Reserve Bank of Australia Annual Report – 2014 Financial Statements Note 14 – Superannuation Funds


Based on independent actuarial estimates, the defined benefit superannuation fund administered by the RBA was in surplus at 30 June 2014. This actuarial analysis is based on an update of the full actuarial valuation prepared as at 30 June 2011, and is consistent with AAS 25 – Financial Reporting by Superannuation Plans. As required by relevant legislation, a new actuarial review of the fund as at 30 June 2014 is currently being prepared.

The presentation of the RBA's financial statements follows disclosures for superannuation required by AASB 119 – Employee Benefits. Disclosures under this standard are based on the assumption of future liabilities being discounted at the government bond yield, which places a higher present value on those liabilities than the independent actuarial assessment which discounts them at the assumed return on fund assets. In other words, AASB 119 does not take into account that the assets held to fund future defined benefits have in the past earned a higher average rate of return than government bonds or that this tendency might continue over time.

Disclosures under AASB 119 in 2013/14 incorporate revisions that apply for the first time. The key revision is that the ‘corridor approach’, which the RBA previously applied to value actuarial gains and losses on defined benefit funds, is no longer available. The ‘corridor approach’ had the effect of smoothing out and delaying the impact of actuarial gains and losses on both the Statement of Financial Position and the Statement of Comprehensive Income. The result of the revised approach, which applies retrospectively, is that actuarial gains and losses are now immediately brought to account. In terms of this standard, the RBA currently carries a liability for defined benefit superannuation.

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 of these schemes are funded by member and RBA contributions and the existing assets of these schemes. The RBA's superannuation expenses for these schemes are included in accounting profits and shown in Note 2. Administration and other operational costs are also included in Note 2. There were no other related party transactions between the RBA and the funds during 2013/14.

The OSF is a hybrid fund licensed by the Australian Prudential Regulation Authority. Most members receive a defined benefit in accordance with the rules of the fund; other member benefits include unitised defined contribution accumulation balances, which comprise the RBA's productivity and superannuation guarantee contributions and members' personal contributions, plus earnings on these contributions. The OSF is classified as a single-employer plan in terms of AASB 119. The UK Pension Scheme is a closed defined benefit scheme subject to relevant UK regulation.

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.

Funding valuation

Full independent actuarial valuations of the OSF and UK Pension Scheme are conducted every three years. The most recent funding valuation of the OSF was at 30 June 2011. The latest valuation of the UK Pension Scheme was at 30 June 2013. At these valuations, the actuaries concluded that, on the basis of accrued benefits, both funds were in surplus and in a satisfactory financial position.

The funding valuation of the OSF in 2011 was based on the Attained Age Funding method, consistent with AAS 25. 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 $57.8 million, as the assets of the OSF of $915.5 million exceeded the accrued benefits of $857.7 million. The OSF surplus measured on this basis as at 30 June 2014 amounted to $119.4 million (assets of $1,135.4 million less accrued benefits of $1,016.0 million).

Consistent with the actuary's recommendation at the 2011 triennial review, the RBA maintained its contribution rate to the OSF defined benefit at 18.3 per cent of salaries in 2013/14. This contribution rate will be maintained for the time being, but will be subject to review on the basis of the triennial valuation for 30 June 2014.

The latest triennial funding valuation for the UK Pension Scheme was also based on the Attained Age Funding method. The UK Pension Scheme recorded a surplus of $0.1 million at 30 June 2014 (assets of $21.5 million compared with accrued benefits of $21.4 million).

Accounting valuation

For financial statement purposes, the financial positions of the OSF and UK Pension Scheme are valued in accordance with AASB 119. Information on these valuations and their impact on the financial statements are provided in a detailed reconciliation at the end of this Note.

AASB 119 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:

Per cent
Per cent
Discount rate (gross of tax) 4.60 4.70
Future salary growth 3.00 3.25
Future pension growth 3.00 3.25

Maturity Analysis

The weighted-average duration of the defined benefit obligation for the OSF is 18 years (18 years in 2013). The expected maturity profile for defined benefit obligations of the OSF is as follows:

Maturity profile (per cent)
Less than
5 years
Between 5–10 years Between 10–20 years Between 20–30 years Over 30 years Total
Defined benefit obligation – 30 June 2013 18 16 26 19 21 100
Defined benefit obligation – 30 June 2014 19 16 26 18 21 100

Risk exposures

The RBA is exposed to risk from its sponsorship of the OSF defined benefit plan. Key risks include investment, interest rate, longevity, salary and pension risks.

