If you were employed by local government or certain water authorities before 1994, you may have a Vision Super Defined Benefit (DB) benefit. A DB benefit is very different to an accumulation account as your retirement DB benefit is based on a formula, rather than an account balance which includes investment returns.
In accumulation accounts, investment choice is the sole responsibility of the member and the member bears the investment risk. Dips/downturns in the investment markets may affect a member’s account balance based on the investment choices the member has made.
In contrast, under a DB arrangement, the member is guaranteed his/her DB benefit regardless of the investment performance of the fund. This is because the DB employer is required to pay sufficient contributions to the DB fund so that the fund is able to pay out the DB benefits as they become payable. Therefore, the investment risk of a DB benefit is borne by the employer and not the member.
If you leave your DB employer, and you are not re-employed by another DB employer within two months of your departure, you will be required to make some important decisions about your benefit. For example, do you want to defer taking your DB benefit, set up a lifetime pension (if you are eligible to receive one), or move your DB benefit into an income stream?
While we know it sounds daunting, don’t forget Vision Super’s financial advisors are on hand to help you.
What happens when I leave employment?
Your DB employer will advise Vision Super of your departure, including:
- Your salary at the time of your departure and years of employment, and
- The reason for your departure, for example, retirement, retrenchment, disability, resignation.
Your employer may provide this information to us either just before or after your actual departure. When all the correct information has been received by Vision Super, we will calculate your DB benefit entitlements, and write to you explaining your DB benefit entitlement and the next steps.
There are several options to choose from as your next step. For example, if you resigned from your DB employer, you may choose to take your resignation benefit as a cash payment, transfer it to a Vision Super Deferred Retirement Benefit account with the Vision Super DB fund, start a Lifetime Pension or open an accumulation account or set up an Income Stream (also known as a pension). You can potentially choose more than one of these options, which means it’s important to get the right advice.
The Vision Super DB Lifetime Pension option
If you joined the Defined Benefit Plan prior to 25 May 1988, you can elect to convert up to 50% of your DB benefit into a Lifetime Pension once you are eligible to take your benefit after age 55.
Depending on your living expenses and how long you live after retiring, it’s possible for your superannuation money will be used up before you die if it is in an account-based income stream/pension. However, in the case of a Vision Super DB lifetime pension, the lifetime pension will be paid to you as a regular income stream/pension for the rest of your life.
This Lifetime Pension is paid fortnightly throughout your life. When you die, it will continue to be paid at a reduced rate throughout the life of a qualifying spouse.
Your lifetime pension is also fully indexed with the CPI.
Account-based income stream/pensions
If you’ve decided to convert up to 50% of your DB benefit into a lifetime pension, you can still use the rest of your benefit to set up an account-based pension. If you do not take a lifetime pension, you may use 100% of your DB benefit to set up an account-based pension
An account-based pension is different to a lifetime pension as it is not payable to you for life. A pension will only be paid to you while there is money in the account-based pension. Once that money has been used, the pension will stop. Because it is an account-based pension, you’ll need to make investment decisions about how your account is invested and your investment returns will affect how much money there is to pay you.
An account-based pension is not guaranteed for life in the same way a lifetime pension is. Depending on your circumstances, you may choose to take an account-based pension or a non-commutable account-based pension (otherwise known as “transition to retirement”). If you take an account-based pension, there are rules regarding the minimum pension amount that you must take out each financial year. You’re also able to make lump sum withdrawals and your investment returns are tax free. You may also decide to adopt the “Three bucket pension” investment strategy, where your account is invested in three investment options (Cash, Conservative and Growth) in proportions that is determined by the annual pension withdrawals you set. This is only available if you have an account based pension.
If you take a non-commutable account-based pension, you are unable to make lump sum withdrawals and your investment earnings are subject to tax.
Need to talk one-on-one?
Our Financial Planners are superannuation and DB specialists and understand the intricacies of the Vision Super DB benefit and what is available to you. Their job is to help members plan their retirement and they do not receive brokerage, fees, bonuses or commissions for recommending products. If you choose to obtain advice from a Vision Super Financial Planner, you may be charged a fee. If any fees are applicable, they will be discussed with you before any financial advice is provided. Call the Member Services team on 1300 300 820 Monday to Friday 8:30am to 5pm to set up a time.