The Australian Prudential Regulation Authority (APRA) has completed a health check on Defined Benefit Funds (DBF) which shows that average solvency levels have declined across the industry following the downturn in equity markets.

APRA General Manager, Mr Ramani Venkatramani, said that although requiring attention, these results are significantly better than in other countries where the decline in the markets has been greater than in Australia.

We initiated the survey to identify the extent to which the recent poor performance of markets worldwide had affected the funding position of DBFs and their ability to meet member expectations, he said. We also looked at how that position had changed since the last actuarial valuation and assessed whether any necessary remedial action was being taken.

DBFs provide a benefit based on a pre-determined formula generally related to earnings and length of service. The Accrued Benefits Index (ABI) measures the capacity to pay members accrued benefits in future against existing fund assets, while the Vested Benefits Index (VBI) measures the capacity to pay out all members current exit benefits from existing assets.

APRA found that while there had been a 10 per cent drop on average in the VBI and the ABI, the larger funds remained generally solvent and should have sufficient assets to meet members benefit entitlements as they fall due.

According to the survey, at least 90 per cent of funds at the smaller end of the market had experienced declines in both VBI and ABI, with around 50 per cent experiencing declines of more than 10 per cent.

The regulator has been liaising with the actuarial profession to work through key issues arising from the survey and is encouraging employer sponsors to contribute to their funds at the actuarially recommended rate.

Many small funds have flagged their intention to address their position by increasing employer contribution rates or by winding up the fund and converting it to a defined contribution (accumulation) fund, Mr Venkatramani said.

APRA notes that, while it will be encouraging trustees and employers to pursue the full restoration of funding to more appropriate levels, it has no statutory powers to enforce this.

It has also identified areas of superannuation legislation which could be strengthened to ensure that DBFs continue to be appropriately funded. APRAs recommendations are currently being considered by the Commonwealth Government and any proposed changes to legislation will be referred to industry for consultation in due course.


APRA is the prudential regulator of the financial services industry including banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. It currently regulates $1.5 trillion in assets for 20 million Australians.

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