Super bill of $4.61 million hits shire hard

A MASSIVE unfunded superannuation liability has South Gippsland Shire Council reeling.

Council is up for $4.61 million, payable from July 1 next year. Up until recently, Council was expecting the liability to be between $1 million and $2 million and had budgeted accordingly. News that the figure is more than $4 million has come as a great shock.

It is particularly galling for a council which has taken a steady-as-she-goes approach to budgeting in recent years and succeeded in reducing its borrowings from $13.5 million in 2003/04 to just $130,000 this year.

Mayor Warren Raabe said that with time running out before the caretaker period leading into council elections, a budget revision to allow for the alarming liability will be up to the incoming council.

Across Victoria, municipalities owe a total of around $400 million. This amount was confirmed recently in an actuarial review of the defined benefits scheme which used to be available to local government employees.

The scheme, which was closed to new members at the end of 1993, still has many active members who are guaranteed a pension for life when they retire. State government legislation has ensured that the scheme is fully funded until the last member or their spouse is no longer drawing on it.

“Council has absolutely no animosity towards the recipients of this scheme – they had no choice in where their money was invested – but the scheme itself has been the single largest burden placed on councils since amalgamation. I have watched Council work towards being debt free for a decade, a legacy we were going to be proud of achieving next year,” said Cr Raabe.

“We now will need to review this year’s budget to come up with ways that we can fund this.

“It’s a headache we can well do without, with no clear solution in sight.

“With the youngest active member aged just 36, councils could be asked to top up any shortfalls for a long time to come.”

The Local Authorities Superannuation Fund (LASF) or ‘Vision Super,’ as the Trustee of the Defined Benefit Plan – and of the newer Super Saver (accumulation) fund – carries out an actuarial review of the scheme at least every three years to ensure current assets are adequate to meet the benefits promised to members now and into the future.

Deteriorating investment performance in global markets, changed actuarial standards, and increased longevity of individuals receiving pensions under the Defined Benefit Plan are some of the factors contributing to the super shortfall ballooning out to $396.9 million.

The Municipal Association of Victoria (MAV) is establishing a taskforce to deal with the problem, hoping it can steer through reforms that will protect communities from future uncertainty.

The chief executive of the MAV, Rob Spence, has labelled the rules that require local government to maintain a fully funded super scheme “unfair.”

“Although it was closed to new members in 1993, current laws require local government’s defined benefit scheme to hold enough funds to meet the retirement benefits owed to members now and into the future,” he said.

“If current assets fall below what’s needed to pay current and future benefits, then employers are required to make top-up payments. It’s proving a volatile and unpredictable model that councils can’t plan ahead for.

“An exemption for other public sector schemes allows the Australian Government to have an unfunded defined benefit liability of around $61 billion. The Victorian Government’s liability exceeds $29 billion.”

Mr Spence said that councils had agreed to unite to fight for legislative reform that would put local government on equal footing with state and federal schemes.

“As well as seeking legislative changes, we’ll continue our negotiations with the State for councils to access lower borrowing rates through the Treasury Corporation of Victoria to help pay the shortfall.

“We’ll also call for the Australian and Victorian governments to remove the 15 per cent contributions tax that councils must pay on their shortfall payments, plus WorkCover liabilities associated with call-ins.

“We’re hopeful that a show of unity by local government will help to secure a transition back to a State-managed scheme that removes the requirement for councils to make top up payments.”

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