Defined Benefit Strategy Paper
July 2009
Z:\Board\Strategy and Business Plan\2009\Strategic Actuarial Review\DB Strategy Paper 2009-07.docx
Defined Benefit Strategy Paper
Contents
1
2
3
4
5
6
EXECUTIVE SUMMARY ...................................................................................... 1
1.1
Background .............................................................................................................................. 1
1.2
Results of the Actuarial Review as at 30 June 2008 ................................................................ 2
1.3
Options ..................................................................................................................................... 2
1.4
Questions to be answered ........................................................................................................ 3
CURRENT ARRANGEMENTS ............................................................................. 5
2.1
Long-term Contribution Rate .................................................................................................... 5
2.2
Long-tem contribution rate risk ................................................................................................. 7
RESULTS OF THE ACTUARIAL REVIEW AS AT 30 JUNE 2008 ...................... 8
3.1
Recommendations of the Actuary ............................................................................................ 8
3.2
Security of member benefits ..................................................................................................... 8
COMPARISONS WITH OTHER SUPERANNUATION FUNDS ......................... 10
4.1
Defined Benefit Funds ............................................................................................................ 10
4.2
Local Government Superannuation Funds ............................................................................ 10
OPTIONS............................................................................................................ 12
5.1
Option 1 – Salarylink remains open to new entrants.............................................................. 12
5.2
Option 2 – Defer Closure of Salarylink for new entrants to 2012 ........................................... 12
5.3
Option 3 – Close Salarylink to new entrants immediately ...................................................... 13
5.4
Option 4 – Minimum Council contributions and therefore reduce benefits ............................ 13
COSTS ............................................................................................................... 14
6.1
Funding Schedule of each Option .......................................................................................... 14
6.2
Additional Cost of each Option ............................................................................................... 15
Defined Benefit Strategy Paper
1
Executive Summary
The purpose of this report is to provide the results and recommendations arising from the three yearly
actuarial review of Local Super as at 30 June 2008. In addition, this report considers the strategic
direction of the defined benefit arrangements of the Scheme.
Whilst the actuarial review considers the financial position of the Scheme as at 30 June 2008, the
results also take into account the effects of the movements in investment markets for the period to 30
June 2009.
The key issues, and decisions, for the Local Government Association (LGA) are:
1. Should the defined benefit Scheme remain open or closed to new entrants?
2. On the basis that the defined benefit Scheme remains open, the LGA accepts that the Council
contribution rate must increase over time.
3. As a result of the global financial crisis, the Scheme is in an “unsatisfactory financial position”
and either the Council contribution rate must be increased or future benefits for members
reduced.
1.1
Background
The Local Government Superannuation Scheme (Local Super) was established in 1984 to provide
retirement, death and disablement benefits for employees in the Local Government sector in South
Australia.
Local Super offers employees the choice of either defined benefit (known as Salarylink) or
accumulation (known as Marketlink).
Local Super provides a comprehensive range of superannuation products and services to its members
and participating employers. The range of services is acknowledged as superior to the industry
average in terms of both the breadth and depth of the services.
Local Super has evolved since 1984 from a specific industry fund only for employees in Local
Government in South Australia and the Northern Territory, to one that is now proud to be the preferred
supplier of superannuation services for both Local Government as well as those with an existing or
historical association with Local Government.
The investment performance of Local Super has consistently been above the rate assumed by the
actuary and this has resulted in Council contributions being below the long term expected contribution
rates.
Local Super is in a unique position relative to other superannuation funds in Australia. There are only
a small number of superannuation funds that provide defined benefits for new employees. The vast
majority of superannuation funds in Australia have closed their defined benefit sections to new
entrants. Given the significant change in the Australian superannuation industry in more recent times,
the Trustee of Local Super engaged Russell Employee Benefits to provide a strategic review of the
defined benefit arrangements. This report incorporates the results of the strategic review to assist the
LGA and Councils in considering the key alternatives with respect to the defined benefit arrangements
of Local Super.
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Defined Benefit Strategy Paper
1.2
Results of the Actuarial Review as at 30 June 2008
The main purpose of the review is for the actuary to make recommendations as follows:
The Council contribution required to be paid on the basis of no changes to benefits, and
The change to benefits given the current Council contribution rate remains unchanged at 9%.
