Reserve Bank of Australia Annual Report – 2018 Financial Statements Note 14 – Superannuation Funds

The RBA sponsors two superannuation funds: RB Super 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 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. Most members have unitised accumulation balances, which comprise employer contributions and members' personal contributions plus earnings on these 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 RBA does not have a role in directly operating or governing RB Super and has no involvement in the appointment of the RB Super Trustees.

The UK Pension Scheme is a closed defined benefit scheme subject to relevant UK regulation. The Trustees, with agreement from the RBA, have entered into a bulk purchase annuity (BPA) contract with a UK insurer as part of a process to eventually wind up the UK Pension Scheme. Defined benefit accrual for current members ceased on 30 June 2018. From that date, current and new staff have been offered defined contribution arrangements.

Funding valuation

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

The triennial actuarial valuation for RB Super was completed for the financial position as at 30 June 2017 using 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 was $190.1 million. On the same valuation basis, the RB Super surplus as at 30 June 2018 amounted to $284.1 million. The RBA maintained its contribution rate to fund defined benefit obligations at 18.3 per cent of salaries in 2017/18, 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 with assets of $25.6 million compared with accrued benefits of $25.5 million. The bulk of the scheme's assets are currently invested in the BPA, with the balance invested in short-term money market securities and UK government bonds. The purchase of the BPA has significantly reduced funding risk for the scheme. Once a full due diligence is completed, a balancing payment will be made to the UK insurer to finalise the BPA. This amount is currently unknown, though it is expected that there will be sufficient assets in the scheme to fund the BPA balancing payment. To the extent this is not the case, the RBA would cover any shortfall.

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.

Actuarial assumptions

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

Per cent
Per cent
Discount rate (gross of tax)(a) 4.4 4.5
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 2.0 per cent for the first three years of the projections (2.0 per cent for the first four years in 2017)

Maturity analysis

The weighted average duration of the defined benefit obligation for RB Super is 18 years (19 years at 30 June 2017). The expected maturity profile for defined benefit obligations of RB Super is as follows:

Per cent
Per cent
Less than 5 years 17 18
Between 5 and 10 years 16 16
Between 10 and 20 years 28 26
Between 20 and 30 years 20 19
Over 30 years 19 21
Total 100 100

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.

Change in defined benefit obligation from an increase of 0.25 percentage points in:    
Discount rate (gross of tax) (61) (62)
Future salary growth 14 16
Future pension growth 47 47
Change in defined benefit obligation from a decrease of 0.25 percentage points in:    
Discount rate (gross of tax) 65 66
Future salary growth (14) (15)
Future pension growth (45) (45)
Change in defined benefit obligation from an increase in life expectancy of one year 48 43

Asset distribution

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

  Per cent of fund assets
2018 2017
Cash and short-term securities 2 2
Fixed interest and indexed securities 8 10
Australian equities 34 34
International equities 23 24
Property 12 12
Private equity 6 6
Infrastructure 12 10
Hedge funds 3 2
Total 100 100

AASB 119 Reconciliation

The table below contains a reconciliation of the AASB 119 valuation of RB Super. The opening balance figures in 2017 are for the OSF, which was transferred to a multi-employer fund via a successor fund transfer in March 2017 and became RB Super. 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.

Opening balances:
Net market value of assets 1,157 991
Accrued benefits (1,213) (1,388)
Opening superannuation asset/(liability) (56) (397)
Change in net market value of assets 113 166
Change in accrued benefits 175
Change in superannuation asset/(liability) 113 341
Closing balances:
Net market value of assets 1,270 1,157
Accrued benefits (1,212) (1,213)
Closing superannuation asset/(liability) 57 (56)
Interest income 52 35
Benefit payments (49) (45)
Return on plan assets 88 152
Contributions from RBA to defined benefit schemes 22 24
Change in net market value of assets 113 166
Current service cost (43) (53)
Interest cost (55) (49)
Benefit payments 49 45
Gains/(losses) from change in demographic assumptions 42
Gains/(losses) from change in financial assumptions (40) 253
Gains/(losses) from change in other assumptions 46 (21)
Change in accrued benefits 175
Current service cost (43) (53)
Net Interest (expense)/income (3) (13)
Productivity and superannuation guarantee contributions (8) (7)
Superannuation (expense)/income included in profit or loss (54) (73)
Actuarial remeasurement gain/(loss) 137 383
Superannuation (expense)/income included in Statement of Comprehensive Income 83 310

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