where you can see the value of the benefit by looking at your member statement. Accumulation superannuation members will need to purchase an account based pension from the benefit they have accumulated in their superannuation account over their working life. That will cease when their account balance reduces to zero, and they cannot access a pension or lump sum until they actually retire.
PSS Redundancy benefit
If you’re taking a redundancy and you are in the PSS, it may not be in your best interests to take the pension now. It may be in your best interest to preserve your PSS benefit – or even elect a different option. When considering which option is best for you, tax and Centrelink benefits need to be considered too.
That’s why if you’re being made redundant and you are a PSS member it’s vital that you receive accurate advice from someone who actually knows that they are talking about. Milestone Financial can also provide advice regarding other Commonwealth superannuation schemes such as the military schemes, the CSS and the PSSap.
Key things to keep in mind when choosing which PSS option to take
Firstly, can you afford to take the redundancy? In the short term, the money may seem attractive. But what would happen if you find it really difficult to find employment again? If you are still considering whether to accept a redundancy, Milestone can help you weigh up the pros and cons.
Will you join the public service again?
If you do join the public service again, you may be able to rejoin the PSS. Or you could join an accumulation fund – each option has its advantages and disadvantages
How will you invest your PSS redundancy benefit
If you claim a pension or lump sum now, how should you invest this to maximise your cashflow and wealth?
Redundancy severance payouts and PSS (and CSS) withdrawals attract tax. This includes the PSS pension (even after age 60), which may boost your taxable and assessable income. How do you intend to minimise the amount of tax payable by you?
How will the benefit be assessed by Centrelink if you are entitled to Centrelink entitlements now or in the future?
Your financial situation, lifestyle, liabilities and needs
You cannot continue to contribute to the PSS (CSS or PSSap) from private sector employment when you leave public service employment. In addition, a preserved PSS (CSS) benefit has restrictions on rolling to another fund. So which private sector superannuation fund is best for you to join now?
What about insurance?
The PSS provides generous Life and invalidity cover which will automatically cease once you leave public service employment. So what can you do to ensure you have adequate levels of insurance if you were to die prematurely, become disabled or seriously ill?
You will have many questions and a lot of uncertainty before you decide what is the right course of action for you. Contact Milestone Financial’s experienced planners who can help you with all of your questions.