Projected Benefit Obligation (PBO) Explained: 2025 Superannuation Insights

Projected Benefit Obligation (PBO) may sound like actuarial jargon, but it’s one of the most important concepts shaping the long-term security of your superannuation. As 2025 brings shifts in super policy and economic outlooks, understanding PBO can help you interpret fund disclosures and make smarter retirement decisions.

What is Projected Benefit Obligation (PBO)?

PBO is an actuarial estimate of the total present value of pension or superannuation benefits owed to employees, based on their current service and projected future salary increases. In simple terms, it’s what a fund expects to pay out—assuming everyone stays with their employer and salaries grow as expected.

• Why it matters: PBO gives a snapshot of a fund’s future commitments, helping trustees, members, and regulators assess whether there are enough assets to cover promises.
• How it’s calculated: Actuaries use discount rates, inflation assumptions, and expected salary growth to estimate the present value of all future benefits earned to date.

For example, if an Australian company sponsors a defined benefit super fund, the PBO reflects what it would owe if all eligible employees retired at the end of the reporting period, factoring in their expected final salaries.

2025 Policy Changes and the Impact on PBO

Australia’s superannuation landscape continues to evolve. In 2025, several policy trends and regulatory shifts are affecting how funds calculate and report their obligations:

• APRA’s Enhanced Disclosure Rules: The Australian Prudential Regulation Authority (APRA) has tightened requirements for funds to disclose actuarial assumptions used in PBO calculations, including salary growth rates and discount rates. This makes PBO figures more transparent and comparable across funds.
• Rising Discount Rates: With the Reserve Bank of Australia maintaining a higher cash rate in early 2025, discount rates used in PBO calculations have ticked up. This typically results in a lower present value for future obligations—good news for a fund’s reported funding status, but it doesn’t change the eventual cash outlay.
• Salary Growth Adjustments: As wage growth stabilises following recent inflation surges, actuarial models are being recalibrated. Lower projected salary growth means PBOs may not climb as quickly as in recent years, affecting long-term funding strategies.

For example, a major industry super fund recently reported its PBO had decreased by 4% in its 2025 annual statement, largely due to a 0.75% increase in the discount rate and updated wage projections.

What PBO Means for Super Fund Members

Most Australians are in accumulation (not defined benefit) super funds, but understanding PBO is still valuable—especially if you’re in, or considering, a defined benefit scheme, or want to judge a fund’s long-term health.

• Funding Ratios: PBO is a key input in a fund’s “funded status”—the ratio of assets to obligations. A ratio above 100% means the fund is well-positioned to meet future promises; below that, and there could be pressure for higher contributions or reduced benefits.
• Member Security: For defined benefit members, a well-managed PBO signals your employer and fund are keeping pace with future liabilities. Watch for big swings in PBO or persistent underfunding in annual reports.
• Policy Watch: In 2025, policymakers are debating stricter funding requirements for corporate super plans, which could lead to higher minimum funding ratios or more frequent PBO disclosures.

Consider the real-world example of a university super fund: After a 2025 actuarial review, the fund disclosed a funding ratio of 95%, down from 102% the previous year. The drop was attributed to revised longevity projections, pushing the PBO higher and prompting a review of contribution rates.

How to Use PBO When Comparing Super Funds

While accumulation funds don’t use PBO in the same way, the underlying idea—matching future outflows with current assets—applies across the industry. For anyone comparing super funds, especially those with defined benefit options, look for:

• Clear disclosure of PBO and actuarial assumptions
• Funding ratios and recent trends
• Management’s plan to address any funding gaps

Don’t be swayed by a single year’s result—review trends over time and seek out funds with a track record of prudent risk management.

Conclusion

PBO may seem technical, but it’s a crucial indicator of a super fund’s ability to deliver on its promises. With new 2025 policy changes, transparency is improving—empowering Australians to make more informed choices about their retirement savings.