members
Monitoring the health of the DBD
UniSuper regularly monitors the financial health of the DBD and continues, as is normal practice, to make prudent investment decisions when it comes to managing your super and retirement savings.
There are two measures that UniSuper use to monitor the financial health of the DBD at any given point in time. These are:
- Accrued Benefits Index (ABI)
The ABI reflects 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 that the Trustee of UniSuper believes is the more relevant.
- Vested Benefits Index (VBI)
The VBI measures the capacity of the DBD to pay out all members’ benefits from existing assets in the event that they were all to leave the DBD at the same time. The Fund must compulsorily report this measure to the Australia Prudential Regulation Authority (APRA).
While it is an important theoretical measure, this proposed scenario is practically inconceivable 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 meet their defined benefit liabilities.
How these measures are performing
The Fund’s Actuary recently completed its triennial review of the DBD as at 31 December 2008. This review looked at the financial health of the DBD and its ability to pay members’ benefits as they become due.
Reassuringly, in its report, the Actuary confirmed that on best estimates, the DBD’s assets and future contributions are expected to be sufficient to meet current and future benefit payments.
The Actuary’s Report confirmed that the ABI stood at 104.2% at 31 December 2008. An ABI over 100% means that, on best estimates, the DBD’s assets and future contributions are expected to be able to meet future benefit payments. This assessment is based on expected membership movements and assumed long-term future investment earnings and salary growth.
The VBI stood at 89.7% at 31 December 2008.
What has happened in the past?
During its 25-year history, the DBD has experienced a number of periods when its liabilities have exceeded its assets, as measured by the VBI. Usually these situations have been as a result of extreme market volatility. In every instance these shortfalls have turned around and at no time have member’s benefits been affected.
The graph below considers the financial health of the DBD since December 1991, using both the ABI and the VBI.
As you can see, during the past seventeen years the value of both indices have fluctuated in line with a number of factors. These include:
- actuarial revisions to modelling based on the expected numbers of members joining and leaving the Defined Benefit Division,
- movements in investment markets and
- changes in the Trust Deed to accommodate new developments.
And while there are no guarantees with the current situation, we’re optimistic that markets will again turn around and return to growth over the long term.
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