An operational risk reserve is required under Australian Prudential Regulation Authority Standards to maintain adequate financial resources to address potential losses arising from operational risks. The Trustee has assessed a reserve of approximately 0.25% of funds under management as being appropriate for the Plan.
Income Statement for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
Note
$000
Superannuation activities
Interest revenue – direct cash deposits
8,152
Distributions from cash management trusts
211,534
Interest from Australian securities held directly
282,045
Interest from overseas securities held directly
66,283
Dividend revenue – listed Australian shares held directly
286,794
Distributions from wholesale international share trusts
99,325
Net rentals from directly held property
28,068
Distributions from unlisted property trusts
82,407
Net remeasurement changes in assets measured at fair value
1,903,074
Total superannuation activities revenue
2,967,682
Investment expenses
(55,972)
Administration expenses
(41,662)
Other operating expenses
E
(1,642)
Total expenses
(99,276)
Net income from superannuation activities
2,868,406
Net loss from insurance activities
F
(36)
Profit from operating activities
2,868,370
Less: Net benefits allocated to members’ accounts
(2,635,776)
Profit before income tax
232,594
Income tax expense
(235,553)
Loss after income tax
(2,959)
Note D – Total revenue
$000
Superannuation activities revenue
2,967,682
Insurance contract revenue
77,810
3,045,492
Note E – Other operating expenses
$000
Trustee fees
(298)
Commissions paid directly
(323)
Audit fees
(309)
Advertising and sponsorship
(712)
Other operating expenses
(1,642)
Note F – Insurance activities
$000
Insurance contract revenue
77,810
Less: Outwards reinsurance premiums
(77,806)
Net premium revenue
4
Reinsurance recoveries revenues
23,219
Insurance contract claims expenses
(22,833)
Movement in insurance liabilities
(1,059)
Movement in reinsurance assets
633
Net loss from insurance activities
(36)
Statement of Changes in Member Benefits for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
Statement of Changes in Reserves for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
Unallocated surplus/ (deficiency)
Investment reserve
Operationalrisk
Total equity
$000
$000
$000
$000
Opening balance
–
3,330
57,341
60,671
Profit/(Loss) for period
(2,959)
–
–
(2,959)
Net transfers to/from reserves
2,959
(1,675)
(1,284)
–
Closing balance
–
1,655
56,057
57,712
Statement of Cash Flows for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
$000
Cash flows from operating activities
Interest from cash deposits and cash management trusts
189,667
Interest on Australian fixed interest securities held directly
310,760
Interest on overseas fixed interest securities held directly
27,819
Dividends from listed Australian shares held directly
267,104
Net rentals from property held directly
25,982
Unlisted property trust distributions
83,691
Insurance premiums (inwards)
77,810
Reinsurance recoveries
22,016
Other income
3,785
Administration expenses
(42,846)
Investment expenses
(55,094)
Reinsurance premiums (outward)
(77,270)
Other expenses
(693)
Income tax paid
(134,470)
Net cash inflows from operating activities
698,261
Cash flows from investing activities
Proceeds from sales of units in unlisted cash management trusts
680,654
Proceeds from sales of shares in Australian listed corporations
803,730
Proceeds from sales of units in wholesale international share trusts
845,218
Proceeds from sales of overseas fixed interest securities
444,826
Proceeds from sales of units in unlisted property trusts
259,428
Purchases of units in unlisted cash management trusts
(1,285,930)
Purchases of Australian fixed interest securities
(498,898)
Purchases of shares in Australian listed corporations
(944,767)
Purchases of units in wholesale international share trusts
(2,684,406)
Purchases of units in unlisted property trusts
(517,326)
Purchases of other assets
(201)
Net cash outflows from investing activities
(2,897,672)
Cash flows from financing activities
Employer contributions
2,554,872
Member contributions
235,548
Transfers from other superannuation plans received
704,162
Government co-contributions received
27,746
Benefits paid to members
(807,070)
Income tax paid on contributions received
(407,417)
Contributions surcharge tax paid
(674)
Net cash inflows from financing activities
2,307,167
Net increase in cash
107,756
Cash at the beginning of the financial period
132,754
Cash at the end of the financial period
240,510
Illustrative example II
As at 30 June 20XX, Hybrid Superannuation Plan (the Plan) has 51,109 defined contribution members and 23,918 defined benefit members. The defined contribution part of the Plan is open to new members. All four of the defined benefit plans in the Plan are closed to new members. The defined contribution members have accounts that are credited or debited each year with contributions and a proportionate share of net investment income and expenses (including income tax expense) of the Plan. The defined benefit members have promised benefits that are determined on the basis of various formulae based on members’ salaries in the final years before they retire.