On the basis of restoring the Scheme to a satisfactory financial position by 30 June 2015 and that
Salarylink remains open to new entrants, the Scheme actuary – Brett & Watson - recommends that
either:
(a) The Council contribution rate in relation to Salarylink members be increased from 1 July 2010
to 9.6%, or
(b) The future service benefits for Salarylink members be reduced by 0.7% of Final Average
Salary for each year of membership from 1 July 2010 for a 5 year period, or
(c) A combination of the above.
The actions above are designed to restore the security of members’ benefits by 30 June 2015. Under
each of the above alternatives it is expected that Council contributions would ultimately increase to the
expected long term Council contribution rate of 10.9% of salary.
1.3
Options
We have considered the following options as the most realistic alternatives for the Scheme/Councils.
The contribution rates in the tables below relate to Salarylink member salaries. The total cost for each
Council will vary according to the number of Salarylink and Marketlink members. As a guide, on
average Salarylink members represent 55% of the total base salary of Councils. This means that the
total cost to Councils is approximately half of the increase above the current level of 9%. However, if
all employees elected to join Salarylink then the cost will be the full increase.
1.3.1 Option 1 – Salarylink remains open to new entrants
Council Contribution – 2010 – 2015
Council Contribution – long term
9.6%
10.9%
Benefits – existing members
Benefits – new entrants
No change
Employee option of
Salarylink or Marketlink
1.3.2 Option 2 – Defer Closure of Salarylink for new entrants to 2012
Council Contribution – 2010 - 2015
Council Contribution – long term
9.6%
9% minimum
Benefits – existing members
Benefits – new entrants
No change
Marketlink Only
Whilst new entrants are currently causing a strain on the financial position of the Scheme – as
the cost of new entrants is greater than the current Council contribution rate of 9% – the
impact is not so significant as to require any immediate closure of Salarylink to new entrants.
It is reasonable for the decision to close Salarylink to be deferred until the results of the next
scheduled three yearly actuarial investigation is available which would be in early to mid 2012.
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Defined Benefit Strategy Paper
1.3.3 Option 3 – Close Salarylink to new entrants now
Council Contribution – 2010 – 2015
Council Contribution –long term
9.3%
9%
Benefits – existing members
Benefits – new entrants
No change
Marketlink Only
1.3.4 Option 4 – Minimum Council contributions and therefore reduce benefits
Council Contribution – 2010 – 2015
Council Contribution – long term
9%
9%
Benefits – existing members
Benefits – new entrants
Reduced future benefits
Salarylink closed
Marketlink only
If Councils can only afford, or want, to pay the minimum 9% contribution for all members then
this option will require Salarylink to be closed to new entrants including current employees who
are in Marketlink. Whilst the actuary has provided a recommended option for the reduction in
member benefits on the basis of Council contributions remaining at 9% of salary, it would be
prudent to explore alternative options before deciding on a final outcome.
The reduction in future service benefits for all current Salarylink members must be 0.4% of
Final Average Salary as per the following table. Note that Salarylink would be closed to new
entrants.
Member
Contribution
Rate
1%
2%
2.5%
3%
4%
5%
6%
7%
8%
9%
10%
1.4
Current
Salarylink
Benefit
Percentage
10.2
11.4
12.0
12.6
13.8
15.0
16.2
17.4
18.6
19.8
21.0
Future Salarylink
Benefit
Percentage – 5
year reduction
9.8
11.0
11.6
12.2
13.4
14.6
15.8
17.0
18.2
19.4
20.6
Questions to be answered
What is the financial capacity for Councils to pay greater than the current level towards the
superannuation benefits of employees?
How much do Councils believe they need to pay towards the superannuation benefits of
employees?
Are Councils prepared to pay a higher level of contribution to superannuation to be considered
as an employer of choice?
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Defined Benefit Strategy Paper
Are Councils prepared to have the contribution rate it pays to Local Super change from time to
time with it being higher than 9% if necessary?
The decision of the LGA will depend on the answers to the above questions as follows:
If Councils accept that the Salarylink contribution rate is expected to be 10.9% in the long term and
that this contribution rate may change over time, then Option 1 may be selected.
If Councils accept that the Salarylink contribution rate is expected to rise to 10.9% but would like to
review the situation in the future, then Option 2 may be selected.
If Councils want to pay the minimum contribution rate for all new employees, but will honour the
promise made to current employees and accept that the Salarylink contribution rate must increase in
the short term as a consequence of the global financial crisis, then Option 3 should be selected.
