Reserve Bank of Australia Annual Report – 2017 Financial Statements Note 14 – Superannuation Funds

The RBA sponsors two superannuation funds: RB Super (formerly the Reserve Bank of Australia Officers' Superannuation Fund (OSF)) and the Reserve Bank of Australia UK Pension Scheme. The OSF Board of Trustees transferred the members and assets of the OSF to a multi-employer fund (MEF) via a successor fund transfer in March 2017. The Bank does not have a role in directly operating or governing RB Super; the Bank has no involvement in the appointment of the RB Super Trustees. 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 profit and shown in Note 2.

RB Super is a hybrid plan, with a mix of defined benefit members, defined contribution members and pensioners. Defined benefit members receive a defined benefit in accordance with RB Super's plan rules. All members have unitised accumulation balances, which comprise employer contributions and members' personal contributions plus earnings on contributions. Defined benefit membership 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

Independent actuarial valuations of RB Super and the UK Pension Scheme are conducted every three years.

The first triennial actuarial valuation for RB Super will be completed for the financial position as at 30 June 2017. The valuation for the OSF was last undertaken at 30 June 2014. 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. On the same valuation basis, the RB Super surplus as at 30 June 2017 amounted to $238.9 million. The RBA maintained its contribution rate to fund defined benefit obligations at 18.3 per cent of salaries in 2016/17, consistent with the actuary's recommendation.

The latest funding valuation for the UK Scheme was at 30 June 2016 and was also based on the Attained Age Funding method. At the time of this review, the UK Pension Scheme was in a small surplus. On this basis, the surplus at 30 June 2017 was $0.6 million, with assets of $25.2 million compared with accrued benefits of $24.6 million. The Trustees of the UK Scheme will keep its funding position under review.

Accounting valuation

For financial statement purposes, the financial positions of RB Super and the 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. Information is provided only for RB Super, as the UK Pension Scheme is not material. Prior year disclosures relate to RB Super's predecessor, the OSF.

Actuarial assumptions

The principal actuarial assumptions for the AASB 119 valuation of RB Super are:

Maturity analysis

The weighted-average duration of the defined benefit obligation for RB Super is 19 years (21 years at 30 June 2016). The expected maturity profile for defined benefit obligations of RB Super is as follows:

Risk exposures

Key risks from the RBA's sponsorship of the RB Super 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 RB Super members live longer, on average, 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, thereby increasing 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.

Asset distribution

The distribution of RB Super's assets used to fund members' defined benefits at 30 June is:

AASB 119 Reconciliation

The table below contains a reconciliation of the AASB 119 valuation of RB Super. The figures for 2016 are for the OSF, as are the opening balances in 2017. 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 RB Super.

The components of this table may not add due to rounding.