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C. General Business Disclosures

This section includes disclosures for operations which are significant in size and/or nature for Finance.

C1. General insurance activities

Finance provides insurance and risk management services to Australian General Government Sector entities. The classes of business cover include: Liability, Property, Motor Vehicle, and Personal Accident and Travel.

These services are funded from the Comcover Special Account, refer to Note F3.1.

Policy and measurement

Premium revenue

Premium revenue includes amounts charged excluding Goods and Services Tax (GST). Premiums are recognised as revenue over the period insured which is from 1 July to 30 June each year.

Notional reinsurance expense

A notional reinsurance charge of $5.0 million is paid to the Official Public Account (OPA) each year.

Reinsurance and other recoveries

Reinsurance and other recoveries received or receivable in respect of gross claims paid and movements in reinsurance and other recovery assets are recognised as revenue in the year they occur.

Reinsurance and other recovery assets are actuarially assessed as the present value of the expected future receipts, calculated on the same basis as the outstanding claims liability.

Claims expense and outstanding claims liabilities

Claims expense represents claims payments and the movement in the gross outstanding claims liability.

The outstanding claims liability is actuarially assessed and measured at the central estimate of the present value of expected future payments of claims incurred at the reporting date with an additional risk margin to allow for inherent uncertainty in the central estimate. The expected future payments include those in relation to unpaid reported claims; claims incurred but not reported (IBNR); claims incurred but not enough reported (IBNER); and indirect expenses that are expected to be incurred in settling these claims. Changes in claims estimates are recognised in the surplus/(deficit) in the year in which the estimates are changed.

Assets backing general insurance liabilities

The balance of the Comcover Special Account and receivables from insurance activities are held to back general insurance liabilities. For further information in relation to the Comcover Special Account, refer to Note F3.1.

Key judgements and estimates

Finance takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. The claim estimates and judgements are regularly evaluated and updated based on historical experience and other factors. However, given the uncertainty in the estimation process, it is likely that the final outcome will prove to be different from the original liability established.

Finance’s activities are classified into two main categories: Property (Property, Motor Vehicle and Personal Accident and Travel) and Liability. Different actuarial methods and assumptions are applied at a more granular level taking into account the characteristics of the class of business, claim type and the extent of the development of each past accident period.

The estimation of IBNR and IBNER are generally subject to a greater degree of uncertainty where claims notification and settlement may not happen for many years after the event giving rise to the claim. For this reason, Liability classes of business typically display greater variability between the initial estimates and final outcomes.

Key actuarial assumptions

The key actuarial assumptions for the determination of the outstanding claims liabilities are set out in the table below:

30 June 2019

30 June 2018

Property

Liability

Property

Liability

Average discount rate

1.0%

1.0%

2.0%

2.2%

Average inflation rate

2.2%

3.2%

2.4%

3.4%

Average weighted term to settlement (years)

1.7

2.6

1.6

2.7

Expense rate

1.0%

1.6%

1.4%

1.6%

Risk margin

19.1%

19.3%

16.0%

19.0%

Process used to determine actuarial assumptions

Discount rate

To allow for the time value of money, projected payments are discounted at a risk free rate derived from market yields on Australian Government securities at the reporting date.

Inflation rate

Claims inflation is incorporated into the resulting projected payments to allow for both expected levels of economic inflation and superimposed inflation. Economic inflation is based on economic indicators such as the Consumer Price Index (CPI) and/or increases in average weekly earnings. Superimposed inflation is past claims inflation in excess of wage inflation. A review of past claims reveals no evidence of superimposed inflation.

Average weighted term to settlement

The average weighted term to settlement is based on historic payment patterns.

Expense rate

Claims handling expenses are calculated by reference to Finance’s claims handling remuneration agreements for direct expenses and internal costs for indirect expenses.

Risk Margin

The risk margin is assessed by examining the historical variability of the claims experience, considering industry studies and benchmarks and applying actuarial judgement, especially in respect of uncertainties not reflected in the claims data. This assessment is performed for each class of business. Diversification benefit is allowed for, with consideration given to industry studies and benchmarks.

Sensitivity analysis

Finance has conducted sensitivity analysis to quantify the impact of changes in the key underlying assumptions on the surplus/(deficit). The sensitivity analysis has been performed for each variable independently of all other changes and is net of reinsurance and other recoveries. The table below describes how a change in each assumption will affect the surplus/(deficit).

30 June 2019

30 June 2018

Property

Liability

Property

Liability

Assumption

Movement

$'000

$'000

$'000

$'000

Average discount rate

+1%

4,054

6,437

2,415

6,360

-1%

(3,886)

(6,122)

(2,319)

(6,048)

Average inflation rate

+1%

(4,000)

(6,302)

(2,485)

(6,601)

-1%

4,092

6,493

2,539

6,810

Average weighted term to settlement (years)

+1 year

(2,887)

(5,336)

(626)

(2,490)

-1 year

3,482

5,634

261

2,078

Expense rate

+1%

(2,284)

(2,393)

(1,438)

(2,324)

-1%

2,284

2,393

1,438

2,324

Risk margin

+1%

(1,936)

(2,039)

(1,257)

(1,984)

-1%

1,936

2,039

1,257

1,984

The movements are the absolute movement in the assumption (e.g. +1% increase in the expense rate for Property from 1.0% to 2.0%).

Insurance risk management

Finance is exposed to insurance risk, which is discussed below.

Objectives, policies and processes for managing insurance risk

Finance provides insurance and risk management services to deliver a net benefit to the Australian Government over the longer term. The transfer of insurance risk from participating general government sector entities offers the most comprehensive and cost effective approach to the management of risk exposures. The provision of a captive fund focuses on improving risk identification and management in entities and increases in transparency and accountability to the Australian Government and the public.

