How Defined Benefit Funds Work:

Unlike Accumulation Funds, DB Funds don’t rely solely on your contributions or how well the market performs. Instead, a formula dictates your retirement benefit, typically considering:

  • Your Salary: Often, your average salary over the last few years before retirement is factored in.
  • Years of Service: The longer you work for the employer offering the DB Fund, the higher your benefit might be.
  • Predetermined Rate: The fund might have a set rate multiplied by your salary and service years to calculate the benefit.

This approach offers a sense of security. You know, with a fair degree of certainty, what income to expect in retirement. The responsibility for ensuring sufficient funds for your payout falls on the shoulders of the employer and the DB Fund itself.

Who Offers Defined Benefit Funds?

Traditionally, DB Funds were prevalent in the public sector and some large corporations. However, their popularity has declined in recent times. Here’s why:

  • Employer Burden: The responsibility of ensuring enough funds for payouts rests with the employer. This can be a significant financial burden, especially during economic downturns.
  • Investment Risk: DB Funds typically invest the contributions to generate returns that help fund future payouts. Poor investment performance can leave the fund underfunded.
  • Longevity Risk: People are living longer. This means DB Funds need to account for longer payout periods, potentially increasing their financial strain.

As a result, many DB Funds are now closed to new members. Existing members continue to enjoy the predetermined benefits, but new employees might be enrolled in Accumulation Funds.

Benefits and Considerations of Defined Benefit Funds:


  • Guaranteed Income: Knowing your retirement income in advance provides peace of mind.
  • Market Protection: You’re shielded from poor investment performance that might affect Accumulation Funds.
  • Employer Contributions: Employers contribute significantly to DB Funds, potentially boosting your overall retirement savings.


  • Limited Choice: These funds are less common, restricting your superannuation options.
  • Lower Overall Benefit: The predetermined benefit might be lower than what a well-performing Accumulation Fund could generate.
  • Less Flexibility: Transferring benefits from a DB Fund to another fund might be difficult or have limitations.

Is a Defined Benefit Fund Right for You?

If you’re fortunate enough to be a member of a DB Fund, consider yourself lucky. It offers a guaranteed income stream in retirement. However, it’s wise to:

  • Understand the Benefit Details: Know the exact formula used to calculate your benefit and any limitations on transferring it.
  • Plan for Other Expenses: DB Funds might not cover all your retirement needs. Consider having an additional superannuation strategy or savings plan.
  • Seek Professional Advice: A financial advisor can help you understand how your DB Fund fits into your overall retirement plan.

In conclusion, Defined Benefit Funds offer a guaranteed income stream, but they’re becoming less common. If you’re lucky enough to be a member, appreciate the security it provides. However, remember to plan for any potential shortfalls and consider seeking professional advice to create a well-rounded retirement strategy.


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