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DOZENS of companies are preparing to pump hundreds of millions of dollars into their out-of-money defined-benefit superannuation programs over the next few years, as part of efforts to help claw back losses.

By InvestSMART · 24 Apr 2012

By InvestSMART ·
24 Apr 2012

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While Australian companies mostly closed out their defined-benefit schemes during the 1990s, those that have expanded overseas through acquisition have usually inherited costly programs.

Among Australia's top 20 companies just one Wesfarmers has a defined-benefit scheme that is in surplus. Wesfarmer' surplus has come in at $5 million, up from

$4 million the year before.

BHP Billiton pumped $US336 million into its out-of-money scheme last year, helping to narrow the deficit to $US177 million from $US215 million a year earlier.

The banks all have sizeable defined-benefit schemes, with the bulk of obligations due to various forays into the UK. Westpac has the biggest deficit at $676 million, NAB has a $295 million deficit and ANZ's loss is $225 million. Exposure to the UK also resulted in Commonwealth Bank's defined-pension scheme swinging to a loss of $7 million last year from a surplus of $234 million the year before.

Telstra has been working to reduce the loss on its $2.7 billion defined-pension scheme, which peaked at $457 million two years ago. Last year the loss on that fund narrowed to $194 million.

AMP's recent acquisition of AXA Asia-Pacific delivered a jump in superannuation liabilities, with the deficit last year blowing out to

$370 million from $67 million.

APRA said companies often had to top up in-house schemes at the same time as their profits came under pressure.

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Frequently Asked Questions about this Article…

What are Australian companies doing about defined-benefit superannuation deficits?

Dozens of companies are preparing to pump hundreds of millions of dollars into their out-of-money defined-benefit superannuation programs over the next few years to help claw back losses, according to the article.

Which major Australian companies have notable defined-benefit pension deficits?

The article highlights several big names: Westpac (largest deficit at $676 million), NAB ($295 million), ANZ ($225 million), Commonwealth Bank (swung to a $7 million loss from a $234 million surplus), AMP (deficit rose to $370 million after acquiring AXA Asia‑Pacific), BHP Billiton (narrowed its US$ deficit to US$177 million after a US$336 million top-up) and Telstra (loss narrowed to $194 million).

Why have overseas acquisitions made pension liabilities worse for some companies?

Companies that expanded overseas through acquisition often inherited costly defined-benefit programs from acquired businesses. The article notes significant exposure to UK pension schemes as a key reason many Australian companies face large obligations.

How much did BHP Billiton contribute to its defined-benefit scheme and what was the result?

BHP Billiton pumped US$336 million into its out-of-money scheme last year, which helped narrow the deficit to US$177 million from US$215 million the year before.

Is Wesfarmers’ defined-benefit superannuation scheme in surplus?

Yes. Among Australia’s top 20 companies, Wesfarmers is the only one reported as having a defined-benefit scheme in surplus, with that surplus at $5 million, up from $4 million the previous year.

How did AMP’s acquisition of AXA Asia‑Pacific affect its superannuation liabilities?

AMP’s acquisition of AXA Asia‑Pacific caused a jump in superannuation liabilities: the deficit blew out to $370 million last year from $67 million the year before, per the article.

What has happened to Telstra’s defined-pension scheme in recent years?

Telstra has been working to reduce the loss on its $2.7 billion defined-pension scheme. The loss peaked at $457 million two years ago and narrowed to $194 million last year.

Do pension top-ups affect company profits?

Yes. The article cites APRA saying companies often have to top up in-house schemes at the same time their profits are under pressure, meaning pension contributions can strain company earnings when performance is weak.