Reserve Bank of Australia Annual Report – 2016 Financial Statements Note 14 – Superannuation Funds


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:

 per cent
 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
(b) Includes a short-term assumption of 2.00 per cent for the first five years of the projections (2.50 per cent for the first five years of the projections in 2015)

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:

 per cent
 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.

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
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.