Submission to the Review of Indexation Arrangements in Australian ...

salary. From 1 July 2008, a member can elect to make no member contributions.
Member contributions are paid into the PSS Fund and accumulate with fund earnings.
Employer productivity contributions of around 3% of superannuation salary are paid
into the PSS Fund and accumulate with fund earnings. The balance of the member’s
employer financed benefit is unfunded; that is, it is not funded until the member’s
benefit becomes payable.
A PSS benefit accrues as a fully defined lump sum benefit. It is calculated by
multiplying the member’s benefit multiple by his or her final average salary (FAS). 7
FAS is generally the average of a member’s salary for superannuation on the three
birthdays preceding exit. A member’s benefit multiple depends on the rate of member
contribution they make. The rate of accrual is generally as follows:
Table 1: PSS accrual rates
Member
Contribution
Rate
Employer
Benefit
Accrual
Total
Benefit
Accrual
Member
Contribution
Rate
Employer
Benefit
Accrual 8
0% 11% .11 6% 17% .23
2% 13% .15 7% 18% .25
3% 14% .17 8% 19% .27
4% 15% .19 9% 20% .29
5% 16% .21 10% 21% .31
Source: PSS Trust Deed and Rules
Total
Benefit
Accrual
For example, a person who contributed for 30 years at 5% of salary and whose final
average salary on retirement was $50,000, would have a benefit multiple of 6.3, that
is, 30 * .21. The lump sum benefit would be $315,000, that is, 6.3 * $50,000.
Retirement benefits in the PSS can be taken as either:
A full lump sum benefit.
A lifetime CPI indexed pension (calculated by dividing the lump sum benefit by a
pension age factor).
A combination of CPI indexed pension and lump sum. At least 50% of the lump
sum benefit must be taken as a pension.
7 The total benefit is subject to a maximum benefit limit, which is typically 10 times final average salary.
8 The rate of accrual is also subject to a ten year rule. That is, for a ten year period of membership in the PSS – not
necessarily a continuous period or the first ten years – the maximum employer benefit accrual is based on an
average member contribution rate of 5%per annum, regardless of whether actual member contributions are above
that amount.
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