So what is happening? A lot of academics are still in “defined benefit” superannuation schemes. I have put the words defined benefit into scare quotes for a good reason. Normally when such a fund faces a shortfall, it goes to the employer to top up the fund. In other words financial risk is borne by the employer and not the employee. But Unisuper doesn’t work like that. As Judith explained before:
there seems to have been an alteration made to the Trust Deed, and approved by the Trustees in 2006, that universities would not be required to top up the Defined Benefit Fund in the event of a shortfall.
This is in marked contrast with DB schemes run by private companies; APRA insists that these funds are topped up by companies – and immediately – in the event of any shortfall that would prevent the promises being met.
So what does this mean? My view:
The Unisuper scheme is not really a defined benefit scheme as it has been described. It is a capped defined contribution scheme. So members get the defined amount in good states of nature, but bear the financial risk in bad states of nature. So all risk is borne by members without any of the upside potential.
To put this into context I point to this snippet in the AFR:
The scheme’s trust deed states that the 129 employer members – including universities and research bodies – must contribute the equivalent of 14 per cent of staff salaries. Employees may contribute a further 7 per cent of their salaries into the fund.
In my case, for example, I have contributed 21 per cent (14+7) to super since I joined. This was explained to me as a condition of employment. In those days there was no choice and no salary sacrifice. So the standard amount (now 9 per cent) got taken pre-tax and the remainder after-tax. While academics have a generous super scheme by community standards, they have also paid a lot of money to get it.
So what is happening now?
Unisuper has written to 38 universities to gauge their willingness to inject more money into the superannuation fund’s $10 billion defined benefit scheme if it does not have enough money to meet its obligations.
This is going to be interesting to watch. I would have thought that most Uni’s first instinct would be to say “No”. I’m also surprised there hasn’t been more fuss about this within the university sector.