Defined benefit vs accumulation
how police super actually pays out

An accumulation scheme gives you an account. Money goes in, it's invested, and what you retire with is whatever has built up. A defined benefit scheme gives you a promise. The scheme's rules set what you'll get, usually from your years of service and your salary near the end of your career.

Every number on this page is an illustration, calculated by us from published scheme rules and stated assumptions. None is a benefit estimate for you. For that, ask your fund. This is general information, not financial advice.

Most Australian police are now in accumulation super: Aware Super in NSW, QSuper in Queensland, GESB in WA, Super SA Triple S in South Australia, PSSap at the AFP, and a fund of choice or default fund in Tasmania and the NT. Each works the same basic way.

1. 1

   Contributions go in

   Every payday

   Your employer pays a percentage of your salary: 18% in Queensland, 15.4% at the AFP, at least 12% elsewhere. You can add salary sacrifice or after-tax contributions.

2. 2

   Tax comes off

   15%

   Employer and salary sacrifice contributions are usually taxed at 15% as they enter the fund.

3. 3

   The balance is invested

   Every year

   Returns are added and fees are taken out. Earnings are taxed inside the fund at up to 15% while you're working.

4. 4

   You retire with the balance

   From 60

   From preservation age you can take it as a lump sum, an account-based pension, or a mix.

Three things decide how big the balance gets: how much goes in, how long it's invested, and what it earns after fees. The next two sections show each lever in turn.

Take a new officer starting on $94,651, a WA first-year constable's salary, with nothing in super. They serve 35 years. We assume a 6.5% net return, 3% annual pay growth and 2.5% inflation, the same defaults as our calculator, and show the result in today's dollars.

Calculated by us, the higher rate adds about $375,000 over the career. In accumulation super, the employer rate is the single biggest lever you don't control, which is why it's worth counting when you compare forces.

Now hold the employer rate at 12% and change only the net return. This is where accumulation members carry the risk: the result depends on markets, investment option and fees.

Calculated by us, half a percentage point of extra fees costs about $69,000 over this career. The gap between the cautious and growth outcomes is about $450,000. A defined benefit member doesn't face either question for the defined benefit itself.

A defined benefit scheme pays a benefit worked out from a formula in its rules. The formula usually has three ingredients: a salary measure, your service, and a multiple or accrual rate. Investment returns affect the fund, and so the employer's cost, but not your benefit.

Benefits can be paid as a lump sum, a pension, or a mix, depending on the scheme. A pension indexed to inflation, like the QSuper Police account's CPI-indexed pension, does something no accumulation balance can: it keeps paying for life without you having to manage the money.

In ESSS, your lump sum is your Accrued Benefit Multiple times your Final Average Salary (FAS). Your multiple builds with service and depends on the member contribution rate you choose: 0, 3, 5, 6 or 7% after tax, with catch-up rates of 8, 9 or 10%. Contributing 7% for 30 years reaches the maximum multiple of 7.5.

Suppose your FAS equals today's top senior constable rate of $118,945. We use that figure only to show scale; ESSSuper's rules decide which parts of your pay count.

Calculated by us, a maximum benefit on that salary would be about $892,088. To match it, an accumulation member would need a balance of the same size at the same date, with all the investment risk on the way there. Compare that with the accumulation illustration above.

The multiple you don't build early can't be fully recovered later, so the contribution choice you make in your twenties matters. ESSS also projects disability and death benefits to age 55 for operational members, which is a valuable feature of the formula.

The QSuper Police account pays a pension at 60 equal to fortnightly final average salary × [3 × service before 1 July 1988 ÷ 160 + service from 1 July 1988 ÷ 62.5], capped at 75% of FAS and 40 years. It's indexed to CPI each August and can be commuted to a lump sum.

Take a hypothetical officer who joined on 1 July 1986 and retires at 60 on 1 July 2026: 2 years before 1 July 1988 and 38 years after. Suppose their FAS equals today's top sergeant rate, $133,671.

Calculated by us, that's about $86,285 a year, indexed to CPI for life. Retiring at 55 instead would multiply the pension by 0.85, rising 3 points a year to the full amount at 60. Members contributed 7% (if they joined after 26 February 1984).

NSW PSS members contribute 6% of their salary of office. According to State Super's fact sheet, the maximum pension is 72.75% of salary after 30 years at 60 or over, the maximum lump sum is 7.95 times salary, and early retirement at 55 gives up to a 58.20% pension or a 7.58 times lump sum.

The hurt-on-duty invalidity pension is 72.75% of salary regardless of service, which shows how defined benefit schemes can build disability protection into the formula. State Super administers the scheme and can give members an estimate.

Imagine markets fall 20% in the year before you retire. Take the 12% accumulation balance from our earlier illustration, $750,000.

An accumulation member loses about $150,000 on paper, and either waits for a recovery or retires on less. That's why many accumulation members move towards more defensive options as retirement nears. A defined benefit member's benefit is the same either way.

In accumulation super you own the risk. In defined benefit super the scheme does.

The trade-off runs the other way if you leave early. An accumulation balance is yours and portable. A defined benefit can be worth far less to someone who leaves after a few years than to someone who serves a full career.

For each force's scheme in depth, see police superannuation explained.

Moving forces part-way through a career changes the picture again, because you'll usually leave one arrangement and join another. See transferring to another force before you make that call.

Related: when you can access super, police retirement ages and the retiring hub.