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Monitoring the DBD

UniSuper regularly monitors the financial health of the DBD and continues to make prudent decisions when it comes to managing your super and retirement savings.

There are two measures UniSuper uses to monitor the financial health of the DBD at any given point in time. These are:

Accrued Benefits Index (ABI)

The ABI reflects the most reasonable estimate of the expected pattern of members actually joining, contributing to and leaving the Fund, against the assets required to ensure that all members’ benefits are available when they fall due. This is the measure the Trustee of UniSuper believes is most relevant; however it is an estimate and only actual experience will ultimately determine whether the Fund has sufficient assets available to meet members’ benefits as they fall due.

Vested Benefits Index (VBI)

The VBI measures the capacity of the DBD to pay out all members’ benefits from existing assets in the event they were all to leave the DBD at the same time. The Fund must compulsorily report this measure to the Australian Prudential Regulation Authority (APRA).

While an important theoretical measure, this scenario is considered highly unlikely in UniSuper’s case, as our DBD is a multi-employer fund where the liabilities are shared across a number of large and stable employers who all pay contributions into the Fund at a constant rate. This contrasts with the more traditional single-employer defined benefit funds, where an individual member may be more exposed to the risk of his or her employer failing to pay their defined benefit contributions.

How these measures have been performing

UniSuper publishes quarterly estimates of the VBI and ABI as part of this DBD Update.  However it is important to note that the VBI and the ABI are based on various assumptions about things like future earnings and future salary growth that will change from time to time. In addition to this, the VBI and ABI fluctuate constantly depending on how investment markets are performing.

The following estimates were made as at 31 March 2012 and are based on 31 December 2011 assumptions:

    Accrued Benefits Index (ABI) – 101.4%
    Vested Benefits Index (VBI) – 89.7%

How has the DBD performed in the past?

During its 29-year history, the DBD has generally performed in line with expectations, although it has experienced a number of periods when its liabilities have exceeded assets, as measured by the VBI. These situations have typically resulted from extreme market volatility.

The graph below considers the financial health of the DBD from December 1991 to June 2011 (when the Fund's actuary completed the most recent review of the DBD), using both the ABI and the VBI.

As you can see, during this period, the value of both indices fluctuated in line with a number of factors, including:

  • actuarial revisions to modelling based on the expected numbers of members joining and leaving the Defined Benefit Division or changed expectations about the future,
  • movements in investment markets and other experience,
  • benefit changes or improvements reflecting prior surplus distributions, and
  • changes in the Trust Deed to accommodate new developments.

What would happen if liabilities exceeded assets over a sustained period?

Where an actuarial review determines that the Fund’s assets may not be sufficient to cover liabilities, a ‘monitoring period’ of at least four years is triggered during which the financial health of the DBD is closely monitored. This is referred to as a monitoring period under ‘Clause 34’ of the Fund’s Trust Deed.

During the Global Financial Crisis (2009), the Trustee Board elected to trigger a monitoring period. You can see the VBI measure at that time in the graph above. Market volatility since then, caused by the sovereign debt crisis and continuing weaknesses in the US and European economies, led to a second monitoring period being triggered in November 2011.

The Trustee is taking prudent, sensible and thoughtful steps, by triggering monitoring periods, regular reviews and working with the actuary, to manage the risks to the DBD pool. However DBD members should be aware that there is a chance of defined benefits being, in some way, reduced on a fair and equitable basis in the future to ensure the long-term financial health of the DBD.

The DBD is an absolute priority for us at UniSuper, and we’re committed to protecting its financial position for the benefit of all DBD members, both short and long-term.

To find out more:

 

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