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Fork in the road

Most Australians think that superannuation was introduced by Paul Keating in the early 1990s, but it wasn’t.  

Some Australian super funds have existed for more than a hundred years.  And if you’re fortunate enough to be a member of an old scheme, it pays to understand your options.


Better than gold

The NSW State Super Scheme, or SSS, opened to members in 1919.  It’s an interesting super fund because it’s a ‘defined benefits fund’.  That means that each member’s entitlements are based on a formula, not on the investment performance.

And, boy, is it generous.  That’s why the government closed it to new members in 1985. But even though it’s now closed, existing members can still enjoy the full benefits.

It’s generous because a member’s benefits are calculated based entirely on a formula set out in the Superannuation Act of 1916. And the thing is that in 1916 life expectancies were much shorter than they are today.

The State Super Scheme pays out a fortnightly pension for the rest of the member’s life after they retire, normally at age 60.  Now, keep in mind that in 1916, the average life expectancy of a male was less than 50, and for females it was less than 55. 

Back then most people didn’t even reach retirement age. Today a 60-year-old man can expect to live a full 24 years, and a woman almost 27 years.


Pension or lump sum?

The State Super Scheme is a pension fund, but it has some lump sum options.  If you’re a member, at retirement you can choose to exchange some or all of your pension for a capital lump sum.  

But most people don’t.  They don’t because exchanging the pension for a lump sum doesn’t make financial sense.  The payout ratio is measly.  It may have been okay in 1916 when people didn’t live very long, but it just doesn’t make sense in 2021.

Sure, there’s still some risk if you take the pension.  If you die prematurely, you may have been better off taking the lump sum.  Or if you’re burdened with debt and don’t own your home.


Wisdom of Yogi Berra

Some decisions in life are easy.  Like ordering sticky date pudding when it’s on the menu. 

Our advice is that you should undertake a full medical when you’re facing the pension versus lump sum decision.  From there, the decision should be clear.

In the words of Yogi Berra, “When you come to a fork in the road, take it”.


If you’re a member of an old scheme, it’s important to speak with an expert.  At When Financial Solutions, we understand the complexities of defined benefits super, especially NSW and Commonwealth public sector schemes.  We are experts in SSS, SASS, CSS, PSS, Local Government Super and UniSuper.   

So, if you partner with us, it’s not a matter of ‘if’ you will make the most of your defined benefits scheme choices, but ‘when’.


Michael Bowman and James McMaster are co-founders of When Financial Solutions.  This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please give us a call.


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