C3 : Superannuation

C3.1 Overview of schemes

Finance administers the following defined benefit superannuation schemes on behalf of the government:

• Commonwealth Superannuation Scheme (CSS), including the 1922 Scheme;
• Public Sector Superannuation Scheme (PSS);
• Parliamentary Contributory Superannuation Scheme (PCSS);
• Governor-General Pension Scheme (G-GPS);
• Judges' Pensions Scheme (JPS), and
• Federal Circuit Court Judges Death and Disability Scheme (FCCJDDS).

The CSS, PSS and PCSS are closed to new members.

Finance recognises an administered liability for the present value of the Australian Government's expected future payments arising from the PCSS, JPS, G-GPS and FCCJDDS and the unfunded components of the 1922 Scheme, CSS and PSS. These liabilities are based on an annual actuarial assessment. The funded components of these schemes are reported in the financial statements of the respective schemes. Finance also has the responsibility to record the Australian Government's transactions in relation to the above schemes.

Policy and measurement

Actuarial gains or losses are recognised in equity in the year in which they occur. Interest on the net defined benefit liability is recognised in the surplus/(deficit); the return on plan assets excluding the amount included in interest income is recognised in equity.

Superannuation liabilities are calculated annually as the present value of future benefit obligations less the fair value of scheme assets. The rate used to discount future benefits is determined by reference to the government bond rate at the reporting date.

Amounts recognised in the Schedule of Comprehensive Income and Schedule of Assets and Liabilities

C3.2 Scheme information
The funding arrangements for the various schemes are as follows:
Scheme	Funding arrangements
1922 Scheme	Unfunded. There are no longer any members contributing under this Act. Benefits are paid to members from the Consolidated Revenue Fund (CRF).
CSS and PSS	Partially funded. Contributions generally comprise basic member contributions and employer productivity (up to three per cent) contributions. Unfunded benefits are paid to members from the CRF.
PCSS	Unfunded. Member contributions are a fixed percentage of: parliamentary allowance; salary for Ministers of State; and allowance by way of salary for office holders, which is paid into the CRF. Unfunded benefits are paid to members from the CRF.
G-GPS, JPS and FCCJDDS	Unfunded. Members are not required to contribute towards the cost of their benefit during their term of appointment. Unfunded benefits are paid to members from the CRF.
The nature of the benefits provided under the schemes are as follows:
Scheme	Benefits Paid
1922 Scheme	The benefit payable is a lifetime indexed pension (indexed in January and July) in line with changes in the CPI. The payments and liabilities in respect of these members are included in the CSS amounts.
CSS	The types of benefits payable are a lifetime indexed pension (indexed in January and July) in line with changes in the CPI, a lifetime non-indexed pension and a lump sum payment. The main retirement benefit is the employer-financed indexed pension that is calculated by a set formula based on a member's age, years of contributory service and final salary. Where a member has preserved their benefit in the scheme, when the benefit becomes payable the employer financed indexed pension is calculated by applying age-based factors to the amount of two and a half times the member's accumulated basic member contributions and interest. Member’s basic contributions, employer productivity contributions and interest can be taken as a lump sum or an additional non-indexed lifetime pension. This benefit is determined by the value of contributions and investment returns, and in the case of the non-indexed pension by applying age- based factors.
PSS	The types of benefits payable are a lifetime indexed pension (indexed in January and July in line with changes in the CPI) and lump sum. On retirement a lump sum benefit is payable which is calculated based on the member’s length of contributory membership, their rate of member contributions and final average salary (average of a member’s superannuation salary on their last three birthdays). Where a member preserves their benefit in the scheme, generally the member’s lump sum benefit at that time is crystallised with the funded component of the benefit accumulating with interest and the unfunded component accumulating with changes in the CPI, until the benefit becomes payable. Generally members can convert 50 per cent or more of their lump sum to a lifetime indexed pension. The indexed pension is calculated by applying age-based factors to the amount of lump sum to be converted to a pension.
PCSS	The benefit payable is a lifetime pension or lump sum depending on length of service and additional offices held. Where a retiring member has sufficient parliamentary service to meet the pension qualification period for a lifetime pension (which is payable as set out in the Act), pension benefits are expressed as a percentage of the superannuation salary applicable for the PCSS and are indexed by movements in that superannuation salary. A PCSS member who qualifies for a pension can also elect to convert up to half of their benefit to a lump sum. Lump sum benefits are payable to PCSS members who do not have sufficient parliamentary service to qualify for a lifetime pension.
G-GPS	The benefit payable is a lifetime pension equal to 60% of the salary of the Chief Justice of the High Court of Australia. There is no minimum qualification period.
JPS	The benefit payable is a lifetime pension equal to 60% of the judicial salary, payable where a judge has 10 or more years’ service and is 60 years of age or older. Provisions are made for part pension (pro-rated based on length of service) where a judge retires on reaching the maximum retirement age with at least 6 years but less than 10 years service.
FCCJDDS	Federal Circuit Court Judges who retire due to permanent disability are provided with a pension equal to 60% of the salary the Judge would have received if they had not retired, and is payable until the earlier of the Judge attaining age 70, or his/her death. In addition, a Judge continues to receive employer superannuation contributions in respect of this pension until they reach age 65.

