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15 December 2010 John Citizen 56 Cochranes Road Moorabbin VIC 3189 Dear John, Security of EISS benefits As a pre-privatisation member, you may have wondered about the security of your Electricity Industry Superannuation Scheme (EISS) benefits since privatisation. This is something the Board takes very seriously in everything it does. This letter is to give you some background on how the Board manages this very important issue. What was the situation before privatisation? Prior to privatisation members’ superannuation benefits effectively had a Government guarantee. You could be sure that your benefit would be paid, as it was a government-owned company that paid it. You may recall that the Government promised that your superannuation would not be disadvantaged by privatisation. What’s the situation now? After privatisation, benefits were no longer paid by a government-owned company. EISS benefits are paid from the assets of the Scheme, which is a pool of money managed by the Board of the EISS. These assets are not controlled or owned by your employer, but by the scheme and managed by its Board of Trustees. So the assets are separate to my employer. But is my benefit still secure? The Board aims to have enough assets to pay all benefits (called “full funding”). However, there may be times when this isn’t possible, such as when investment markets have negative returns. Many of the benefits for pre-privatisation members (those in Divisions 2, 3 and 4) are a formula based on your salary at retirement. This means that when negative investment returns cause the value of the Scheme assets to go down, the value of your salary based benefits doesn’t fall. This creates a shortfall, ie the Scheme doesn’t have enough assets. When returns are negative, the Board asks employers to increase their contributions over time to make up any shortfall between assets and benefits. Over the last couple of years, investment markets have been negative for many months. All employers have increased their contributions as asked by the Board, and the Scheme is nearly at full funding again. This has been helped by good investment returns since mid-2009. Investment returns are good, and employers are contributing extra. So what’s the problem? The Board has reviewed what could happen if an employer couldn’t make their contributions when there was a shortfall in the fund. This may have lead to members’ benefits being reduced due to the lack of money to pay them. While this is extremely unlikely, and hasn’t been a problem so far, it is serious enough for the Board to monitor and be confident that it can be managed. So what can be done to protect members’ benefits from such extreme events? As the Government had promised that the superannuation of ETSA employees would not be disadvantaged by privatisation, the Board asked the Government to provide certainty to pre-privatisation members. In a recent letter to the Scheme, the Government reaffirmed the guarantee given to employees of ETSA prior to privatisation. That is, the Government will support pre-privatisation members of the Scheme financially if an employer were to default on its financial commitments to the EISS. So, in addition to the Board working towards full funding of the scheme, this should provide peace of mind to EISS members about the security of their superannuation benefits. Naturally, if you have any questions, you are more than welcome to ask the EISS office. Please email us on [email protected] or call us on 1300 307 844. Regards Jon Holbrook Executive Officer