PSS and CSS Pensions in Retirement: The Complete Guide
If you're a current or former Australian Public Service employee, your defined benefit pension is likely your most valuable retirement asset — and one of the most misunderstood. This guide covers everything you need to know about how CSS and PSS pensions work in retirement.
Updated May 2026 · 10 min read · General information only — not financial advice
1. What are CSS and PSS?
The Commonwealth Superannuation Scheme (CSS) and Public Sector Superannuation Scheme (PSS)are defined benefit superannuation schemes for Australian Government employees. Unlike accumulation funds — where your retirement balance depends on contributions and investment returns — defined benefit pensions pay a guaranteed income for life, calculated by a formula based on your salary and years of service.
- CSS — open to employees who joined the APS before 1 July 1990. Now closed to new members.
- PSS — open to employees who joined 1 July 1990 to 30 June 2005. Now closed to new members.
- MSBS (MilitarySuper) — for Australian Defence Force members, broadly similar structure to PSS.
- DFRDB/DFRB — older Defence Force schemes with different indexation rules (see our indexation article).
All four schemes are administered by the Commonwealth Superannuation Corporation (CSC), formerly ComSuper.
2. How your pension is calculated
Each scheme uses a different formula. The broad principle is the same: your pension is determined by a multiple of your final (or average) salary, weighted by years of service and contribution rate.
For PSS members, the pension is broadly calculated as: Final Average Salary × Accrued Benefit Multiple. The multiple accrues each year based on your member contribution rate (between 2% and 10% of salary). A member who contributed at 5% for 30 years would typically accumulate a multiple of around 0.7–0.8, resulting in a pension of 70–80% of final salary — though the precise calculation is more complex and depends on your specific circumstances.
For CSS members, the pension is split between a productivity component (unfunded, based on years of service) and an ordinary benefit (based on member and employer contributions). CSS pensions are partially funded through accumulated member contributions.
Important: The precise calculation for your pension is specific to your member history, contribution rates, and election choices. Contact CSC or use their online estimators for your individual figure. This article provides general context only.
3. CPI indexation
CSS, PSS and 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.
For July 2026, the increase is 2.0% — see our detailed PSS/CSS indexation 2026 article for the full calculation and historical rates.
One planning consideration worth understanding: CPI indexation does not keep pace with wages growth over time. The Age Pension is indexed to the higher of CPI or the Male Total Average Weekly Earnings (MTAWE) benchmark, meaning it tends to outpace CSS/PSS pensions over long retirements. The real purchasing power of a fixed defined benefit pension typically erodes slightly relative to living standards over a 20–30 year retirement.
4. Tax treatment
The tax treatment of CSS and PSS pensions is more complex than standard account-based super, and depends on whether your pension comes from a taxed or untaxed fund.
PSS is a taxed fund. Once you turn 60, your PSS pension is generally tax-free up to the Defined Benefit Income Cap (see below). Above the cap, 50% of the excess is included in your assessable income and taxed at marginal rates.
CSS is an untaxed fund (a Constitutionally Protected Fund). Your pension is taxed at marginal rates regardless of age, but you're entitled to a 10% tax offset — capped at $12,500 for 2025-26. The offset effectively reduces the tax rate on eligible pension income significantly, but does not eliminate it. CSS pensioners who are not yet 60 pay marginal rates less a 15% offset on the taxable component.
5. Defined Benefit Income Cap (DBIC)
Introduced from 1 July 2017, the Defined Benefit Income Cap limits the concessional tax treatment available on defined benefit pensions. The cap is set at one-sixteenth of the general Transfer Balance Cap.
| Financial year | DBIC |
|---|---|
| 2025-26 (current) | $125,000 |
| 2024-25 | $118,750 |
| 2023-24 | $118,750 |
| 2022-23 | $106,250 |
If your taxed defined benefit pension (PSS, MSBS) exceeds the cap, 50% of the excess is included in your assessable income and taxed at marginal rates. For untaxed pensions (CSS), the 10% offset is only available on income up to the cap; pension income above the cap has no offset.
Most PSS members with moderate pensions won't be affected — a $125,000 threshold means only those with very high defined benefit incomes are impacted. However, it's worth checking, particularly if you also receive other super income streams that count toward the cap.
