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Don’t tinker with DB defaults: UniSuper
Over three decades, and many economic cycles, no UniSuper defined benefit (DB) member has had any reduction to their accrued defined benefit, according to the superannuation fund.
In its submission to the Productivity Commission (PC) into default fund alternatives, UniSuper has mounted a strong argument for defined benefit default arrangements to be exempted from any changes resulting from the PC inquiry.
In doing so, the superannuation fund has both pointed to the performance of its multi-employer DB scheme and pointed to the consequences of tinkering with the arrangement.
The submission said policy makers had long recognised that DB schemes required special consideration and that parallels could be drawn with the existing Choice legislation that includes a specific exemption from Choice for existing defined benefit members.
"If that exemption were removed there would be significant consequences for remaining members," it said. "There are a number of important differences between DB schemes and Defined Contribution (DC) schemes. Probably the most important difference is that with DB schemes the actions of a few members can have consequences for the many."
"Thus if existing DB members were able to exercise a choice to redirect their employer contributions or, in the inter-related case, those eligible to become defined benefit member were no longer eligible, there is a real potential to put pressure on the viability of a DB scheme because there could be:
- Material numbers of exits of DB members who choose to leave the DB and crystallise their defined benefits, which could lead to significant funding, asset valuation and liquidity issues;
- A fundamental shift in the remaining membership profile, creating future funding concerns; and
- Increased anti-selection risk, exacerbated by a lower proportion of members remaining within the scheme.
The submission said the occurrence of one or all of the above would, in all likelihood, prompt an actuarial review of funding and potentially require appropriate actions to ensure the ongoing viability of the scheme.
"In UniSuper's case, possible reductions in member benefits could be required because the fund has neither a government (or employer) guarantee nor recourse to additional employer contributions," it said.
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