Defined Benefit Division (DBD) updates
September 2020 – Impact of CPI movement on your defined benefit
As a result of COVID-19, the Consumer Price Index (CPI) reduced by 1.9% during the June quarter. Following the June quarter CPI coming into effect from 1 September, you may see an impact on your DB balance. These fluctuations are not uncommon; however, we understand that you may be concerned if you see a lower super balance in the short term.
The defined benefit component (DB balance) of your Defined Benefit Division (DBD) account is calculated based on a formula, which factors in the CPI. Any movement in the CPI may affect the Benefit Salary component of the DBD formula for some members. You may be impacted by this movement if:
- you joined the DBD prior to 2015
- you’ve deferred your DBD benefit
- you’re on Leave Without Pay for a period of more than 3 months; or
- you’re receiving a Disablement or Temporary Incapacity benefit.
Indexed pensions currently being paid from the DBD will not reduce due to the CPI reduction.
CPI index
UniSuper maintains a ‘CPI Index’ which is reflective of the changes in the Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS). This ‘CPI Index’ is updated quarterly each March, June, September, and December.
For members who may be impacted (as highlighted above), the ‘CPI Index’ is used to inflate historical salaries in the relevant Benefit Salary averaging calculation. The application of this ‘CPI Index’ can cause fluctuations to the Benefit Salary (both up and down), and subsequently your DB balance. A protection mechanism exists to ensure Benefit Salary will not reduce below the average of your historical annual equivalent full-time salaries within the averaging period.
If you would like further information on how the CPI indexation can affect your DB balance, please contact us.
April 2020 – Investment market update and what it means for the DBD
We are experiencing an environment without precedent in our lifetimes, with people the world over gripped with fear for their physical as well as financial well-being. At the time of writing, the American and Australian share markets are down significantly. Because the DBD is supported by a diversified portfolio of investments which have taken a hit, the funding position of the DBD has decreased since the last actuarial investigation as at 30 June 2019. However, the DBD remains in surplus at time of writing.
In monitoring the DBD’s financial health, we use two key measures—the Vested Benefits Index (VBI) and the Accrued Benefits Index (ABI) – read more about the VBI and the ABI below and on the Monitoring the DBD page. While the assets in the DBD have fallen under the current conditions, and we can’t rule out the VBI falling below 100%, the following points should be kept in mind:
- The DBD has been designed such that contributions and investment returns are expected to be sufficient to provide for UniSuper’s defined benefits over the long term.
- Importantly, members’ defined benefits are not automatically linked to or impacted by investment market volatility, as automatic benefit adjustments do not occur if the VBI falls below 100%. The VBI has been below 100% on previous occasions, sometimes for an extended period and there has been no impact on members’ accrued benefits.
- Several conditions in relation to the DBD’s funding position and future sustainability need to be met (assessed as part of the DBD’s actuarial investigations) before UniSuper’s Trustee is required to consider benefit adjustments. See more about protecting the DBD.
- The impact of further falls in share markets will be mitigated to a reasonable degree by portfolio protection strategies (‘put options’, for the technically-minded) that we put in place when the markets were trading at much higher levels.
Monitoring the DBD’s financial position
We use 2 measures to monitor the financial position of the Defined Benefit Division (DBD):
- Vested Benefits Index (VBI)
- Accrued Benefits Index (ABI)
The VBI and ABI are calculated based on various assumptions, such as future investment earnings and future salary growth, which will change from time to time. They fluctuate constantly, depending on the performance of investment markets.
The VBI and ABI are reported every 30 June by the Actuary as part of its annual Actuarial Investigations.
UniSuper also performs quarterly estimates at 30 September, 31 December and 31 March to monitor the financial position of the DBD. The quarterly estimates are approximations based on a simplified methodology in lieu of the complex actuarial calculations performed by the Actuary which is conducted annually.
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The ABI and VBI in detail
Accrued Benefits Index (ABI)
The ABI reflects the most reasonable estimate of the expected pattern of members joining, contributing to and leaving the Fund, against the assets needed to ensure that all benefits can be paid when they’re due. This is the measure the Trustee of UniSuper believes is the most relevant in determining our ability to pay, over the long term, all defined benefits that have accrued to the date that the measure is calculated. The ABI is an estimate and actual experience will determine whether there are enough 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. We must report this measure to the Australian Prudential Regulatory Authority (APRA).
Recent financial positions by quarter
| Date | Basis | ABI | VBI |
|---|---|---|---|
| 31 March 2022 | UniSuper estimates | 142.0% | 128.4% |
| 31 December 2021 | UniSuper estimates | 143.7% | 129.9% |
| 30 September 2021 | UniSuper estimates | 140.3% | 126.8% |
| 30 June 2021 | Final results by the Actuary | 134.2% | 121.3% |
| 31 March 2021 | UniSuper estimates | 130.0% | 118.8% |
| 31 December 2020 | UniSuper estimates | 126.6% | 115.7% |
| 30 September 2020 | UniSuper estimates | 123.2% | 112.7% |
| 30 June 2020 | Final results by Actuary | 124.7% | 114.0% |
| 31 March 2020 | UniSuper estimates | 118.9% | 110.2% |
| 31 December 2019 | UniSuper estimates | 136.7% | 126.6% |
| 30 September 2019 | UniSuper estimates | 136.0% | 125.9% |
| 30 June 2019 | Final results by the Actuary | 135.5% | 125.4% |
| 31 March 2019 | UniSuper estimates | 133.1% | 122.0% |
| 31 December 2018 | UniSuper estimates | 125.3% | 114.8% |
| 30 September 2018 | UniSuper estimates | 127.6% | 117.0% |
Financial position over the long term
This graph shows the VBI and ABI over a longer period. Over a longer period, the VBI and the ABI fluctuated in line with a number of factors, including:
- Movements in investment markets
- Benefit changes or improvements
- Salary and price growth
- Revised actuarial assumptions, including expected life expectancies of our pensioners.
Investment strategy
We pool defined benefit members’ contributions and invest it together in a diverse portfolio of shares, property, bonds and cash. Although defined benefits are not directly affected by market movements, an effective investment strategy is crucial to maximise the likelihood that DBD members’ benefits will be paid into the future.
The composition of the portfolio supporting the defined benefits is set by the Trustee, having regard to the need to pay out all members’ benefits as they fall due. Currently, the DBD’s asset portfolio is skewed towards quality assets that generate sustainable income streams, with the potential for capital growth that we expect can, at least, keep pace with inflation.
We use the ABI and VBI as the objective measures of when certain processes are triggered and followed.
If the actuarial investigation report indicates that the actuarial measures have fallen, or are likely to fall, below particular levels, we have processes to follow to protect the long-term sustainability of the DBD.