Key processes to manage the insurable risk exposure of the Commonwealth include:

  • Detailed risk exposure surveys
  • Actuarial modelling of claims history, exposures and industry experience to provide an estimate of expected claims costs for the insured year and to determine the annual premium collection
  • Claim management and investigation processes
  • Appointment of an independent actuary for valuation services of the outstanding claims liability
  • Whole of government policy development and risk management advisory and education services to improve risk awareness and capability of Fund Members.

Concentration of insurance risk

No reinsurance policies were placed in 2018-19 (2017-18: nil), reflecting the capacity of the Australian Government to cost-effectively self-insure against infrequent large claims.

C1.1. Underwriting result

Departmental

30 June

30 June

2019

2018

$'000

$'000

Direct premium revenue

Premium revenue

128,452

138,344

Premium revenue eliminated on consolidation

1,139

1,181

Total direct premium revenue

129,591

139,525

Notional reinsurance expense

(5,000)

(5,000)

Net premium revenue

124,591

134,525

Net incurred claims

Insurance claims

(180,191)

(97,246)

Reinsurance and other recoveries revenue

1,142

299

Total net claims

(179,049)

(96,947)

Other underwriting expenses

(8,863)

(8,282)

Underwriting result

(63,321)

29,296

Revenue from Government

7,743

8,004

Operating surplus/(deficit)

(55,578)

37,300

C1.2. Net claims incurred

30 June 2019

30 June 2018

Current year

Prior years

Total

Current year

Prior years

Total

$'000

$'000

$'000

$'000

$'000

$'000

Gross claims incurred

Undiscounted

142,295

24,128

166,423

110,459

(15,748)

94,711

Discount and discount movement

(3,748)

12,479

8,731

(6,262)

4,857

(1,405)

Gross claims incurred discounted

138,547

36,607

175,154

104,197

(10,891)

93,306

Reinsurance and other recoveries

Undiscounted

(769)

(197)

(966)

(678)

454

(224)

Discount and discount movement

2

(178)

(176)

2

(77)

(75)

Reinsurance and other recoveries discounted

(767)

(375)

(1,142)

(676)

377

(299)

Net claims incurred

137,780

36,232

174,012

103,521

(10,514)

93,007

Claims handling expense

5,037

3,940

Total net claims

179,049

96,94

The $36.2m increase in prior years net claims is due to changes in the expected cost for two property claims incurred in 2017-18. These movements were partially offset by valuation decreases in the liability portfolio for prior year claims where development in the very large class of claims has been more favourable than expected.

C1.3. Reinsurance and other recoveries receivable

Departmental

30 June

30 June

2019

2018

$'000

$'000

Reinsurance and other recoveries

Reinsurance and other recoveries

2,411

3,363

Discount to present value

(153)

(329)

Total reinsurance and other recoveries

2,258

3,034

C1.4. Outstanding claims liability

Departmental

30 June

30 June

2019

2018

$'000

$'000

Gross claims liability - undiscounted

401,454

335,740

Discount to present value

(9,120)

(16,456)

Gross claims liability - discounted

392,334

319,284

Claims handling expense

5,130

4,860

Gross central estimate

397,464

324,144

Risk margin

76,271

57,768

Outstanding claims liability

473,735

381,912

Risk margin adopted

19.2%

17.8%

Probability of adequacy of the risk margin

75%

75%

Reconciliation of the movement in discounted outstanding claims liability

30 June

30 June

2019

2018

Property

Liability

Total

Total

$'000

$'000

$'000

$'000

Net outstanding claims liability at the beginning of the year

145,371

233,507

378,878

432,699

Incurred claims

68,345

69,435

137,780

103,521

Claims payments

(42,064)

(39,349)

(81,413)

(146,828)

Unwinding of discount

1,816

4,866

6,682

5,043

Risk margin release

(5,382)

(6,017)

(11,399)

(7,869)

Changes in assumptions and experience

61,968

(21,019)

40,949

(7,688)

Net outstanding claims liability at the end of the year

230,054

241,423

471,477

378,878

Reinsurance and other recoveries

491

1,767

2,258

3,034

Gross outstanding claims liability at the end of the year

230,545

243,190

473,735

381,912

C1.5 Claims development table

The following table shows the development of the estimated undiscounted outstanding claims relative to the ultimate expected claims for the 10 most recent accident years.

Prior

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Total

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Estimate of net ultimate claims costs

At end of accident year

50,778

121,801

61,550

66,779

114,162

102,138

91,686

86,286

93,055

117,798

One year later

48,922

108,067

70,345

63,441

106,114

119,144

87,813

91,391

139,062

Two years later

47,317

100,453

67,843

65,399

96,653

218,627

96,971

89,415

Three years later

70,257

91,789

68,396

62,028

89,631

215,052

92,516

Four years later

65,808

84,123

67,312

58,498

82,685

205,636

Five years later

65,956

82,395

62,705

55,203

75,963

Six years later

51,423

80,279

59,872

54,526

Seven years later

49,163

80,399

61,182

Eight years later

48,760

85,097

Nine years later

49,230

Estimate of net ultimate claims costs

49,230

85,097

61,182

54,526

75,963

205,636

92,516

89,415

139,062

117,798

Cumulative payments

(48,782)

(79,188)

(53,694)

(48,868)

(56,227)

(165,809)

(53,812)

(38,291)

(22,828)

(9,607)

Net claims liability - undiscounted

6,103

448

5,909

7,488

5,658

19,736

39,827

38,704

51,124

116,234

108,191

399,422

Discount to present value

(86)

(5)

(86)

(95)

(52)

(258)

(663)

(800)

(1,173)

(2,677)

(3,098)

(8,993)

