Defined benefit pensions

Accurium have over 20 years experience in defined benefit pensions and our experienced team is ready to answer any questions you may have.

Defined benefit (DB) pensions are a type of a legacy pension where a member exchanged a purchase price for a series of regular payments from their SMSF. The main features that distinguish defined benefit pensions from account based pensions are:

  • Pension payments pre-defined and must be paid every year
  • The pension payments are not linked to investment performance
  • Other than the promised pension payments, the pensioner has no rights to the assets supporting the defined benefit pension
  • Not all assets supporting the defined benefit pension earn tax free income

A member has not been able to start a new defined benefit pension from their SMSF since 1 January 2006. Existing defined benefit pensions can be categorised as follows:

Complying defined benefit pensions

  • Complying lifetime
  • Complying life-expectancy (fixed term)

Commutable defined benefit pensions (Flexi pensions)

  • Commutable lifetime
  • Commutable life-expectancy (fixed term)

Assets supporting a complying defined benefit pension may be exempt from the Centrelink Assets Test for the purposes of Social Security:

  • 100% Assets Test exempt if started on or before 19 September 2004
  • 50% Assets Test exempt if started 20 September 2004 to 31 December 2005

Defined benefit pensions are subjected to an annual solvency test performed by an actuary. If you need an actuarial certificate for a SMSF with a defined benefit pension click here.

A defined pension as defined under Section 9A or 9B of the Social Security Act1 exchanges a purchase price for a specific defined income stream. The member ceases to have an interest in the assets and the income stream is not linked to the account balance. Once the terms of the defined pension are set up they cannot be changed.

The information on this page is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, tax advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.