Defined benefit super schemes $7b in the red

Australia's top 20 companies are collectively sitting on a $7 billion black hole in unfunded pension liabilities, hurt by falling bond prices and choppy equities markets.

This has prompted the Australian Prudential Regulation Authority to increase monitoring of the older style superannuation plans operated by a raft of companies including BHP Billiton, Telstra and Woolworths.

While some funds have improved their position since the start of the financial crisis, there are still those in "unsatisfactory financial positions", APRA warned in its latest half-yearly regulatory update.

"These entities receive close APRA attention," the regulator said, although it did not name the funds.

Analysis of the full-year accounts of the top 20 companies reveals defined benefit superannuation schemes have sunk to a $7.03 billion loss over the past year, after a $5.36 billion loss a year earlier.

However, the results have been skewed by Rio Tinto, which took on more than $US13 billion ($12.6 billion) of mostly Canadian-based defined benefit obligations after buying Alcan five years ago.

Rio Tinto has pumped billions of dollars into the plan, including $US610 million last year. But last year the deficit on Rio Tinto's plan still blew out to $US4.66 billion, up from $US3.24 billion a year earlier.

Other large defined benefit funds sitting on losses include Westpac's with a deficit of $676 million and AMP's, with $370 million in losses.

Most funds have about half of their assets tied up in equities and the rest in bonds, cash and property.

Defined benefit schemes guarantee a fixed retirement payout regardless of investment performance. Payouts are usually calculated on a combination of years of employment and salary at retirement. Australian companies largely closed their defined benefit schemes last decade, which has helped them avoid the ballooning liabilities of their global rivals.

Latest figures show only 2 per cent of members of large APRA-regulated funds were in pure defined benefit funds while 59 per cent were in accumulated funds - where the fund member takes the risk.

In Australia there is more than $53 billion in assets tied up in "pure" defined funds. There is nearly $329 billion in so-called hybrid funds that have elements of defined and accumulated funds.