PSS and CSS
Long Term Cost
Report
A report on the long term cost of the
Public Sector Superannuation Scheme and the
Commonwealth Superannuation Scheme
1999
1999
Public Sector Superannuation Scheme
and
Commonwealth Superannuation
Scheme
(PSS and CSS)
A report on long-term costs
carried out by Towers Perrin
using data as at 30 June 1999
© Commonwealth of Australia 2000
ISBN 0642 44430 7
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part
may be reproduced by any process without prior written permission from the Commonwealth
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Printed by Canprint Communications Pty Ltd Fyshwick ACT
http://www.dofa.gov.au/super/
Produced by Towers Perrin
CONTENTS
Page
Chapter 1:
Executive Summary
2
Chapter 2:
Introduction
8
Chapter 3:
The PSS and the CSS
9
Chapter 4:
Membership and Data
11
Chapter 5:
Valuation Methodology
13
Chapter 6:
Assumptions
16
Chapter 7:
Projection of Actual Commonwealth Employer Costs
23
Chapter 8:
Unfunded Liability
25
Chapter 9:
Notional Commonwealth Employer Contribution Rates
27
Chapter 10:
Clawback
28
A
Summary of Benefit Provision
29
B
Detailed Assumptions
36
Appendices:
1
CHAPTER 1:
EXECUTIVE SUMMARY
I am pleased to present this report on the actuarial investigation of the Public Sector
Superannuation Scheme (PSS) and the Commonwealth Superannuation Scheme (CSS) prepared
at the request of the Department of Finance and Administration. This investigation has been
carried out based on membership data as at 30 June 1999.
The previous investigation was carried out by the then Australian Government Actuary based
on data as at 30 June 1996.
RESULTS PRODUCED IN THIS REPORT
1.1
The main aim of this investigation is to identify the long term cost of the PSS and the
CSS that will be charged to the Consolidated Revenue Fund (CRF). The long term
cost has been estimated in three ways:
Projection of Actual Commonwealth Employer Costs
I have projected the actual Commonwealth outlay in respect of superannuation
benefits in each of the next 45 years and expressed these amounts as a
percentage of projected Gross Domestic Product (GDP).
Unfunded Liability
I have estimated the total accrued superannuation liabilities of the
Commonwealth in respect of service up to 30 June 1999 for which no assets are
held.
Notional Commonwealth Employer Contribution Rate
This is the Commonwealth employer contribution rate necessary to ensure that
employer financed benefits would remain fully funded in three years time, if
they were fully funded now.
2
RESULTS OF THE INVESTIGATION
Projection of Actual Commonwealth Employer Costs
1.2
Actual Commonwealth Employer Costs are expected to reduce as a percentage of
projected GDP from 0.4% in 1999 to 0.2% in 2044.
Present Value of Unfunded Liability
1.3
The accrued Unfunded Liability at 30 June 1999 for current members and pensioners
has been calculated to be $46 billion, which is 8% of current GDP.
1.4
The corresponding figure at 30 June 1996 was $42 billion, which was 9% of GDP at
that date.
1.5
I have also developed a graph showing that the Unfunded Liability reduces as a
percentage of projected GDP over the next 45 years.
Projection of Unfunded Liability relative to GDP
(using 1999 as base year)
120.00
100.00
80.00
I
n
d
e
x
60.00
40.00
20.00
0.00
1999
2002
2005
2008
2011
2014
2017
2020
2023
As at 30 June
3
2026
2029
2032
2035
2038
2041
2044
Notional Commonwealth Employer Contribution Rates
1.6
The Notional Commonwealth Employer Contribution Rates for the two schemes are
shown below.
NOTIONAL COMMONWEALTH EMPLOYER CONTRIBUTION RATE
Contribution as a percentage of
Superannuation Salary
Report as at
CSS
PSS
Combined
30 June 1993
23.1%
14.0%
19.1%
30 June 1996
21.9%
13.1%
16.9%
30 June 1999
21.9%
14.2%
17.2%
Notes: All the rates shown in the above Table include contributions towards the 3% productivity
superannuation benefit. The actual CSS 1999 rate for those agencies with separate productivity
superannuation arrangements was 18.9% of superannuation salaries.
1.7
The combined rate represents the cost to the Commonwealth of the superannuation
benefits which are accruing for Commonwealth employees at the present time.
1.8
The contribution rate for the CSS at 30 June 1999 is unchanged from that calculated at
the last review.
1.9
The contribution rate for the PSS has increased by 1.1% of Superannuation Salary.
The reasons for this increase are as follows:
The PSS rate at 30 June 1999 has been calculated based on the method adopted by
the Australian Government Actuary and other organisations appointed by the
Department of Finance and Administration for the most recent round of agency
assessments. The 1996 rate was calculated based on a different method.
The assumptions adopted for the 1999 review are different to those adopted for the
1996 review. In particular, I have increased the percentage of members
assumed to retain their benefits within the schemes after ceasing employment.
Further, I have increased the percentage of members assumed to take their PSS
benefit as a pension.
4
SCHEME MEMBERSHIP
1.10
The following table summarises the membership of the schemes since 1993.
CONTRIBUTING MEMBERSHIP
1.11
CSS
PSS
TOTAL
30 June 1993
109,591
97,891
207,482
30 June 1996
76,864
115,873
192,737
30 June 1999
52,880
106,141
159,021
There have been a number of retrenchments during the three years to 30 June 1999.
This has resulted in a decrease in total contributing membership.
METHODOLOGY
1.12
All Commonwealth agencies are being individually assessed to identify the cost of
providing superannuation benefits to their employees who are members of the CSS or
the PSS. These assessments have been undertaken by the Australian Government
Actuary and other organisations appointed by the Department of Finance and
Administration. These assessments are known as agency assessments.
1.13
For the purposes of this investigation, I have used the method adopted for the most
recent round of agency assessments.
1.14
This method is slightly different to that adopted for the 1996 investigation carried out
by the Australian Government Actuary. It results in a slightly higher Notional
Commonwealth Employer Contribution Rate for the PSS than would the application of
the same method as was used for the 1996 investigation.
5
ASSUMPTIONS
1.15
The key financial assumptions adopted for this review are shown in the table below.
The assumptions adopted for the previous review are shown for comparison purposes.
Item
Assumption
Previous Review
CPI Increases
3.5% per annum
4.0% per annum
Investment Returns
3.5% per annum (real)
3.5% per annum (real)
General Salary Increases
1.5% per annum (real)
1.5% per annum (real)
GDP Increases
2.5% per annum (real)
2.5% per annum (real)
1.16
The differences between the key financial assumptions at 1999 are the same as the
corresponding differences in 1996. Therefore, the change in assumption relating to
CPI increases will not lead to a material change in the results of the investigation.
1.17
I have made a few changes to the assumptions relating to the future decisions of the
members of the schemes. The significant changes relate to the number of members
who retain their benefits within the schemes and the percentage of PSS benefits that
are taken as a pension.
1.18
In the case of the PSS, I have assumed that 35% of all members who resign will retain
their member accumulation within the scheme. The corresponding assumption made
in the previous report was that 30% of males and 25% of females would do so.
1.19
In the case of the CSS, I have assumed that 75% of the total benefit of withdrawing
males and females will be retained within the CSS. The assumption made in preparing
the previous report was that 65% of the benefits of males and 50% of the benefits of
females would be retained within the CSS.
