Defined benefit superannuation
About the scheme
From 1 July 2013 Victorian councils were required to pay a $396.9 million shortfall to the Local Authorities Superannuation Fund Defined Benefit Plan following an actuary review by the scheme’s trustee Vision Super.
The MAV worked on payment options to assist councils pay off contributions over 15 years. We also held discussions with the Department of Treasury and Finance in the hope of securing an agreement for councils to access the Treasury Corporation of Victoria borrowing facilities.
However, the MAV neither owns nor operates Vision Super. It’s a regulated industry fund and we have two representatives (currently Rob Spence and Cr Geoff Lake) on its eight-member Board.
The Defined Benefit Plan for local government employees was a compulsory scheme set up by the Victorian Government in 1982 and was closed in 1993. Unlike other exempt public sector schemes, it must be fully funded to pay the benefits owed to members now and into the future. Unfunded superannuation liabilities for the Victorian Government currently exceed $29 billion, while estimates of the unfunded Commonwealth defined benefits liability (excluding the Future Fund) are around $61 billion.
Key factors contributing to increased liabilities for defined benefit super funds include deteriorating investment performance in global markets, changed actuarial standards, increased longevity of individuals receiving pensions under the Defined Benefit Plan, and a reduction in the expected earning rate. Many of these factors are beyond the control of the Trustee or individual municipalities.
We established a taskforce to help accomplish three advocacy objectives:
- achieve a return of the scheme as an exempt public sector superannuation scheme under State legislation (requires support from both the Commonwealth and Victorian governments)
- access borrowing through the Treasury Corporation of Victoria (TCV) to reduce the cost to councils of shortfall payments (requires agreement from the Victorian Government)
- exempt payments made by councils to fund the shortfall from Commonwealth Government contributions tax and State WorkCover premiums (requires support from both the Commonwealth and Victorian governments).