Defined benefit debt threat less defined
The risks associated with defined benefit superannuation have largely disappeared from the day-to-day concerns of corporate Australia, according to research conducted by Watson Wyatt.
Australian companies have a net liability of less than $1 billion with respect to defined benefit superannuation, according to the latest research released by the actuarial and research firm.
The research, released today, is understood to be the first time the liability represented by defined benefit superannuation funds in the balance sheets of Australian listed companies has been calculated and flows from a study of the financial reports of the top 170 companies listed on the Australian Stock Exchange last year.
The study found that the companies had an aggregate defined benefit superannuation liability of $40 billion, but a minimal net liability.
Watson Wyatt principal David McNiece said that although the size of the total defined benefit liabilities was material, it was comforting to note that the liabilities were currently largely covered by assets.
“When compared to some other countries — for example, the US and UK — the Australian funding position is quite strong, even though there is still a small shortfall,” he said.
McNiece said there had been a long-established trend away from the provision of defined benefit plans for employees, which had reduced the prevalence of defined superannuation.
“The provision of superannuation in accumulation form means that the financial risk rests with the employee, not the employer,” he said.
“Despite this trend, defined benefit superannuation liabilities remain material amounts in the accounts of many Australian companies.”
“The issue to focus on, however, is whether these liabilities are adequately covered by assets,” McNiece said.
He said the favourable market conditions of recent years had not been sufficiently good to put corporate Australia into a positive overall funding position.
“Companies with defined benefit superannuation liabilities must continue to monitor the investment strategies adopted for the assets supporting these liabilities, to make sure they remain appropriate and adequately diversify the risk,” McNiece said.
AUTHOR
Mike Taylor
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