1.20
Based on the experience over the last three years, I have assumed that, on average,
40% of all eligible PSS lump sum benefits will be converted to pensions (compared to
30% assumed in the previous report).
1.21
These changes in assumptions have resulted in an increase in the PSS Notional
Commonwealth Employer Contribution Rate.
6
CLAWBACK
1.22
The liabilities of the PSS and the CSS form part of the Commonwealth’s overall
liabilities. If the Commonwealth did not provide these benefits, then it would incur
increased Age Pension outlays and reduced taxation receipts. This theoretical impact
on the Unfunded Liability is referred to as clawback.
1.23
The estimation of clawback presents special problems. As well as basic assumptions
that current taxation and social security legislation will remain in a generally
unchanged format, assumptions must be made about:
future benefit levels; and
the saving and spending behaviour of public servants.
1.24
Clawback is estimated to be $17 billion as at 30 June 1999. This estimate is quite
sensitive to the assumptions, and extremely subjective in nature. Therefore, this
estimate of clawback should be used with caution.
7
CHAPTER 2:
INTRODUCTION
BACKGROUND
2.1
This report estimates the long term cost of providing superannuation benefits to
members of the Public Sector Superannuation Scheme (PSS) and the Commonwealth
Superannuation Scheme (CSS). The estimates have been determined based on an
actuarial investigation of the schemes as at 30 June 1999.
2.2
This investigation has been carried out by Dr Andrew Goddard, FIAA, FIA of Towers
Perrin at the request of the Department of Finance and Administration.
PURPOSE OF THE INVESTIGATION
2.3
The main aim of this investigation is to identify the long term cost of the PSS and the
CSS that will be charged to the Consolidated Revenue Fund (CRF). The long term
cost has been estimated in three ways:
Projected Actual Commonwealth Employer Costs
I have projected these costs over the next 45 years and expressed them as a
percentage of projected Gross Domestic Product.
Unfunded Liability
I have estimated the total accrued superannuation liabilities of the
Commonwealth in respect of service up to 30 June 1999 for which no assets are
held.
Notional Commonwealth Employer Contribution Rate
This is the Commonwealth employer contribution rate necessary to ensure that
employer financed benefits would remain fully funded in three years time, if
they were fully funded now.
2.4
In identifying the long term cost of superannuation benefits provided by the
Commonwealth, allowance has been made for the future transfer values payable by the
Commonwealth to the superannuation schemes of Telstra, Australia Post and
AirServices Australia. These transfer values are in respect of Commonwealth
liabilities for benefits previously accrued in the CSS by employees of these
organisations.
2.5
The previous actuarial investigation of the schemes was carried out as at 30 June 1996
by the then Australian Government Actuary, Mr Craig Thorburn, FIAA. The results of
that investigation were set out in a report dated June 1997 (the previous report).
8
CHAPTER 3:
THE PSS AND THE CSS
3.1
The PSS was established on 1 July 1990 on the basis of a Policy Statement (the
Reform Statement) made by the then Minister for Finance on 15 October 1989. Its
operations are governed by the Superannuation Act 1990 and a Trust Deed and Rules.
Employees of Commonwealth agencies are eligible for membership of the PSS. All
permanent employees of Commonwealth agencies, except where agencies have other
approved superannuation arrangements, must participate in the PSS.
3.2
The CSS was introduced on 1 July 1976. Its operations are governed by the
Superannuation Act 1976, as amended, and associated regulations. The CSS has been
closed to new members since 1 July 1990. All CSS contributors at 1 July 1990 were
given the option of transferring to the PSS. A further option to transfer to the PSS was
provided in 1996 for a limited period of time. The current membership of the CSS
covers all Commonwealth employees who were members on 30 June 1990 and who
did not transfer to the PSS.
3.3
Prior to July 1976 the superannuation of Commonwealth public servants was covered
by the Superannuation Act 1922. Currently there are no members contributing under
the Superannuation Act 1922. However, some pensioners and deferred beneficiaries
remain entitled to benefits under this Act and the liabilities in respect of these
beneficiaries are included in the CSS Unfunded Liability.
3.4
The PSS and the CSS are defined benefit schemes. In the PSS, the primary benefit is
expressed as a lump sum based on a multiple of final average salary that is related to
member average contribution rate and total service. On exit, the benefit may be
wholly or partially taken as an indexed pension.
3.5
The CSS provides an indexed pension and a lump sum benefit. The indexed pension is
based on a percentage of final salary and total service. The lump sum benefit, which
may be taken as a non-indexed pension, is the sum of:
the accumulated value of member contributions paid by the member; plus
the accumulated value of productivity superannuation contributions paid by the
employer in respect of the member.
3.6
Generally, agencies pay productivity superannuation contributions in respect of their
employees to the PSS or the CSS. However, there are some agencies that have made
alternative arrangements in respect of their CSS members.
3.7
Member and productivity superannuation contributions paid to the PSS and the CSS
are invested by the trustees of the two schemes, the PSS Board and the CSS Board
respectively (the Trustees). These contributions are accumulated at an interest rate
(based on the investment returns achieved by the scheme assets) periodically declared
by the Trustees.
9
3.8
The PSS and CSS are partly funded to the extent that real assets are held in respect of
member contributions and productivity superannuation contributions. These assets, as
appearing in the reports of the PSS Board and the CSS Board, were:
ASSETS of the PSS and the CSS ($Millions)
Date
PSS
CSS
TOTAL
30 June 1996
2,076
4,870
6,946
30 June 1999
3,481
5,591
9,072
CHANGES TO BENEFITS SINCE 1996
3.9
The introduction of the surcharge legislation from August 1996 has increased the tax
applicable to employer financed benefits in respect of some members of the PSS and
the CSS. As the surcharge is deducted from each affected member’s benefits, it is
unnecessary to factor this into the valuation of the liabilities.
3.10
There have been no other changes to the benefits provided by the PSS and the CSS
since the previous report as at 30 June 1996.
3.11
Details of the benefits provided by the PSS and the CSS are set out in Appendix A.
10
CHAPTER 4:
4.1
MEMBERSHIP AND DATA
Data relating to the membership of the PSS and the CSS was provided by ComSuper,
on behalf of the PSS and CSS Boards, the schemes’ administrator, for the purposes of
this investigation. Data provided included:
contributory members, pensioners and deferred beneficiaries of the PSS and the CSS
as at 30 June 1999; and
exits from the PSS and the CSS during the three years to 30 June 1999.
4.2
Detailed checks have been carried out to test the integrity of the data. In addition, a
detailed reconciliation of the current data with the data utilised for the previous
investigation as at 30 June 1996 has been carried out.
4.3
I am satisfied that the data is sufficiently accurate for the purposes of this report.
4.4
The Tables below summarise the total membership of the CSS and the PSS as at 30
June 1999.
