In superannuation funds, there are two different fund designs which determine how members’ benefits are calculated:

• accumulation funds (also known as defined contribution)
• defined benefit funds (DBF).

1.5.1 Accumulation funds

An accumulation fund operates rather like a bank account. Contributions are paid into the fund and these earn income paid from the investment earnings of the fund. The contributions and investment earnings, with the administration charges, tax and other costs taken out, accumulate in the fund until the member leaves, dies or becomes permanently incapacitated.

In an accumulation fund, superannuation contributions and investment earnings are paid into the member’s account. There is no guarantee of how much money they will have in their accounts at retirement, because the member bears the risk of investment returns being negative.

The level of benefits available when a member leaves the fund depends on the level of contributions and earnings allocated to the member’s account less costs (if any) and tax deducted.

The level of benefits available when a member leaves the fund depends on the level of contributions and earnings allocated to the member’s account less costs (if any) and tax deducted.

NASFund, Nambawan Fund and Aon are all examples of accumulation funds.

1.5.2 Defined benefit funds

In a defined benefit fund (DBF), the superannuation contributions are paid into the fund and pooled. They are not allocated to individual members. The benefit payments are calculated using a formula that is set out in the fund’s trust deed. The formula incorporates:

• salary 
• Rank
• years of service (or fund membership) 
• age.
• The money in a defined benefit fund is normally kept as a single pool as member’s benefits are determined by a formula rather than reflecting what the employer actually contributes (except when less than 8yrs of service). In this type of fund, the employer bears the investment risk as the investment returns will define how much the employer must contribute to keep the pool funded. This is determined by the evaluation from an Actuarial firm. 

CTSL operates as a defined benefit pension fund. Members are usually eligible for a pension after 20 years of continuous service with the Defence Force.

The amount of pension is determined through a formula which takes into account a member’s level of salary, rank, years of service and age at retirement. The pension may be payable to the member’s beneficiaries if the member dies. 

The fund is funded by member contributions of 6% of their gross salary, investment returns, and a guarantee from the government to top benefits up to pay 60% of pension benefits when they fall due.

You will learn more about how benefits work for CTSL in Chapter 5 - Benefits.