The long-term financial position of the DBD is an absolute priority for us at UniSuper.
This information will help you understand the DBD and its financial health and the process in place (Clause 34) for the UniSuper Trustee to manage the financial position of the DBD.
DBD update – September 2020
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.
UniSuper maintains a ‘CPI Index’ which is reflective of the changes in 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.
Investment market update and what it means for the DBD - 1 April 2020
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. Learn more.
- 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.
Vested Benefits Index (VBI) and Accrued Benefits Index (ABI)
The Vested Benefits Index (VBI) and Accrued Benefits Index (ABI) are calculated by the Actuary as part of its annual Actuarial Investigations with an effective date of 30 June. The VBI and ABI are based on various assumptions, adopted by the Actuary, such as future investment earnings and future salary growth, which will change from time to time. The VBI and ABI fluctuate constantly, depending on such factors as the performance of investment markets. Read more about the VBI and ABI.
Quarterly funding estimates
In addition to the VBI and ABI calculated and reported by the Actuary as at each 30 June, we also publish quarterly estimates of the VBI and ABI – as at 30 September, 31 December, and 31 March. These are the key actuarial measures we use to monitor the financial position of the DBD at any point in time. Read more about these measures and how we monitor the DBD.
The quarterly funding estimates are available approximately a month after the end of each quarter. The next quarterly update providing estimates of the VBI and ABI as at 30 June 2020 will be published in early August 2020..
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. Note that these are just estimates.
Past Clause 34 decision in detail
Learn about Clause 34 of the Trust Deed for the monitoring period ending on 31 December 2012.
Have questions about your defined benefit? Download our booklet
UniSuper’s Defined Benefit Division explained summarises how the DBD works. It covers membership advantages and risks.
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