I’m retiring soon. Should I keep my defined benefit scheme?

I am 52 and intend to work for another eight years. I have $300,000 in super in a defined benefit fund. It is projected to be $550,000 at retirement. My concern is that when I run the numbers for accumulation funds, the projected balance is $200,000 more, but more volatile. Should I stick with the defined benefit, or roll it out to an accumulation account?

Thanks for your question. As a general rule of thumb, anyone with a defined benefit super fund would normally hang onto it for dear life.

You might get better returns with your money in an accumulation account, but you’ll take on more risk.Credit: Simon Letch

Under defined benefit plans, the provider takes on all the investment risk, and you get a guaranteed benefit. Their attractiveness is magnified further if they provide lifetime pensions, which many do.

A defined benefit pension buys you a guaranteed income, adjusted for inflation, for as long as you live, with the potential for a portion of that to then revert to your spouse upon your passing, if relevant.

We’re of a similar age, and like you, when I started my working life I was also in a defined benefit fund. A few years in, my employer changed to an accumulation fund, and everyone in the old scheme had the option of migrating across.

I recall they provided us with calculators to help us make an informed decision, and when I ran the numbers, it seemed that the accumulation option was the way to go, similar to the conclusion you’ve reached here.

For me, it probably was the right call, as I didn’t stick with that employer, but I did observe that older employees who chose to remain with the defined benefits scheme were by a significant margin happier with their retirement outcome than those who made the shift to accumulation.

I don’t know all the details of your defined benefit plan, and to give a definitive answer you’d really need to crunch the numbers. But I certainly wouldn’t be walking away from your defined benefit scheme lightly.

Something you could consider is starting an accumulation fund in parallel to your defined benefits fund, and perhaps salary sacrificing to that if affordable. Given you have no risk in the defined benefit scheme, you could afford to be quite aggressive with the accumulation account.

I’m still working and have $370,000 in superannuation, from which I draw down the minimum of 4 per cent. My son is repaying a loan of $400,000 at $7000 a month. I’m looking for advice on how best to manage the repayments from my son once I stop working. It’s unfortunate that the government requires a minimum withdrawal from super, as I could live off the loan repayments and preserve my super balance.

It isn’t essential that you draw a pension from your superannuation, so if you don’t require that income, consider rolling it back to an accumulation account.

In accumulation, there is tax payable on the earnings, which is 15 per cent, whereas in the pension phase there is no tax. The consequence therefore is that earnings within the accumulation account are slightly lower than the pension due to this tax differential.

However, if it is the case that your pension is producing income that you don’t need, and that excess income then sits in the bank earning very little, you are likely to be better off back in accumulation.

Alternatively, you could continue to receive the pension income and then deposit that back into super as an after-tax contribution. This is possible through until age 75.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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