You may already know there are different types of super funds, from retail funds to industry funds, and corporate funds dedicated to the staff of a particular employer, like Qantas Super.

But did you know there are also different types of super accounts which determine how a member’s super benefit is calculated?

The two main types of accounts are accumulation and defined benefit. Some funds, like Qantas Super, offer a mix of the two.

At Qantas Super, Divisions 1, 2, 3, 4, and 15 offer defined benefits. Some members in these Divisions may also have linked accumulation accounts.

What’s the difference between accumulation and defined benefit accounts?

Accumulation

An accumulation account works a bit like a bank account. Your balance at retirement depends on the contributions made by your employer and any contributions you may make, minus any relevant fees, taxes, and insurance premiums.

Your balance will also depend heavily on investment returns, which may be positive or negative. A member with an accumulation account will generally be able to choose their investment option, and bears the risk of investment returns being negative.

Defined benefit

If you’re a member of a defined benefit division, the defined benefit component of your benefit will be calculated according to a pre-determined formula. Common factors in a formula may include your:

Credited Service

For members of Qantas Super, Credited Service is the length of time, in years and complete days, that you were continuously employed by the Qantas Group, excluding any period during which you were on unpaid leave or a casual employee. Adjustments may also be made for any periods of part-time employment.

Superannuation Salary

This is the salary amount used to determine how much your employer needs to contribute to your super. It’s usually based on your ordinary time earnings and generally excludes overtime. Depending on your division and your occupation, it might also include allowances, loadings, and other benefits.

Final average salary (FAS)

Your FAS is your highest final average annual Superannuation Salary calculated over a particular period of time.

Accrual rate

Your accrual rate is a fixed percentage used to calculate your defined benefit, and will depend on your division and occupation. You can check yours by viewing your latest statement online.

Another key feature of a defined benefit is that, because your defined benefit is calculated according to a pre-determined formula, changes in the market generally have little effect on your benefit at retirement.

Case study: Betty

Here’s an example of how a defined benefit works, using a Qantas Super member.

Betty is in Division 3 and has worked for Qantas for 20 years full-time. Her Superannuation Salaries in the last three years were $58,000, $60,000, and $63,000.

Betty also has a Rollover Account, which is an accumulation account, of $150,000.

Let’s take a look at the benefit Betty will receive if she were to retire after 20 years of Credited Service.

Defined benefit formula at retirement =

(Accrual rate x Final Average Salary (FAS) x Credited Service) + Rollover Account

(18% x $60,333 x 20) + $150,000

$217,199 + $150,000

Total payable to Betty on retirement = $367,199

Components of the formula

Accrual rate: 18%

Final Average Salary (FAS): ($58,000 + $60,000 + $63,000) ÷ 3 = $60,333

Credited Service: 20 years

Betty’s Rollover Account: $150,000

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