MSBS Pension in Retirement: The Complete Guide for ADF Members

1. What is MSBS?

The Military Superannuation and Benefits Scheme (MSBS) — commonly called MilitarySuper — is a defined benefit superannuation scheme for Australian Defence Force members who joined between 1 October 1991 and 30 June 2016. It replaced the older DFRDB scheme and was itself closed to new ADF entrants from 1 July 2016, when new members began joining the accumulation-only ADF Super fund.

MSBS is administered by the Commonwealth Superannuation Corporation (CSC), the same body that administers the PSS and CSS schemes for Australian Public Service employees. Like PSS and CSS, MSBS pays a guaranteed income for life — indexed to CPI — rather than a balance that can run out.

Unlike PSS and CSS, MSBS has a dual structure: a defined benefit pension component and a separate accumulation component called the productivity benefit. Understanding both is essential for retirement planning.

• MSBS (MilitarySuper) — ADF members who joined 1 October 1991 to 30 June 2016.
• DFRDB — older Defence scheme for members who joined before 1 October 1991. Different indexation rules apply — see our indexation article.
• ADF Super — accumulation-only scheme for members who joined from 1 July 2016. No defined benefit pension component.

2. How your pension is calculated

Your MSBS pension is calculated using the formula:

Final Average Salary is typically your average superannuation salary over the final three years of service (or a shorter period if applicable).

The Benefit Multiple accrues over your career based on your member contribution rate and years of service. MSBS members could elect to contribute at 5%, 10%, or 15% of salary. Higher contribution rates generate a faster-accruing benefit multiple — reflecting the choice between a larger pension and more take-home pay during service.

As a rough illustration: a member who contributed at 5% for 20 years might accumulate a benefit multiple in the range of 0.40–0.55, producing a pension of 40–55% of final salary. Contributing at higher rates for the same period can produce a substantially larger multiple. However, the precise accrual formula is complex and depends on your specific contribution history.

3. The productivity benefit

In addition to the defined benefit pension, MSBS members accumulate a productivity benefit — an employer-funded accumulation component separate from your defined benefit entitlement. Productivity contributions (broadly equivalent to the Superannuation Guarantee in the private sector) were paid into a CSC-managed investment account throughout your service.

Unlike the defined benefit pension, the productivity benefit balance fluctuates with investment returns and is not guaranteed. At retirement you generally have a choice of:

• Taking the productivity benefit as a lump sum (rolled over to another super fund or taken as cash, subject to tax)
• In limited circumstances, some members may be able to use part of the productivity benefit to adjust their pension arrangements — though commutation and conversion options are constrained and not universally available
• Leaving it invested within CSC if eligible

For retirement planning purposes, the productivity benefit is best treated as a separate pool of accumulation super — distinct from your lifetime pension income. It is the component most analogous to a standard super balance, and it is what you'll typically roll over and draw on in addition to your pension income.

4. Immediate vs preserved pension

Whether your MSBS pension commences immediately on separation from the ADF — or is preserved until a later age — depends on your age and years of service at the time you leave.

Members who reach the qualifying conditions may be entitled to an immediate pensionthat commences on separation. The rules are complex and depend on your category of service, age, and effective service — they are not simply a matter of reaching a minimum age or years served. Members who separate before meeting those thresholds will typically have their benefit preserved.

A preserved MSBS pension does not commence until you reach your preservation age — between 55 and 60 depending on your date of birth (60 for members born after 30 June 1964) — and satisfy a condition of release. During the preservation period, your preserved pension amount is generally CPI-indexed from the date of separation, so it is not eroded in real terms while you wait — but it also doesn't grow in line with wages or market returns.

For members who separated in their 40s or early 50s — common in the ADF — the gap between separation and pension commencement can be 10–20 years. Modelling that gap, and the income you'll need to bridge it, is one of the most important planning exercises for MSBS members.

5. CPI indexation

MSBS pensions are indexed by the Consumer Price Index (CPI) twice each year — on the first pension payday in January and July. The January increase uses the September quarter CPI movement; the July increase uses the March quarter CPI movement. This is the same indexation mechanism as PSS and CSS pensions.

For July 2026, the projected increase is approximately 2.0% — see our detailed pension indexation 2026 article for the full calculation and historical rates.

One important long-term consideration: CPI indexation preserves the real purchasing power of your pension, but it has historically tended to grow more slowly than wages over long periods. The Age Pension, by contrast, is indexed to the higher of CPI or Male Total Average Weekly Earnings (MTAWE), meaning it tends to outpace a CPI-only pension over long retirements. Over a 20–30 year retirement, the MSBS pension's real value remains stable, but its value relative to living standards may gradually decline.

Note also that the indexation has a floor: if CPI falls in any period, your pension stays the same — it is never reduced due to deflation.

6. Tax treatment

MSBS pension tax treatment is more complex than a simple "taxed" or "untaxed" classification because the pension consists of two components that are taxed differently.

The two pension components

• Taxable taxed component — productivity contributions and interest converted to pension. These were taxed on entry to the fund (a taxed source). This component becomes tax-free once you turn 60, subject to the Defined Benefit Income Cap.
• Taxable untaxed component — the employer-funded defined benefit component. This is from an untaxed source. It does not become tax-free at 60. Once you turn 60, a 10% tax offset applies on this component (up to the DBIC), meaning it is taxed at your marginal rate less 10%.
• Tax-free component — only applies if you have pre-July 1983 service and transferred from DFRDB to MilitarySuper.

