A defined benefit superannuation fund promises a specified pension payment and/or lump-sum upon retirement. Usually provided by a government employer or some large companies, the specified retirement benefits are based on a formula which uses your income level, your age at retirement and the number of years you have worked for the employer. This means a fund’s investment performance and the amount of contributions paid into it over the years does not affect the starting benefit paid out by a defined benefit pension.
This is unlike the majority of superannuation funds in Australia where the retirement benefit is based on how much was paid in (usually by the employer) and how much growth was achieved by the retiree’s chosen investment option.
These days whilst defined benefit pensions still exist, they are no longer offered to new employees of the government or companies that used to offer defined benefit funds.
While the removal of any market/investment risk of defined benefit pensions may give you comfort and income security for your retirement it may come at the expense of flexibility and accessibility to lump sum amounts that regular super pensions can provide.