CSS MEMBERSHIP as at 30 JUNE 1999
Male
Females
Total
36,616
16,264
52,880
$2,052 m
$56,055
$777 m
$47,751
$2,829 m
$53,501
Number of Preserved
Beneficiaries
9,172
3,349
12,521
Number of Age Pensioners
43,356
12,561
55,917
Number of Invalidity Pensioners
20,099
5,399
25,498
Number of Reversionary
Pensioners
1,034
25,928
26,962
Number of Contributors
Salaries –
–
Total
Average
11
PSS MEMBERSHIP as at 30 JUNE 1999
Male
Females
4.5
Total
Number of Contributors
45,933
60,208
106,141
Salaries –
–
$2,063m
$44,918
$2,404m
$39,936
$4,467m
$42,092
Number of Preserved
Beneficiaries
21,057
30,119
51,176
Number of Age Pensioners
2,505
1,775
4,280
Number of Invalidity Pensioners
346
324
670
Number of Reversionary
Pensioners
76
134
210
Total
Average
The number of contributors to the schemes has reduced significantly over the last six
years as can be seen from the following table:
MOVEMENTS IN CONTRIBUTING MEMBERSHIP
CSS
PSS
TOTAL
30 June 1993
109,591
97,891
207,482
30 June 1996
76,864
115,873
192,737
30 June 1999
52,880
106,141
159,021
4.6
Since 1996 the number of CSS contributory members has reduced by 31%.
4.7
The number of PSS contributory members has reduced by 8% since 1996.
4.8
There have been a large number of retrenchments affecting the membership of both the
PSS and the CSS during the last three years.
12
CHAPTER 5:
5.1
VALUATION METHODOLOGY
The main aim of this investigation is to identify the long term cost of the PSS and the
CSS that will be charged to the Consolidated Revenue Fund (CRF). The long term
cost has been estimated in three ways:
Projected Actual Commonwealth Employer Costs
Unfunded Liability
Notional Commonwealth Employer Contribution Rate
5.2
This section of the report describes the methodology adopted in determining the above
estimates.
ACTUAL COMMONWEALTH EMPLOYER COSTS
5.3
When a member becomes entitled to a benefit from the PSS or the CSS, the member’s
accumulation accounts (ie funded member and productivity contributions plus interest)
are paid by the Trustees of the schemes to the CRF. The total benefit payment to the
member is then made from the CRF.
5.4
The indexed pension benefit from the CSS is therefore financed from the CRF on an
unfunded basis. Similarly the benefit from the PSS after deducting the accumulated
value of the member contributions and productivity superannuation contributions is
also financed from the CRF on an unfunded basis.
5.5
Hence, the Actual Commonwealth Employer Cost in each year is defined as being as
follows:
Productivity superannuation contributions paid by the employer to the PSS and CSS
funds; plus
benefit payments made by the CRF (including payments made under the
Superannuation Act 1922 and transfer values to the superannuation funds of
Telstra, Australia Post and AirServices Australia); less
benefit payments made from the PSS and CSS funds to the CRF.
5.6
I have calculated the projected Actual Commonwealth Employer Cost (as defined
above) over the next 45 years. This has been done by projecting the membership into
the future based on the assumptions set out in Chapter 6 relating to the level of future
salary increases, the timing and nature of exits from the schemes and the profile of new
entrants to the PSS.
13
UNFUNDED LIABILITY
5.7
A part of each member’s benefit from the PSS and the CSS is paid from the CRF on an
unfunded basis. These benefits represent the unfunded superannuation liabilities of the
Commonwealth.
5.8
Chapter 8 of this report sets out the Unfunded Liability of the Commonwealth as at 30
June 1999. I have estimated the value of the Unfunded Liability based on the method
adopted for the Commonwealth agency assessments. The method is a variant of the
Projected Unit Credit Method and assumes that all unfunded benefits accrue uniformly
over total service.
5.9
The steps involved in this process are as follows:
The membership of each scheme as at 30 June 1999 is projected into the future based
on assumptions relating to future salary growth and rates of exit of members (as
set out in Chapter 6). No allowance is made for new entrants in this process.
The total value of unfunded benefits payable to the projected exits in each future year
is determined.
As unfunded benefits are assumed to accrue uniformly over the total service of each
member, the projected benefit in each future year deemed to accrue by 30 June
1999 is determined as follows:
Projected Unfunded Benefit
at the beginning of the year of exit
x
Service at 30 June 1999
Service at the beginning of the
year of exit
The Unfunded Liability as at 30 June 1999 is determined as the sum of the present
values of the accrued projected unfunded benefits.
NOTIONAL COMMONWEALTH EMPLOYER CONTRIBUTION RATE
5.10
Chapter 9 of this report sets out my estimate of the Notional Commonwealth Employer
Contribution Rates for the PSS and the CSS. The Notional Commonwealth Employer
Contribution Rate is the employer contribution rate necessary to ensure that employer
financed benefits would remain fully funded in three years time, if they were fully
funded now.
5.11
I have estimated the Notional Commonwealth Employer Contribution Rate based on
the method adopted for the Commonwealth agency assessments. The method is a
variant of the Projected Unit Credit Method and assumes that all unfunded benefits
accrue uniformly over total service.
5.12
The calculation method is as follows:
14
It is assumed that the Unfunded Liability calculated above is in fact fully covered by
assets as at 30 June 1999.
The Unfunded Liability is projected to 30 June 2002 based on the projected
membership at that date using the assumptions set out in Chapter 6. Further it is
also assumed that no new entrants join the PSS.
The unfunded component of the expected benefit payments to exits during the three
years to 30 June 2002 is estimated.
The Notional Commonwealth Employer Contribution Rate is set at a rate such that:
employer contributions at that rate; plus
notional assets at 30 June 1999 (which are equal to Unfunded Liability at that
date) plus
any interest earned on the above amounts,
are adequate to cover the expected benefits payable during the three years and
the Unfunded Liability as at 30 June 2002.
The Notional Commonwealth Employer Contribution Rate is increased by 3% of
Superannuation Salary to allow for the cost of future productivity
superannuation contributions.
5.13
The method adopted to calculate the Notional Commonwealth Employer Contribution
Rates at this investigation is slightly different to the method adopted at the review
carried out in 1996. I have adopted the revised method for this review in order to
achieve a level of consistency with the approach adopted for the Commonwealth
agency assessments. The revised method appropriately takes account of members’
contribution history and was adopted for this reason for the most recent round of
Commonwealth agency assessments undertaken by the Australian Government
Actuary and other organisations appointed by the Department of Finance and
Administration.
5.14
The change in the method adopted for this review will result in an increase in the
Notional Commonwealth Employer Contribution Rate for the PSS compared with that
which would have resulted from the application of the same method as was used in the
1996 review.
The change in method does not impact on the CSS because of the different benefit
structure of the CSS.
15
CHAPTER 6:
ASSUMPTIONS
6.1
The assumptions adopted for this investigation are set out in this Chapter.
6.2
The valuation of a scheme’s liabilities is an essential part of examining the long term
costs associated with that scheme. In order to value liabilities, it is necessary to make
assumptions regarding the incidence, timing and amount of future benefits. These
assumptions fall into two broad categories:
Assumptions which are not directly related to the scheme membership (termed
General Assumptions); and
Assumptions which relate to the experience of the membership of the scheme
(termed Experience Assumptions).
GENERAL ASSUMPTIONS
Financial Assumptions
6.3
The factors of major significance in the valuation process are as follows:
general increases in salaries (ie increases in salary other than those arising from
promotions);
future increases in the level of pensions which are linked to increases in the
Consumer Price Index (CPI);
the future rate of investment return expected to be earned on the assets of a
superannuation fund after allowing for the impact of taxation and investment
management expenses on fund earnings; and
the rate of increase in Gross Domestic Product (GDP).