If Councils can only afford to pay 9% for all employees, then Option 4 should be selected.
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Defined Benefit Strategy Paper
2
Current arrangements
Local Super provides permanent full-time and part-time employees of Local Government in South
Australia with the option of either Salarylink (ie defined benefit) benefits or Marketlink (ie accumulation)
benefits. Employees may choose to become Salarylink members at any time and may elect to cease
Salarylink contributions at any time.
The key difference in benefit design between Salarylink and Marketlink is:
Salarylink benefits are calculated as multiple of salary at ceasing employment where the
multiple is based on years of membership and the level of contributions paid by the employee
throughout their membership.
The benefit is defined in terms of the member’s final average salary but the unknowns are the
investment earnings, salary inflation and the level of Council contributions. The only variable
that is directly controllable by Councils is the level of Council contributions.
If the investment earnings are higher than assumed, then all other things being equal, the
required Council contributions will be lower. Similarly, if the investment earnings are lower
than expected, the Council contributions will need to be higher.
If salaries increase by more than assumed then the total defined benefit increases. If
investment earnings remain as expected, this will result in higher Council contributions.
If salaries and investment earnings increase by the same amount above the assumed levels,
then the Council contributions will remain unchanged as a percentage of salary.
Marketlink benefits are based on the accumulation of contributions and investment earnings
similar to savings in a bank account.
The final benefit will be determined by the investment earnings. Higher investment earnings
will result in a higher final benefit, and vice-versa. The final benefit is directly influenced by the
vagaries of the investment markets and the level of investment risk selected by the member.
A summary of the benefit design of the Salarylink and Marketlink benefits is provided in Appendix 1.
2.1
Long-term Contribution Rate
The eventual cost of providing Salarylink benefits will depend on the actual experience for the overall
Scheme. The final benefit is based on the years of membership, the level of member contributions
(which determine the level of accrual rate) and the level of salary at retirement/ceasing employment.
The Council is required to pay the balance of the cost of providing the benefit over and above the
Salarylink contributions paid by employees. The objective is for the Council and member contributions
together with investment earnings to be sufficient to pay the final Salarylink benefit.
The key factors that will impact the Council contribution rate are the increases in salary and the
investment earnings. In its simplest form, higher salary increases translate directly into higher
Salarylink benefits which translate into higher Council contributions. Likewise higher investment
returns result in higher assets available to pay benefits and this translates into lower Council
contributions.
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Defined Benefit Strategy Paper
The preferred funding approach is to have a smooth contribution rate over the long term rather than
Council contributions which fluctuate significantly from year to year. The actuary makes long term
assumptions on future investment earnings and salary growth to determine the required Council
contribution rate. These assumptions take into account the actual experience of the Scheme as a
guide to expected future experience and to determine any adjustments to the assumptions.
The long-term contribution rate is the rate required for new entrants to Salarylink as eventually all
current members will be replaced with new entrants over time. The graph below shows the new
entrant rate (shown in blue) calculated by the actuary at each of actuarial review since 1984. It should
be noted that the Council contribution rate was increased on 1 December 1988 with the introduction of
the 3% award contribution which is allocated to the Marketlink account in addition to the Salarylink
benefit.
The expected long-term contribution rate will vary over time as actual experience for the Scheme
unfolds. However, the long-term contribution rate has remained relatively stable since inception of the
Scheme in 1984.
The actual Council contribution rate, shown by the red line in the chart below has been below the longterm contribution rate since 1990.
The key assumptions in the actuarial calculation of the long term Council contribution rate are the level
of investment earnings and the level of salary inflation. Importantly, it is the difference between the
investment earnings and salary inflation (known as the real rate of return) that will impact the expected
Council contribution rate. The lower Council contribution rate as shown by the shaded area in the
above chart is due primarily to the higher than expected real rate of return earned by the Scheme over
the past 25 years as shown in the chart below.
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Defined Benefit Strategy Paper
2.2
Long-tem contribution rate risk
Using the current assumptions, the actuarial calculations show that the expected long-term
contribution rate for new Salarylink entrants is 10.9% of salary. It should be noted that the actual cost
to Councils will depend on the actual experience of the Scheme, principally the level of salary
increases and the investment earnings.
The strategic actuarial review considered the impact of changes to the key assumptions of investment
earnings and salary inflation. The process involved over 1000 projections of different scenarios (a
process known as stochastic modeling) to determine the likelihood of contribution rates either higher or
lower than the average.
