State Super: In decline but doing fine

While it may be on the long, slow march to the end, State Super continues to do quite well - faring similarly to some other "healthy" super funds.

- Andrew McKean

State Super closed its main defined benefit schemes in 1985 and 1992, meaning the fund is on a long slow march to completion. Its chief executive John Livanas unpacks the challenges of managing a fund with no new members and an inevitable end.

State Super's funds are decumulating at different rates. Its defined benefit members receive lifetime pensions, sometimes extending to a spouse or child, payments will continue until its last member dies - estimated to be in 2084. Defined contribution members, meanwhile, take a lump sum at retirement.

Overall, State Super's funds are shrinking, but at different speeds. The defined benefit side, essentially a long pension fund, is bleeding out slowly. It's not fully funded, which means the government contributions and investment returns are coming in, nevertheless there's still a drift of negative cash flow from these funds.

The defined benefit side currently sits around $30 billion and has net outflows of $1 to $2 billion every five to seven years. The defined contribution side, however, is a different beast - worth around $7 billion and is forecast to halve over that same timeframe.

Livanas said it's hard enough to manage a declining fund but even harder to manage the part that's decumulating rapidly. The challenges on the defined contribution side, include managing to a risk-return objective with liquidity and rebalancing requirements - with members able to switch between investment options. The last thing you want, he added, is for someone to leave on Thursday and end up with a very different result than if they'd left on Friday.

The second challenge is managing the fund collectively. It requires techniques not typically employed in a growing fund, he said.