The theory of natural selection translates well to the modern, fast-paced ecosystem of superannuation, where funds need to evolve to stay relevant to their members, or end up the way of the dinosaur, Neanderthal man and the Beta video recorder.
For most public sector funds, the need to adjust to a ‘survival of the fittest’ type landscape in superannuation has translated into an abandonment of traditional defined benefits, and the adoption of more modern accumulation benefit designs.
So, when a public sector fund like Local Super SA-NT undertakes a wholesale review of the benefits it provides to members, and comes out the other end not only with its defined benefits intact, but also as part of a new and more flexible benefit design, you can mark it down, in superannuation circles at least, as a significant biological event.
The $753 million Local Super SA-NT fund was set up in 1984 to amalgamate into one scheme the various superannuation arrangements of all the employers in the South Australian local government sector.
In 1990, the Northern Territory local government sector joined the scheme, followed in October 1995 by the Hospital’s and Health Services Association of South Australia.
Despite its maintenance of an open defined benefit scheme, the fund is far from one-dimensional. While all permanent South Australian local government members join the defined benefit side of the fund, others, such as those from the Northern Territory, are offered only accumulation style benefits.
The aim of the fund’s review of its benefit design, undertaken with executive officer Barbara Ryland at the helm, was to give members more freedom over their superannuation assets by fostering a greater degree of flexible interactivity between the accumulation and defined benefit sides of the fund.
From April 1 this year, with the review complete, all defined benefit members were given the freedom to direct their future personal superannuation contributions to either the defined benefit or accumulation sides of the fund, or to a combination of both.
Previously, defined benefit members were required to contribute the first five per cent of personal contributions to the defined benefit fund, making it impossible for many to have any sort of access to an accumulation account.
The benefit redesign also saw the minimum contribution rate for voluntary member contributions cut for most members from 2.5 per cent of salary or wages, to one per cent, in an attempt, once again, to give members more options with their super savings.
“The aim behind all the changes was to give members more flexibility in terms of the benefits they had and part of that is recognition of the changing nature of the local government workforce,” Ryland says.
“People’s tendency for long term employment isn’t there anymore and people with shorter term working patterns may not want defined benefits.”
Four months into the revamped benefit design, and with the new rules applying only to contributions made since April 1, few members have made any sort of move with their superannuation assets to acknowledge the options given to them by the fund.
However, all that could change over the coming months as Local Super moves to offer those members with accumulation accounts a choice over where their contributions are invested.
Starting on October 1, Local Super will give members with accumulation benefits the option to choose between four different investment strategies — Shares, Growth, Conservative Growth and Cash — and plans to introduce a fifth option, socially responsible investments, by next year.
The launch of member investment choice to the accumulation side of the fund will also introduce Local Super members to market linked returns for the first time. Currently, members of the accumulation scheme have their accounts credited each year with a smoothed rate of return calculated based on the fund’s actual returns for the previous three years.
The exposure of members to the vagaries of investment markets is another step by Local Super towards a more progressive benefit design, with members increasingly being asked to take responsibility over their own retirement savings.
However the move, according to Ryland, is by no means an indication of an intention to ultimately do away with defined benefits all together. And for good reason.
Unlike many other defined benefit public sector funds, Local Super has been fully funded from day one. The fund has also been running a healthy surplus for some time, resulting in a series of benefit improvements for members and contribution reductions for employers.
In that context, Local Super’s benefit re-design can be seen as a gradual evolutionary adjustment to meet the changing expectations of members and the market, rather than a sudden transformation in response to an ‘ice-age’ like event.
“Essentially we felt we needed to move with the times a bit and recognise that not everyone may want defined benefits,” Ryland says.
“But having said that, we have a very successful defined benefit scheme and there are no moves at this stage to close that down to new members.”
