Superannuation
4. Superannuation Fund Design
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 27 Aug 2015
- In Australia there are two main designs of superannuation funds:
- accumulated contribution funds; and
- defined benefit funds.
- Under accumulated contribution funds all contributions are paid directly into an individuals’ super account.
- The super fund trust or company uses the accumulated money of all its members for investments.
- The members of the fund bear the investment risks and it is important to understand that the super payout may be lower than projected depending on the financial markets.
- The investment profits are credited to the member account and the investment losses are withdrawn.
- Most funds allow an individual to choose how their super is invested.
- All investment strategies are risk based and before selecting an investment option you should always read the Product Disclosure Statement (PDS) which will give you information about the investment strategy, expected returns and risks associated with investment.
- A growth investment option is a high-risk high growth option where a company invests 85% of your fund in shares or property.
- A balanced investment option is a medium risk medium return option where a company invests around 65% in shares or property and 35% in fixed interest and cash investments.
- A conservative investment option is a low risk low return option in which the majority of your fund is invested in fixed interest and cash investments.
- A cash investment option is a low risk low return option under which your entire fund is invested with Australian deposit-taking institutions such as a term deposit with a bank.
- In the event that you do not select an investment option your fund will usually select a default investment option on your behalf.
- Defined benefit funds are common under public sector funds and are generally not offered to new members. Under a defined benefit fund design the super payout depends on a number of factors:
- employer contributions;
- self-contributions;
- number of years worked; and
- salary just prior to retiring.
- Most defined benefit funds offer their members generous payouts that are either:
- lump sum amounts equivalent to five times the salary a person earned just prior to retiring; or
- 75% of the salary amount paid monthly as a retirement benefit for life.
- If you are in a defined benefit fund it is advisable not to transfer to an accumulation fund.
- If you are considering changing funds it is strongly recommended that you get financial and legal advice as you cannot return to a defined benefit fund once you exit.
- Our free Find a Lawyer directory provides contact details for lawyers who may suit your needs.
- Both accumulated contribution funds and defined benefit funds offer members various insurance policies such as life insurance and total and permanent disability insurance. The premiums for the insurance policies are directly debited from the fund.
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