Net claims liability - discounted

6,017

443

5,823

7,393

5,606

19,478

39,164

37,904

49,951

113,557

105,093

390,429

Claims handling expense

5,130

Net central estimate

395,559

Net risk margin

75,918

Total net outstanding claims liability

471,477

Reinsurance and other recoveries

2,258

Total gross outstanding claims liability

473,735

C2. Investment funds

Finance provides advice on the investment mandates and governance arrangements for the investment funds. This includes advice on the credit of amounts to and debits of amounts from the investment funds. The Future Fund Board of Guardians (the Board), supported by the Future Fund Management Agency (FFMA), is responsible for the management and investment of the assets of the investment funds. The investment funds consist of the respective special accounts and the investments of the:

  • Building Australia Fund (BAF) – an investment fund established by the Nation-building Funds Act 2008 to make payments in relation to the creation or development of transport, communication, eligible national broadband network, energy and water infrastructure. Legislation to close the BAF received Royal Assent on 30 July 2019 and is now subject to proclamation for the date of effect.
  • Education Investment Fund (EIF) – an investment fund established by the Nation-building Funds Act 2008 to make payments in relation to the creation or development of higher education, research, vocational education and training, and eligible education infrastructure and to make transitional Higher Education Endowment Fund payments. The EIF is expected to be closed during 2019-20, subject to the passage of legislation.
  • DisabilityCare Australia Fund (DCAF) – an investment fund established by the DisabilityCare Australia Fund Act 2013 to reimburse the Commonwealth, states and territories for costs incurred in relation to the National Disability Insurance Scheme Act 2013.
  • Medical Research Future Fund (MRFF) – an investment fund established under the Medical Research Future Fund Act 2015 to support medical research and innovation into the future.
  • Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILSFF) – an investment fund established under the Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018 to make annual and discretionary payments to the Indigenous Land and Sea Corporation.

Key judgements and estimates

In applying Finance's accounting policies, management has made a number of judgements and applied estimates and assumptions to future events. Judgements and estimates which are material to the financial statements are located throughout the investment funds disclosure.

Policy and measurement

Investment mandate

Each fund has an investment mandate that is determined by the responsible Ministers under legislation. For the BAF, EIF and DCAF the investment mandates set a target benchmark return of the Australian three month bank bill swap rate + 0.3% per annum calculated on a rolling 12 month basis (net of fees). The investment mandates also require the Board to invest in such a way as to minimise the probability of capital losses over a 12 month horizon.

The investment mandate for the MRFF sets an average return of at least the Reserve Bank of Australia (RBA) Cash Rate target + 1.5% to 2.0% per annum, net of investment fees, over a rolling 10 year term as the benchmark return on the Fund. In targeting the benchmark return, the Board must determine an acceptable but not excessive level of risk measured in terms such as the probability of losses in a particular year.

The investment mandate for the ATSILSFF sets an average return over the long term of at least the CPI + 2.0% to 3.0% per annum, net of costs, as the benchmark return on the fund. In constructing the portfolio, the Board must determine an acceptable but not excessive level of risk for the fund.

Investments

Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are initially measured at fair value, net of transaction costs that are directly attributable to acquisition or issue of the investment.

Investments in collective investment vehicles are recorded at fair value on the date which consideration is provided to the contractual counterparty under the terms of the relevant subscription agreement. Any associated due diligence costs in relation to these investments are expensed when incurred.

The following methods are adopted by the investment funds in determining the fair value of investments:

  • Listed securities, exchange traded futures and options and investments in listed managed investment schemes are recorded at the quoted market prices on relevant stock exchanges.
  • Unlisted managed investment schemes and collective investment vehicles are re-measured based on the estimated fair value of the net assets of each scheme or vehicle at the reporting date. Collective investment vehicles are entities that enable investors to pool their money and invest the pooled funds, rather than buying securities directly. Collective investment vehicles are used to invest in private equity funds, hedge funds, debt funds, listed equity funds, infrastructure funds and property funds and are usually structured as interests in limited partnerships and limited liability companies.
    In determining the fair value of the net assets of unitised unlisted managed investment schemes and collective investment vehicles, reference is made to the underlying unit price provided by the manager (where available), capital account statements and the most recent audited financial statements of each scheme or vehicle.
    Manager valuation reports are reviewed to ensure the underlying valuation principles are materially compliant with AAS and applicable industry standards including International Private Equity and Venture Capital Valuation Guidelines as endorsed by the Australian Private Equity and Venture Capital Association Limited.
  • Derivative instruments including forward foreign exchange contracts, interest rate swaps, credit default swaps and futures are recorded at their fair value on the date the contract is entered into and are subsequently re-measured to their fair values at each reporting date. The investment funds have entered into derivative contracts to manage their exposure to foreign exchange risk, interest rate risk, equity market risk and credit risk. The investment funds also use derivatives to gain indirect exposure to market risks. Further disclosures regarding the use of derivatives by the investment funds are presented in Note C2.3.
  • Asset backed securities, bank bills, negotiable certificates of deposit, mortgaged backed securities, government securities and corporate debt securities which are traded in active markets are valued at the quoted market prices. Securities for which no active market is observable are valued at current market rates using broker sourced market quotations and/or independent pricing services as at the reporting date.

MRFF Investment Companies (MRFFICs)

Whilst all investments are held by the Board in respect of the relevant investment fund, some investments are indirectly held through wholly owned investment holding companies, MRFFICs.

The MRFFICs are funded primarily via loan arrangements from the MRFF. These loans are designated as financial assets and measured at fair value with changes in their fair value recognised in the Administered Schedule of Comprehensive Income. Loan assets are repayable on demand. Interest rates are set on the loans having regard to the 10-year government bond rate in the market in which the underlying investment is made.

As the MRFFICs hold a material portion of the investments of the investment funds, these are recorded on a net assets basis in Finance’s Administered primary schedules. Additional disclosures detailing the underlying investments held by the MRFFICs are provided in Notes C2.2 and C2.3 to provide users with additional information in relation to the investment portfolio and Finance’s exposure.