6. Transfer Balance Cap (TBC) interaction
When you start receiving a PSS, CSS, or MSBS pension, it counts against your personal Transfer Balance Cap (currently $2 million for new retirees from 1 July 2025). The "special value" of the pension for TBC purposes is calculated as:
A $75,000 per year PSS pension therefore has a special value of $1,200,000 — using up 60% of the $2 million TBC. This leaves only $800,000 of cap space for any additional account-based pension. For members with large defined benefit pensions, the TBC can significantly limit how much accumulation super can be moved into pension phase.
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 to the transfer balance account when the pension commences.
7. Age Pension interactions
A defined benefit pension counts as income under the Age Pension income test. However, a "deductible amount" — based on the return of your own contributions — reduces the assessable income figure. Services Australia calculates this deductible amount based on your personal contributions to the scheme.
Under the assets test, a defined benefit income stream is generally not assessed as an asset (unlike account-based super), meaning the income test is usually the binding constraint for CSS and PSS pensioners. Many recipients of moderate-to-large defined benefit pensions will find their Age Pension entitlement is fully or partially reduced by the income test.
This interaction is worth modelling carefully — particularly for CSS pensioners whose pension grows (via CPI) while Age Pension thresholds change independently.
8. Reversionary pensions
Most CSS and PSS pensions include a reversionary pension — a continuation of part of your pension paid to your spouse or eligible dependant after your death. The reversionary fraction varies by scheme and election, but is commonly 67% of the member's pension.
The reversionary pension is itself CPI-indexed and continues for life. Your spouse should be aware that when the reversionary pension commences, it will count against their Transfer Balance Cap — using up cap space that might otherwise be available for their own superannuation.
Planning for the survivor scenario — with reduced combined income and a lower reversionary pension — is an important but often overlooked element of retirement planning for APS couples.
9. Modelling your PSS or CSS pension in RetireConfident
RetireConfident's Retirement Readiness Calculator and Retirement Manager both support defined benefit pensions. Enter your annual pension (after tax) as a CPI-indexed income stream, and the calculator will model:
- CPI growth of your pension over the retirement horizon
- Age Pension means testing — how your defined benefit income reduces entitlement
- Survivor (reversionary) scenarios — what happens to combined income when one partner dies
- Monte Carlo stress-testing — how your plan holds up across different market scenarios
- How much superannuation drawdown you need alongside your pension to fund spending
Model your defined benefit pension
Free Australian retirement calculators with full defined benefit pension support. No signup required.
Frequently asked questions
Is a PSS or CSS pension affected by the Transfer Balance Cap?+
Yes. When you start receiving a PSS or CSS pension, it counts against your Transfer Balance Cap (TBC). The "special value" of the pension for TBC purposes is 16 times your annual pension amount. For example, a $60,000 per year PSS pension has a special value of $960,000, which counts against your $2 million personal TBC.
What is the Defined Benefit Income Cap?+
The Defined Benefit Income Cap (DBIC) limits the tax concessions available on defined benefit pensions. For 2025-26, the cap is $125,000. If your taxed defined benefit pension exceeds this amount, 50% of the excess is included in your assessable income and taxed at marginal rates. For untaxed pensions, a 10% tax offset applies (capped at $12,500 for 2025-26) but the full amount above the cap is assessable.
How does a PSS or CSS pension affect the Age Pension?+
Your defined benefit pension counts as income under the Age Pension income test. A deductible amount (based on your own contributions to the scheme) reduces the assessable income figure. Under the assets test, a defined benefit pension is generally not assessed as an asset — the income test usually applies instead. High defined benefit pensions often reduce or eliminate Age Pension entitlements.
Can I take a lump sum from my PSS or CSS pension?+
PSS and CSS pensions have strict commutation restrictions. Most members cannot commute (convert to a lump sum) their pension freely — legislative rules and fund-specific rules limit commutation options. You should contact CSC directly for advice specific to your situation.
What happens to my PSS or CSS pension when I die?+
Most PSS and CSS pensions include a reversionary pension that continues to your spouse or eligible dependant after your death, typically at 67% of your pension (though this varies by scheme and election). The reversionary pension is also CPI-indexed. Your spouse should be aware this reversionary pension will count against their own Transfer Balance Cap.