Reserve Bank of Australia Annual Report – 2016 Financial Statements Note 14 – Superannuation Funds
Overview
Independent actuarial estimates place the RBA defined benefit superannuation fund (the OSF) in surplus at 30 June 2016. This analysis updates the full actuarial valuation prepared as at 30 June 2014, and is consistent with AAS 25 – Financial Reporting by Superannuation Plans. The next full actuarial review of the fund will be completed for the financial position as at 30 June 2017.
For financial statement purposes, disclosures on superannuation follow AASB 119 and are based on future liabilities being discounted at the yield on high-quality Australian dollar corporate bonds. This places a higher present value on those liabilities than the funding assessment, which discounts them at the assumed return on fund assets. The RBA currently carries a liability for defined benefit superannuation in terms of AASB 119.
The RBA and OSF Board of Trustees are currently working to transfer the members and assets of the OSF to a multi-employer fund (MEF) via a successor fund transfer. The transfer to an MEF is expected to be completed by mid-2017, when the Bank's role in directly operating and governing the fund will cease.
Structure of funds
The RBA has two superannuation funds: the Reserve Bank of Australia Officers' Superannuation Fund (OSF) and the Reserve Bank of Australia UK Pension Scheme. Current and future benefits are funded by member and RBA contributions and the existing assets of these schemes. The RBA's superannuation expenses are included in net profits and shown in Note 2. Administration and other operational costs, and any recoupment of costs from the funds, are also included in Note 2. There were no other related party transactions between the RBA and either fund during 2015/16.
The OSF is a hybrid fund licensed by APRA, with a mix of defined benefit members, defined contribution members and pensioners. Defined benefit members receive a defined benefit in accordance with the OSF's Trust Deed. All members have unitised accumulation balances, which comprise employer contributions and members' personal contributions plus earnings on contributions. The OSF is classified as a single-employer plan in terms of AASB 119. Defined benefit membership in the OSF was closed to new RBA staff from 1 August 2014. From that date, new staff have been offered defined contribution superannuation. The UK Pension Scheme is a closed defined benefit scheme subject to relevant UK regulation.
Funding valuation – AAS 25
Independent actuarial valuations of the OSF and UK Pension Scheme are conducted every three years. The latest for the OSF was at 30 June 2014 and for the UK Scheme at 30 June 2013. These valuations showed both funds were in surplus and in a satisfactory financial position.
The funding valuation of the OSF in 2014 was based on the Attained Age Funding method. Accrued benefits were determined as the value of the future benefits payable to members (allowing for future salary increases), discounted by the expected rate of return on assets held to fund these benefits. At the time of this review, the surplus of the OSF was $110.3 million. The OSF surplus measured on this basis as at 30 June 2016 amounted to $132.0 million.
The RBA maintained its contribution rate to the OSF defined benefit at 18.3 per cent of salaries in 2015/16, consistent with the actuary's recommendation.
The latest funding valuation for the UK Pension Scheme was prepared as at 30 June 2013 and was also based on the Attained Age Funding method. On this basis, the UK Pension Scheme recorded a small deficit at 30 June 2016, with assets of $25.6 million compared with accrued benefits of $26.0 million (assets of $26.4 million and accrued benefits of $26.5 million at 30 June 2015). The Trustees of the UK Scheme will keep its funding position under review.
Accounting valuation – AASB 119
For financial statement purposes, the financial positions of the OSF and UK Pension Scheme are valued in accordance with AASB 119. This standard requires disclosures of significant actuarial assumptions, a maturity analysis of the defined benefit obligation and key risk exposures. Unless otherwise stated, information is provided only for the OSF, as the UK Pension Scheme is not material.
Actuarial assumptions
The principal actuarial assumptions for the AASB 119 valuation of the OSF are:
| 2016 per cent |
2015 per cent |
|
|---|---|---|
| Discount rate (gross of tax)(a) | 3.6 | 4.9 |
| Future salary growth(b) | 3.0 | 3.0 |
| Future pension growth(b) | 3.0 | 3.0 |
|
(a) Based on highly rated Australian dollar denominated corporate bond
yields |
||
Maturity analysis
The weighted-average duration of the defined benefit obligation for the OSF is 21 years (18 years at 30 June 2015). The expected maturity profile for defined benefit obligations of the OSF is as follows:
| 2016 per cent |
2015 per cent |
|
|---|---|---|
| Maturity profile | ||
| Less than 5 years | 15 | 19 |
| Between 5 and 10 years | 14 | 16 |
| Between 10 and 20 years | 25 | 26 |
| Between 20 and 30 years | 20 | 18 |
| Over 30 years | 26 | 21 |
| Total | 100 | 100 |
Risk exposures
Key risks from the RBA's sponsorship of the OSF defined benefit plan include investment, interest rate, longevity, salary and pension risks.
Investment risk is the risk that the actual future return on plan assets will be lower than the assumed rate.
Interest rate risk is the exposure of the defined benefit obligations to adverse movements in interest rates. A decrease in interest rates will increase the present value of these obligations.
Longevity risk is the risk that OSF members live longer than actuarial estimates of life expectancy.
Salary risk is the risk that higher than assumed salary growth will increase the cost of providing a salary-related pension.
