A key scheme of one of Australia's biggest superannuation funds is short of money, leaving more than 100,000 people facing the prospect of having their super slashed.

At universities across Australia just about everyone from the boffins to the backroom staff is in a super scheme called UniSuper.

The fund has more than 450,000 members and about $30 billion in assets under management. Its members thought they were in a scheme that was secure but that is no longer the case.

They may lose what they thought would be a guaranteed income in retirement because UniSuper may not be able to pay out on promised benefits.

Dr Mike Rafferty from the Workplace Research Centre at the University of Sydney says many members are unaware their super is at risk.

"One of the things the university did provide was the promise of a decent pension, but that appears to have gone up in smoke and most of them didn't even know that it happened," he told 7.30.

"There should be mass meetings at every university, there should have been notifications about the significance of this change and a debate about whether or not it was warranted.

"But there was only a trickle of information at best and I don't think the ordinary person would have any idea about it."

Unless the markets recover UniSuper will be cutting benefits in 2013, and even employees who have been retired for decades could have their pensions cut.

"We have to act fairly and equitably. The benefit reductions have to be fair and equitable," said UniSuper chief Terry McCredden.

"They don't have to be the same, just fair and equitable."

Dr Rafferty says that will leave tens of thousands of people out of pocket.

"It means that those people that have already retired, about to retire, and those people who are still contributing a large amount of their income are going to get much less," he said.

"And for those who have been planning on a particular retirement income, they're going to be very disappointed."

Controversial change

UniSuper offers members the option of what is known as a defined benefit.

Unlike other schemes where what you get depends on investment returns and what is happening in the markets, a defined benefit is a set payment based on your salary, age and length of service.

Generally in these schemes the employer has to pay the defined benefit, even if that means putting in more money to make up any shortfall.

But Scott Donald, a legal academic with the University of NSW, says that is not the case with UniSuper.

"In most schemes if it looks like the fund is nearing the point where it can't meet its benefits, then the actuary will advise the trustees that they need to increase the contribution rate," he said.

"They'll go to the employer and say we need more money to meet these benefits.

"In 2006 though there were some negotiations that the trustee undertook, the result of which was that that tie-back to the employer was severed."

Until then, if the fund did not have enough money to pay benefits, the trustee had to call on employers to top up the fund.

Fine print

The 2006 decision to scrap that requirement intrigues Mr Donald, who has worked in the super industry and is finishing a doctorate on superannuation trust deeds.

"What is interesting is that decision in 2006 that the trustee made. They have a responsibility to act in the best interests of their members, they have to exercise their powers having regards to those interests," he said.

"It would be very interesting to take a look at why that decision was made because it was quite a surprising decision."

Dr Rafferty echoes that view.

"You would perhaps have to ask yourself how allowing the employer off the hook is actually in the best interests of the members of a fund," he said.

Mr McCredden says employers were never on the hook as the fine print always let them refuse to top up the fund.

"Prior to the change in 2006 some universities made it very clear they would not top up [any] shortfall," he said.

"Secondly, under UniSuper's trust deed, all employers had to agree on topping up, not just a few - you need all of them to apply. The trustee at the time, UniSuper, really needed to provide some greater clarity for their members.

"To leave the clause unamended could be seen to make it misleading for the members. It would give them hope that the employers would top up their additional contributions, which wasn't the case."

'Time bomb'

Dr Rafferty recently became a Sydney University staff representative on UniSuper's consultative committee. He was shocked to find out how little disclosure there was about the fund's shortage of cash.

"[The] only thing I've been able to find ... starts with a statement of how well the fund's been doing - [that] it's in healthy financial position, more than enough assets," he said.

"You've got to go right to the back page to find out that actually the trust deed is being amended to make employees responsible for any shortfall.

"It's probably the biggest change UniSuper has had, stuck in the back page.

"The implications are huge. It's a ticking time bomb - that's back in 2006. It's just completely inadequate."

Mr McCredden disputes the suggestion the disclosure was inadequate.

"The disclosures were fine. Everybody got a letter and included in that letter there was an extra information docket that laid out the changes," he said.

Conflict of interest

UniSuper's chief at the time of the changes, Ann Byrne, refused to be interviewed by the ABC.

A year after repealing the call on employers to top up the fund, her peers voted her fund executive of the year.

There is an inherent conflict of interest in the way the fund is set up. Supposedly it exists solely to serve the interests of members - the employees - yet the employers are the funds' shareholders, in effect the owners, and they have a financial incentive to reduce their liability.

"If you're approaching retirement and this comes in, there will be a lot of people who will say 'let's just take whatever retirement package I can get', and as people rush to the exits just like in a banking system, there's going to be less and less money available," Dr Rafferty said.