Income

Interest income is interest earned on cash and cash equivalents. Dividends, franking credits and distribution income are recognised when the right to receive payment is established.

Net realised gains/losses on investments held at FVPL includes:

  • Realised interest income including coupon payments received during the year
  • Net realised gains/losses including realised gains and losses as compared to the original cost of the investment
  • Net realised changes in the fair value including the current year unrealised gains/losses on investments held at reporting date.

Foreign currency

Items included in the financial statements of the investment funds are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in Australian dollars, which is the functional and presentation currency.

All foreign currency transactions during the period are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency items at reporting date are translated at the exchange rate existing at reporting date.

Exchange differences are recognised in profit and loss in the period in which they arise.

C2.1. Investment funds operating results

30 June

30 June

2019

2018

BAF

EIF

DCAF

MRFF

ATSILSFF

Total

Total

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Revenue

Interest

27,090

26,533

121,385

17,765

23

192,796

140,885

Dividends and distributions

-

-

-

250,404

-

250,404

36,716

Total revenue

27,090

26,533

121,385

268,169

23

443,200

177,601

Gains on financial investments

102,554

125,665

342,517

308,264

18,361

897,361

763,532

Total income

129,644

152,198

463,902

576,433

18,384

1,340,561

941,133

Expenses

Supplier expenses

3,719

4,215

10,836

13,969

308

33,047

26,736

Foreign exchange losses

34,975

57,859

121,609

56,635

-

271,078

225,700

Total expenses

38,694

62,074

132,445

70,604

308

304,125

252,436

Net investment funds return

90,950

90,124

331,457

505,829

18,076

1,036,436

688,697

less Investment funds
distributions

-

2,000

2,087,755

204,863

-

2,294,618

129,897

Net surplus/(deficit)

90,950

88,124

(1,756,298)

300,966

18,076

(1,258,182)

558,800

C2.2 Investment funds financial position

30 June

30 June

2019

2018

BAF

EIF

DCAF

MRFF

ATSILSFF

Total

Total

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Assets

Financial assets measured at amortised cost

Cash and cash equivalents

1,326,627

1,366,666

5,383,620

1,203,281

415

9,280,609

7,901,067

Cash held in OPA1

-

-

840,000

-

-

840,000

-

Other receivables

12,311

20,772

25,777

49,906

8

108,774

78,543

Total financial assets measured at amortised cost

1,338,938

1,387,438

6,249,397

1,253,187

423

10,229,383

7,979,610

Financial assets measured at FVPL

Interest bearing securities

2,622,417

2,576,830

10,922,024

3,597,427

2,025,435

21,744,133

18,234,420

MRFFICs

-

-

-

1,796,135

-

1,796,135

914,188

Listed equities and managed
investment schemes

-

-

-

1,638,076

-

1,638,076

1,099,917

Collective investment vehicles

-

-

57,401

1,475,696

-

1,533,097

1,412,778

Restricted cash

8,775

12,188

42,993

55,616

-

119,572

149,919

Derivatives

7,707

9,841

19,055

12,161

-

48,764

32,971

Total financial assets measured at FVPL

2,638,899

2,598,859

11,041,473

8,575,111

2,025,435

26,879,777

21,844,193

Total assets

3,977,837

3,986,297

17,290,870

9,828,298

2,025,858

37,109,160

29,823,803

Liabilities

Financial liabilities measured at amortised cost

Trade creditors and accruals

1,385

1,382

4,629

4,223

173

11,792

7,302

Unsettled purchases

11,863

21,003

49,985

35,263

-

118,114

83,730

Total financial liabilities measured at amortised cost

13,248

22,385

54,614

39,486

173

129,906

91,032

Financial liabilities measured at FVPL

Derivatives

7,857

11,712

31,638

34,183

-

85,390

157,327

Total financial liabilities measured at FVPL

7,857

11,712

31,638

34,183

-

85,390

157,327

Total liabilities

21,105

34,097

86,252

73,669

173

215,296

248,359

Net assets

3,956,732

3,952,200

17,204,618

9,754,629

2,025,685

36,893,864

29,575,444

1 Administered special accounts (Note F3.2).

Collective investment vehicles

The investment funds, directly and via the MRFFICs, have committed to provide capital to various collective investment vehicles. The total of these commitments at reporting date is $1,303 million (2018: $386 million). The investment fund’s commitments, being capital calls, are set out in the various underlying subscription documents. While the actual timing of the capital calls to be made by the managers of these vehicles is uncertain, as it is dependent on the managers sourcing suitable investment opportunities, the investment funds have recorded the commitments as being current in accordance with the underlying legal documents. The investment funds have appropriate liquidity planning in place to ensure a suitable allocation of resources will be available to cover these future commitments of capital.

The table below provides more detailed information on the commitments and outstanding calls of collective investment vehicles held directly by the MRFF, DCAF and via MRFFICs at reporting date:

30 June 2019

Description of underlying Strategy

Capital committed local currency

Outstanding commitments AUD equivalent

Net capital cost AUD equivalent

Fair value AUD equivalent

$'000

$'000

$'000

$'000

Directly held by MRFF and DCAF

Alternatives

AUD

1,200,120

-

1,054,085

1,020,591

Debt

AUD

275,000

-

275,025

289,425

Debt

USD

40,000

17,100

36,774

37,624

Global infrastructure

USD

250,000

339,952

14,782

13,795

Listed equities

AUD

25,000

-

25,000

23,317

Property

USD

212,017

161,908

136,772

148,345

Total

518,960

1,542,438

1,533,097

Via MRFFICs

Alternatives

AUD

568,217

143,352

425,195

416,121

Alternatives

USD

185,000

1,540

247,338

263,361

Debt

USD

40,000

42,724

13,987

15,123

Private equity

AUD

100,707

48,484

47,100

51,629

Private equity

EURO

52,682

15,178

23,963

41,768

Private equity

USD

601,194

511,188

263,060

362,346

Property

USD

22,983

21,575

10,120

11,781

Total

784,041

1,030,763

1,162,129

C2.3 Managing financial risk

The investment funds have entered into forward foreign exchange currency contracts to manage its exposure to foreign exchange risk. The investment funds also use interest rate futures and swaps to manage their exposure to interest rate risk and credit default swaps to manage their exposure to credit risk and/or gain indirect exposure to credit risk. The use of derivative financial instruments by the investment funds is governed by the Nation-building Funds Act 2008, the DisabilityCare Australia Fund Act 2013, the Medical Research Future Fund Act 2015 and the Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018.

