1. THE FUND
The Fund has 2,643 Members of which 1,243 are ‘actives’ and a further 1,411 are pensioners. This is a very mature fund with a membership base that has more than half of its membership as pensioners.
2. THE BOARD AND CHIEF EXECUTIVE OFFICER
During the period, Robert Runco retired as Executive Director, and Ian Glenny was appointed as Chief Executive Officer. Brian Lacy retired in 2010, and Colin Grenfell was appointed a director. This reduced the size of the Board from 11 to 10. Plans are underway to reduce this further to 8, effective by the end of 2012.
The Uniting Church in Australia Beneficiary Fund (the Fund) was established by the Inaugural Assembly of the Uniting Church in Australia (the Church) pursuant to Regulation 3.1.6(d) and the Fund was deemed to be an Assembly Agency.
The Fund provides benefits to retiring Ministers, predominantly in the form of a pension payable for life (commutable to a lump sum, at the election of the Member). The amount of the pension is determined using a formula based on years of service and Notional Stipend at retirement, and has in the past been indexed or partly indexed for inflation each year, depending on the financial health of the Fund. The Notional Stipend is calculated by the Actuary by taking into account the average stipends paid by all Synods and after considering the financial health of the Fund. Benefits are payable on retirement, resignation, death, and disablement.
All Defined Benefits are guaranteed by the Church and any shortfall in funding is underwritten by the Church. The Ministers know what their projected retirement will be worth, irrespective of market volatility so they can plan their retirement with a degree of confidence. The Fund also provides Accumulation benefits which make up a small but growing number of Members. Accumulation Members bear the risk of any adverse investment return (and benefit from any out-performance of investments).
4. INVESTMENT PERFORMANCE
The Fund performed well compared to other funds in 2011, with an investment return of 2.8% in the Defined Benefit Section and -1.7% in the Accumulation Section. National surveys of funds with similar asset allocations returned -2.1%.
Since reporting to the last Assembly, investment markets have been unstable. Markets peaked in November 2007, and then collapsed during 2008. They recovered some of the lost ground in 2009, but 2010 was flat. Last year (2011) was negative and after a good start in the first quarter of 2012, investment markets are heading down again due to European Sovereign debt issues and a perceived slowing in China. From an unsustainable peak of 6845, the Australian Share Market (as measured by the S&P ASX 300) had declined to 3120, and is now around 4150 (at the time of writing).
The investment returns for the 3 and 5 years to December 2011 also compare well with national surveys.
5. INVESTMENT PORTFOLIO
The Fund’s investment portfolio has changed substantially since the last report to Assembly in 2009. The following is a brief summary to show how the Board have managed the portfolio at a very difficult time, to protect members and the Church.
- Reduced holdings in cash and fixed interest.
- Closed the Fund’s mortgage portfolio.
- Reduced exposure to forestry/timber products.
- Appointed a Manager for the Fund’s Inflation Linked Bonds.
- Increased the Fund’s allocation to both Australian and overseas equities and replaced some Managers.
- Converted the Fund’s overseas equities exposure from 60% $A hedged, to 100% unhedged.
- Substantially reduced the Fund’s direct property holdings and purchased units in unlisted diversified property pools.
6. CURRENT FINANCIAL STATUS
The financial status of a Defined Benefit superannuation fund is measured by its Vested Benefits Index (VBI). This represents the total Defined Benefit assets over the Defined Benefit liabilities. With the particularly poor investment performance in 2008, the Fund’s VBI deteriorated from a strong position to an “unsatisfactory financial position”, as identified by the Fund’s Actuary. This meant that technically the Fund could not meet its Vested Benefit obligations i.e. assets would not cover benefits payable if all Members voluntarily leave the Fund on the same day. A very unlikely situation (but an event that the regulator measures against)!
At the Twelfth Assembly, the Fund was reporting at a time of very negative and volatile investment markets. The Defined Benefit Section had an investment return of -11.8%, and the Accumulation Section was -15.8% for the 2008 year. This compared “favourably” with the national survey averages of around - 23%. This resulted in the Trustee approaching the Church to commence a contribution program to fund the shortfall over a 5 year period. This was commenced and $2.5 million of the agreed funding program of $9.7 million was paid, the program ceasing at the end of 2010 due to the improved financial position.
At the March 2011 Assembly Standing Committee, the Church approved a Pension Increase Policy which limits pension increases to what the Fund can afford to pay, based on the VBI. The ASC also approved a new Funding Policy agreeing to fund any shortfall in the VBI over a specified time frame.
The pension increase is limited to only paying an increase that will not reduce the VBI to less that 100%. The investment performance in 2010 was 6.1% for the Defined Benefit Section, and so a full CPI increase was applied to the pensions. In 2011, the investment performance was only 2.8%, and so only about half of the movement in the CPI was applied to pensions, to be effective 1 July 2012. The Fund’s VBI remains at 100% at 31 December 2011.
7. NEW CONSTITUTION AND TRUST DEED & RULES
At the November 2011 Assembly Standing Committee, the Church approved a new Constitution for the (corporate) Trustee of the Fund. The Trust Deed and Rules were also updated to be more self-contained, reflecting removal of some of the Church’s regulations. The main aims were to modernise the documents, ensure compliance with the relevant law and promote flexibility in the Trustee Board’s operations. What hasn’t changed:
- The commitment of the Fund Trustee to its Members;
- The level of benefits;
- The method of appointment of Member Directors and Assembly Directors.
8. NEW DEFINED BENEFIT CATEGORY
Recently the Trustee has been working on a proposal to open a new Defined Benefit Category. At its November 2011 meeting, the Assembly Standing Committee approved the general direction of the proposal with the view that the Board will bring a final proposal to the ASC in 2012. The full proposal will go to the August 2012 ASC for approval. It is proposed that the current Category 5 Members who have an Accumulation (lump sum) benefit, will be offered to transfer to the new Defined Benefit Category. This Category will also be offered to newly ordained Ministers after its commencement date. The proposal going to the Church in August 2012 will include the results of financial modelling that will show, within acceptable risk tolerances, that the proposed new Category will be cost neutral to the Church. Once the proposal is approved by the ASC, the Trustee will commence a promotion of the new Category to the Synods and Colleges. It has been specially tailored by your Trustee to meet the needs of Ministers and I look forward to your support.
Chief Executive Officer