Note 25: Retirement Plan Liabilities
| Forecast | Actual | ||||
|---|---|---|---|---|---|
| Original Budget $m |
Estimated Actuals $m |
30 June 2008 $m |
30 June 2007 $m |
||
| 8,402 | 8,141 | Government Superannuation Fund (GSF) | 8,257 | 7,160 | |
| 12 | 5 | Other funds | - | 1 | |
| 8,414 | 8,146 | Total retirement plan liabilities | 8,257 | 7,161 | |
The Government operates a defined benefit superannuation plan for qualifying employees who are members of the Government Superannuation Fund scheme (GSF). The members' entitlements are defined in the Government Superannuation Fund Act 1956. Members make regular payments to GSF and in return, on retirement, receive a defined level of income. GSF is closed to employees who were not members at 1 July 1992.
The GSF obligation has been calculated by the Government Actuary as at 30 June 2008. A Projected Unit Credit Method, based on balance-date membership data, is used for the valuation. This method requires the benefits payable from the GSF in respect of past service to be estimated and then discounted back to the valuation date.
Amounts recognised in the statement of financial position in respect of GSF are as follows:
| Actual | ||
|---|---|---|
|
30 June 2008 $m |
30 June 2007 $m |
|
| Net GSF Obligation | ||
| Present value of defined benefit obligation | 11,831 | 11,167 |
| Fair value of plan assets | (3,574) | (4,007) |
| Present value of unfunded defined benefit obligation | 8,257 | 7,160 |
| Present value of defined benefit obligation | ||
| Opening defined benefit obligation | 11,167 | 12,098 |
| Expected current service cost | 141 | 163 |
| Expected unwind of discount rate | 833 | 789 |
| Actuarial losses/(gains) | 617 | (997) |
| Benefits paid | (947) | (886) |
| Past service cost | 20 | - |
| Closing defined benefit obligation | 11,831 | 11,167 |
| Fair value of plan assets | ||
| Opening fair value of plan assets | 4,007 | 3,793 |
| Expected return on plan assets | 220 | 218 |
| Actuarial gains/(losses) | (481) | 136 |
| Funding of benefits paid by Government | 691 | 653 |
| Contributions from other entities | 15 | 15 |
| Contributions from members | 68 | 73 |
| Benefits paid | (947) | (886) |
| Other | 1 | 5 |
| Closing fair value of plan assets | 3,574 | 4,007 |
Amounts recognised in the statement of financial performance in respect of GSF are as follows:
| Forecast | Actual | ||||
|---|---|---|---|---|---|
| Original Budget $m |
Estimated Actuals $m |
30 June 2008 $m |
30 June 2007 $m |
||
| Personnel Expenses | |||||
| Expected current service cost | 141 | 163 | |||
| Expected unwind of discount rate on GSF obligation | 833 | 789 | |||
| Expected return on plan assets | (220) | (218) | |||
| Contribution from funding employers | (84) | (89) | |||
| Past service cost | 20 | - | |||
| 629 | 714 | Total included in personnel expenses | 690 | 645 | |
| Net (Gains)/Losses on Non-Financial Instruments | |||||
| - | 906 | Actuarial (gains)/losses recognised in the year | 1,098 | (1,133) | |
| 629 | 1,620 | Total GSF expense | 1,788 | (488) | |
The Government expects to make a contribution of $660 million to GSF in the year ended 30 June 2009.
In addition to its obligations to past and present employees, because GSF is liable to income tax under section HJ 1 of the Income Tax Act 2004, the Crown will be required to make additional contributions equivalent to the tax on future investment income.
The principal assumptions used for the purposes of the GSF actuarial valuations are as follows:
| Actual | ||
|---|---|---|
|
30 June
2008 % |
30 June
2007 % |
|
| Summary of assumptions | ||
| For following year | ||
| Discount rate | 6.95% | 7.46% |
| Expected return on plan assets | 5.50% | 5.75% |
| Expected rate of salary increases | 3.00% | 3.00% |
| Expected rate of inflation | 2.25% | 2.25% |
| Summary of assumptions | ||
| Beyond next year | ||
| Discount rate | 6.06% to 6.95% | 6.34% to 7.20% |
| Expected return on plan assets | 5.50% | 5.75% |
| Expected rate of salary increases | 3.00% | 3.00% |
| Expected rate of inflation | 2.25% | 2.25% |
The major categories of GSF plan assets at 30 June are as follows:
| Actual | ||
|---|---|---|
|
30 June 2008 $m |
30 June 2007 $m |
|
| Equity instruments | 1,838 | 2,143 |
| Debt instruments of the Government | 34 | 95 |
| Other debt instruments | 830 | 1,019 |
| Property | 229 | 291 |
| Other | 643 | 459 |
| Fair value of plan assets | 3,574 | 4,007 |
The expected rate of return on the plan assets of 5.50% (2007: 5.75%) has been calculated by taking the expected long term returns from each asset class, reduced by tax and investment expenses (using the current rates of tax and investment expenses). The main asset classes are equities and debt instruments.
The actual return on plan assets was -6.66%, or -$261 million (2007: 9.50% or $354 million).
Sensitivity Analysis
If the assumptions described above were to change, this would impact the measurement of GSF obligation as per the table below:
| Change | Impact on obligation | ||
|---|---|---|---|
| Actual | |||
|
30 June 2008 $m |
30 June 2007 $m |
||
| Sensitivity of assumptions | |||
| Discount rate | + 1% | (1,139) | (1,069) |
| - 1% | 1,371 | 1,360 | |
Historical Analysis
Actual gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred in the year) and the effects of changes in actuarial assumptions on valuation date. The two year history of the present value of the unfunded defined benefit obligation and experience adjustments is as follows:
| Actual | ||
|---|---|---|
|
30 June 2008 $m |
30 June 2007 $m |
|
| Present value of defined benefit obligation | 11,831 | 11,167 |
| Fair value of plan assets | (3,574) | (4,007) |
| Present value of unfunded defined benefit obligation | 8,257 | 7,160 |
| Experience adjustment - increase/(decrease) in plan liabilities | 164 | 129 |
| Experience adjustment - increase/(decrease) in plan assets | (479) | 136 |
