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24 Defined benefit superannuation plan

Employees of Snowy Hydro are members of a variety of superannuation funds covering both defined contribution and defined benefit plans. Payments to defined contribution plans are recognised as an expense when employees have rendered service entitling them to the contributions.

Snowy Hydro’s defined benefit plans include:

  • Commonwealth Superannuation Scheme (“CSS”);
  • Public Sector Superannuation Scheme (“PSSS”);
  • Energy Industries Superannuation Scheme (“EISS”);
  • State Superannuation Scheme (“SSS”); and
  • State Authorities Non-contributory Superannuation Scheme (“SANCS”)

CSS and PSSS are accounted for as defined contribution plans on the basis that these are multi-employer plans and insufficient information is available to apply defined benefit accounting.

The SSS and SANCS schemes are part of the same pooled funds and are therefore treated together for the defined benefit scheme financial statement disclosures below.

For the EISS, SSS and SANCS defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out annually. Remeasurements, comprising actuarial gains and losses, the effect of changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the consolidated statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur.

Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Service cost (including current service cost, past service cost and gains and losses on curtailments and settlement) are recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.

The retirement benefit obligation recognised in the consolidated statement of financial position represents the deficit in Snowy Hydro’s defined benefit plans, calculated by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of the plan assets.

The defined benefit plans are administered by a separate Fund that is legally separated from the entity.

The defined benefit plans require contributions from employees. Contributions are in the following two forms; one is based on the number of years of service and the other one is based on a fixed percentage of salary of the employees. Employees can also make discretionary contributions to the plans.

The Energy Industries Superannuation Scheme Pool B (“EISS”), the State Authorities Superannuation Scheme (“SSS”) and the State Authorities Non-contributory Superannuation Scheme (“SANCS”) provide defined benefits in the form of lump sum or pension benefits on retirement, death, disablement and withdrawal. These schemes are here forth referred to as the ‘Schemes’. The Schemes are closed to new members.

Description of the regulatory framework

The Schemes are primarily regulated by the Superannuation Industry (Supervision) Act 1993 (Cth) ("the SIS legislation").

The Schemes have received an exemption from detailed annual actuarial valuations and therefore detailed actuarial valuations are only required triennially. The last actuarial valuation of the Schemes was performed as at 30 June 2018. The next actuarial investigation is due as at 30 June 2021.

Description of other entities’ responsibilities for the governance of the Schemes

The Schemes' Trustees are responsible for the governance of the Scheme according to the Scheme rules and regulations.

Description of the risks

There are a number of risks to which the Fund exposes the Employer. The more significant risks relating to the defined benefits are:

  • Investment risk: The risk that investment returns will be lower than assumed and the Employer will need to increase contributions to offset this shortfall.
  • Longevity risk: The risk that pensioners live longer than assumed, increasing future pensions.
  • Pension indexation risk: The risk that pensions will increase at a rate greater than assumed, increasing future pensions.
  • Salary growth risk: The risk that wages or salaries (on which future benefit amounts for active members will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer contributions.
  • Legislative risk: The risk is that legislative changes could be made which increase the cost of providing the defined benefits.

Description of significant events

The schemes had no amendments, curtailments or settlements during the year due to exits.

Reconciliation of the Net Defined Benefit Liability/(Asset)

$million

Present value of obligation

Fair value of plan assets

Total

Impact of minimum funding requirement/ asset ceiling

Net amount

2018

21.6

(15.2)

6.4

-

6.4

Current service cost

0.1

-

0.1

-

0.1

Interest expense/ (income)

0.9

(0.6)

0.3

-

0.3

Total amount recognised in profit or loss

1.0

(0.6)

0.4

-

0.4

Remeasurements:

Return on plan assets, excluding amounts included in interest expense/ (income)

-

(0.9)

(0.9)

-

(0.9)

Gain from changes in demographic and financial assumptions

3.5

-

3.5

-

3.5

Experience loss

-

-

-

-

-

Total amount recognised in other comprehensive income

3.5

(0.9)

2.6

-

2.6

Contributions:

Employers

-

(1.1)

(1.1)

-

(1.1)

Plan participants

0.1

(0.1)

-

-

-

Payments from plan:

Benefit payments

(1.0)

1.0

-

-

-

2019

25.2

(16.9)

8.3

-

8.3

Fair value of Fund assets

The major categories of plan assets as a percentage of the fair value of total plan assets at the end of the reporting period are as follows:

As at 30 June 2019

EISS

SSS/SANCS

Australian equities

16%

20%

International equities

25%

27%

Property

11%

8%

Private equity

2%

-

Infrastructure

6%

-

Alternatives

4%

25%

Fixed income

31%

10%

Short Term Securities

-

10%

Cash

5%

-

Total

100%

100%

All plan assets are held within investment funds which do not have a quoted market price in an active market.

Significant actuarial assumptions at the reporting date

As at 30 June 2019

EISS

SSS/SANCS

Discount rate

2.95%

3.17%

Salary increase rate (excluding promotional increases)

2.5% pa

3.2% pa

Rate of CPI increase

2.3% pa

1.75% - 2.5%

Pensioner mortality

As per the triennial valuation of the Scheme as at 30 June 2018

The sensitivity analysis below has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

  • If the discount rate is 1% higher/(lower), the defined benefit obligation would decrease by $3.1 million (increase by $3.8 million); and
  • If the rate of ‘CPI increase’ increases/(decreases) by 0.5%, the defined benefit obligation would increase by $1.7 million (decrease by $1.6 million).

Asset-Liability matching strategies

The asset-liability risk is monitored in setting the investment strategy however no explicit asset-liability matching strategy is used. There has been no change in the process used to manage its risks from prior periods.

Funding arrangements

Funding arrangements are reviewed at least every three years following the release of the triennial actuarial review and was last reviewed following completion of the triennial review as at 30 June 2018. Contribution rates are set after discussions between the employer and relevant parties such as the Trustee and NSW Treasury.

Funding positions are reviewed annually and funding arrangements may be adjusted as required after each annual review.

Expected contributions

Expected employer contributions for the financial year ending 30 June 2020 are $0.6 million and $0.2 million for EISS and SANCS/SSS respectively.

Maturity profile of defined benefit obligation

The weighted average duration of Snowy Hydro’s defined benefit obligation is 12 years and 14.7 years for EISS and SANCS/SSS respectively.