Public Sector Fund: What You Need To Know
There are many different types of super funds. A public sector fund operates like the industry super fund and standard retail fund. In general, Australians working in the public sector are the only ones that can get this. This includes those who have government roles. This fund sometimes offers additional features and benefits. Read on to know more.
What is a public sector fund?
A public sector fund gives benefits to federal and state government employees. It has lower fees, and profits earned are returned to the members instead of the shareholders. Some employers also give more than the mandated 9.5% superannuation guarantee for their employees. This is one of the fund’s biggest benefits.
Long-term members of the public sector super fund have defined benefits funds. New members usually have an accumulation fund.
Public Sector Superannuation Scheme (PSS)
The Superannuation Act 1990 paved the way to the Public Sector Superannuation Scheme or PSS. It is exclusive for Australian government employees. No new members were allowed to join the PSS since July 2005. You may be allowed to re-join the PSS if you are a PSS invalidity pensioner or a PSS preserved member.
The PSS is defined benefit super fund. It has an accumulation component for those who have super co-contributions and/or transferred amounts.
How does the PPS operate?
Only bona fide members can receive contributions from their employer and add money to their super. The benefits given to contributing members is based on the accrued benefit multiple and final average salary.
There are two ways in which the employer can contribute to the PSS:
- An employer component determined when you leave the PSS
- A productivity component which is a fortnightly contribution
The perks of investing with the PSS
You will get to enjoy several benefits should you decide to invest in a PSS. It can boost your savings for retirement.
- Competitive cost
Administration fees are not deducted from your account since employers contribute for the costs of administering the PSS. The PSS does not pay commissions to financial advisers.
- Investment options
Preserved and associate members can take advantage of the cash investment option or default fund. Contributing members do not have investment options available. This is because the defined part of the benefit is not affected by investment performance.
- Death benefits and invalidity
Members of Public Sector Funds get to enjoy death benefits and partial invalidity retirement at no cost. Those who didn’t reach the maximum benefits limit can have additional invalidity and death cover for a cheaper cost.
The invalidity retirement benefit of members below 60 years old is based on several factors. This includes:
- Final average salary
- Accrued benefit multiple during retirement
- Maximum benefit limited
- Classification as limited or full benefits member
The partial invalidity pension is paid when your income is permanently reduced because of a medical condition. There are times when this is not paid, examples of which include:
- You reached the maximum retiring age.
- Being a limited benefits member, or you have less than 3 years of membership.
- You stopped being a member of the PSS.
- Eligibility for compensation under State or Territory or Commonwealth Law.
- The medical conditions were caused by wilful action.
Fees and costs involved in PSS
For public sector funds, The difference between costs and investment performance can have a significant effect on your long-term returns.
For instance, having 2% taken from your account for annual fees and costs can lower your returns by 20%. This is for a 30-year period of investment.
Members of the PSS don’t need to pay administration, exit, or switching fees. The employer covers these costs. If you are a preserved member, your former employer will take care of these costs for you.
Compare Public Sector Superannuation Funds with Makes Cents
You usually can’t select a Public Sector Fund. Some let you decide to stay as a contributing member when you resign from the public sector. In this situation, you can discuss with your new employer to contribute to another public sector fund.
There are 19 PSS available as of December 2015. To know more about your options, use a comparison website like Makes Cents.