Defined Benefit Division funding and updates

UniSuper is governed by the Trust Deed, which sets out rules and processes which we must adhere to.

Under Clause 34 of the Trust Deed, if the Actuary’s investigation report indicates that the actuarial measures have fallen, or are likely to fall, below particular levels, a 4-year monitoring period is triggered. If this happens, we must notify members of the DBD and employers.

A monitoring period is triggered if:

• the Accrued Benefits Index (ABI) is less than 100%, or
• the Vested Benefits Index (VBI) is less than 95%, or
• the level of contributions to UniSuper mean it’s likely that either of the above measures (or both) falls below those levels.

At the end of the monitoring period, if the Actuary’s investigation report indicates that the actuarial measures of the DBD have not improved enough, our Trustee Board must consider whether it is in the interests of DBD members as a whole (including pensioners receiving Defined Benefit Indexed Pensions) to reduce benefits payable.

If benefit reductions are required, the Board must do so on a fair and equitable basis.

These occurred in 2008, 2011, 2012 and 2013.

The monitoring period triggered in 2008 and ending on 31 December 2012 saw the UniSuper Board consider benefit reductions. Based on the results of the actuarial investigation as at 1 January 2013, the Board considered whether it was in the interests of DBD members to reduce benefits payable. On 5 August 2013, the UniSuper Board announced its decision that:

• For future benefits accruing on and after 1 January 2015, the Benefit Salary used in the calculation of defined benefits will be based on the member’s annual equivalent full-time salaries averaged over the past five years of employment (instead of three) and past salaries used in the averaging calculation will no longer be indexed by Consumer Price Index (CPI) to the date of the Benefit Salary calculation.
• Benefits that DBD members have accrued (and would have accrued) before 1 January 2015 will not be altered.

See more on these changes

The DBD recovered sufficiently and no further action was needed for the following monitoring periods:

• 30 June 2011 - 30 June 2015
• 30 June 2012 - 30 June 2016
• 30 June 2013 - 30 June 2017

Clause 34 of the Trust Deed was changed in 2006 and 2011.

Our Board can change the Trust Deed, with the consent of our Consultative Committee (made up of 50% member-representatives and 50% employer-representatives).

2006 changes

We introduced changes to make sure members don’t mistakenly think employers would contribute more to the DBD in the event of a funding shortfall.

Employers have never been required to make extra contributions in the event of a shortfall. However, prior to 2006, we could ask employers and members to make extra contributions voluntarily if we believed the Fund’s assets were not enough to cover benefit payments. If one or more employers decided not to increase their contribution levels, then the Trustee was required to reduce benefits.

We consulted with employers and it was clear that not all employers would approve an increase if asked. So, the option to ask employers for extra contributions was removed from Clause 34.

2011 changes

There were 2 changes made to Clause 34:

We introduced an objective measure (the ABI and VBI) to determine if the DBD was in an adequate funding position and when the monitoring period is triggered.

We allowed the Board to use discretion when deciding whether to reduce benefits.

Before this change, the Board was compelled to reduce benefits in some circumstances.

After the 2008-2012 monitoring period, the UniSuper Board was required to consider whether changes to the members’ benefits should be made to improve the long-term sustainability of the Defined Benefit Division (DBD).

Higher salary increases, lower investment returns and longer than anticipated life expectancies contributed to the underfunding of the DBD between 2008 and 2012.

On 5 August 2013, the Board decided to change the way future benefits will accrue.

For benefits accruing from 1 January 2015, the Benefit Salary in the defined benefit formula is calculated based on:

• your average annual equivalent full-time salary over the past 5 years (up from 3 years) and
• your actual past salary – no longer indexed by Consumer Price Index (CPI).

Generally, the 5-year Benefit Salaries are lower than the 3-year Benefit Salaries. In the unlikely event that your 5-year Benefit Salary is higher than your 3-year Benefit Salary, your benefits accruing after 1 January 2015 are calculated using the 3-year Benefit Salary.

There were no changes made to benefits accrued before 1 January 2015.

See how the board came to this decision

Looking after the interests of DBD members as a whole is a key priority for the Board.

It’s also the Board’s duty to ensure, as far as possible, that the contributions to the DBD and the associated investment earnings are sufficient to fund the benefits that members will accrue into the future. Based on the expectations of future investment returns, future salary growth, and advice from our Actuary about the estimated costs of future service, the Board believed it to be in members’ interests to change the way future benefits accrue for DBD members.

Strong investment performance during 2012-13, meant that the DBD’s assets were expected to be sufficient to cover all benefits that accrued until 1 January 2015. Therefore, the Board decided that the benefits members had accrued to that date did not need to be reduced.

Changing the DBD helped give greater confidence that benefits can continue to be paid fairly and equitably into the future while preserving the benefits that members had accrued to 1 January 2015.

Your super balance

The change to the Benefit Salary component of the DBD formula affects how your defined benefit accrues from 1 January 2015.

If you had a DBD account before this date, your defined benefit component is calculated with 2 different formulae (pre- and post- 1 January 2015) – your pre 1 January 2015 benefits continue to be calculated based on the 3-year Benefit Salary and your post-1 January 2015 is calculated based on the 5-year Benefit Salary.

Your inbuilt benefits

As we use your salary to calculate your inbuilt benefits, these may also be affected. These benefits include Death, Disablement, and Temporary Incapacity benefits.