Because the employer component is typically the larger portion of the pension, most members will pay some tax on their pension even after age 60 — at marginal rates less the 10% offset. This is a meaningful difference from the common assumption that MSBS pensions are tax-free post-60.

Source: CSC factsheet MS08. Concessional treatment is capped at the Defined Benefit Income Cap ($125,000 for 2025-26) — see Section 7.

Invalidity pensions may qualify for additional tax concessions if the benefit meets the definition of a disability superannuation benefit under the ITAA 1997 — requiring certification by two medical practitioners that the member is unlikely to ever work in a capacity for which they are reasonably qualified. A 15% offset on the taxed component applies in this case regardless of age.

7. Defined Benefit Income Cap (DBIC)

Introduced from 1 July 2017, the Defined Benefit Income Cap limits the tax-free treatment of defined benefit pensions. The cap is set at one-sixteenth of the general Transfer Balance Cap.

Because MSBS has both taxed and untaxed components, the DBIC affects each differently. For the taxed component above the cap, 50% of the excess is included in assessable income and taxed at marginal rates. For the untaxed componentabove the cap, the 10% offset ceases to apply — the full amount is taxed at marginal rates. See our PSS and CSS guide for how the cap applies to purely untaxed schemes like CSS.

Most MSBS members will not be affected — a $125,000 threshold is above the pension level of the majority of members. However, it is worth checking if you have a long career with high contribution rates, or if you also receive other defined benefit income that counts toward the cap.

8. Transfer Balance Cap (TBC) interaction

When your MSBS pension commences, it counts against your personal Transfer Balance Cap (currently $2 million for new retirees from 1 July 2025). The "special value" of your pension for TBC purposes is:

A $65,000 per year MSBS pension therefore has a special value of $1,040,000 — consuming 52% of the $2 million TBC. This can significantly limit how much of your productivity benefit (or other accumulation super) you can convert into an account-based pension.

For members with larger pensions — typically long-serving officers or those who contributed at higher rates — the defined benefit special value can consume most or all of the TBC, meaning the productivity benefit must either remain in accumulation phase or be drawn on separately. This affects your minimum drawdown strategy and tax planning.

Unlike account-based pensions, the special value of a defined benefit pension does not decrease over time as pension payments are made — it is a one-time credit when the pension commences.

9. Age Pension interactions

Your MSBS pension counts as income under the Age Pension income test. However, a "deductible amount" — based on the return of your own contributions to the scheme — reduces the assessable income figure. Services Australia calculates this individually based on your personal contribution history.

Many lifetime defined benefit pensions receive concessional assets-test treatment, meaning the income test is often the more significant constraint. However, this treatment is not universal — it applies most clearly to pre-2015 grandfathered income streams. MSBS members commencing their pension today do not have grandfathered status, and Centrelink's treatment can vary depending on individual circumstances and the specific nature of the income stream. Confirm your assets-test position with Services Australia before assuming the income test is the only constraint that applies to you.

The interaction is particularly important for members who take an immediate pension in their 50s and receive the MSBS pension for many years before Age Pension age. By the time they reach 67, the combined effect of the income test and any other income sources needs careful modelling.

Note also that the productivity benefit, once rolled over to an account-based super fund, will be assessed under both the assets test (as a financial asset) and the income test (under deeming rules) — unlike the pension component.

10. Reversionary pensions

Most MSBS pensions include a reversionary pension — a continuation of a portion of your pension paid to your spouse or eligible dependant after your death. The reversionary fraction is 67% of your pension for death as a pensioner, though invalidity, commutation choices, and other circumstances can affect the outcome.

The reversionary pension is CPI-indexed and continues for the spouse's lifetime. Your spouse should be aware of two planning implications:

• When the reversionary pension commences, it counts against their own Transfer Balance Cap — potentially limiting how much of their own superannuation they can hold in pension phase.
• The reduction to 67% of your pension represents a meaningful drop in household income. Modelling the survivor scenario — with one income stream instead of two — is an important part of retirement planning for MSBS couples.

11. Modelling your MSBS pension in RetireConfident

RetireConfident's Retirement Readiness Calculator and Retirement Manager both support MSBS pensions. The recommended approach is to model the two MSBS components separately:

• MSBS pension — enter your after-tax annual pensionunder the Defined benefit pension (after tax) field in the Income Streams section, set to your pension commencement age. Using this field (rather than Other income) also unlocks the Income test deductible amount sub-field. The calculator does not calculate income tax, so you need to determine your after-tax figure yourself. Because the untaxed employer component is taxed at marginal rates less a 10% offset (not tax-free), there is no simple rule — use Section 6 above and consider seeking tax advice to calculate the correct net figure for your situation.
• Productivity benefit — enter as your main superannuation balance at retirement age, alongside any other accumulated super.
• Survivor scenario — use couple tracking mode and configure the reversionary pension (67% for death as a pensioner) as a partner income stream. The calculator will model the income reduction when one partner dies.
• Age Pension — the calculator applies the income test automatically against your modelled pension income. It now supports the income test deductible amount: enter your deductible amount (Services Australia calculates this from your personal contribution history) in the sub-field beneath the pension income entry. If you don't know it yet, leave it at $0 — the result will be a conservative estimate. You can confirm your actual deductible amount with Services Australia when you apply for the Age Pension.
• Pre-commencement gap — if your pension is preserved and doesn't start until 60, use the Pre-Retirement Accumulation calculator to model the period between separation and pension commencement.