Federal Government’s unfunded super liability blows-out by $50b

The Department of Finance has released data showing that the federal government’s unfunded superannuation liability topped $233.1 billion at the end of 2018-19, up $50 billion from $183.1 billion at the start of the financial year, due primarily to the cratering of interest rates. Meanwhile, the Future Fund’s assets rose to $165.7 billion in the year to September.

The Future Fund Act allows the government to begin withdrawing money from the sovereign wealth fund in 2020 to meet unfunded super liabilities, although the Coalition has renewed a 2017 commitment to not do so. From The Australian:

A spokeswoman for Senator Cormann said the discount rates applied to value the superannuation liability at June 30 last year were between 2.9 and 3.1 per cent. The discount rates applied as at June 30 this year were between 1.7 per cent and 1.9 per cent.

“The increase in unfunded superannuation liabilities to 30 June, 2019, compared with 30 June, 2018, largely reflects the impact of lower discount rates, which consistent with the Australian ­Accounting Standards are used to value the liability,” the spokeswoman said…

For discount rates, the Finance Department used relevant Australian Government Treasury Bond rates to calculate the “defined benefit obligation”.

The one shining light is that unfunded superannuation liabilities should soon peak. Interest rates are nearly at their absolute low, and so too are the discount rate applied. Further, the Commonwealth Superannuation Scheme and ­Public Sector Superannuation Scheme closed to new members in 1990 and 2005 respectively. Thus, the number of members should fall over time.

Comments

  1. No problem. Just print more money/otherwise devalue the currency.

    Devalue the currency by just 5% per year (house prices up ~5% per year) and in a decade that $50b liability is only worth $25b (in purchasing power). In another 10 years it’s even smaller.

    That’s the way the game is played.

  2. GunnamattaMEMBER

    Further, the Commonwealth Superannuation Scheme and ­Public Sector Superannuation Scheme closed to new members in 1990 and 2005 respectively. Thus, the number of members should fall over time.

    Can I just remind the world at this point that the greatest ever idiot ever to appear as an Australian Treasurer – Mr Joe ‘leaner’ Hockey – removed the compulsory retirement age Commonwealth Public Servants had been faced with all the way up to 2014.  As a result of that piece of thinking, public service officers – and one might observe that Ongoing/permanent public servants have an average age well into their 50s at a public service wide level – buildings in Melbourne Sydney and Canberra (inter alia) are now starting to chalk up their septuagenarian cohorts.

    Meanwhile the younger public service aspirants  need to make do with non ongoing (temporary) positions down the rung and get supervised – often on things like behaviours – by a middle management cohort which simply cant bring itself to move away from the trough, and knows it will never ever get another lurk like a 10% contribution to PSS ever again

    • Defined benefits schemes have an entitlement cap based on age. If you work beyond that defined age then you are effectively no longer being paid superannuation.

      • If you spent a number of years under funding your super (as plenty of old timers did) you can still build that Average Benefit Multiple up to maximum.

        But there’s an even better lurk out there for the APS (not Commonwealth anymore Gunna) in a world of lots of non ongoing subordinates. According to one of my clients there is a Defence Manager in Southern Victoria who has developed giving jobs to tenants of her or her daughters’ investment properties into an art form. Isnt that nice!

  3. PalimpsestMEMBER

    Some of this dated back to the dissolution of the SFIT that was massively outperforming private sector funds and therefore reducing the unfunded liability. We’ve heard this story before. Had to be outsourced.

  4. Biggest fraud ever. As usual baby boomers pull up the drawbridge after they gave had their fill….its now closed to new members of course

  5. I spent a couple of years in the APS and have some Commonwealth super. No doubt it will be disappeared before I can use it.

  6. Even StevenMEMBER

    $50bn sounds like a lot. But actually it’s only a few years of the cost Labor’s Parental visa policy would impose.

  7. These numbers don’t seem to match the final budget outcome numbers or commentary.
    From the FBO.
    “ NET DEBT, NET FINANCIAL WORTH AND NET WORTH
    At the end of 2018-19, the level of Australian Government net debt was $373.6 billion (19.2per cent of GDP), $23.7 billion higher than estimated at the time of the 2018-19Budget. This primarily reflects the higher market value of Australian Government Securities due to lower yields than expected at the 2018-19 Budget, notwithstanding lower borrowing needs.
    Net financial worth was negative $694.4 billion at the end of 2018-19, compared with negative $482.9 billion estimated at the 2018-19 Budget.
    Net worth was negative $543.5 billion at the end of 2018-19, compared with negative $337.6 billion estimated at the 2018-19 Budget.
    The changes in net financial worth and net worth since the 2018-19 Budget reflect a significant increase in the Government’s reported superannuation liability. This reported increase is consistent with previous years and is the result of a large difference between the discount rates used to value the Government’s defined benefit superannuation liability at the 2018-19 Budget and at the 2018-19 Final Budget Outcome (FBO). The approach to valuing the superannuation liability has not changed from previous budgets or FBOs.
    At the 2018-19 Budget, actuaries determined the long-term discount rate to be 5.0 per cent per annum. This rate reflected the average annual rate estimated to apply over the remainder of the term to maturity of the liability and the actuaries’ views that short-term deviations are expected to be smoothed out in the longer term. This approach also reduces the volatility in reported liabilities that would occur from year to year if the long-term government bond rate were used.
    For FBO, the Australian Accounting Standards require the use of the long-term government bond rate as at 30 June 2019 that best matches each individual scheme’s liability duration. This requirement results in differences in superannuation liability between one FBO and the next, and between budgets and FBO, due to the discount rate applied, not as a result of changes in the accrued benefits of the defined benefit schemes. At the 2018-19 FBO, the long-term bond rates used were between 1.4 and 1.9 per cent per annum depending on the defined benefit scheme.
    The variance in the reported superannuation liability between the 2018-19 Budget and 2018-19 FBO was an increase of $191.5 billion. By way of comparison, the variance between the 2017-18 Budget and 2017-18 FBO was an increase of $132.2 billion.”

    https://archive.budget.gov.au/2018-19/fbo/FBO_2018-19_web.pdf

    TOTAL liabilities increased $242bn from the original budget :of which it seems $191 bn related to unfunded super liabilities.