Generally, benefits may also be payable to any surviving eligible spouse and children on the death of a member or pensioner. Regulatory Framework The following table details the enabling legislation for each of the individually disclosed defined benefit schemes and whether the scheme must comply with the requirements of the Superannuation Industry (Supervision) Act 1993, as well as a number of other Acts.
Scheme	Enabling Act	Period open to new members	Regulatory requirement
CSS	Superannuation Act 1976	1 July 1976 to 30 June 1990	Compliance with the Superannuation Industry (Supervision) Act 1993 required for these schemes.
PSS	Superannuation Act 1990	1 July 1990 to 30 June 2005
1922 Scheme	Superannuation Act 1922	1 July 1922 to 30 June 1976	These schemes are exempt from Superannuation Industry (Supervision) Act 1993.
PCSS	Parliamentary Contributory Superannuation Act 1948	Up to 8 October 2004
G-GPS	Governor-General Act 1974	To present
JPS	Judges’ Pensions Act 1968	To present
FCCJDDS	Federal Circuit Court of Australia Act 1999	To present

Governance The Commonwealth Superannuation Corporation (CSC) was established under the Governance of Australian Government Superannuation Schemes Act 2011 and is the trustee for the CSS and PSS. CSC is responsible for: providing administration services for each scheme; management and investment of scheme assets; compliance with superannuation taxation and other applicable laws; and compliance with relevant legislation including the Governance of Australian Government Superannuation Schemes Act 2011. CSC is supported by a custodian and other specialist providers. The trustee for the PCSS is established by the enabling Act and comprises five trustees, being two Senators, two members of the House of Representatives and the Finance Minister. Finance acts as adviser to the Trust. The Secretary of Finance also has certain powers under the Act in relation to administration of the PCSS. The enabling Acts for the ‘other’ defined benefit superannuation schemes confer certain powers to the Secretary of Finance in relation to administration of each scheme. Day-to-day administration of the schemes is undertaken by Finance. C3.3 Risks and assumptions The schemes are exposed to interest rate risk, investment risk, longevity risk and salary risk. The following pages identify and explain the amounts reported in these financial statements and detail the principal actuarial assumptions underpinning each of the major schemes, including an analysis of the sensitivity of changes in these assumptions to the amounts reported in the financial statements. Composition of scheme assets The fair value of scheme assets for CSS and PSS at 30 June 2017 is $20.4 billion (30 June 2016 was $19.6 billion). The assets are diversified in the following sectors: Australian equity 20%; International equity 23%; Property 10%; Private capital 6%; Infrastructure 3%; Corporate bonds 6%; Alternative strategies 14% and Cash and sovereign bonds 18%. This includes $287.1 million (2016: $465.9 million) of Commonwealth Government Bonds.

Sensitivity analysis for significant actuarial assumptions

The impact of a change in the defined benefit obligation reported as at 30 June 2017 under several scenarios is presented below. The defined benefit obligation has been recalculated by changing the assumptions as outlined below, whilst retaining all other assumptions.

Assumption	Impact on defined benefit obligation
	0.5% increase Movement in $'000			0.5% decrease Movement in $'000
	CSS	PSS	Other	CSS	PSS	Other
Discount rate1	(5,270,031)	(9,791,412)	(168,885)	5,854,364	11,320,490	188,754
Salary growth rate	139,506	2,363,395	181,433	(133,602)	(2,211,991)	(164,190)
Pension increase rate	4,839,188	7,430,954	n/a	(4,419,636)	(6,675,455)	n/a

 

¹An increase in the discount rate between financial years generates a decrease in the provision and a gain in other comprehensive income. Conversely, a decrease in the discount rate between financial years causes an increase in the defined benefit obligation (liability) and a loss to other comprehensive income.

C3.4 Commonwealth Superannuation Scheme (CSS)

Employer productivity contributions
The expected employer productivity contribution for 2018 is $12.3 million (2017 actual $14.0 million).

Maturity profile of defined benefit obligation
The weighted average duration of the defined benefit obligation is 13.2 years for CSS 1976 and 7.3 years for CSS 1922.