6.4
The relationships between the assumptions adopted for these factors have a greater
bearing on the long term cost estimates of a superannuation scheme than do their
absolute values.
6.5
Past experience in Australia suggests that the above factors have tended to move in
concert. In particular, the amount by which the rate of investment return exceeds the
rate of increase in CPI, termed ‘the real rate of return’, has been relatively stable. In
the longer term (say, 20 plus years) the real rate of investment return has generally
been in the range of 1% per annum to 5% per annum. During similar periods, the
excess of the rate of increase in the general level of salaries and wages over the rate of
increase in the CPI, that is, the real rate of increase in salaries has been in the range of
nil to 3% per annum. It is a generally accepted actuarial view that it is both reasonable
and appropriate to assume that future experience will proceed along similar lines.
16
6.6
At the previous investigation, a real rate of investment return of 3.5% per annum and a
real rate of salary increase of 1.5% per annum were adopted. In recent years, real
investment returns have been in excess of 5% per annum. However, in my view, over
the long term (which is the relevant horizon for a superannuation scheme) the rates
adopted for the investigation remain appropriate.
6.7
At the previous investigation, an assumed rate of increase in the CPI of 4% per annum
was adopted. Given the current outlook for inflation, I have adopted a slightly lower
rate of 3.5% per annum for this investigation. This change in the CPI assumption will
have no material impact on the results of the valuation as the relationships between the
assumed rate of increase of CPI, investment returns and general salary growth remain
unchanged.
6.8
The following table summaries the assumptions adopted for this review. The
assumptions used at the previous review are also shown:
Item
6.9
Assumption
Previous Review
CPI Increases
3.5% per annum
4.0% per annum
Investment Returns
3.5% per annum (real)
3.5% per annum (real)
General Salary Increases
1.5% per annum (real)
1.5% per annum (real)
GDP Increases
2.5% per annum (real)
2.5% per annum (real)
Based on a population growth assumption of 1% per annum (as adopted for the
previous investigation), these assumptions imply a real rate of increase of 2.5 % per
annum in the total Australian wage bill. This is the same as the assumed rate of
increase in GDP and it is implied that it is assumed that the distribution of GDP
between profits and wages will not alter in future.
Future size of the schemes
6.10
This valuation of the PSS and the CSS includes a projection of superannuation
liabilities in each of the next 45 years. In order to project liabilities, it is necessary to
make an assumption regarding the future growth in the membership of the relevant
schemes.
6.11
The previous valuation of the PSS and the CSS as at 30 June 1996 assumed that the
growth in combined membership of the PSS and the CSS would be in line with
population growth in the long term. That is, the combined membership would increase
at 1% per annum throughout the projection period.
6.12
As at 30 June 1996, the combined membership of the PSS and the CSS was 192,737.
Three years later the combined membership has reduced to less than 160,000. For the
purposes of this investigation I have assumed that the combined membership of the
PSS and the CSS will remain stable in the long term.
17
Taxation
6.13
Allowance has been made for 15% tax payable on superannuation productivity
contributions.
6.14
Benefits paid from unfunded schemes are taxed at a higher rate than benefits paid from
funded schemes. Therefore, no adjustment has been made for tax in determining the
employer cost of the unfunded portion of the benefits paid from the PSS and the CSS.
Superannuation Guarantee
6.15
Allowance has been made for the Superannuation Guarantee rate to increase to 8% of
salaries from 2000/2001 and then 9% of salaries from 2002/2003.
EXPERIENCE ASSUMPTIONS
6.16
Based on a detailed analysis of the membership experience for the three years from 1
July 1996 to 30 June 1999, the following decisions regarding the assumptions to be
used in this investigation have been made.
Promotional Increases in Salaries
6.17
The actual salary experience of members of the PSS and the CSS over the three years
from 1 July 1996 to 30 June 1999 has been broadly in line with the rates of
promotional salary increase assumed for the review at 30 June 1996. Therefore, the
same rates have been adopted for the review as at 30 June 1999.
Invalidity
6.18
The analysis of data for the three years to 30 June 1999 suggests that the overall rate of
invalidity experience of members has been broadly in line with the rates adopted at the
previous review. Therefore, the 1996 rates have been retained for the review as at 30
June 1999.
Mortality of Contributors
6.19
The analysis of data for the three years to 30 June 1999 suggests that the overall rate of
mortality experience of contributors has been lower than expected based on the rates
adopted at the previous review. Details of the rates adopted for this review are set out
in Appendix B.
18
Retirement Assumptions
6.20
The analysis of data for the three years to 30 June 1999 suggests that members are in
fact retiring at later ages than those implied by the rates adopted at the last review. A
set of retirement assumptions that incorporates this trend is set out in Appendix B. The
change in assumed retirement rates will result in a small reduction in the PSS and CSS
Notional Commonwealth Employer Contribution Rates.
Resignation
6.21
The last investigation utilised assumed rates of resignation which were dependent on
age and duration of service. However, it has not been possible to test the
appropriateness of these rates as there have been a number of redundancies during the
three years to 30 June 1999.
6.22
A number of members who otherwise would have resigned have left the schemes by
taking “voluntary” redundancy. Hence the number of resignations in this period has
been less than would otherwise have been expected.
6.23
The actual resignations during this period are unlikely to provide a reliable indicator of
further voluntary withdrawal experience. Therefore, the assumptions adopted for the
previous report have been retained for this investigation.
Mortality of Pensioners
6.24
The analysis of data for the three years to 30 June 1999 suggests that the overall rate of
mortality experience of age retirement pensioners has been broadly in line with the
rates adopted at the last review. Therefore, I have retained the rates adopted for the
review as at 30 June 1996.
6.25
For the purposes of the previous investigation different mortality rates were adopted
for invalidity pensioners who commenced receiving their pensions before and after 1
July 1990. The rates in respect of those pensioners who retired after 1 July 1990 were
significantly higher than those for invalidity pensioners who retired prior to 1 July
1990.
6.26
The actual experience of the pre July 1990 pensioners has been broadly in line with
that assumed at the last valuation. Therefore, I have retained the rates adopted for the
previous investigation for this investigation for these pensioners.
6.27
The change in the criteria for invalidity retirement effective 1 July 1990 was expected
to result in increased mortality rates for those members who subsequently retired on
the grounds of invalidity. The expected increase in mortality rates would be most
significant during the initial 5 years of invalidity retirement.
19
6.28
However, the data relating to pensioners who retired after 1 July 1990 is limited. For
those who retired on the grounds of invalidity after 1 July 1990, the observed mortality
rates are lower than those assumed for the previous valuation. Modification of these
invalidity retiree mortality rates would not generate a material change in the total
liabilities of either the PSS or the CSS. Therefore, I have retained the mortality rates
adopted for the last investigation.
Future Mortality Improvements
6.29
For the purposes of this review, allowance for future improvements in the mortality
rates of age pensioners has been made in accordance with the rates derived by the
Australian Government Actuary as published in the Australian Life Tables 1990-92.
As with previous reviews, no allowance has been made for the improvement in
mortality of invalidity pensioners.
Retention of Benefits
PSS
6.30
Members are generally required to retain their employer financed benefits within the
scheme. The member financed benefits may be taken as a lump sum on termination of
service or retained within the scheme. Analysis of resignations during the three years
to 30 June 1999 suggests that over 65% of members are taking their member financed
benefits as an immediate lump sum. However, the percentage of members taking their
member financed benefit as a lump sum also appears to reduce as the level of their
benefit increases.
