Australia’s superannuation system is world-renowned, but a new dynamic is emerging in 2025: the rise of overfunded pension plans. While much of the public debate revolves around underfunded schemes, an overfunded plan can present both opportunities and challenges for employers and members. With recent legislative tweaks and market volatility, understanding the implications of an overfunded pension is more important than ever.
What Is an Overfunded Pension Plan?
An overfunded pension plan is one where the assets held in trust to pay retirement benefits exceed the plan’s projected liabilities. In simple terms, the fund has more money than it is currently expected to need for all its future payments. This situation has become more common in Australia thanks to robust investment returns in 2023-24, higher-than-expected contributions, and the lingering impact of pandemic-driven super top-ups.
- Example: If a defined benefit plan projects $1 billion in payouts over its life, but it currently holds $1.1 billion in assets, it is considered overfunded by $100 million.
- Overfunding is most often seen in corporate or public sector defined benefit super funds, rather than the more common accumulation plans.
2025 Policy Updates: New Rules for Surplus Assets
The Albanese Government’s 2025 update to superannuation law has changed how employers can access or use surplus funds in overfunded plans. Previously, strict controls prevented companies from reclaiming excess assets, leading to a cautious approach to funding. The latest Superannuation Industry (Supervision) Act amendments include:
- Clearer pathways for surplus withdrawals: Corporations can now apply to the ATO to access surplus funds, provided all member benefits are fully secured and actuarial certifications are up-to-date.
- Taxation adjustments: Withdrawn surpluses are taxed at a concessional rate, with the aim of encouraging prudent plan management without penalising employers.
- Member benefit protections: Trustees must demonstrate that any withdrawal or benefit enhancement does not compromise the financial security of current or future retirees.
These changes have sparked debate. Some unions argue that surpluses should always be used to enhance member benefits, while business groups welcome greater flexibility for employers who have responsibly managed their plans.
Impacts on Employers and Members
The implications of an overfunded pension plan differ depending on your perspective:
- For employers: Overfunding can reduce future contribution requirements, freeing up capital for other uses. In some cases, it may improve a company’s balance sheet or even lead to direct refunds of excess assets. However, public scrutiny is intense, especially if any withdrawal coincides with layoffs or restructuring.
- For plan members: Overfunded status offers peace of mind, signalling that benefit promises are secure. In 2025, some super funds have announced bonus indexation or benefit enhancements thanks to surplus assets. But members should be vigilant: changes to plan rules or employer withdrawals may impact long-term stability if not managed carefully.
- For the economy: Overfunded plans may signal underlying strength, but they can also indicate conservative assumptions or missed opportunities for investment in staff or business growth. Policymakers are watching closely to ensure that surpluses are put to productive use without undermining retirement security.
What Should You Do If You’re Affected?
If you’re a member of a defined benefit super fund, check your annual statement for the plan’s funding status. Employers should review actuarial reports and consider how new policy settings may affect contribution requirements or financial reporting. And for those considering a pension fund withdrawal or benefit enhancement, it’s vital to understand the long-term implications—both financial and reputational.