Statement of Financial Position for Hybrid Superannuation Plan
as at 30 June 20XX
Note
$000
Assets
Cash
467,803
Receivables
210,980
Shares in Australian listed corporations held directly
2,788,084
Units in international shares trusts
621,631
Fixed interest securities held directly
3,214,391
Investment-linked insurance contracts
289,148
Unlisted property trusts
1,918,116
Derivatives
32,328
Deferred tax assets
38,333
Other assets
5,345
Total assets
9,586,159
Liabilities
Benefits payable
(148,058)
Other payables
(42,347)
Income tax payable
(202,812)
Deferred tax liabilities
(797)
Total liabilities excluding member benefits
(394,014)
Net assets available for member benefits
9,192,145
Defined contribution member liabilities
A
(2,258,229)
Defined benefit member liabilities
B
(6,954,622)
Total net liabilities
(20,706)
Equity
Operational Risk Reserve
C
(25,895)
Investment reserve
D
(2,980)
Defined benefits that are (over) or under funded
E
49,581
Total equity
20,706
Note A – Defined contribution member liabilities
Defined contribution members bear the investment risk relating to the underlying assets and unit prices used to measure defined contribution member liabilities. Unit prices are updated each day for movements in investment markets.
Hybrid Superannuation Plan manages market risks, including foreign exchange rate risk, interest rate risk, commodity price risk and equity price risk by obtaining exposure to major asset classes through investment managers with highly-diversified portfolios.
The credit risk on investments in bonds and similar interest-bearing instruments is managed by selecting relevant fund managers that have well-established frameworks and supporting policies for managing credit risk across their portfolios. Those policies include managing concentration of credit risks and managing the balance between secured and unsecured debt.
The Plan closely monitors the inflows of contributions and the withdrawals from its various superannuation plans with a view to maintaining an adequate balance of liquid assets at all times to facilitate paying benefits to any exiting members within the statutory timelines.
Note B – Defined benefit member liabilities
In aggregate for the Plan’s four defined benefit superannuation plans, there were no unexpected events that changed defined benefit member liabilities materially. In line with general market expectations, discount rates are slightly higher at the current reporting date compared with the previous reporting date across all four plans, which had the effect of reducing defined benefit member liabilities. The Plan has no information that would lead it to adjust the assumptions around salary adjustment rates, pension index rates, resignations and mortality, which are all unchanged from the previous reporting period.
The Plan engages qualified actuaries on an annual basis to measure the defined benefit member liabilities in each of its four defined benefit plans. The Plan uses sensitivity analysis to monitor the potential impact of changes to key variables about which assumptions need to be made. The Plan has identified two assumptions (discount rate and rate of salary adjustment) for which changes are reasonably possible that would have a material impact on the amount of the liabilities.
The assumed discount rate for the four plans has been determined by reference to the investment returns expected on the investment portfolio that reflects the opportunities reasonably available to the Plan in investment markets, which also reflects the Plan’s actual investments and investment strategy in respect of defined benefit member liabilities. The assumed discount rate is the same for each of the four defined benefit plans.
Defined member benefits in each of the Plan’s four plans are based on an average of each member’s salary at specified anniversary dates in each of the last three years of their expected membership of their plan. The assumed annual salary adjustments for each of the entity’s four plans has been determined by reference to the Wage Price Index produced by the Australian Bureau of Statistics and in consultation with the employer-sponsors. The rate is the same for each of the ABC, OPQ and RST defined benefit plans. XYZ members are in an industry that is expected to experience generally higher than average salary adjustments.
The other variables about which assumptions have been made in measuring defined benefit member liabilities and for which changes are not considered reasonably possible, or for which reasonably possible changes would not be expected to have a material effect, include pension index rates, mortality rates and resignations.
The following are sensitivity calculations on a univariate basis for the discount rate and rate of salary adjustment assumptions for the XYZ defined benefit plan and for the ABC, OPQ and RST defined benefit plans in aggregate.
Assumption for XYZ plan
Assumed at reporting date
Reasonably possible change
Amount of (increase) decrease in member benefit liability – $000
Discount rate
5.0%
+0.5%–0.5%
2,280(2,549)
Salary adjustment rate
4.0%
+1.0%–1.0%
(3,001)3,350
Assumption for ABC, OPQ and RST plans
Assumed at reporting date
Reasonably possible change
Amount of (increase) decrease in member benefit liability – $000
Discount rate
5.0%
+0.5%–0.5%
4,378(4,809)
Salary adjustment rate
3.0%
+1.0%–1.0%
(5,762)6,143
Note C – Operational risk reserve
The Trustee has assessed an operational risk reserve of approximately 0.25% of funds under management as appropriate for the Plan in respect of both defined contribution member interests and defined benefit member interests.
Operational risk reserve
$000
Defined contribution membership
5,657
Defined benefit membership
20,238
25,895
Note D – Investment reserve
The Investment reserve comprises the difference between the cumulative amount of investment income (net of investment expenses) allocated to members’ accounts compared with the cumulative investment income (net of investment expenses) earned.
Note E – Defined benefit plans that are (over) or under funded
Note
$000
ABC
F
2,316
OPQ
G
(2,589)
RST
H
42,897
XYZ
H
6,957
49,581
Note F – plan ABC
Based on the existing contribution rate of the employer-sponsor of plan ABC, member benefits are projected, based on current assumptions, to be fully funded within the next two financial years.
Note G – plan OPQ
The employer-sponsor of plan OPQ intends to reduce contributions to the minimum amount required to meet its superannuation guarantee obligations, which is projected, based on current assumptions, to eliminate the surplus to zero within three years.
Note H – plans RST and XYZ
The employer-sponsors of plans RST and XYZ intend to increase their contributions for a period of three financial years to a level that is projected, based on current assumptions, to result in member liabilities being fully funded by the end of those three years.