Regulators must act to end the UniSuper farce
The continued operation of the UniSuper fund is a serious threat to the unblemished record of Australia’s public sector defined-benefit funds. This was confirmed by the reaction to last month’s column (Our unis are stealing their staffs future, Informant, February 2013, p15). Not often is it possible to obtain access to inside information, but that article triggered a detailed response from a deep throat.
A consultative committee member agreed that UniSuper’s defined-benefit fund should be closed off to new members. With the exception of the military’s MSBS scheme, that has been the fate of all other public sector defined-benefit schemes. Importantly, the employer sponsors of those schemes are prepared to ensure that members receive all the benefits promised to them.
Such is not the case with UniSuper. Clause 34 of its trust deed allows trustees, on actuarial advice, to address funding shortfalls by reducing benefits on a fair and equitable basis. This raises the question of how this can be achieved when, compared with any other defined-benefit fund, UniSuper members benefits do not accrue on an equitable basis.
As highlighted last month, there is a huge bias in the distribution of benefits in favour of older members. Deep throat also pointed out that many of the older members, including those involved in decisions about the scheme, also benefit from a higher-than-average salary increase during their period of fund membership. This would be less of a concern if all members, including those with slower rates of salary increase, could be certain of receiving the benefits promised to them when they retire or leave the fund.
Of more immediate concern is that a consultative committee meeting was advised about three years ago that closing off new entry to the fund would lengthen the time it would take to reduce the funding shortfall. The contributions of younger members helped improve the overall funding situation. A follow-up question about the similarity of this arrangement to a Ponzi scheme was scorned by the chairperson and denied by the actuary.
With no employer standing behind the payment of benefits, and clause 34 allowing the trustees to reduce members benefits if there is a funding shortfall, it is possible to conclude otherwise. Indeed, a private actuary consulted about the justification for a benefit bias in favour of older members could not provide any other explanation.
Deep throat confirmed that a commitment to the defined- benefit fund is a prerequisite for being on the consultative committee. Further, it seems that regulatory intervention may be required to protect younger UniSuper members from being forced to remain in the defined-benefit fund. At present, a more accurate description of the fund for them would be an uncertain-benefit fund.
An even more immediate issue is the continued ability of UniSuper to offer indexed lifetime annuities to members without having the resources to ensure all commitments are met. UniSuper is being allowed to continue operating as a life insurance annuity provider without complying with the strict capital requirements mandatory for other private providers. This is a major risk to the financial security of over 6000 existing pensioners, who opted for a pension without being warned they might not get all the benefits promised to them.