Reconciliation of the	Present value of the defined benefit obligation		Fair value of the scheme assets		Net defined benefit liability
	30 June	30 June	30 June	30 June	30 June	30 June
	2017	2016	2017	2016	2017	2016
	$'000	$'000	$'000	$'000	$'000	$'000
Value at beginning of the year	89,197,538	80,288,765	3,072,920	3,490,457	86,124,618	76,798,308
Current service cost	177,183	192,944	-	-	177,183	192,944
Interest cost	2,344,345	2,898,414	-	-	2,344,345	2,898,414
Interest income	-	-	72,222	120,712	(72,222)	(120,712)
Total expense	2,521,528	3,091,358	72,222	120,712	2,449,306	2,970,646
Actual return on scheme assets less interest income	-	-	162,175	(82,340)	(162,175)	82,340
Actuarial (gains) / losses adjusted in other comprehensive income arising from
Changes in demographic assumptions	-	-	-	-	-	-
Changes in financial assumptions	(3,031,074)	10,546,599	-	-	(3,031,074)	10,546,599
Liability experience	568,122	(898,899)	-	-	568,122	(898,899)
Total other comprehensive income	(2,462,952)	9,647,700	162,175	(82,340)	(2,625,127)	9,730,040
Contributions by scheme participants	56,426	61,993	56,426	61,993	-	-
Productivity contributions	14,041	17,265	14,041	17,265	-	-
Net appropriation from CRF	-	-	3,409,440	3,374,376	(3,409,440)	(3,374,376)
Benefits paid	(3,993,754)	(3,906,514)	(3,993,754)	(3,906,514)	-	-
Taxes, premiums and expenses paid	(2,200)	(3,029)	(2,200)	(3,029)	-	-
Value at end of the year	85,330,627	89,197,538	2,791,270	3,072,920	82,539,357	86,124,618

 

The fair value of scheme assets relates to investments in the Pooled Superannuation Trust (PST). These are disclosed as level 2 in the fair value hierarchy, where the net market value is derived from observable inputs (other than quoted prices) such as prices or derived from prices.

C3.5 Public Sector Superannuation Scheme (PSS)

Employer productivity contributions
The expected productivity contributions for 2018 is $167.9 million (2017 actual $172.8 million).

Maturity profile of defined benefit obligation
The weighted average duration of the defined benefit obligation is 20.3 years.

Reconciliation of the	Present value of the defined benefit obligation		Fair value of the scheme assets		Net defined benefit liability
	30 June	30 June	30 June	30 June	30 June	30 June
	2017	2016	2017	2016	2017	2016
	$'000	$'000	$'000	$'000	$'000	$'000
Value at beginning of the year	117,145,347	91,382,837	16,532,797	16,583,042	100,612,550	74,799,795
Current service cost	3,672,212	2,864,799	-	-	3,672,212	2,864,799
Interest cost	3,147,248	3,351,821	-	-	3,147,248	3,351,821
Interest income	-	-	438,420	608,458	(438,420)	(608,458)
Total expense	6,819,460	6,216,620	438,420	608,458	6,381,040	5,608,162
Actual return on scheme assets less interest income	-	-	1,056,557	(382,259)	(1,056,557)	382,259
Actuarial (gains) / losses adjusted in other comprehensive income arising from
Changes in demographic assumptions	-	-	-	-	-	-
Changes in financial assumptions	(20,058,075)	21,274,332	-	-	(20,058,075)	21,274,332
Liability experience	2,185,221	(828,781)	-	-	2,185,221	(828,781)
Total other comprehensive income	(17,872,854)	20,445,551	1,056,557	(382,259)	(18,929,411)	20,827,810
Contributions by scheme participants	520,909	533,697	520,909	533,697	-	-
Productivity contributions	172,842	188,761	172,842	188,761	-	-
Net appropriation from CRF	-	-	746,680	623,217	(746,680)	(623,217)
Benefits paid	(1,810,227)	(1,586,172)	(1,810,227)	(1,586,172)	-	-
Taxes, premiums and expenses paid	(26,176)	(35,947)	(26,176)	(35,947)	-	-
Value at end of the year	104,949,301	117,145,347	17,631,802	16,532,797	87,317,499	100,612,550

The fair value of scheme assets relates to investments in the PST. These are disclosed as level 2 in the fair value hierarchy, where the net market value is derived from observable inputs (other than quoted prices) such as prices or derived from prices.

C3.6 Other Schemes

For the purposes of disclosure, the smaller schemes have been grouped under "other":

			PCSS	G-GPS	JPS	FCCJDDS
			$'000	$'000	$'000	$'000
Expected benefit payments for 2018			42,903	1,572	49,924	518
			Years	Years	Years	Years
Maturity profile of defined benefit obligation			15.8	9.3	15.1	2.0
Reconciliation of the	Present value of the defined benefit obligation		Fair value of the scheme assets		Net defined benefit liability
	30 June	30 June	30 June	30 June	30 June	30 June
	2017	2016	2017	2016	2017	2016
	$'000	$'000	$'000	$'000	$'000	$'000
Value at beginning of the year	2,630,370	2,280,245	-	-	2,630,370	2,280,245
Current service cost	61,087	53,685	-	-	61,087	53,685
Interest cost	69,779	82,710	-	-	69,779	82,710
Total expense	130,866	136,395	-	-	130,866	136,395
Actuarial (gains) / losses adjusted in other comprehensive income arising from
Changes in demographic assumptions	-	-	-	-	-	-
Changes in financial assumptions	(210,924)	317,749	-	-	(210,924)	317,749
Liability experience	37,043	(14,349)	-	-	37,043	(14,349)
Total other comprehensive income	(173,881)	303,400	-	-	(173,881)	303,400
Net appropriation from CRF	-	-	91,943	89,670	(91,943)	(89,670)
Benefits paid	(91,943)	(89,670)	(91,943)	(89,670)	-	-
Value at end of the year	2,495,412	2,630,370	-	-	2,495,412	2,630,370