The table below shows the results of the modeling.
Percentile
10%
25%
50%
75%
90%
Long Term Rate
12.6%
11.8%
10.9%
10.1%
9.3%
As an example, the table shows that under this scenario there is a 25% probability that the new entrant
rate will be 11.8% or higher. Similarly there is a 25% probability that the new entrant rate will be
10.1% or less.
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Defined Benefit Strategy Paper
3
Results of the Actuarial Review as at 30 June 2008
3.1
Recommendations of the Actuary
The main purpose of the review is for the actuary to make recommendations as to the Council
contribution required to be paid, assuming there are no changes to benefits, and the changes to
benefits given no change to the current level of Council contributions.
3.1.1 Salarylink remains open
On the basis that Salarylink remains open to new entrants, the Scheme actuary – Brett & Watson recommends that either:
(a) The Council contribution rate in relation to Salarylink members be increased from 1 July 2010
to 9.6% of Salarylink members’ salaries for a 5 year period or 10.1% for a 3 year period, or
(b) The future Salarylink benefits for members be reduced by 1.4% of Final Average Salary for
each year of membership from 1 July 2010 for a 3 year period or by 0.7% of Final Average
Salary for each year of membership from 1 July 2010 for a 5 year period, or
(c) A combination of the above.
3.1.2 Salarylink is closed
On the basis that Salarylink is closed to new entrants, the Scheme actuary recommends that either:
(a) The Council contribution rate in relation to Salarylink members be increased from 1 July 2010
to 9.3% of Salarylink members’ salaries for a 5 year period or 9.9% for a 3 year period, or
(b) The future Salarylink benefits for existing members be reduced by 1.3% of Final Average
Salary for each year of membership from 1 July 2010 for a 3 year period or by 0.4% of Final
Average Salary for each year of membership from 1 July 2010 for a 5 year period, or
(c) A combination of the above.
3.2
Security of member benefits
The actuarial valuation also considers the financial position of the Scheme from the perspective of the
security of members’ benefits. The main indices used for this purpose are:
(a) Vested Benefits Index (VBI) - the ratio of the value of the Scheme’s assets to the benefits of
all members assuming that they resign at the valuation date.
The VBI measures the Scheme’s ability to meet the entitlements of members in the event that
they all retired or resigned at 30 June 2008. This is a short-term measure of the Scheme’s
financial position and a measure that is monitored by the Government regulator.
(b) Funding Index (FI) is the ratio of the value of the Scheme’s assets to the present value of the
accrued retirement benefits at the valuation date.
The FI measures the financial strength of the Scheme on an on-going basis.
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Defined Benefit Strategy Paper
The Government regulator (APRA) considers that a fund with a VBI less than 100% is in an
“unsatisfactory financial position”. As at 30 June 2008, the Scheme had a VBI of 117%. However, the
VBI has been projected by the actuary to be 99% as at 30 June 2009 and the Scheme is now
classified as being in an unsatisfactory financial position. APRA requires that the Trustee implement a
program of rectification that seeks to restore the VBI back to over 100% within a period of not longer
than 5 years. As such, one of the actions outlined in section 3.1 above must be taken from
1 July 2010 to satisfy APRA’s requirement.
The FI was 113% as at 30 June 2008 and 111% as at 30 June 2009. This measures shows that whilst
there has been a slight deterioration on the funding level of the Scheme, the accrued benefits continue
to be well covered by the existing assets of the Scheme assuming the current contribution rates.
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Defined Benefit Strategy Paper
4
Comparisons with other superannuation funds
4.1
Defined Benefit Funds
Over the past 10 years there has been a significant shift from defined benefit arrangements to
accumulation arrangements and the majority of employers have closed their defined benefit sections to
new entrants.
In 2007, Mercer, a leading superannuation consulting firm, conducted a survey of their clients to
understand the reasons for conversion from defined benefit to accumulation benefits. The top five
responses by employers, in order, were:
1.
2.
3.
4.
5.
Easier alignment with total remuneration due to variable employer contribution rate over time
Regulatory changes
High cost of defined benefit
Employer becoming less paternalistic
Superannuation Guarantee integration
These responses are a mixture of reasons namely human resource (eg alignment with total
remuneration), financial (eg cost) and cultural (eg paternalism). Surprisingly, financial reasons were
not the number one reason for the change to accumulation benefits.
We have considered these responses from a Local Super/Council perspective.
