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General Secretary’s Statement on UniSuper Defined Benefit Division

General Secretary’s Statement on UniSuper Defined Benefit Division


Dear Sue,

Over the last two years or so, NTEU has been actively pursuing members’ interests following the widely reported issues affecting UniSuper’s Defined Benefit Division (DBD).  This note updates advice I previously circulated to members in December 2011 and November 2012.
 
Introduction
 
The Union has vigorously pursued with the UniSuper Board and university employers its concerns about possible UniSuper DBD benefit changes associated with declines in the Vested Benefit Index (VBI) and Accrued Benefits Index (ABI) following actuarial reports and the triggering of three separate monitoring periods under Clause 34 of the UniSuper Trust Deed (ending in 2012, 2015 and 2016 respectively). 
 
The Union’s principal concerns have been to avoid and/or mitigate adverse changes to member benefits particularly pension benefits and accrued benefits, and to change key elements of UniSuper’s governance and consultation processes.
 
As part of this, the Union successfully lobbied for the establishment of a UniSuper Stakeholders Working Party to provide feedback to the UniSuper Board on the complex issues involved. The Working Party discussed possible changes to the DBD benefit profile, investment and demographic projections/scenarios, and modelled changes to employer (and possibly employee) contributions in the event of a sustained actuarial shortfall in the Fund.  While this work was very productive, ultimately university employer representatives were and remain unwilling to make further contributions. 
 
UniSuper Board Decision
 
The UniSuper Board has now finalised a decision arising from the first monitoring period ending on 31 December 2012.  At that date, the Fund Actuary reported that the VBI and ABI were 91.4% and 102% respectively.  Since that time, there have been some significant improvements in investment markets which saw these indices improve in the March 2013 quarter to 94.6% and 105.2% respectively.  Over the course of the whole of the four year monitoring period, the indices were frequently well below these levels (being 85% and 98% in December 2011 for example).
 
In the absence of any employer agreement for increased contributions, and given the continuing volatility and uncertainty in investment markets, the Board has announced changes to future benefit arrangements to ensure the long-term sustainability of the Fund. 
 
The Board has decided to change the accrual of future benefits for DBD members from 1 January 2015.  Under the proposed change the DBD benefits salary will be averaged over the last five years of employment (instead of the current three), with annual salaries during the averaging period no longer being indexed to the CPI. 
 
It is possible to argue that the Board’s decision is prudent and sensible, noting that Clause 34 requires the Board to consider action if either the VBI falls under 95% or the ABI falls under 100%.  In addition, the Union understands that the superannuation regulator – Australian Prudential Regulatory Authority (APRA) is concerned to ensure that there is a clear plan for UniSuper’s future sustainability.
 
Within the limits imposed on the Board by the employers’ refusal to consider increased contributions, the announced modifications are a considerable moderation of some of the options publically ventilated during the now concluded four year monitoring period (including possible changes to pension benefits or past accrued benefits).  The Union welcomes the Board’s decision to quarantine pensions and past benefits.  The change to a five year average salary calculation takes this element of the scheme back to its original form at the time of UniSuper’s 1982 establishment (noting that the introduction of the three year average salary occurred in the mid 1990s).
 
Where to now
 
The Union will agitate for the restoration of the recently announced changes in the event that there are continuing improvements in the VBI and ABI and continue to press for:
  • Changes to the terms of Clause 34 of the UniSuper Trust Deed and to  UniSuper’s shareholding structure which currently gives employers the right to ratify and therefore veto the appointment of UniSuper Board Directors.  In the absence of employer willingness to underwrite any actuarial shortfall through increased contributions, there is simply no case for the employers to have a shareholder monopoly.  Moreover, there is a compelling case that Clause 34 should require employers to give reasons in writing for any refusal to make additional contributions.
  • Scheme redesign taking into account the significant demographic and economic changes in the university sector in the nearly thirty years since UniSuper’s establishment and frequent changes to superannuation taxation arrangements.
There is a good case for scheme redesign independent of any actuarial shortfall problems.  Age based defined benefit factors may no longer be appropriate (noting that there are inherent cross-subsidies from younger and lower paid UniSuper members to older members on higher salaries) and service based factors may be better suited to the modern university workforce.  Contribution flexibility and simplification of the link between the 14% DBD membership employer contribution and the residual additional 3% employer contribution to the Accumulation Plan are worthy of consideration. 
 
The Union will continue to work on your behalf and to keep you posted.

 
GRAHAME McCULLOCH
General Secretary
 
8 August, 2013
 
Disclaimer:     In February 2013 I became a Director of UniSuper.  The views expressed in this statement are those of the NTEU and do not represent the views of the UniSuper Board or my views as a UniSuper Director. While all Board proceedings are confidential, the Board’s processes are highly rigorous and provide proper consideration of all Directors’ views.
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