C2.3.1 Market risk

Market risk is the risk of loss arising from movements in the prices of various assets flowing from changes in interest rates and foreign currency risk.

Interest rate risk

Interest rate risk exposure

The investment funds are exposed to risk of loss arising from movement in the prices of various assets flowing through interest rate changes. The total exposure for each class of financial asset is set out below.

Financial assets exposed to interest rate risk

Variable interest rate

Fixed interest rate

Non-interest bearing

Total

30 June 2019

$'000

$'000

$'000

$'000

Cash and cash equivalents

9,280,609

-

-

9,280,609

Cash held in OPA

-

-

840,000

840,000

Interest bearing securities

4,577,795

17,215,252

-

21,793,047

Other financial assets

-

-

5,195,504

5,195,504

Total investment

13,858,404

17,215,252

6,035,504

37,109,160

Total interest rate swaps (notional amount)

Pay

(140,943)

(276,009)

-

Receive

276,009

140,943

-

30 June 2018

Cash and cash equivalents

7,901,067

-

-

7,901,067

Interest bearing securities

5,680,397

12,603,583

-

18,283,980

Other financial assets

-

-

3,638,755

3,638,755

Total investment

13,581,464

12,603,583

3,638,755

29,823,802

Total interest rate swaps (notional amount)

Pay

(310,252)

(213,668)

-

Receive

213,668

310,252

-

Interest rate derivative contracts

The investment funds had open positions in exchange traded interest rate futures contracts and interest rate swap agreements at the reporting date. Interest rate derivative contracts are used by the investment fund’s managers to manage the exposure to interest rate risk and to ensure it remains within approved limits. The notional value of the open contracts and their fair value are set out below.

30 June 2019

30 June 2018

Notional
value

Fair market value

Notional
value

Fair market value

$'000

$'000

$'000

$'000

Open contracts

Buy domestic interest rate futures contracts

92,347

393

379,080

2,625

Sell domestic interest rate futures contracts

(1,296,430)

(707)

(1,187,986)

(474)

Buy international interest rate futures contracts

391,724

7,444

531,321

3,219

Sell international interest rate futures contracts

(2,093,961)

(10,856)

(2,221,695)

(1,690)

Receiver (fixed) interest rate swap agreements

(127,497)

3,979

310,252

(1,642)

Payer (fixed) interest rate swap agreements

276,009

(2,351)

(213,668)

722

Buy forward contracts on mortgage backed securities

166,796

228

-

-

Sell forward contracts on mortgage backed securities

(32,369)

(47)

-

-

Total open contracts

(1,917)

2,760

Interest rate sensitivity analysis

The investment funds are exposed to interest rate risk in relation to their investments. The impact of a change in interest rates is disclosed in the table below, with all other variables held constant. The table demonstrates the impact on the operating result of a 20 basis point (2018: 20 basis point) change in bond yields with all other variables held constant. It is assumed that the 20 basis point change occurs as at the reporting date and there are concurrent movements in interest rates and parallel shifts in the yield curves. A 20 basis point movement would impact on the debt portfolios' (including derivatives) contribution to the investment funds operating result. The impact on the operating result includes the increase/(decrease) in interest income on variable rate securities from the basis point change.

Sensitivity by year

Risk variable

Change in risk variable

Net cost of services

$'000

2019

Discount rate

+0.2%

54,644

-0.2%

(54,034)

2018

Discount rate

+0.2%

21,257

-0.2%

(21,230)

Foreign currency risk

The investment funds undertake certain transactions denominated in foreign currencies and are therefore exposed to the effects of exchange rate fluctuations. Exposure to foreign currency risk is managed utilising forward foreign exchange contracts. The exposure in AUD equivalents to foreign currency risk at reporting date is as follows.

Financial assets exposed to currency risk

USD

EURO

GBP

Other

Total

30 June 2019

$'000

$'000

$'000

$'000

$'000

Cash and cash equivalents

204,175

73,277

20,671

7,069

305,192

Interest bearing securities

2,653,071

855,210

1,219,104

1,034,808

5,762,193

Listed equities

924,357

137,983

81,092

595,125

1,738,557

Collective investment vehicles

852,920

41,768

-

-

894,688

Other investments

21,510

14,820

831

7,195

44,356

Receivables

59,168

3,904

868

2,373

66,313

Payables

(84,548)

(10,848)

(7,698)

(13,106)

(116,200)

Total physical exposure

4,630,653

1,116,114

1,314,868

1,633,464

8,695,099

Forward exchange contracts

Buy foreign currency

1,102,601

326,347

26,437

182,833

1,638,218

Sell foreign currency

(4,912,955)

(1,283,496)

(1,332,196)

(1,026,280)

(8,554,927)

Total derivative exposure

(3,810,354)

(957,149)

(1,305,759)

(843,447)

(6,916,709)

Net exposure

820,299

158,965

9,109

790,017

1,778,390

Financial assets exposed to currency risk

30 June 2018

Cash and cash equivalents

142,278

91,625

8,409

11,167

253,479

Interest bearing securities

2,705,853

869,000

1,114,505

828,299

5,517,657

Listed equities

447,992

62,082

31,704

286,987

828,765

Collective investment vehicles

420,209

52,569

-

-

472,778

Other investments

(6,971)

