Clause 34 and securing the DBD’s financial future
Benefits for Defined Benefit Division (DBD) members are calculated using a formula based on age, benefit salary, period of service, average service fraction and level of contributions.
In practice, the contributions paid on behalf of DBD members, along with the pooled funds of members who’ve chosen a Defined Benefit Division Indexed Pension based on Trust Deed factors, are invested by UniSuper in a diverse portfolio of shares, property, bonds and cash; currently similar to UniSuper’s Balanced investment option. This portfolio is designed to grow over time so that sufficient funds are available to pay members’ benefits as they become due.
Since late 2007, Australian and international investments have experienced extreme volatility. As a result, the falls in investment markets have impacted the assets of the pooled fund that pays benefits to DBD members. Despite this, in its investigation of the DBD at 31 December 2008, the Fund’s actuary confirmed that, on a ‘best estimates’ basis, the DBD still has sufficient assets to pay all members’ benefits as they become due.
As a precautionary measure, however, the Trustee initiated the process described in Clause 34 of the Fund’s Trust Deed in June 2009. This action is designed to protect the long-term financial stability of the DBD and will enable the Trustee to properly manage the assets of all DBD members for the future.
The process set out in Clause 34 is simple: over a minimum period of at least 4 years the Fund’s actuary will conduct another two in-depth actuarial investigations into the financial health of the DBD. At the end of the four-year period, if the DBD is considered to have insufficient assets to meet its liabilities, the Trustee will be required to reduce DBD members’ benefits on a fair and equitable basis.
Importantly, there is no immediate change to how benefits are calculated or paid as a result of the Trustee invoking Clause 34, nor are there any current plans to change these benefits. How any reduction to DBD benefits might be managed in the future would ultimately depend on the financial position of the DBD at the end of the Clause 34 monitoring period.
For more details on how the Trustee monitors the ongoing financial health of the DBD and the action it has taken to protect its financial future, please see the information and fact sheet, Your Defined Benefit Division and investment markets, provided on the UniSuper website www.unisuper.com.au/DBDupdate
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