Victorian DB liabilities hit $44bn

Victoria's state budget is projecting a 13% reduction in its superannuation liabilities fueled by a positive revaluation of investment expectations and a slight fall in its defined benefit obligations.

Victoria's total defined benefit superannuation obligations, through its association and support of the Emergency Services and State Super (ESSS) schemes, totals $43.7 billion in 2017-18, an amount expected to reduce by 4% over the four-year forward estimates period.

Offsetting these slightly is a 6% increase in plan assets which are expected to increase from $21.7 billion in 2018 to $22.9 billion in 2021, leaving a 45% shortfall in 2021 compared to the 2018 shortfall of 50%.

This is much higher than the average unfunded proportion of public sector defined benefit liabilities across Australia that in 2016 was 30%.

These superannuation liabilities represent 32% of Victoria's total liabilities. In 2021 this ratio is expected to fall to 27%.

Illustrating the significance of these amounts, total state taxation revenue which accounts for 30% of Victorian state revenue in 2017-18 is estimated to be $21.8 billion, meaning a full year of taxation revenue wouldn't cover the state's superannuation liabilities notwithstanding the notional nature of these liabilities.

Nevertheless the scale of Victoria's superannuation liabilities vindicates the state's transition, albeit a slow transition compared to other Australian states or territories, to defined contribution accumulation superannuation plans which now consume 71% of Victorian state government annual superannuation net cash flows.

Victoria's gently improving unfunded superannuation liability position is the result of a $3 billion revaluation in actuarial outcomes due to improved capital market and re-measurement factors.

"This actuarial gain is primarily attributable to favourable movements in the Commonwealth bond rates that underlie the key superannuation valuation assumptions. Higher than expected investment returns on superannuation assets also contributed to this gain," the Statement of Finances said.

Reflecting this, the budget is anticipating an 8% return for the ESSS and almost 6% for the Health Super defined benefit scheme.

Read more: VictoriaAustraliaCommonwealthEmergency ServicesHealth SuperState Super
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