UniSuper is governed by a document known as the Trust Deed. In simple terms, the Trust Deed sets out rules and processes which UniSuper must adhere to.
Clause 34 of the Trust Deed provides a process for the UniSuper Trustee to manage the financial position of the Defined Benefit Division (DBD), including a mechanism to reduce members’ and pensioners’ defined benefits if it is in the interest of members of the DBD as a whole.
Clause 34 does not apply to accumulation-style super, such as accumulation benefits and Flexi Pensions.
Under Clause 34 of the Trust Deed, if the Actuary’s investigation report indicates that the actuarial measures have fallen (or are likely to decline) below particular levels, UniSuper must notify members of the DBD and employers accordingly. The effective date of the report marks the beginning of a Clause 34 monitoring period.
After four years from the beginning of a Clause 34 monitoring period, if the Actuary’s investigation report indicates that the actuarial measures of the fund’s position have not improved sufficiently, UniSuper’s Board must, within six months of receipt of the report, consider whether it is in the interests of DBD members as a whole to reduce benefits payable. If benefit reductions are required, the Board must do so on a fair and equitable basis.
Clause 34 of the Trust Deed has been triggered four times since 2008 – in 2008, 2011, 2012 and in 2013.
The following table summarises the outcome of these four Clause 34 monitoring periods.
|Clause 34 monitoring period
|31 December 2008 - 31 December 2012
Based on the results of the actuarial investigation as at 1 January 2013, the Trustee was required to consider whether it would be in the interests of members of Division A and B as a whole to reduce the benefits payable and, if it so considered that it should reduce benefits, it must do so on a fair and equitable basis.
On 5 August 2013, the Trustee announced that a decision had been made under Clause 34 that:
- (a) Benefits that DBD members have accrued (and would have accrued) before 1 January 2015 will not be altered; and
- (b) For future benefits accruing on or after 1 January 2015, the Benefit Salary used in the calculation of benefits will be based on salaries averaged over five years (instead of three) and past salaries will no longer be indexed by Consumer Price Index (CPI) to the date of the Benefit Salary calculation.
See Clause 34 decision for the monitoring period ended on 31 December 2012.
|30 June 2011 - 30 June 2015
||Based on the results of the actuarial investigation as at 1 July 2015, the Trustee was not required to take any further action under Clause 34 and the monitoring period ended.
|30 June 2012 - 30 June 2016
||Based on the results of the actuarial investigation as at 1 July 2016, the Trustee was not required to take any further action under Clause 34 and the monitoring period ended.
|30 June 2013 - 30 June 2017
||This monitoring period will end with the first actuarial investigation following 30 June 2017.
In respect of the Clause 34 monitoring period that ended on 31 December 2012, the Board of UniSuper decided to reduce benefits by changing the way future Defined Benefit Division (DBD) benefits will accrue from 1 January 2015. Read more about the decision, including examples of how DBD benefits are impacted from 1 January 2015.
In respect of the Clause 34 monitoring periods ended on 30 June 2015 and 30 June 2016 and based on the results of the actuarial investigations, the Board of UniSuper was not required to take any further action under Clause 34 and the monitoring periods ended with no changes in the benefits.
Download a copy of the Trust Deed (including Clause 34).
Past changes to Clause 34
Clause 34 of the Trust Deed was amended in 2006, and then again in 2011.
The Trust Deed may be amended by the UniSuper Board, with the consent of UniSuper’s Consultative Committee. UniSuper’s Board is comprised of four employer-representative directors, four member-representative directors, and three independent directors (appointed by the representative directors). UniSuper’s Consultative Committee is made up of 50% member-representatives and 50% employer-representatives.
At present, there are 145 Consultative Committee members and four vacancies.
This process ensures consultation and support from both members and employers, and this was the case when changes were made to the Clause in both 2006 and 2011.
Since UniSuper was established nearly three decades ago, UniSuper’s Trustee has never had the right to require employers to make additional contributions to the DBD in the event of a shortfall. As a result, Clause 34 of the Trust Deed always existed to enable UniSuper’s Trustee to deal with the circumstances where the DBD is or might be in an unsatisfactory financial position.
In 2006, Clause 34 was changed to provide greater clarity regarding how any future shortfalls in funding would be managed. The Trust Deed amendment was not made to limit employer liability.
Before 2006, if UniSuper believed the Fund’s assets were insufficient to cover liabilities, Clause 34 of the Trust Deed required UniSuper’s Trustee to ask employers and members for an additional contribution to make up the shortfall.
However, if one or more employers decided not to increase their contribution levels, then the Trustee was required to reduce benefits.
UniSuper consulted with employers prior to amending Clause 34 in 2006, and it was clear that not all employers would approve an increase. As a result, Trust Deed amendments were proposed (and subsequently approved) to make sure members were not misled into thinking their employers would contribute more in the event of a funding shortfall.
UniSuper thought that the amended Clause better described what was expected to happen in practice, and was therefore clearer for all stakeholders and, most importantly, for members.
Subsequent to the 2006 changes, there were two key changes made to the Clause in 2011.
The first involved introducing an objective measure of whether or not the DBD was in an adequate funding position. Previously, this was a matter of subjectivity and the change saw the introduction of clear levels for the actuarial measures at which Clause 34 would be triggered.
The Trust Deed now states that if the Accrued Benefit Index (ABI) is less than 100%, the Vested Benefit Index (VBI) is less than 95% or the level of contributions to UniSuper is such that it is likely that either (or both) falls below those levels, a monitoring period will be triggered.
The second related to the discretion the Board had in deciding whether or not to reduce benefits. Prior to this change, the Board was compelled to reduce benefits in some circumstances. Under the changed Clause 34, the Board is required only to consider reducing benefits.