Investment risk is the risk that plan assets will not generate returns at the expected level.

Interest rate risk is the exposure of the defined benefit obligations to adverse movements in interest rates. A decrease in interest rate will increase the present value of these obligations. This may, however, be partially offset by an increase in value of the interest-bearing securities held by the fund.

Longevity risk is the risk that OSF members live longer than actuarial estimates of life expectancy.

Salary risk is the risk that higher than expected salary rises 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 pensions.

The table below shows the estimated increase in the defined benefit obligation resulting from a movement of +/− 0.25 percentage point in key actuarial assumptions. These estimates change each assumption individually, holding other factors constant; they do not incorporate any correlations among factors. Comparative information is not required for these disclosures by the transitional provisions of AASB 119.

2014 $M
Change in the defined benefit obligation from an increase of 0.25 percentage point in:  
Discount rate (gross of tax) (53)
Future salary growth 13
Future pension growth 40
Change in the defined benefit obligation from a decrease of 0.25 percentage point in:  
Discount rate (gross of tax) 57
Future salary growth (13)
Future pension growth (38)

The RBA outsourced the provision of most of the OSF's member and accounting services during 2013/14. Appropriate practices and procedures have been adopted to manage the associated risks.

Asset Distribution

The distribution of the OSF's assets at 30 June is provided in the table below. This distribution relates to the option used by the OSF to fund members' defined benefits.

Per cent of fund assets
2014 2013
Cash and short-term securities 7.0 5.7
Fixed interest and indexed securities 14.0 11.9
Domestic shares 40.2 42.4
Foreign shares 11.6 6.7
Property 10.5 14.2
Private equity and infrastructure 16.7 19.1
Total 100.0 100.0

AASB 119 Reconciliation

A detailed reconciliation of the AASB 119 valuation of the funds is shown in the table below. In the case of the OSF, these details relate only to the defined benefit component of the fund as the RBA faces no actuarial risk on defined contribution accumulation balances. This has no effect on the measurement of the financial position of the OSF. At 30 June 2014 accumulation balances in the OSF totaled $236.8 million ($206.7 million as at 30 June 2013).

OSF UK Scheme Total
Opening balances:            
Net market value of assets 830 744 20 18 850 762
Accrued benefits (1,151) (1,358) (15) (14) (1,166) (1,372)
Surplus/(deficit) (321) (615) 4 4 (317) (610)
Effect of asset cap (4) (4) (4) (4)
Opening superannuation asset/(liability) (321) (615) (321) (615)
Change in net market value of assets 76 86 2 1 78 88
Change in accrued benefits 48 207 (4) (1) 44 206
Change in asset cap 2 2
Change in superannuation asset/(liability) 124 294 124 294
Closing balances:            
Net market value of assets 906 830 22 20 927 850
Accrued benefits (1,103) (1,151) (19) (15) (1,123) (1,166)
Surplus/(deficit) (197) (321) 2 4 (195) (317)
Effect of asset cap (2) (4) (2) (5)
Closing superannuation asset/(liability) (197) (321) (197) (321)
Interest income 39 29 1 1 39 29
Benefit payments (37) (40) (1) (1) (38) (40)
Return on plan assets 51 75 51 75
Contributions from RBA to defined benefit schemes 23 22 24 22
Exchange rate gains/(losses) 2 1 2 1
Change in net market value of assets 76 86 2 1 78 88
Current service cost (41) (51) (41) (51)
Interest cost (52) (50) (1) (1) (53) (51)
Benefit payments 37 40 1 1 38 40
Gains/(losses) from change in demographic assumptions
Gains/(losses) from change in financial assumptions 59 332 (1) (1) 58 331
Gains/(losses) from change in other assumptions 46 (63) (1) 45 (62)
Exchange rate gains/(losses) (2) (1) (2) (1)
Change in accrued benefits 48 207 (4) (1) 44 206
Current service cost 41 51 41 51
Net Interest expense/(income) 14 22 14 22
Productivity and superannuation guarantee contributions 5 5 5 5
Superannuation expense/(income) included in profit or loss 60 77 60 77
Actuarial re-measurement loss/(gain) (155) (344) (156) (344)
Superannuation expense/(income) included in Statement of Comprehensive Income (96) (267) (95) (267)
The components of this table may not add due to rounding.