Pension risk is the risk that pensions increase at a faster rate than assumed and increases the cost of providing them.
The table below shows the estimated change in the defined benefit obligation resulting from movements in key actuarial assumptions. These estimates change each assumption individually, holding other factors constant; they do not incorporate any correlations among these factors.
| 2016 $M |
2015 $M |
|
|---|---|---|
| Change in defined benefit obligation from an increase of 0.25 percentage points: | ||
| Discount rate (gross of tax) | (76) | (50) |
| Future salary growth | 21 | 13 |
| Future pension growth | 56 | 38 |
| Change in defined benefit obligation from a decrease of 0.25 percentage points: | ||
| Discount rate (gross of tax) | 82 | 54 |
| Future salary growth | (20) | (13) |
| Future pension growth | (53) | (36) |
| Change in defined benefit obligation from an increase in life expectancy of one year | 54 | 38 |
Asset distribution
The distribution of the OSF's assets used to fund members' defined benefits at 30 June is:
| Per cent of fund assets | ||
|---|---|---|
| 2016 | 2015 | |
| Cash and short-term securities | 3 | 5 |
| Fixed interest and indexed securities | 15 | 14 |
| Domestic equities | 35 | 36 |
| Foreign equities | 17 | 18 |
| Property | 15 | 14 |
| Private equity and infrastructure | 15 | 13 |
| Total | 100 | 100 |
AASB 119 Reconciliation
The table below contains a reconciliation of the AASB 119 valuation of the two superannuation funds. For the OSF these details are for the defined benefit component only, as the RBA faces no actuarial risk on defined contribution balances and these balances have no effect on the measurement of the financial position of the OSF. At 30 June 2016, OSF accumulation balances totalled $279.5 million ($265.0 million as at 30 June 2015).
| OSF | UK Scheme | Total | ||||
|---|---|---|---|---|---|---|
| 2016 $M |
2015 $M |
2016 $M |
2015 $M |
2016 $M |
2015 $M |
|
| Opening balances: | ||||||
| Net market value of assets | 967 | 906 | 26 | 22 | 993 | 927 |
| Accrued benefits | (1,031) | (1,103) | (22) | (19) | (1,053) | (1,123) |
| Surplus/(deficit) | (64) | (197) | 4 | 2 | (60) | (195) |
| Effect of asset cap | – | – | (4) | (2) | (4) | (2) |
| Opening superannuation asset/(liability) | (64) | (197) | – | – | (63) | (197) |
| Change in net market value of assets | 24 | 61 | (1) | 5 | 23 | 66 |
| Change in accrued benefits | (357) | 72 | 2 | (3) | (355) | 69 |
| Change in asset cap | – | – | (1) | (2) | (1) | (2) |
| Change in superannuation asset/(liability) | (333) | 133 | – | – | (333) | 133 |
| Closing balances: | ||||||
| Net market value of assets | 991 | 967 | 26 | 26 | 1,017 | 993 |
| Accrued benefits | (1,388) | (1,031) | (21) | (22) | (1,409) | (1,053) |
| Surplus/(deficit) | (397) | (64) | 5 | 4 | (392) | (60) |
| Effect of asset cap | – | – | (5) | (4) | (5) | (4) |
| Closing superannuation asset/(liability) | (397) | (64) | – | – | (397) | (63) |
| Interest income | 47 | 41 | 1 | 1 | 48 | 42 |
| Benefit payments | (42) | (43) | (1) | (1) | (43) | (44) |
| Return on plan assets | (6) | 38 | 3 | 2 | (3) | 40 |
| Contributions from RBA to defined benefit schemes | 24 | 25 | – | – | 24 | 25 |
| Exchange rate gains/(losses) | – | – | (3) | 3 | (3) | 3 |
| Change in net market value of assets | 24 | 61 | (1) | 5 | 23 | 66 |
| Current service cost | (37) | (40) | – | – | (37) | (40) |
| Interest cost | (50) | (50) | (1) | (1) | (51) | (51) |
| Benefit payments | 42 | 43 | 1 | 1 | 43 | 44 |
| Gains/(losses) from change in demographic assumptions | – | – | – | – | – | – |
| Gains/(losses) from change in financial assumptions | (312) | 88 | (1) | (1) | (313) | 87 |
| Gains/(losses) from change in other assumptions | 1 | 31 | – | – | 1 | 31 |
| Exchange rate gains/(losses) | – | – | 3 | (2) | 3 | (2) |
| Change in accrued benefits | (357) | 72 | 2 | (3) | (355) | 69 |
| Current service cost | 37 | 40 | – | – | 37 | 40 |
| Net Interest expense/(income) | 4 | 9 | – | – | 4 | 9 |
| Productivity and superannuation guarantee contributions | 6 | 5 | – | – | 6 | 5 |
| Superannuation expense/(income) included in profit or loss | 47 | 54 | – | – | 47 | 53 |
| Actuarial remeasurement loss/(gain) | 316 | (157) | – | – | 316 | (157) |
| Superannuation expense/(income) included in Statement of Comprehensive Income | 363 | (103) | – | – | 363 | (103) |
|
The components of this table may not add due to rounding. |
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