Further questions surrounding UniSuper
This month's Public Sector Informant highlighted the uncertainty for UniSuper defined benefit fund members arising from a funding shortfall their employers are not prepared to meet. Subsequently, the unions whose members are affected by the threat to reduce future benefits ''on an equitable basis'' have forced UniSuper to establish a working group to look at options other than reducing benefits if returns don't improve.
Responding to queries from concerned retired university employees at present receiving what they thought were guaranteed lifetime indexed pensions, Asset Check investigations have found that current legislation provides little if any protection for them. While the Australian Prudential Regulation Authority requires life insurance companies and similar financial entities to provide reserves backing their sales of lifetime amenities, it offers no similar protection to superannuation fund members.
Apparently the operation of a defined benefit superannuation fund is governed solely by its trust deed.
Asset Check was advised by one actuary that the trust deed of a super fund like UniSuper would be able under current law to promise defined benefits to members even without an employer guarantee of the promised benefits. It appears the only protection for members of an APRA-supervised defined benefit fund is to ensure wherever possible the trust deed places an obligation on the employer to meet any funding shortfall.
If this is a correct interpretation of the current law, just over 6000 current UniSuper lifetime pension recipients could end up not receiving the benefits promised to them at retirement. How the Federal Government and APRA can justify such an outcome compared to their strict regulation of other lifetime annuity providers is difficult to understand.
Importantly also, Asset Check has been unable to clarify whether the working group established to review the UniSuper options will include any representative of the large number of existing defined benefit pensioners.
Along with other defined benefit funds, UniSuper's funding problems have arisen because salary growth, which is a key component of its benefit entitlement formulas, has in recent years exceeded annual investment earnings. Even if investment returns increase in the near future, how can the government allow any employer to offer defined superannuation fund benefits and lifetime annuities to its members if that employer is not prepared to guarantee the promised benefit payments?