Moving to state public service
Relocating interstate to take up a Senior Executive Service (SES) position with the state public service can provide many opportunities as well as significant costs.
The move may present significant career development opportunities and lifestyle benefits, but will it come at the price of your long-term financial security?
In this article, we outline the key financial issues you should consider as a senior executive in the Australian Public Service (APS) when assessing whether to move to the state public service.
The impact on your superannuation
Before taking a new position with a state government department, you should consider the options available in relation to your superannuation and determine which will provide you with the greatest long-term benefit.
A common belief in the public sector is that upon moving to state public service, you lose the ability to contribute to your existing CSS (Commonwealth Superannuation Scheme) and PSS (Public Sector Superannuation Scheme) funds. Fortunately, there are options available that may allow CSS or PSS members to retain contributory membership. The benefits of this may include protecting your final retirement benefit and continuing to receive insurance cover.
What are your options for your existing superannuation?
Leave without pay
Generally, a member on leave without pay (LWOP) for more than 12 weeks is unable to accrue their CSS or PSS benefits unless they are on leave without pay in the public interest or their employer agrees to pay employer contributions while they’re on leave. Under these circumstances, a CSS member must contribute at a rate of 5% or higher and a PSS member must contribute at a rate of 2% to 10%.^
To access LWOP in the public interest, you’ll need to be able to argue that you are planning to return to the Commonwealth, the work you’ll be undertaking will be in the public interest and the experience you’ll receive in your new job will benefit the Commonwealth upon your return.
Preserve your benefit
If you’re unable to continue as a contributing member of CSS or PSS, you have the option to preserve your benefit in the scheme. While you cannot contribute to the scheme while you’re a preserved member, your benefit will continue to grow with investment earnings and/or CPI increases until you are able to access it at your eventual retirement or upon reaching preservation age.
As a CSS or PSS contributing member, you receive automatic permanent invalidity and death cover at no additional cost. In ceasing contributory membership, forfeiting your existing insurance within the scheme is an important consideration worth discussing with your financial adviser.
Very importantly, preserving your benefit allows you to recontribute to these defined benefit schemes, which are closed to new members, should you return to the Australian Public Service (APS). If you recommence contributing after a break from employment with the Australian Government, your new salary will impact on the calculation of your benefit.
Preserved members should obtain financial advice if they are considering returning tho the APS to help maximise their financial position. For some PSS preserved members, returning to work on a lower salary may help boost their defined benefit entitlement. Deferring the return to employment until after a member’s 55th birthday may help some CSS members improve their overall benefit.
Transfer to an eligible scheme
Depending on your employment, there is a provision to transfer CSS and PSS super benefits to an eligible state super scheme, however, there are few such schemes and it can result in a significant loss of benefits. It would be advisable to talk to your financial adviser about whether this is a suitable option for you.
The Public Sector Superannuation accumulation plan (PSSap) has full portability. You can roll over this fund at any time to another accumulation style fund, but insurance benefits may be attached to the account and this should be considered before acting.
Superannuation options upon taking a position in a state public service
|Keep contributing||LWOP in the public interest.||LWOP in the public interest.||You may be able to direct your new employer contributions to this fund.|
|Cease contributing||Preserve your benefit in the scheme.||Preserve your benefit in the scheme.||Retain PSSap**|
|Transfer value to eligible scheme.||Transfer value to eligible scheme.||Roll over PSSap to another accumulation style fund**|
|Lump sum (member component to SIS† upper limit) rollover balance*.||Lump sum (member component to SIS† upper limit) balance preserved*.|
|Access your benefit||Only available if over age 55 upon resigning from the Australian Government. Some of your benefit may remain preserved.||Only available if over age 55 upon resigning from the Australian Government. Some of your benefit may remain preserved.||Only available if you are over your preservation age and under certain circumstances.|
*This option will sacrifice most of the employer financed benefit.
** Rolling over your benefit or ceasing employer contributions may result in a loss of insurance or other benefits.
† The Superannuation Industry (Supervision) Regulations (SIS) places certain restrictions on the amount of cash lump sum that can be paid to members who are not permanently retiring or have not reached their preservation age.
