Concessional contributions: SG and public servants

Q: I’m a member of the Military Superannuation & Benefits Scheme (MSBS), which is a hybrid defined contribution/defined benefit scheme. While I pay 5% of salary towards a ‘Member Benefit’, MSBS doesn’t have a 9% employer contribution, as my ‘Employer Benefit’ is based on years of service and Final Average Salary. I’m 56 yrs old and I am currently salary sacrificing $50,000 each year. I understand my concessional cap reduced to $50,000 for the 2009/10 financial year. Normally the 9% Superannuation Guarantee would be included in the concessional cap: is there some reduction in the cap because MSBS is a defined benefit scheme? Also, the ADF does pay a ‘Productivity Benefit’. Is this included in the concessional cap?

Trish’s response: You are correct in your understanding that the transitional concessional (before-tax) contributions cap for an individual aged 50 years or over has been reduced to $50,000 (from $100,000 previously) for the 2009/10, 2010/11 and 2011/12 financial years.

In relation to your other questions, I am not as familiar with your particular scheme, as many other super schemes, but I have checked out the website for Military Super (the new name for your scheme), and based on my research of this site, and my knowledge of similar untaxed public sector schemes, I can offer you some general comments.

Your best option however is to check your personal circumstances with your super fund because the older public service defined benefit super schemes are more complex than the newer schemes and often have unique transitional arrangements in place.

Generally speaking, the concessional contributions caps of $50,000 (for over-50s) and $25,000 (for under-50s) apply to contributions where an employer has claimed a tax deduction for the contribution, which usually includes Superannuation Guarantee contributions made by an employer, and any salary sacrificed contributions made under an arrangement between an employer and an employee.

In relation to defined benefit funds, in particular, public sector defined benefit funds, in many cases an employer contribution is not made until a benefit is actually paid, which means no tax is payable by the government employer. In many cases, public service employers contribute substantially more than 9% of an employee’s salary into a scheme although often no actual payment is made. Apart from productivity payments, additional employer contributions are usually not actual payments but notional contributions that are taxed when a benefit is paid.

I am answering your questions based on what appears in your scheme’s ‘Military Super Book‘

According to the book, MilitarySuper benefits consist of three parts:

• a Member Benefit, made up of an employee’s fortnightly contributions and the interest that those contributions earn
• an Employer Benefit, which is the Government’s contribution to an employee’s superannuation account. The Employer Benefit includes a 3 per cent Productivity Benefit.
• any Ancillary Benefit, which comprises voluntary Ancillary Contributions or amounts transferred to Military Super from another super fund.

Your question: Normally the 9% super guarantee would be included in the concessional cap: is there some reduction in the cap because MSBS is a defined benefit scheme? Also, the ADF does pay a ‘Productivity Benefit’. Is this included in the concessional cap?

The question is not whether the cap is reduced because MSBS is a defined benefit scheme but whether the employer contributions made by an employer into your scheme are counted towards the concessional contributions cap.

My understanding is that the employer’s 3% productivity benefit and any salary sacrificed contributions count towards an individual’s concessional contribution cap, but not any additional employer ‘contributions’ made above the productivity payment. The additional employer contributions are simply a notional payment rather than an actual payment.

Note one: Any concessional contributions that an individual makes to other super funds, including any Superannuation Guarantee contributions received for other employment also count towards the annual concessional contributions cap. If you exceed your concessional cap, then any excess contributions are hit with penalty tax.

Note two: If you make after-tax contributions to your scheme, then these contributions count towards your annual $150,000 non-concessional contributions cap.

You need to confirm the classification of your contributions, and the classification of your employer’s contributions with your super scheme.

Related articles:

1. Super concessional contributions: 2010/2011 survival guide
2. Your 2010/2011 guide to non-concessional (after-tax) contributions
3. Super for beginners, part 6: Can I make concessional (before-tax) contributions while I’m unemployed?
4. Super for beginners, part 3: Why aren’t my super contributions tax-free?
5. Super tax alert: Have you counted your super contributions lately?