Energy Super Defined benefit (DB) members working less or salary changes

Changes to your work hours or salary can happen for many reasons. If you have an Energy Super DB account, it’s important to understand how these changes could affect your defined benefit.

Here’s a quick overview of how your benefit is calculated.

The standard benefit formula has three parts:

1. your Final Average Salary (FAS)
2. your Member’s Benefit Multiple (MBM)
3. your Member’s Reserve (MR) factor.

Final Average Salary (FAS)

FAS is generally the average of the Salary your employer reports to the Fund over the last one year (two years for employees of NRG Gladstone) before the calculation date.

Please note: Some components of your Salary may not be included for superannuation purposes. Our Trust Deed defines ‘Salary’ and ‘Final Average Salary’ for Energy Super defined benefit calculations. Alternatively, you can speak with your employer about what is included or excluded . Your Annual Statement includes details about your FAS.

How is my FAS calculated if I work part-time?

If you work part-time, but your hourly pay rate does not change, for example, 4 days instead of 5 days per week (or 80% of the full-time equivalent hours), your Salary for defined benefit purposes is annualised to a full-time equivalent amount. This ensures your Final Average Salary reflects your underlying pay rate, not the number of hours worked.

For example, if your Salary for working 4 days per week was $50,000, your employer will report a full-time equivalent Salary of $62,500 (using the same hourly rate). This ensures that we use your full-time equivalent Salary when we calculate your FAS.

Member’s Benefit Multiple (MBM)

Your MBM is a number that represents how long you have been a contributing member of the Brighter Super Energy Super Defined Benefit and takes into account your work circumstances during that time.

Your MBM grows at a rate of 0.195² (19.5%) for each year you are a member and in full-time employment with a participating Energy Super DB employer. The MBM also accounts for periods where you worked less than your normal full-time hours or took extended leave without pay by reducing the rate of growth accordingly.

Example:

If your DB membership was exactly 20 years, comprised of :

• 15 years full-time (100%)
• 4 years part-time at 4 days per week (80%), and
• 1 year of leave without pay (LWOP= 0%)

Your MBM would be calculated as follows:

Member's Reserve (MR) factor

Your MR factor is a reduction factor that applies to your benefit calculation if you are under age 55 when your defined benefit is calculated. Once you reach age 55, your MR factor will be 1.0 for future calculations. For DB members under age 55, your MR factor is reduced by 0.02 for each year (in years and complete days) that you are under age 55 but won’t be less than 0.70.

What happens to my benefit calculation if I keep working the same hours but move to a lower Salary?

Any potential impact of working the same hours but moving to a lower Salary depends on which calculation method is used to calculate your benefit. Your benefit will always be calculated using the method that gives you the highest amount.

Calculation 1: The ‘2.5 x Member Account balance in the DB scheme’ method:

Your member account balance is built from your member compulsory contributions, which is calculated as a percentage of your Salary. If your Salary decreases, your contribution amount would be adjusted accordingly, which may impact your Member Account balance over time.

For more information on this calculation method, please refer to the Energy Super Defined Benefit guide. 

Calculation 2: The standard benefit formula method:

The Brighter Super Trust Deed includes provisions that may apply when a Defined Benefit member has a genuine reduction in their Salary used to calculate their FAS.

In this scenario, the actual FAS cannot be less than the FAS that applied immediately before the reduction occurred. This pre-reduction FAS is then indexed in line with movements in Average Weekly Ordinary Time Earnings (AWOTE) for Australian workers, between the date of the salary reduction and the date the member ceased employment or exited the Defined Benefit scheme³.

The benefit will be calculated using the higher of:

• your FAS preserved at the pre-reduction level and adjusted for AWOTE movements, or
• your FAS calculated using your actual Salary at cessation of employment.

This provision is designed to protect your benefits from the impacts of a Salary reduction. For more information, please refer to the Energy Super Defined Benefit guide. 

Please note: Working part-time by itself doesn’t mean a salary reduction occurs, unless your hourly pay rate is also reduced with the part-time work because the Fund always uses a full-time equivalent Salary to calculate the defined benefit.

Calculation 3: the Minimum Requisite Benefit (MRB) method:

The Fund rules require the Trustee to calculate an MRB for Defined Benefit members. Each year, the Fund’s Actuary calculates the amount the Defined Benefit member would have received if the member was receiving the Superannuation Guarantee Contribution (SGC) based on Ordinary Time Earnings (OTE). If the MRB is higher than the calculation using the FAS or the 2.5 times method, then this method would apply to the member.