6.31
Therefore, taking these factors into consideration, I have assumed that 35% of both
male and female members who resign will retain their member accumulation within
the PSS. The corresponding assumptions made in the previous report were 30% and
25% of males and females respectively.
6.32
An increase in the proportion of members assumed to be retaining their benefits within
the scheme will lead to an increase in the Notional Commonwealth Employer
Contribution Rate and the level of Unfunded Liability.
CSS
6.33
CSS members who elect not to retain their member contributions within the CSS on
termination of service ‘lose’ a significant part of their employer financed benefit.
Therefore, the assumptions relating to the number of the members retaining their
benefits within the CSS have a significant impact on the results of the valuation.
6.34
The actual experience over the three years to 30 June 1999 suggests that 75% of all
voluntary terminations are retaining their benefits within the CSS. This percentage is
expected to increase as a result of the preservation requirement that all member
financed benefits accruing after 30 June 1999 must be retained within a superannuation
environment.
20
6.35
Based on this information, I have assumed that 75% of the total benefit of terminating
males and females will be retained within the CSS. The assumptions made in
preparing the previous report were that 65% and 50% of benefits of males and females
respectively would be retained within the CSS.
6.36
Increasing the percentage of members who retain their benefits within the scheme will
lead to an increase in the Notional Commonwealth Employer Contribution Rate and
the level of Unfunded Liability.
Pension Option in the PSS
6.37
Members retiring from the PSS have the option of converting part or all of their lump
sum to a pension.
6.38
The terms of conversion to a pension are quite generous. Therefore, the assumption
regarding the level of conversion of lump sums to pensions has a significant effect on
estimated long term costs.
6.39
The actual experience over the three years to 30 June 1999 suggests 65% of all
members eligible for a pension (excluding members who have preserved their benefits
in the PSS) take their benefit as a lump sum. This percentage reduces as the size of the
benefit increases.
6.40
Therefore, I have assumed that on average, 40% of all eligible lump sum benefits other
than for members who preserved their member financed benefit in the PSS, will be
converted to pensions (compared to 30% assumed in the previous report). The change
in assumption will lead to an increase in the Notional Commonwealth Employer
Contribution Rate and the level of Unfunded Liability.
6.41
In the case of members who previously terminated service and preserved their member
financed benefits within the PSS, 80% accepted their eventual retirement benefit as a
lump sum. However, the data relating to these exits is extremely limited.
6.42
Therefore, I have retained the assumption that 50% of the lump sums of members who
did preserve their member financed benefit in the PSS will be converted to pensions.
Member Contributions to the PSS
6.43
Members of the PSS are able to contribute at any integral rate from 2% to 10% of
superannuation salary and the rate of benefit accrual is dependent on this contribution
rate. As at 30 June 1999, the average contribution rate to the PSS was 5.2%.
6.44
Therefore, I have retained the assumption that, on average, members will contribute at
the 5% rate throughout their future membership.
21
New Entrants
6.45
The data for the three year period to 30 June 1999 shows that new entrants are
generally joining the PSS at slightly older ages than assumed at the last valuation.
Appendix B of this report sets out an age distribution for new entrants which reflects
this trend.
6.46
The salary distribution of the new entrants is based on the experience of the new
entrants in the year ending 30 June 1999. Details are given in Appendix B.
6.47
An analysis of new entrants to the PSS in the last three years suggests that the
percentage of male new entrants is slightly below 50%. I have retained the assumption
that there will be an equal number of male and female new entrants for this valuation.
Retrenchments
6.48
No allowance has been made for the effect of retrenchments since, because of their
nature, retrenchments are intermittent and unpredictable and the numbers vary
considerably from year to year.
Spouse Assumptions
6.49
The assumptions relating to the percentage of members married at the date of their
death are set out in Appendix B.
6.50
It has also assumed that male members would, on average, be 4 years older than their
spouses and that female members would be 2 years younger that their spouses. This
assumption reflects the experience of the schemes and has been retained from the
previous review.
22
CHAPTER 7:
PROJECTION OF ACTUAL COMMONWEALTH
EMPLOYER COSTS
7.1
The actual outlay in respect of superannuation for the Commonwealth in any year is
broadly equal to the total benefit paid to exiting members in that year less the
accumulated balance of member contributions and productivity superannuation
contributions of those members plus actual productivity superannuation contributions
made in that year.
7.2
I have projected the outlay for the next 45 years based on the assumptions set out in
Chapter 6. The table below summarises the projected outlay separately for the CSS
and the PSS and for the two schemes combined.
PROJECTION OF ESTIMATED COSTS
YEAR
beginning
30 June
CSS
($’Billion)
PSS
($’Billion)
TOTAL
($’Billion)
AS % OF
GDP
1999
2000
2001
2002
2003
2004
2009
2014
2019
2024
2029
2034
2.378
2.214
2.270
2.335
2.406
2.492
3.065
3.785
4.471
4.667
4.901
4.767
0.209
0.232
0.260
0.289
0.321
0.362
0.655
1.162
1.974
3.178
4.829
6.943
2.586
2.446
2.530
2.624
2.728
2.854
3.720
4.947
6.445
7.845
9.730
11.709
0.44
0.39
0.38
0.37
0.37
0.36
0.35
0.35
0.34
0.31
0.29
0.26
2039
2044
4.268
3.467
9.555
12.968
13.823
16.435
0.23
0.20
Notes: 1 The figures in the above table have NOT been adjusted to 1999 dollars.
2 Productivity superannuation contributions by approved agencies to schemes outside the CSS
are not included.
23
7.3
The graph below shows projected outlays expressed as a percentage of GDP over the
next 45 years and for comparison purposes, the equivalent figures from the previous
report.
7.4
The projected employer costs as a percentage of GDP decrease over the next 45 years.
Projection of Actual Annual Employer Costs as a % of GDP
0.50%
0.45%
0.40%
0.35%
% 0.30%
G 0.25%
D
P 0.20%
0.15%
0.10%
0.05%
0.00%
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
Year Begining 30 June
Projection as at June 1996
Projection as at June 1999
7.5
The above graph shows that the current projected costs are a lower percentage of
projected GDP than the corresponding figures at the last review, particularly in the
longer term.
7.6
The main reasons for the decrease are as follows:
The 1996 projections are based on the assumption that the total membership of the
PSS and the CSS will increase at 1% per annum. The 1999 projections are
based on the assumption that total membership will remain constant in future
years.
In addition, the significant number of retrenchments in the three years to 30 June
1999 was not anticipated in the 1996 review.
24
CHAPTER 8:
UNFUNDED LIABILITY
8.1
Unfunded Liability represents superannuation benefits accrued by members as at 30
June 1999 for which the Commonwealth holds no assets. The present value of these
liabilities is set out in this Chapter of the report.
8.2
The present value of the Unfunded Liability has been calculated as the present value of
expected benefit payments from the CRF less the expected accumulation of member
and productivity superannuation contributions.
8.3
The table below summarises the Unfunded Liability as at 30 June 1999 split between
the liabilities in respect of contributors, pensioners, preserved members (former
members who have preserved their benefits) and transferred members (members of the
superannuation funds of Telstra, Australia Post and AirServices Australia who
previously transferred from the CSS). The results calculated in 1993 and 1996 are also
shown for comparison purposes.
