Defined benefit superannuation funds provide a retirement benefit based on a formula — typically linked to your salary and years of service — rather than the investment returns on your accumulated balance. They are rare in the private sector today but remain common among long-serving government employees.
How Defined Benefit Super Works
In a defined benefit fund, your retirement benefit is determined by a formula, such as:
Benefit = Final average salary × Years of service × Accrual rate
Example:
- Final average salary: $120,000
- Years of service: 25
- Accrual rate: 3% (common in Commonwealth schemes)
- Defined benefit: $120,000 × 25 × 3% = $90,000 per year (indexed pension or lump sum equivalent)
The key difference: you bear less investment risk. The fund (backed by the employer/government) bears the risk that investments may not deliver the required return. If investment performance is poor, the employer must make up the shortfall — not you.
Who Has Defined Benefit Super in Australia?
Defined benefit funds are now largely closed to new members. Most existing members work (or have worked) in:
| Fund | Who it covers |
|---|---|
| CSS (Commonwealth Superannuation Scheme) | Commonwealth public servants (pre-1990 entrants) |
| PSS (Public Sector Superannuation Scheme) | Commonwealth public servants (1990–2005 entrants) |
| PSSap | Commonwealth public servants (post-2005 — accumulation only now) |
| GESB | Western Australian government employees |
| State-specific schemes | VIC, NSW, QLD, SA government sector (various) |
| Military Super (DFRDB/MSBS) | Australian Defence Force pre-2016 |
| Some large private sector schemes | Closed legacy schemes (e.g., some Telstra, banking sector) |
Most Australians joining the workforce today will be in accumulation funds — not defined benefit.
Defined Benefit vs Accumulation
| Feature | Defined Benefit | Accumulation |
|---|---|---|
| Retirement benefit based on | Salary and service formula | Balance of account + investment returns |
| Investment risk borne by | Employer/fund | Member |
| Member account balance | May not reflect actual benefit entitlement | Exactly equals account balance |
| Portability | Complex — often reduced on early exit | Simple rollover |
| Contribution tax | May be different (check your fund) | 15% on concessional contributions |
| Benefit adjustment | Yes — often indexed to CPI | No — balance moves with markets |
The Transfer Balance Cap and Defined Benefits
Members with defined benefit pensions have special rules for the Transfer Balance Cap (TBC, currently $1.9M):
- A defined benefit pension is counted at its special value (annual entitlement × a factor, typically 16) against the TBC
- Members with large defined benefit pensions may have already used or exceeded their TBC
The complexity of defined benefit TBC calculations means these members typically need specialist advice.
Things to Know If You Have a Defined Benefit
- Resignation penalty: Leaving a defined benefit fund early often significantly reduces your benefit. Understand the exit formula before resigning.
- Preserved vs preserved component: Parts of defined benefit entitlements may not be preserved under normal super rules — check your fund’s trust deed
- Defined benefit income streams: These cannot be rolled to another fund in the same way as accumulation super
- Tax offsets: Defined benefit income streams often include tax offsets that reduce the effective tax payable — how these work depends on the fund and the component
Frequently Asked Questions
My employer offered to move me from a defined benefit fund to an accumulation fund — should I accept? This is a significant decision with long-term consequences. The value of the defined benefit is highly individual — factors include age, salary trajectory, and remaining service. Seek independent financial advice before making any decision.
Can I make voluntary contributions to a defined benefit fund? Some defined benefit funds allow voluntary contributions to an accumulation component attached to the defined benefit. Check your fund’s specific rules.
What happens to my defined benefit if I die before retirement? Most defined benefit funds provide a death benefit (often a pension to a surviving spouse or a lump sum to the estate). Check your fund’s rules and nominate a beneficiary.
For more: Australian Super Fund Types, Military Super Guide, PSSAP Review, Transfer Balance Cap Explained. For advice tailored to your situation, speak with a licensed financial adviser via MoneySmart.