- It is important to note that if you elect to access a lump sum up to your SIS limit before reaching the age of 55, then you’ll forgo the opportunity to commence an indexed pension in the future.
- Also, there will be tax payable on any taxable component of the lump sum withdrawal.
How to estimate the value of your current superannuation component
The CSS and PSS schemes are extremely attractive and their value may form a significant portion of your total remuneration. In most cases, if you’re required to cease contributory membership on departing the APS, you’ll require a large rise in your base salary to justify leaving these superannuation schemes. The exact rise will depend on your personal circumstances, including your current age, length of membership and superannuation salary.
If your move to the state public service is temporary, you may have the option of accessing LWOP or preserving your benefit and recontributing upon rejoining the APS. In this case, a temporary move to the state government may not have much impact on your existing superannuation entitlements as long as you’re able to rejoin work on at least the same salary level. You should seek financial advice if you’re a preserved CSS member over the age of 55 and seeking re-employment in the APS.
Commonwealth Superannuation Scheme (CSS)
The CSS is a particularly attractive scheme and the benefit obtainable can be measured as a substantial percentage relative to your base salary. In 2008, government actuaries determined the value of the employer contribution to the CSS as 21.4% of base salary. You also receive an additional benefit in that only the productivity contribution counts towards your concessional cap, thereby allowing you to salary sacrifice more when compared to employees in private sector equivalent positions.
The CSS benefit can vary greatly between members depending on your personal situation so it’s advisable to seek professional financial advice.
Public Sector Superannuation (PSS)
The PSS is also a very attractive scheme, with the benefit obtainable measured as a high percentage relative to your base salary. This is determined by estimating the value of your employer contributions and the value of receiving an indexed pension guaranteed for life. You also receive an additional benefit in that only the productivity contribution counts towards your concessional cap, thereby allowing you to salary sacrifice more when compared to employees in private sector equivalent positions.
The PSS final benefits vary between members depending on their personal situation so it’s advisable to seek professional financial advice.
Public Sector Superannuation accumulation plan (PSSap)
Your current employer may contribute 15.4% of your base salary to the PSSap.
Your new employer may have a different fund that they’re required to contribute to. Even if you can continue directing your new employer contributions to the PSSap, your new employer might only contribute the standard 9% superannuation guarantee.
Regardless of your employer, you can continue to make personal contributions such as non-concessional or salary sacrifice amounts to the PSSap at any time, subject to contribution limits.
If you’re a member of the PSSap, your fund earnings will be affected by market performance because it’s an accumulation account and does not have a defined benefit component – unlike CSS or PSS. Your PSSap is comparable to most state default super funds. Members can choose from a range of investment options to suit their goals and tolerance to risk.
However, you should consider the impact on any insurance within your current fund should you choose to roll your accumulated benefits to another fund.
What if you return to the Australian Government?
On returning to the Australian Public Service, if you’ve accessed LWOP in the public interest, your CSS or PSS membership will continue.
If you chose to preserve your CSS or PSS while working in the state public service, upon returning to the APS you can recommence contributing to these funds.
As a preserved CSS member, you may also have the option to select whether to stay in the CSS or join the PSS. Any decision should be reviewed with a professional financial adviser to determine the most appropriate action.
You may be able to consolidate your new state accumulation fund into your preserved CSS or PSS funds or into your existing, or new, PSSap fund. However, this won’t increase the indexed pension component of your CSS or PSS fund, so it’s generally not attractive. Before doing this, we recommend you seek financial advice on the associated costs and benefits.
If you paid a transfer value of your CSS or PSS into an eligible scheme, you may be able to have a transfer value of your new eligible scheme rolled back into the CSS or PSS. If you accessed your CSS or PSS funds, you don’t have the option of rejoining these schemes upon re-entering the Australian Government because both are closed to new members. In this case, you’ll be entitled to join the PSSap if you’re not already a member.