ESTIMATE of UNFUNDED LIABILITY
$ billion as at 30 June
Liability for
1993
1996
1999
- Contributors
14.7
15.2
14.4
- Pensioners
21.5
22.4
24.4
- Preserved Members
1.1
1.8
4.1
- Transferred Members
3.0
2.6
3.1
TOTAL Unfunded Liability
40.3
42.0
46.0
TOTAL Unfunded Liability
(as a percentage of GDP)
10%
9%
8%
Notes: The figures have NOT been adjusted to 1999 dollars.
8.4
The Unfunded Liability in respect of contributors has reduced since 1996. However,
the liability in respect of pensioners and preserved members has increased over the
three years to 30 June 1999. This is mainly due to the significant number of
retrenchments from the schemes during this period.
8.5
The Unfunded Liability in respect of transferred members has increased since 1996.
This is mainly due to the interest credited to the outstanding liability exceeding that
anticipated at the last investigation.
25
8.6
The table above shows that the Unfunded Liability as a percentage of GDP has
reduced over the six years to 30 June 1999. The reduction in the liability as a
percentage of GDP over the last three years of this period is mainly due to the
significant number of retrenchments that occurred since 1996.
8.7
The graph below shows the projected Unfunded Liability as a percentage of future
GDP.
Projection of Unfunded Liability relative to GDP
(using 1999 as base year)
120.00
100.00
Index
80.00
60.00
40.00
20.00
0.00
1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044
As at 30 June
8.8
The above graph shows that there is a steady decrease in the Unfunded Liability as a
percentage of projected GDP over time. The main reason for this trend is as follows:
The CSS is closed to new members. Therefore over time the CSS membership will
reduce and eventually the PSS will become the dominant scheme. The
Unfunded Liability in the CSS as a percentage of salaries is higher than in the
PSS, as can be deduced from the higher Notional Commonwealth Employer
Contribution Rate set out in Chapter 9. Hence, over time the Unfunded Liability
as a percentage of GDP is likely to further reduce.
26
CHAPTER 9:
NOTIONAL COMMONWEALTH EMPLOYER CONTRIBUTION
RATES
9.1
The Notional Commonwealth Employer Contribution Rate is the employer
contribution rate necessary to ensure that employer financed benefits would remain
fully funded in three years time, if they were fully funded now.
9.2
The table below sets out my estimate of the Notional Commonwealth Employer
Contribution Rate as at 30 June 1999. The corresponding rates calculated at previous
reviews have also been shown for comparison purposes.
NOTIONAL COMMONWEALTH EMPLOYER CONTRIBUTION RATE
Contribution as multiple of
Superannuation Salary
Report as at
CSS
PSS
Combined
30 June 1993
23.1%
14.0%
19.1%
30 June 1996
21.9%
13.1%
16.9%
30 June 1999
21.9%
14.2%
17.2%
Notes: 1 All rates shown in the above Table include contributions towards the 3% productivity
superannuation benefit. The actual CSS 1999 rate for those agencies with separate productivity
superannuation arrangements was 18.9% of superannuation salaries.
2 The combined rates are weighted average rates based on salaries of the members of the two
schemes
9.3
The combined rate represents the cost to the Commonwealth of the superannuation
benefits which are accruing for Commonwealth employees at the present time.
9.4
The contribution rate for the CSS at 30 June 1999 is unchanged from that calculated at
the last review.
9.5
The contribution rate for the PSS has increased by 1.1% of Superannuation Salary.
The reasons for this increase are as follows:
The PSS rate at 30 June 1999 has been calculated based on the method adopted for
the agency assessments carried out in 1999. The 1996 rate was calculated based
on a different method.
The assumptions adopted for the 1999 review are different to those adopted for the
1996 review. In particular, I have increased the percentage of members
assumed to retain their benefits within the schemes after ceasing employment.
Further, I have increased the percentage of members assumed to take their PSS
benefit as a pension.
27
CHAPTER 10:
CLAWBACK
10.1
The liabilities of the PSS and the CSS form part of the Commonwealth’s overall
liabilities. If the Commonwealth did not provide these benefits, then it would incur
increased Age Pension outlays and reduced taxation receipts. This theoretical impact
on the Unfunded Liability is referred to as clawback.
10.2
The estimation of clawback presents special problems. As well as basic assumptions
that current taxation and social security legislation will remain in a generally
unchanged format, assumptions must be made about:
future benefit levels; and
the private savings and spending behaviour of public servants.
10.3
Specific assumptions used in clawback analysis are summarised in Appendix B.
10.4
Based on these assumptions, clawback has been estimated to be $17 billion. This
estimate is quite sensitive to the assumptions, and extremely subjective in nature.
Therefore, this estimate of clawback should be used with caution.
Andrew J Goddard
Fellow of the Institute of Actuaries of Australia
Fellow of the Institute of Actuaries
Principal, Towers Perrin
19 June 2000
28
APPENDIX A:
SUMMARY OF BENEFIT PROVISIONS
THE SUPERANNUATION ACT 1990 (PSS)
Membership
In general terms, all employees permanently appointed to the Australian Public Service or other
participating employers on or after 1 July 1990 must contribute to the PSS.
Superannuation Salary
Superannuation salary is basic salary plus any recognised allowances. Superannuation salary is
the salary on enrolment subject to adjustment on each birthday.
Final Average Salary
Final Average Salary is the average superannuation salary on the three birthdays before leaving
the PSS.
Member Contributions
Members can choose to contribute at any rate between 2% and 10% of superannuation salary.
Contributions are paid fortnightly. The rate of contribution can be varied at any time.
Benefits
The benefits from the PSS consist of three parts:
employer-financed component is determined as the Total Benefit net of the
productivity and member component. This component is an untaxed benefit.
productivity component is made up of accumulated productivity contributions. This
is a “taxed benefit”.
member-financed component made up of accumulated member contributions. The
investment earnings are a “taxed benefit”.
29
Total Benefit
A member’s Total Benefit is calculated by multiplying the member’s Benefit Multiple by his or
her FAS. A member’s Benefit Multiple increases with each contribution made. The Benefit
Multiple consists of the Member’s share and an Employer’s share.
Total Benefit Multiple
= Member’s share of Benefit Multiple + Employer’s share of Benefit Multiple
Member’s share of Benefit Multiple = Member Contribution Rate (per year of service)
Employer’s share of Benefit Multiple = Member Contribution Rate + 0.11 (per year of service)
10 year Rule - Restriction on Employer’s Share of Benefit Multiple
Employer’s share of Benefit Multiple cannot be greater than that which would have accrued if
member contributions had been made at 5% for 10 years (or total membership if less) and 10%
for any membership in excess of 10 years.
On death or disablement the 5% maximum average applies to prospective service until the 10year period is notionally completed.
Maximum Benefit
The maximum benefit allowable under the PSS is known as the Maximum Benefit Limit
(MBL). The MBL is broadly 8 times the members Final Average Salary. On reaching the
MBL, a member will cease contributing to the scheme.
Retirement Benefits
Retirement benefits are payable upon retirement after minimum retiring age (usually age 55).
The options on retirement are as follows:
Lump sum benefit – The three benefit components can be taken as a lump sum.
Lump sum plus pension benefit – The benefits can be taken as a pension (subject to a
minimum of 50% of the total benefit) and a lump sum.
