Reserve Bank of Australia Annual Report – 2019 Financial Statements Note 14 – Superannuation Funds

The RBA sponsors two superannuation funds: RB Super and the Reserve Bank of Australia UK Pension Scheme. For RB Super, current and future benefits are funded by member and RBA contributions and the existing assets of the scheme.

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 to reduce the funding risk in relation to the UK Pension Scheme's pension liabilities. Defined benefit accrual for current members ceased on 30 June 2018. From that date, current and new staff have been offered defined contribution arrangements in a separate fund.

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 2019 amounted to $358.0 million. The RBA maintained its contribution rate to fund defined benefit obligations at 18.3 per cent of salaries in 2018/19, consistent with the actuary's recommendation.

The latest funding valuation for the UK Pension Scheme was at 1 July 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 UK Pension Scheme's assets are currently invested in the BPA, with the balance invested in unit trusts that hold short-term money market securities and UK government bonds. The purchase of the BPA has significantly reduced funding risk for the UK Pension Scheme. Once a full due diligence is completed, the trustees will make a balancing payment to the UK insurer to finalise the BPA. Currently, this amount is unknown. To the extent the assets in the UK Pension Scheme are not sufficient to fund the BPA balancing payment and any other operating costs of the UK Pension Scheme, the RBA would cover any shortfall. The balancing payment is expected to be made in 2019/20.

Accounting valuation

For financial statement purposes, the financial positions of RB Super and the UK Pension Scheme are valued in accordance with AASB 119. Disclosures required by AASB 119 are 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) 3.4 4.4
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 two years of the projections (2.0 per cent for the first three years in 2018)

Maturity analysis

The weighted average duration of the defined benefit obligation for RB Super is 20 years (18 years at 30 June 2018). The expected maturity profile for defined benefit obligations of RB Super is as follows:

 per cent
 per cent
Less than 5 years 15 17
Between 5 and 10 years 14 16
Between 10 and 20 years 27 28
Between 20 and 30 years 21 20
Over 30 years 23 19
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) (83) (61)
Future salary growth 19 14
Future pension growth 64 47
Change in defined benefit obligation from a decrease of 0.25 percentage points in:
Discount rate (gross of tax) 89 65
Future salary growth (18) (14)
Future pension growth (61) (45)
Change in defined benefit obligation from an increase in life expectancy of one year 64 48

Asset distribution

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

  Per cent of fund assets
2019 2018
Cash and short-term securities 2 2
Fixed interest and indexed securities 8 8
Australian equities 32 34
International equities 24 23
Property 11 12
Private equity 8 6
Infrastructure 11 12
Hedge funds 4 3
Total 100 100

AASB 119 Reconciliation

The table below contains a reconciliation of the AASB 119 valuation of 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 1,270 1,157
Accrued benefits (1,212) (1,213)
Opening superannuation asset/(liability) 57 (56)
Change in net market value of assets 106 113
Change in accrued benefits (340)
Change in superannuation asset/(liability) (234) 113
Closing balances:
Net market value of assets 1,376 1,270
Accrued benefits (1,552) (1,212)
Closing superannuation asset/(liability) (177) 57
Interest income 55 52
Benefit payments (50) (49)
Return on plan assets 80 88
Contributions from RBA to defined benefit schemes 21 22
Change in net market value of assets 106 113
Current service cost (39) (43)
Interest cost (54) (55)
Benefit payments 50 49
Gains/(losses) from change in demographic assumptions 42
Gains/(losses) from change in financial assumptions (312) (40)
Gains/(losses) from change in other assumptions 15 46
Change in accrued benefits (340)
Current service cost (39) (43)
Net Interest (expense)/income 1 (3)
Productivity and superannuation guarantee contributions (9) (8)
Superannuation (expense)/income included in profit or loss (47) (54)
Actuarial remeasurement gain/(loss) (217) 137
Superannuation (expense)/income included in Statement of
Comprehensive Income
(264) 83
The components of this table may not add due to rounding.