Superannuation - Defined benefit vs accumulation funds

Introduction

Super funds invest your money in many things, such as shares, property and managed funds.  They also offer different types of insurance, such as income protection.

Additional information about superannuation or your particular fund can be found by contacting your super provider or the ATO

Defined benefit funds vs accumulation funds

Accumulation funds

Accumulation funds grow or accumulate funds over time.  The value of super depends on:

  • How much money your employer contributes

  • How much extra you contribute

  • How much you receive in bonus contributions

  • How much your fund earns from investing your super and the amount of fees charged

  • the investment option you choose

Investment profits are added to your account, and investment losses are taken out - you bear the risk of your super payout being lower when financial markets drop.

 Defined benefits funds

Most defined benefit funds are corporate or public sector funds and many are now closed to new members.

The value of your retirement benefit is defined the the fund rules and depends on:

  • How much money your employer contributes

  • How much extra you contribute

  • How long you have worked for your employer

  • Your salary when you retire.

For example, after 25 years' membership, your retirement benefit might be worth:

  • Five times your final salary (as a lump sum), or

  • 75% of your final salary (as a monthly payment) until you die

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