The health of Australia’s pension system is in the spotlight as underfunded pension plans emerge as a growing concern. With demographic shifts, volatile markets, and regulatory changes, Australians are rightly asking: Will my retirement fund be there when I need it? In 2025, the issue of underfunded pension plans isn’t just a distant problem for bureaucrats—it could have real consequences for millions of Australians planning their financial future.
What is an Underfunded Pension Plan?
An underfunded pension plan occurs when a superannuation or defined benefit fund does not have enough assets to meet its future obligations to retirees. This gap between assets and liabilities is not just a technical shortfall—it can directly affect the security of retirement incomes.
- Defined Benefit vs. Defined Contribution: In Australia, most super funds are defined contribution, but some older public sector and corporate funds remain defined benefit. Underfunding is a particular risk for defined benefit schemes, where payouts are guaranteed.
- How Underfunding Happens: Causes include poor investment returns, increased life expectancy (meaning people collect benefits longer), employer contribution holidays, and policy changes.
In 2025, APRA’s latest figures show a handful of legacy defined benefit schemes remain below the 100% funded mark, despite regulatory scrutiny and pressure for remediation plans.
Why Are Pension Plans Becoming Underfunded in 2025?
Several converging trends are challenging the sustainability of pension funds across Australia:
- Market Volatility: After the turbulence of 2022–2024, persistent inflation and interest rate uncertainty have dented investment portfolios, slowing asset growth for many funds.
- Demographic Pressures: The proportion of Australians over 65 is projected to exceed 18% by the end of 2025, increasing the number of pensioners drawing benefits from a shrinking pool of contributors.
- Regulatory Changes: Recent amendments to the Superannuation Industry (Supervision) Act require stricter funding disclosures. The 2025 Federal Budget also increased scrutiny of underfunded defined benefit plans, mandating annual recovery plans for those below 90% funded status.
- Corporate Pressures: Several high-profile corporate funds have made headlines after reporting funding shortfalls. For example, in March 2025, the QLD Energy Super Fund revealed a $450 million deficit, prompting immediate contribution increases and a media storm.
For most Australians in accumulation (defined contribution) schemes, market risks are largely individualised. But for those in defined benefit plans—or with family members relying on them—underfunding is a collective risk with systemic implications.
How Underfunded Pension Plans Could Affect You
The risks of an underfunded pension plan extend beyond headlines. Here’s what it could mean for Australians in 2025:
- Reduced Benefits: In extreme cases, underfunded plans may cut promised payouts or offer buyouts at a discount.
- Higher Contributions: Employers (and sometimes employees) may be required to increase contributions to shore up funding levels. This has been seen in public sector schemes in Victoria and Queensland in the past year.
- Policy Intervention: The federal government has signalled a willingness to intervene in severely underfunded plans, potentially with taxpayer support or through mergers with better-funded funds. However, such bailouts are politically fraught and not guaranteed.
- Confidence and Stability: Growing media attention on underfunded schemes can shake confidence in the superannuation system as a whole, even if most Australians’ retirement savings remain secure.
Recent examples highlight the stakes. In early 2025, the Victorian Teachers’ Superannuation Scheme announced it would freeze indexation for two years to preserve assets—affecting over 25,000 current and future retirees.
What You Can Do: Staying Informed and Protected
If you’re a member of a defined benefit fund or concerned about the health of your pension, here are practical steps to take:
- Review Your Annual Benefit Statement: Check the funding level and whether your fund is reporting a shortfall.
- Ask Questions: If you’re in a public sector or corporate defined benefit scheme, ask your employer or fund trustee about recovery plans and what it means for your retirement.
- Diversify Retirement Savings: Don’t rely solely on a defined benefit pension. Consider voluntary super contributions, other investments, or transition-to-retirement strategies.
- Monitor Policy Developments: The next 12 months could bring further regulatory changes as the government continues to respond to funding challenges. Stay alert to news from APRA, ASIC, and your fund.
Looking Ahead: The Future of Pension Security in Australia
While underfunded pension plans remain a minority issue, the risks are growing as economic and demographic pressures intensify. The Australian government and regulators are taking steps to address shortfalls, but individuals should remain proactive about their retirement strategy. As 2025 unfolds, pension security will stay front of mind for policymakers, employers, and retirees alike.