Preserve total benefit - The total benefit can be preserved in the PSS and later taken
as a lump sum, indexed pension or a combination of both.
While a benefit is being preserved in the PSS, member and productivity components are
increased at the Fund allocation rate and the employer-financed component is adjusted annually
in accordance with changes in the CPI.
30
Invalidity Retirement
The following benefit choices are available on retirement on medical grounds:
Invalidity pension with no lump sum – This option provides for the payment of the
three benefit components as an indexed pension. Under this option, the total
benefit is calculated based on potential service to age 60 (assuming that the
member will continue to contribute at current rate or 5% if more, but subject to
a maximum average contribution of 5% for the first 10 years of service, actual
or potential). The total benefit is converted to an indexed pension using the
same factors used to convert the age retirement pension but assuming that the
member is aged 60 at the time of invalidity retirement.
Invalidity pension with a lump sum – Under this option, the member component can
be taken as a lump sum. The remainder must be taken as an indexed pension.
The total benefit is calculated based on service to age 60 and the amount in
excess of the member component is converted to an indexed pension.
Death of a Contributor
Full pension with no lump sum
A pension payable at the rate of 67% of the invalidity pension that would have
been payable to the deceased plus 11% of the invalidity pension for each
eligible child (until age 16 or if a full-time student, until age 25) with total
pension limited to 100% of the invalidity pension.
Part pension and part lump sum
The spouse can convert up to half of the pension to a lump sum. The lump sum
value of any children’s pensions for children living with the spouse is deducted
from the lump sum. The benefits for the children are paid as a pension.
Maximum lump sum and no pension
This allows the spouse to take the benefit wholly as a lump sum except for the
lump sum value of any pension payable to children who are not living with the
spouse.
Death of a Pensioner
Pension payable based on the percentages that apply in respect of the death of a contributor, but
using the pension payable to the deceased at the time of death. Therefore, if the retirement
benefit was taken wholly as a lump sum then no further benefit is payable to spouse or children.
31
Resignation
Benefit options are as follows:
Preserve all benefits in the PSS.
Immediate refund of member financed benefit and preserve all employer financed
benefits in the PSS.
Transfer all benefits to another eligible superannuation scheme.
32
THE SUPERANNUATION ACT 1976 (CSS)
Membership
The CSS has been closed to new entrants since 1 July 1990.
Salary
The salary used for contribution purposes is, in most cases, the annual rate of salary on a
member’s last birthday.
Final Salary
The salary used for calculating benefits is, in most cases, the annual rate of salary on a
member’s date of exit.
Member Contributions
Basic contributions are 5% of salary. Supplementary contributions of up to a further 5% may be
made. Contributions are accumulated with interest based on the earning rates of the CSS Fund.
Retirement Benefits
Retirement benefits are payable upon retirement at maximum retirement age (usually age 65) or
early retirement at ages 55 or above.
The amount of retirement benefit is the sum of:
employer-financed indexed pension being a percentage of final salary based on the
period of contributory service and discounted for early retirement before age 65;
productivity component made up of accumulated productivity contributions or an
equivalent non-indexed pension; and
member-financed benefit made up of accumulated basic and supplementary
contributions or an equivalent non-indexed pension.
33
Employer-financed indexed pension
The employer-financed pension is calculated as a percentage of final salary based on the period
of contributory service and discounted for early retirement before age 65.
The discount factors for retirement prior to age 65 are age-dependent. They reduce at the rate
of 0.02 per year from 1 at age 65 to 0.90 at age 60 and then at the rate of 0.03 per year to 0.75 at
age 55.
The accrual rates are based on years of contributory service and on whether the member joined
the:
CSS before 1 July 1976,
Former Provident Account before 1 July 1976, or
CSS after 30 June 1976.
Generally, the accrual rates are 2% per annum for the first 20 years of membership, 1% per
annum for the next 10 years, and 0.25% per annum for each of the next 10 years. The
maximum percentage is 52.5% of salary.
Invalidity Retirement
The following benefits are payable on invalidity retirement:
an employer-financed indexed pension being a percentage of final salary based on
the period of prospective service to maximum retirement age (usually 65)
a lump sum of accumulated basic contributions or, at the member's election, an
additional non-indexed pension being a percentage of final salary based on the
period of prospective service to maximum retirement age (usually age 65).
A lump sum of accumulated supplementary and productivity contributions.
Death of a Contributor
A pension payable at the rate of 67% of the invalidity pension that would have been payable to
the deceased, plus 11% of the invalidity pension for each eligible child (until age 16 or if a fulltime student, until age 25) with total pension limited to 100% of the invalidity pension.
The accumulated productivity contributions and any supplementary contributions are also
payable.
34
Death of a Pensioner
A pension payable based on the percentages that apply in respect of the death of a contributor,
but using the pension payable to the deceased at the time of death.
Resignation
A lump sum benefit of accumulated member and productivity contributions is payable on
resignation. A minimum employer financed benefit of the SG contributions, accumulated with
investment earnings is payable.
Alternatively, the member may elect to receive a deferred benefit. Under this option, on
reaching preservation age, the member will receive the following:
an indexed pension based on 2.5 times the basic contributions accumulated to the
date of payment converted to a pension;
productivity contributions accumulated to the date of payment or an equivalent nonindexed pension; and
member contributions (basic and supplementary) accumulated to the date of payment
or an equivalent non-indexed pension.
Alternatively, the member can choose to take a transfer value of 3.5 times the accumulated
basic contributions plus supplementary and productivity contributions, to another eligible
superannuation arrangement.
Indexation
Pensions are indexed in line with changes in the Consumer Price Index. Pensions purchased
with accumulated member contributions and productivity contributions are fixed in dollar terms
and not subject to indexation.
35
APPENDIX B:
DETAILED ASSUMPTIONS
Death and Invalidity Assumptions
DEATH and INVALIDITY ASSUMPTIONS
(per 1000 active members at age shown)
Age
PSS & CSS
Deaths
PSS
Invalidities
CSS
Invalidities
Males
Females
Males
Females
Males
Females
20
0.42
0.14
0.07
0.03
0.07
0.03
25
0.44
0.14
0.20
0.14
0.20
0.14
30
0.49
0.17
0.39
0.35
0.39
0.35
35
0.54
0.24
0.62
0.66
0.62
0.66
40
0.63
0.34
0.90
1.07
0.90
1.07
45
0.88
0.52
1.51
1.74
1.51
1.74
50
1.38
0.85
2.75
2.93
2.75
2.93
55
2.31
1.38
4.18
4.27
4.73
4.68
60
4.02
2.20
n/a
n/a
7.92
7.26
64
6.22
3.23
n/a
n/a
8.91
9.46
36
Age Retirement Assumptions
AGE RETIREMENT ASSUMPTIONS PSS and CSS
(per 1000 active members at age shown)
Age
Males
Females
55
110
110
56
57
70
70
80
80
58
70
80
59
70
80
60
110
150
61
110
150
62
110
150
63
110
150
64
110
150
65
1000
1000
37
Contributor exits by Resignation
The resignation assumptions have been based on the assumptions in the previous report.
