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Defined benefit super explained

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Learn how defined benefit super works and what it could mean for retirement. 

What is defined benefit super?

Defined benefit super is a type of super account that works differently from most other super accounts.

Most defined benefit super accounts were set up by an employer. The employer’s rules help determine what you’ll get when you retire.

Defined benefit super accounts are less common and only accept certain workers or no longer take new members.

Most super accounts have a balance that rises and falls over time, based on how much money you and your employer put in and how you invest it. This affects what you’ll get when you retire.

With a defined benefit account, your super fund uses a formula to work out what you’ll get instead.

 If you're thinking about leaving a defined benefit fund, talk to your super fund, or get professional financial advice first. Some funds offer benefits that you may lose if you leave, and you generally can't rejoin.

How a defined benefit account works

The formula your fund uses to work out what you’ll get when you retire may differ from what other defined benefit funds use.

It may consider:

For example, a retirement benefit calculation might look like this.

A fund uses the following formula to work out your benefit (i.e. how much you’ll get) at retirement:

Average salary for the last 3 years × total years of service with the employer who sponsors the defined benefit account × benefit factor.

If a member:

  • had an average salary of $100,000
  • worked for 20 years at the employer, and
  • has a benefit factor of 0.15

their estimated retirement benefit would be:

$100,000 × 20 × 0.15 = $300,000

Example only
This example is simplified to show how a defined benefit account may work. Every defined benefit fund uses its own formula. Your fund may use different factors when calculating your benefit.

Are defined benefit funds still available?

Most defined benefit funds no longer accept new members. Many were offered by government employers, public sector organisations, universities and large employers.

If you’re already a member, you can usually stay in the fund while you’re eligible.

What happens when you retire?

When you retire, your defined benefit fund may offer:

Your options depend on your fund. 

Find out more about getting your super. 

What is a defined benefit income stream?

A defined benefit income stream pays you a regular income from a defined benefit super scheme.

Your fund works out how much you receive.

Unlike an account-based pension, payments do not usually depend on an account balance or investment returns.

Payments, tax and death benefits can vary between funds.

Learn more about tax and super.

Understand how different retirement income options can work together to fund your retirement including account-based pensions and lifetime income streams. 

Before making changes to your defined benefit super

Defined benefit accounts can offer benefits that other super accounts don’t.

Making changes may affect:

Before you decide, contact your fund and consider getting independent financial advice.

High-pressure sales tactics are putting your super savings at risk. Be on red alert for phone calls, click bait advertising and promises of unrealistic returns to encourage you to put your super into risky investments. Stop, think carefully, and check the claims first.

Read the investor alert and our tips on how to protect your money.

Questions to ask your fund

Every defined benefit fund works differently. Your fund can explain how your account works.

You may want to ask:

 

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