Shifting jobs? The five things you need to consider
Changes to the traditional career path are opening up exciting opportunities for public servants to develop new skills and work experiences. But don’t forget your longer-term plans to provide financial security for yourself, your family, and your eventual retirement.
Here are five key things to consider if you’re changing jobs or planning future career moves …
If you are in a new-style accumulation fund such as PPSAP, changing jobs doesn’t have to affect your super. If your new employer cannot contribute to the fund, you can either leave your benefits to grow where they are or transfer them to the fund that your new employer will be contributing to — though care should be taken to protect existing insurance cover.
Defined benefit funds such as CSS and PSS are more complex. While both funds allow you to preserve your benefit if you leave the Commonwealth sector, you can’t continue to contribute. If you later return to the Commonwealth public service, you can recommence your defined benefit membership when you return.
However, there are differences between the schemes. The downside of leaving the APS is generally lower for CSS members who plan to exit under the 54/11 calculation method as a large part of your super will still be earning for your retirement. CSS members who planned to exit under the Age Retirement calculation method should be cautious as the difference in final entitlements could be large if they change jobs before age 55. With PSS, only a small portion or your benefits will be earning if you leave — the rest will be indexed to inflation.
With both schemes, if you kept your CSS or PSS preserved and did not access any components you can reactivate membership if you later return to the APS but your new salary will impact on the calculation of your benefit. This is an area where you should get good financial advice. In some cases, CSS members may improve their overall benefit by deferring their return to until after age 55 and making use of the 54/11 rule before they return.
PSS benefits are calculated on both your contribution rate and final average salary for the three years before retirement so considering the timing of your salary trajectory can help to maximise your benefit.
Depending on your position, your employer may be willing to give you leave without pay “in the public interest” to explore other professional opportunities while remaining a contributing member of the fund. This means the employer will continue to make contributions for you, and your benefit will continue to grow, but as there is a cost to the employer you will need to make a strong argument to remain under these terms.
Your total remuneration package includes your base salary, super and benefits such as a motor vehicle and other fringe benefits (including fringe benefits tax) where this is applicable. To get the most from your career move, it is critical to understand both how the total package value compares to what you’re getting now, and the value of each component.
While private enterprises tend to provide clear all-inclusive information on how packages are valued, public sector figures can sometimes be less clear-cut. Federal public servants in PSS and CSS, for example, may have larger employer super benefits than are accounted for in their total package, depending on their circumstances.
Bonus entitlements are not part of the total package value, so you need to establish how any bonuses will be calculated and your chances of receiving the full amount.
If you are leaving to set up as an independent consultant or contractor, consideration also needs to be given to issues such as your business structure and how benefits currently provided by your employer will be handled.
3. Leave entitlements
Public servants can easily build up substantial leave entitlements. How will these be treated if you want to change jobs? In some cases, it may be possible to transfer the entitlements across with you if you’re moving to another arm of government. Perhaps you can benefit from taking the entitlements. Accrued long service leave, for example, may be useful in helping to fund time off for study or to work in an NGO on a reduced salary for a period.
Knowing what you’re entitled to can allow you to protect those entitlements and put them to the best use.
4. Tax planning
The best way to improve your after-tax benefits is to sacrifice part of your salary into super.
Provided you have not already reached the maximum concessional contributions cap (currently $30,000 or $35,000, if you’re 50 or older), you can agree to forgo some of your salary in lieu of higher employer super contributions. This effectively reduces the tax on that part of your income from your marginal tax rate to just 15%. Other benefits, such as cars and home computers are more marginal.
For many public servants, one of their most important assets is their ability to earn an income. Public sector super schemes such as CSS, PSS and PSSAP include generous insurance cover that includes income protection, but if you cease contributing to the fund, you may forfeit some of these benefits.
Any career moves should include a review of all your insurance cover to ensure it is still current and appropriate to your changing circumstances.
For the full article in The Mandarin click here