RESIGNATION ASSUMPTIONS – PSS
Age Attained
Males (per 1000)
Females (per 1000)
Duration 0
Duration 10
Duration 0
Duration 10
20
117.6
0
144.6
0
25
114.6
66.8
152.1
73.7
30
97.5
52.1
120.4
103.8
35
85.6
40.3
97.7
74.3
40
76.4
32.6
85.1
61.4
45
67.2
27.7
73.4
53.2
50
60.5
24.8
63.4
48.0
Factor*
0.86
0.89
0.92
0.95
RESIGNATION ASSUMPTIONS – CSS
Age Attained
Males (per 1000)
Females (per 1000)
Duration 0
Duration 10
Duration 0
Duration 10
20
86.2
0
118.3
0
25
84.0
45.5
124.4
61.4
30
71.5
35.5
98.5
86.5
35
62.8
27.5
79.9
61.9
40
56.0
22.3
69.6
51.2
45
49.3
18.9
60.0
44.3
50
44.4
16.9
51.9
40.0
Factor*
0.88
0.91
0.90
0.95
* These factors are used to determine rates for durations other than 0 and 10. The rate for duration “y” where “y” is
in the range 0-9 is derived by multiplying the duration 0 rate by the duration 0 factor raised to the power of “y”.
For durations greater than 10 the rate for duration 10 is multiplied by the duration 10 factor raised to the power of
“y-10”.
38
Preservation on exit
In the PSS, employer financed benefits of members generally are required to be preserved
within the scheme. It has been assumed that 35% of male and female members who resign will
also retain their member accumulations within the PSS and of these, 50% of the lump sums will
be converted to pensions.
In the case of the CSS, it has been assumed that 75% of all benefits are retained within the
scheme.
Promotional salary scales
The following tables show examples of the assumed salary progression scale (excluding general
salary increases due to inflation). Promotional salary increases are assumed to depend on both
age and duration for the first 8 years of service and on age only thereafter.
SALARY PROGRESSION (females)
Duration
Entry
Age
Attained
Age
0
2
4
6
8
17
349
470
633
671
712
25
22
582
652
730
763
798
30
27
690
756
829
854
881
35
32
756
810
869
891
913
40
37
768
820
875
894
913
45
42
779
827
877
895
913
50
47
824
850
877
895
913
55
52
843
860
877
895
913
60
57
843
860
877
895
913
65
39
SALARY PROGRESSION (Males)
Duration
Entry
Age
0
2
4
6
8
Attained
Age
17
302
392
510
558
610
25
22
495
564
642
690
742
30
27
609
665
726
766
809
35
32
701
743
789
819
850
40
37
782
825
872
895
920
45
42
830
866
904
918
933
50
47
893
906
918
926
933
55
52
904
911
918
926
933
60
57
904
911
918
926
933
65
Rate of take up of pension
It has been assumed for the PSS that 40% of lump sum entitlements of age retirees and spouses
of deceased contributors and 50% of the lump sum entitlements of members, who resign and
preserve their entire benefit, will be converted to pensions. Invalid retirees must take a pension
and members who do not preserve their member accumulations on resignation cannot take a
pension.
In the CSS, the employer component of the benefit must be taken as a pension.
40
Pensioner Mortality
The table below shows the mortality rates assumed for pensioners in the 1999/2000 year.
PENSIONER MORTALITY (per 1000 pensioners at age shown)
MALES
FEMALE
Age
Age
Retired
Invalid
Retired
(pre
1990)
Invalid
Retired
(post
1990)
Widow
(female)
Age
Retired
Invalid
Retired
(post
1990)
Invalid
Retired
(post
1990)
Widower
(male)
20
0.54
6.60
55.00
0.35
0.24
5.41
55.00
1.13
30
0.63
6.60
55.00
0.43
0.28
5.41
55.00
1.30
40
0.81
6.60
55.00
0.84
0.57
5.41
55.00
1.69
50
1.78
9.52
55.00
2.12
1.45
5.41
55.00
3.68
55
3.00
12.91
55.00
3.46
2.37
7.70
55.00
6.18
60
5.57
17.51
55.00
5.51
3.79
10.95
55.00
10.79
65
10.99
24.11
55.00
9.04
6.51
15.16
55.00
18.58
70
20.27
34.68
55.00
14.90
11.80
21.79
55.00
30.58
75
35.14
50.94
55.00
24.61
21.82
33.34
55.00
48.50
80
63.89
81.15
82.11
43.80
42.13
55.45
55.45
80.40
90
166.93
186.69
192.03
134.34
134.34
153.79
153.79
189.16
100
324.75
344.76
353.55
336.21
336.21
360.32
360.32
350.38
41
Improvements in Pensioner Mortality
The following table summarises the assumed rates of improvement in future mortality of age
pensioners.
ASSUMED RATES OF MORTALITY REDUCTION
(% per annum)
Age
Male
Female
60
0.9
0.5
70
0.7
0.7
80
0.4
0.9
90
0.2
0.4
100
3.0
0.6
42
New Entrants
The following table summarises, for each 1000 new entrants, the number assumed to enter at
the specified age and the assumed average salary of members entering at that age.
NEW ENTRANT DISTRIBUTION
Males
Note:
Females
Age
Number
(per 1000)
Average
Salary
Number
(per 1000)
Average
Salary
16
2
17,039
2
14,678
20
18
26,483
21
24,866
25
42
34,261
47
34,052
30
35
39,089
34
36,905
35
30
42,344
29
37,707
40
25
43,641
26
37,707
45
19
44,645
21
37,707
50
14
45,247
12
37,707
55
9
45,247
6
37,707
60
4
45,247
1
37,707
64
1
45,247
0
n/a
Numbers shown are the proportion out of every 1000 new entrants that are assumed to enter at the
age shown. If all ages were shown the column would add to 1000.
Spouse Assumptions
The proportion of males who are married at death would gradually increase with age to 75% at
age 42, remain constant to age 72 and then reduce.
The corresponding figures for females are 55% by age 27, remaining constant to age 62 and
then reducing.
43
Clawback
The main additional assumptions used in the clawback calculations are summarised below:
Taxation, social security and Medicare legislation will remain unchanged apart from
inflationary increases in benefit levels and thresholds;
Allowance has been made for the effect of the Superannuation Surcharge;
The long term rate of increase in taxation and Medicare levy thresholds will be 5%
per annum;
The long term average rate of taxable interest earned on privately invested lump
sums will be 6% per annum;
Married couples will split their income so far as is possible and tax effective;
Retiring members will dissipate lump sum benefits as follows:
30% of benefit immediately on exit; and
thereafter, 10% each year of the balance of benefit remaining.
The annual cost of pensioner fringe benefits at 30 June 1999 was assumed to be
$1,200 for married pensioners and $720 for single pensioners increasing in
future years at 5% per annum;
PSS lump sum benefits will be distributed as follows for the purpose of lump sum
tax:
60% from an untaxed source
20% from a taxed source
20% member contributions not subject to tax.
CSS members will have other retirement income of 5% of Average Weekly
Earnings;
PSS members will have no other externally funded income in retirement apart from
that derived from invested PSS lump sum benefits; and
In determining the effects of clawback it is necessary to consider the scenario where
the Commonwealth does not meet its commitments and the scheme benefits are
not provided. Under this scenario, it is assumed that both PSS and CSS
members will have other income of 5% of Average Weekly Earnings when they
reach retirement.
44
NOTES
45
Public Sector Superannuation Scheme and Commonwealth Superannuation Scheme
ISBN 0642 44430 7