(305)

154

(1,025)

(8,147)

Receivables

52,820

2,733

163

1,184

56,900

Payables

(67,906)

(9,027)

-

(6,723)

(83,656)

Total physical exposure

3,694,275

1,068,677

1,154,935

1,119,889

7,037,776

Forward exchange contracts

Buy foreign currency

968,692

296,923

236

19,556

1,285,407

Sell foreign currency

(3,844,478)

(1,379,591)

(1,160,985)

(740,684)

(7,125,738)

Total derivative exposure

(2,875,786)

(1,082,668)

(1,160,749)

(721,128)

(5,840,331)

Net exposure

818,489

(13,991)

(5,814)

398,761

1,197,445

Foreign currency sensitivity analysis

The sensitivity analysis table below demonstrates the impact on the operating result of a movement in the value of the AUD relative to the actual net exposures as at year end, with all other variables held constant.

Sensitivity by year

Risk variable

Change in risk variable

Net cost of services

$'000

2019

Exchange rate

+8.7%

291,826

-8.7%

(291,826)

2018

Exchange rate

+9.2%

266,457

-9.2%

(266,457)

Other price risk

The MRFF and MRFFICs are exposed to price risk arising from equity investments. The equity price risk is the risk that the value of the MRFF equity portfolio will decrease as a result of changes in the levels of equity indices and the price of individual stocks. The MRFF and MRFFICs are held at FVPL. The exposure to equity price risk at the reporting date was as follows:

30 June 2019

$'000

Domestic equities and managed investment schemes

428,846

International equities and managed investment schemes

1,209,230

Total equity price risk exposure

1,638,076

Equity derivative contracts

Equity futures are used to manage the exposure to equity price risk. The notional value and fair value of the MRFF open positions at the reporting date are set out in the following table.

Notional
value

Fair market value

30 June 2019

$'000

$'000

Buy domestic equity futures contracts

3,935

27

Sell domestic equity futures contracts

(138,395)

(760)

Buy international equity futures contracts

85,712

2,677

Sell international equity futures contracts

(115,336)

(1,071)

Total equity derivative contracts

(164,084)

873

Equity price sensitivity analysis

The analysis below demonstrates the impact of the following movements on the MRFF and MRFFIC’s operating result.

  • +/- 20% on Australian equities
  • +/- 15% on International equities

The sensitivity analysis has been performed to assess the direct risk of holding equity instruments. The analysis is undertaken on the base currency values of the underlying exposures.

Impact on operating results

30 June 2019

$'000

20% increase in Australian equities

79,520

15% increase in International equities

440,472

Total

519,992

20% decrease in Australian equities

(79,608)

15% decrease in International equities

(440,519)

Total

(520,127)

C2.3.2 Liquidity risk

Liquidity risk is the risk that the investment funds will not be able to meet their obligations as they fall due. The Nation‑building funds, DCAF and ATSILSFF are currently invested in cash and cash like instruments under the investment mandate. Accordingly, the risk of these funds not being able to meet their obligations is low. The MRFF must be in a position to meet the distribution payments required of it up to the amount periodically declared as distributable by the Board, which is managed under the short-term liquidity risk policy. This includes a short-term crash test which is applied to the portfolio to ensure it is able to meet its immediate cash flow obligations under a plausible but very severe market dislocation.

C2.3.3 Credit risk management

Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual commitments in full and on time, or from losses arising from the change in value of a traded financial instrument as a result of changes in credit risk on that instrument. The Board sets limits on the credit ratings of debt investments when appointing investment managers. These limits are reflected in the underlying investment mandates and are monitored by the FFMA with compliance reported to the Board. The investment funds maximum exposure to credit risk at reporting date in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the investment funds financial position.

30 June

30 June

As at 30 June 2019, the investment funds had an exposure of greater than 58% of its net assets to interest bearing securities issued by domestic banks and cash deposits held with banks. Exposures to individual counterparties greater than 5% of the net assets of the investment funds are identified in this table.

2019

2018

Interest bearing securities issued by

$'000

$'000

Commonwealth Bank of Australia

8,525,941

7,397,106

Westpac Banking Corporation

2,756,847

1,679,351

National Australia Bank

4,110,034

3,228,698

Australia and New Zealand Banking Group

5,723,329

4,824,166

Total

21,116,151

17,129,321

Credit exposure by credit rating

30 June

30 June

The investment funds use Moody's and Standard & Poors credit rating scales to report exposure to credit risk. The long term credit risk exposures range from ‘AAA’ (extremely strong capacity to meet financial commitments) to ‘below investment grade/not rated’. The investments classified as below investment grade are held in debt mandates. This table provides information regarding the credit risk exposures of the debt instruments held by the investment funds at reporting date according to the credit ratings of the underlying debt instruments.

2019

2018

$'000

$'000

Long-term rated securities

AAA

3,017,691

3,578,802

AA

10,191,578

8,165,458

A

2,081,814

2,481,610

BBB

238,683

161,697

Below investment grade/not rated

711,778

588,923

Short-term rated securities

A-1+

13,614,394

10,988,986

A-1

817,799

42,826

A-2

92,918

-

Other

US Government Guaranteed

307,001

176,746

Total debt securities held

31,073,656

26,185,048

Other non-debt financial assets

6,035,504

3,638,755

Total financial assets

37,109,160

29,823,803

Credit risk derivatives

The investment funds managers utilise credit default swaps to gain exposure to, and to hedge, credit risk. The investment funds transact in credit default swaps in the form of centrally cleared over-the-counter contracts. Centrally cleared transactions are cash margined at least daily. Managers are required to fully cash back all sold credit protection positions. Outstanding positions are marked to market and collateralisation of out of the money positions is required by the central clearing exchange.

