The Full Federal Court has dismissed an appeal by a trustee of a superannuation fund in relation to the lump sum equivalent value of a lifetime pension to be paid to a defined benefit member upon the termination of an employer-sponsored superannuation plan.
- The respondent (Mr Billinghurst) had commenced receiving a lifetime pension of $98,780pa from a corporate super fund following his retirement in 2000.
- Pension increases were at the discretion of the employer but it would generally be increased for CPI.
- In November 2011, the employer advised the trustee that it would cease operating as a business and would cease to participate in the plan.
- The employer requested the trustee to calculate the “transfer value” for each pension as the cost of purchasing an equivalent annuity (but not linked to CPI).
- The plan actuary recommended a slightly higher alternative value of $1,432,824 for Mr Billinghurst based on a discount rate method with no pension increases.
- Mr Billinghurst obtained his own actuarial advice which valued the lump sum equivalent at $1,921,000.
At first instance, the Federal Court upheld the Superannuation Complaints Tribunal (SCT) finding that the trustee’s decision in relation to the pension equivalent lump sum was not fair and reasonable. The Court found that the SCT had not erred in determining that the trustee was required to act in the best interests of the beneficiaries (s 52(2)(c) of the SIS Act).
In dismissing the trustee’s appeal, the majority of the Full Federal Court (Pagone J dissenting):
- rejected the trustee’s argument that the SCT had misconceived its statutory duty under s37(6) of the Superannuation (Resolution of Complaints) Act 1993 by reviewing the process adopted by the trustee, rather than the unfairness or unreasonableness of the decision itself.
- The Full Court also dismissed the trustee’s submission that the SCT had failed to take into account the finite amount of money available for distribution.
- The Full Court ruled that there was no error in the primary judge’s conclusion that it was always open to the trustee to seek an additional contribution from the employer, and the employer’s letter did not terminate the plan.
- The Full Court also noted that the pension entitlements were established under a deed between the employer and Mr Billinghurst which were not reduced by the later arrangements with the trustee.
- In the event of a conflict of duties, the Full Court said it remained the trustee’s duty under s 52(2)(d) of the SIS Act to give priority to Mr Billinghurst’s full pension entitlements.
(Mercer Superannuation (Australia) Limited v Billinghurst [2017] FCAFC 201, Full Federal Court, Flick, Kerr and Pagone JJ, 7 December 2017.)
[LTN 238, 12/12/17; Tax Month Dec 2017]
Catchwords
SUPERANNUATION – decision of Superannuation Complaints Tribunal setting aside decision of Trustee and remitting it for reconsideration – calculation of lump sum value of defined benefit pension – where Trustee adopted a valuation based on calculations of Plan Actuary who had advised the employer – where employer had communicated its views to the Trustee as to the methodology to be employed in its calculations – whether Trustee’s decision was fair and reasonable in the circumstances – Trustee required to prioritise interests of beneficiaries where conflict arose – appeal dismissed