As the MRB is based on OTE, any reduction in your OTE could impact the MRB calculation.

You can review your current calculation method through Brighter Super Member Online and running a benefit quote or review your Annual Benefit Statement.

What happens if I change to part-time work or switch to another role?

If you are approaching retirement and wish to adopt a phased retirement approach such as moving to part-time work, or switching to another role with your current employer at a reduced salary, your DB will most likely be a different amount compared to your projected outcome if you had continued to work at full capacity until you retire.

Examples of calculating defined benefits in different scenarios

Below are three scenarios that illustrate how your defined benefit may be calculated if your work arrangements change:

• Scenario 1 and Scenario 2 show situations where a member reduces either their hours worked or their Salary leading up to retirement, but not both.
• Scenario 3 demonstrates a more complex case where both hours worked and Salary are reduced before retirement.

Scenario 1: Working reduced hours before retirement

Bill is 58 years old and has been a member of Energy Super Defined Benefit for 32 years. For 30 years, Bill worked full-time (40 hours per week).

• For the last 2 years, he reduced his working hours to 32 hours per week (a 4-day week) however his hourly pay rate remained unchanged.
• Bill’s FAS is based on his average full-time equivalent Salary over one year.
• Bill’s full-time equivalent Salary in his last year of employment was $80,000; however, his actual earnings were $64,000 (80% of full-time Salary).

Bill’s defined benefit calculation:

We now have all the information to calculate Bill’s defined benefit at retirement using the standard benefit formula.

⁴ Bill’s actual benefit is subject to the three calculation tests described earlier, which could be more but not less.

Scenario 2: Reduced salary before retirement

Sam is 60 years old and has been a member of Energy Super Defined Benefit for 35 years.

• For 30 years, Sam worked full-time (40 hours per week).
• For the last 5 years, he continued working for the same employer, on a reduced salary.
• Sam’s FAS is based on his average Salary over one year.

If we make the following assumptions, we can calculate Sam’s retirement benefit:

• Sam’s pre-reduction FAS was $90,000.
• AWOTE increased by 15% in the last 5 years before Sam retired.
• Sam’s Final Average Salary at retirement increased to $72,000

Sam's defined benefit calculation:

We now have all the information to calculate Sam’s defined benefit at retirement using the standard benefit formula where the FAS used is the higher of Sam’s pre-reduction FAS increased by the AWOTE factor, or his FAS at retirement.

Because Sam’s pre-reduction FAS increased by the AWOTE factor is higher than his FAS at retirement, it is used in the calculation.

⁵ Sam’s actual benefit is subject to the three calculation tests described earlier, which could be more but not less.

Scenario 3: A combination of changed working hours and reduced salary before retirement

Kerry is 55 years old and has been a member of Energy Super Defined Benefit for 30 years.

Kerry’s standard employment arrangement was 9-day fortnight.

• For 5 years, Kerry worked regular extra hours (agreement with her employer) each fortnight and received a 13% salary loading.
• Kerry’s FAS is based on her average Salary over one year.
• Employer-reported Salary is $90,400 per year which includes the 13% loading. Kerry’s pre-reduction FAS averages to $90,400.

For the last 2 years before retirement:

• Kerry reduced her working hours to 4.5 days per fortnight (half -time).
• She was no longer eligible for 13% loading.
• Her full-time equivalent Salary after reducing hours was $80,000.
• Her actual part-time Salary was $40,000.

If we make the following assumptions, we can calculate Kerry's retirement benefit:

• Leading to retirement, Kerry’s part-time Salary increased, making her full-time equivalent FAS equal $86,400.
• AWOTE increases by 8.16% in the last 2 years before Kerry retired.

Kerry’s defined benefit calculation:

We now have all the information to calculate Kerry’s defined benefit at retirement using the standard benefit formula where the FAS used is the higher of Kerry’s pre-reduction FAS increased by the AWOTE factor or her full-time equivalent FAS at retirement.

Because Kerry’s pre-reduction FAS increased by the AWOTE factor is higher than her full-time equivalent FAS at retirement, it is used in the calculation.

⁶ Kerry’s actual benefit is subject to the three calculation tests described earlier, which could be more but not less.

Examples are provided solely for information and illustrative purposes only. These may not be relied upon for your own circumstances and have been prepared without considering your individual objectives, financial situation or needs. You should seek appropriate advice which does consider your objectives, financial situation, and need before making any decisions.

Need more information?

For more information about your Energy Super Defined Benefit, please check your Annual Statement or read the Energy Super Defined Benefit guide available online at brightersuper.com.au/pds.

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