Notional value

Fair market value

30 June

30 June

2019

2019

$'000

$'000

The notional value of the open credit default swap positions, the impact on increasing or reducing credit exposures and their fair value are set out in this table for the MRFF.

Buy credit protection

104,150

(6,109)

Sell credit protection

(51,942)

2,311

Total

52,208

(3,798)

C3. Superannuation

C3.1 Overview of schemes

Finance administers the following defined benefit superannuation schemes on behalf of the Australian 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)
  • 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 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 other comprehensive income (OCI) 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 OCI.

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

Other

CSS

PSS

PCSS

G-GPS

JPS

FCCJDDS

Total

$'000

$'000

$'000

$'000

$'000

$'000

$'000

30 June 2019

Revenues

70,520

1,121,948

536

-

-

-

1,193,004

Expenses

2,463,042

5,838,714

42,048

663

89,761

962

8,435,190

OCI

(13,766,260)

(31,832,327)

(223,591)

(1,918)

(309,215)

921

(46,132,390)

Liabilities

95,503,267

134,289,616

1,389,754

23,232

1,845,902

938

233,052,709

30 June 2018

Revenues

87,592

1,125,818

628

-

-

-

1,214,038

Expenses

2,551,579

5,777,690

45,821

744

82,735

893

8,459,462

OCI

(1,379,037)

(5,248,775)

(25,436)

(957)

(134,461)

804

(6,787,862)

Liabilities

82,895,248

97,480,728

1,167,342

22,188

1,500,165

1,362

183,067,033

The expected employer productivity contributions for 2020 are: $9.3 million for the CSS and $150.5 million for the PSS (2019 actual: $11.1 million for the CSS and $167.2 million for the PSS).

C3.2 Scheme information

The funding arrangements for the various schemes:

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 3%) contributions. 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. 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. Benefits are paid to members from the CRF.

The nature of the benefits provided under the schemes:

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 a lump sum payment. 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% 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 the 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
  • 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 PCSS is administered by Finance on behalf of the Minister for Finance. The Parliamentary Retiring Allowances Trust (the Trust) has responsibility for matters where discretion has been given under the Parliamentary Contributory Superannuation Act 1948. The Trust consists of five trustees - the Minister for Finance (or a Minister authorised by the Minister for Finance) who is the presiding trustee, plus two Senators and two Members of the House of Representatives appointed by their respective Houses.

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 2019 is $21.8 billion (30 June 2018 was $21.5 billion). The assets are diversified in the following sectors:

CSS

PSS

Australian equities

24%

24%

International equities

26%

26%

Private capital

6%

6%

Property and infrastructure

11%

12%

Corporate bonds

4%

5%

Alternative strategies

15%

15%

Cash and sovereign bonds

14%

12%

This includes $361.3 million (2018: $345.3 million) of Australian Government bonds.

Key judgements and estimates

CSS, PSS, and PCSS

Assumptions have been made regarding rates of retirement, death (for active, preserved and pension members), mortality improvements, invalidity, resignation, retrenchment, retention and take up rates of pensions in the scheme. Assumptions have also been made for the ages of spouses and rates of member contributions. These assumptions are consistent to those used within the 2017 Long Term Cost Reports (LTCRs).

Membership data as at 30 June 2018 has been rolled forward to 30 June 2019 by making allowance for estimated investment earnings, contributions, salary increases, benefit payments and benefit accruals, using the actuarial assumptions from the LTCRs where other information is not available. The defined benefit obligation calculated is based on the rolled forward membership data that was then adjusted to reflect the difference between expected benefit payments and actual benefit payments to 30 June 2019.

The fair value of scheme assets as at 30 June 2019 (CSS and PSS only) were estimated using the unaudited net scheme assets available to pay benefits at 31 May 2019 rolled forward to 30 June 2019 with cash flow items provided by the CSC. An estimate of the actual rate of investment return earned by the scheme during June 2019 was used in determining the fair value of scheme assets.

Other Schemes (G-GPS, JPS and FCCJDDS)

Membership data as at 31 May 2019 has been rolled forward to 30 June 2019. Other actuarial assumptions are consistent to those used within the LTCRs.

Key actuarial assumptions

The key actuarial assumptions for the defined benefit obligation are set out in the table below:

CSS

PSS

Other

Discount rate

1.7%

1.9%

1.9%

Salary growth rate up to June 2023

2.0%

2.0%

4.0%

Salary growth rate from July 2023

3.5%

3.5%

4.0%

Expected pension increase rate

2.5%

2.5%

2.5%

Maturity profile (years)

14.1 (CSS 1976)

22.4

16.7 (PCSS)

8.1 (CSS 1922)

9.0 (G-GPS)

15.7 (JPS)

1.0 (FCCJDDS)

Process used to determine actuarial assumptions

Discount rate

The relevant Australian Government Treasury Bond rates were used for the calculation of defined benefit obligation.

Salary Growth rate

For the CSS and PSS the short-term rate use is based on the government's current workplace bargaining policy plus assumed promotional increases. The long-term rate thereafter is determined by taking into consideration the duration of the salary linked liabilities, economy-wide wage growth, productivity growth and inflationary expectations plus assumed promotional increases.

The assumed rate for future salary increases has been determined having regards to the average expected long-term outlook for the national wage inflation.

The long-term rates are consistent with those used in the LTCRs for the schemes.

Expected pension increase rate

For the CSS and PSS pensions are increased in line with changes in the CPI. For Other Schemes the assumed rate for the pension increases has been determined having regards to the average expected long-term outlook for the national wage inflation.

Maturity profile

This reflects the weighted average duration of each schemes defined benefit obligation as at 30 June.

Sensitivity analysis for significant actuarial assumptions

Finance has conducted a sensitivity analysis to quantify the impact of changes in the key underlying assumptions on the defined benefit obligation. The defined benefit obligation has been recalculated by changing the assumptions as outlined below, whilst retaining all other assumptions.

