The majority of superannuation funds today are ‘accumulation funds’, that is, the amount of money you receive when you retire is dependent on the amount you have accumulated in your working life. The value of your account may vary depending on how much you contribute, the investment option you choose and its returns and the fees deducted from your account.
Some older corporate or public sector funds may have ‘defined benefit’ members. In these, the value of your retirement benefit is set by the fund rules and may be calculated based on factors such as your contribution rate, your length of service and your salary when you retire.
One of the features of defined benefit funds is that your employer or fund generally takes on the investment risk so your account is insulated from market fluctuations.
The majority of defined benefit funds are now closed to new members.
If you are considering changing from a defined benefit fund to an accumulation fund, we recommend you seek professional advice from a licenced financial planner.