CSS

PSS

Other

Assumption

Movement

$'000

$'000

$'000

Discount rate1

+ 0.5%

(6,385,445)

(15,283,379)

(244,276)

- 0.5%

7,126,519

17,795,221

275,059

Salary growth rate

+ 0.5%

80,680

3,196,461

260,054

- 0.5%

(108,933)

(3,000,098)

(234,031)

Pension increase rate

+ 0.5%

5,727,773

12,242,286

n/a

- 0.5%

(5,215,984)

(10,924,528)

n/a

1 An increase in the discount rate between financial years generates a decrease in the defined benefit obligation and a gain in OCI. Conversely, a decrease in the discount rate between financial years causes an increase in the defined benefit obligation and a loss to OCI.

C3.4 Superannuation Schemes

CSS

PSS

Other

Total

30 June 2019

$'000

$'000

$'000

$'000

Reconciliation of the present value of the defined benefit obligation

Value at beginning of the year

85,515,007

116,390,016

2,691,057

204,596,080

Current service cost

115,268

2,842,106

51,543

3,008,917

Interest expense

2,418,143

3,575,243

81,891

6,075,277

Contribution from scheme participants

36,719

524,331

-

561,050

Productivity contribution

11,131

167,236

-

178,367

Actuarial losses/(gains) in liabilities arising from:

Changes in financial assumptions

13,862,530

31,875,054

540,946

46,278,530

Liability experience

(56,902)

726,046

(7,143)

662,001

Benefits paid

(4,125,905)

(2,237,026)

(98,468)

(6,461,399)

Taxes, premiums and expenses paid

(1,770)

(25,382)

-

(27,152)

Closing value of the defined benefit obligation

97,774,221

153,837,624

3,259,826

254,871,671

Reconciliation of the fair value of plan assets

Value at beginning of the year

2,619,759

18,909,288

-

21,529,047

Interest income

70,369

578,635

-

649,004

Actual return on scheme assets less interest income

39,368

768,773

-

808,141

Contribution from scheme participants

36,719

524,331

-

561,050

Productivity contribution

11,131

167,236

-

178,367

Net appropriation from the CRF

3,621,283

862,153

98,468

4,581,904

Benefits paid

(4,125,905)

(2,237,026)

(98,468)

(6,461,399)

Taxes, premiums and expenses paid

(1,770)

(25,382)

-

(27,152)

Closing fair value of plan assets

2,270,954

19,548,008

-

21,818,962

Reconciliation of the defined benefit liability

Value at beginning of the year

82,895,248

97,480,728

2,691,057

183,067,033

Current service cost

115,268

2,842,106

51,543

3,008,917

Net interest

2,347,774

2,996,608

81,891

5,426,273

Actual return on scheme assets less interest income

(39,368)

(768,773)

-

(808,141)

Actuarial losses/(gains) in liabilities arising from:

Changes in financial assumptions

13,862,530

31,875,054

540,946

46,278,530

Liability experience

(56,902)

726,046

(7,143)

662,001

Net appropriation from the CRF

(3,621,283)

(862,153)

(98,468)

(4,581,904)

Closing value of the net defined benefit liability

95,503,267

134,289,616

3,259,826

233,052,709

The fair value of CSS and PSS scheme assets relates to investments in the Pooled Superannuation Trust (PST).

CSS

PSS

Other

Total

30 June 2018

$'000

$'000

$'000

$'000

Reconciliation of the present value of the defined benefit obligation

Value at beginning of the year

85,330,627

104,949,301

2,495,412

192,775,340

Current service cost

137,970

2,746,886

44,516

2,929,372

Interest expense

2,490,486

3,639,645

85,678

6,215,809

Contribution from scheme participants

43,528

551,536

-

595,064

Productivity contribution

12,319

182,610

-

194,929

Actuarial losses/(gains) in liabilities arising from:

Changes in demographic assumptions

161,056

(947,376)

16,165

(770,155)

Changes in financial assumptions

945,300

6,750,306

150,415

7,846,021

Liability experience

426,974

464,374

(6,530)

884,818

Benefits paid

(4,031,319)

(1,919,616)

(94,599)

(6,045,534)

Taxes, premiums and expenses paid

(1,934)

(27,650)

-

(29,584)

Closing value of the defined benefit obligation

85,515,007

116,390,016

2,691,057

204,596,080

Reconciliation of the fair value of plan assets

Value at beginning of the year

2,791,270

17,631,802

-

20,423,072

Interest income

76,877

608,841

-

685,718

Actual return on scheme assets less interest income

154,293

1,018,529

-

1,172,822

Contribution from scheme participants

43,528

551,536

-

595,064

Productivity contribution

12,319

182,610

-

194,929

Net appropriation from the CRF

3,574,725

863,236

94,599

4,532,560

Benefits paid

(4,031,319)

(1,919,616)

(94,599)

(6,045,534)

Taxes, premiums and expenses paid

(1,934)

(27,650)

-

(29,584)

Closing fair value of plan assets

2,619,759

18,909,288

-

21,529,047

Reconciliation of the defined benefit liability

Value at beginning of the year

82,539,357

87,317,499

2,495,412

172,352,268

Current service cost

137,970

2,746,886

44,516

2,929,372

Net interest

2,413,609

3,030,804

85,678

5,530,091

Actual return on scheme assets less interest income

(154,293)

(1,018,529)

-

(1,172,822)

Actuarial losses/(gains) in liabilities arising from:

Changes in demographic assumptions

161,056

(947,376)

16,165

(770,155)

Changes in financial assumptions

945,300

6,750,306

150,415

7,846,021

Liability experience

426,974

464,374

(6,530)

884,818

Net appropriation from the CRF

(3,574,725)

(863,236)

(94,599)

(4,532,560)

Closing value of the net defined benefit liability

82,895,248

97,480,728

2,691,057

183,067,033