Easier alignment with total remuneration
 Concept of Total Employment Cost is not widespread throughout the workforce.
Cost impact of ongoing regulatory change
 Assets of $1.3 billion. The Scheme has sufficient scale and is reasonably well placed to
absorb the regulatory costs.
Employer becoming less paternalistic
 “Employer for life” across local government view still held in many instances. Is this changing?
 Members have the opportunity to join Marketlink where they receive the legislative minimum.
High cost of defined benefits and volatile employer contribution rates
 Expected new entrant rate is 10.9% of salary. However there is a risk that the rate could be
higher.
 Potential for considerable volatility in asset values.
Superannuation Guarantee integration
 Not an issue – underlying benefits at least equal to SG level
4.2
Local Government Superannuation Funds
Local Super is the only local government superannuation fund in Australia which is open to new
entrants for defined benefits. All other local government superannuation funds closed their defined
benefit sections to new entrants many years ago.
Council contributions in relation to new employees are generally set at the minimum Superannuation
Guarantee level of 9% of salary with the following exceptions:
(a) In Queensland, the local government act mandates a 12% Council contribution and 6%
employee contribution.
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Defined Benefit Strategy Paper
(b) Many Tasmanian Councils continue to contribute 12.5% of salary being the previous rate that
applied to the defined benefit fund.
(c) In Western Australia, 70% of Councils provide 9% plus a matching contribution (dollar for
dollar) up to 10% of salary. eg an employee contributing 10% receives 9% + 10% = 19% from
the Council.
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Defined Benefit Strategy Paper
5
Options
The key decision is whether Salarylink remains open or closed to new entrants. For this report we
have considered the following options as being the most realistic alternatives for the Councils.
1. Salarylink remains open to new entrants. ie No change to the current arrangements
2. Salarylink remains open for now. Keep options open to close Salarylink at some stage in the
future.
3. Salarylink closed now.
4. Salarylink closed now and no increase in Council contribution rates. Future benefits for
current members will need to be reduced.
5.1
Option 1 – Salarylink remains open to new entrants
Council Contribution – 2010 – 2015
Council Contribution – long term
9.6%
10.9%
Benefits – existing members
Benefits – new entrants
No change
Employee option of
Salarylink or Marketlink
Salarylink benefits are a popular and valuable benefit for employees. The provision of
Salarylink benefits is a point of differentiation for local government compared to other
employers. A decision to keep Salarylink benefits open to new employees will treat
superannuation as a benefit of being an employee of local government rather than
superannuation being simply a statutory requirement.
Whilst the Council contribution rate will eventually increase to the long-term rate of 10.9% of
salary, it is expected that the increase in contributions will occur over a number of years rather
than being required immediately. As is shown in section 2.1, the actual Council contribution
rate has been either at or below the long-term Council contribution rate since the inception of
the Scheme in 1984.
5.2
Option 2 – Defer Closure of Salarylink for new entrants to 2012
Council Contribution – 2010 - 2015
Council Contribution – long term
9.6%
9% minimum
Benefits – existing members
Benefits – new entrants
No change
Marketlink Only
Whilst new entrants are currently causing a strain on the financial position of the Scheme – as
the cost of new entrants is greater than the current Council contribution rate – the impact is not
so significant as to require any immediate closure of Salarylink to new entrants. It is
reasonable for the decision to close Salarylink to be deferred until the next actuarial valuation
which would be completed in early to mid 2012.
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Defined Benefit Strategy Paper
5.3
Option 3 – Close Salarylink to new entrants immediately
Council Contribution – 2010 – 2015
Council Contribution –long term
9.3%
9% minimum
Benefits – existing members
Benefits – new entrants
No change
Marketlink Only
As most defined benefit superannuation funds in Australia are now closed, a decision to close
Salarylink to new entrants will not be inconsistent with other employers.
5.4
Option 4 – Minimum Council contributions and therefore reduce benefits
Council Contribution – 2010 – 2015
Council Contribution – long term
9%
9%
Benefits – existing members
Benefits – new entrants
Reduced future benefits
Salarylink closed
Marketlink only
If Councils can only afford, or want, to pay the minimum 9% contribution for all members then
this option will require Salarylink to be closed to new entrants including current Marketlink
employees who are currently eligible to join Salarylink. Whilst the actuary has provided a
recommended option for the reduction in member benefits on the basis of Council
contributions remaining at 9% of salary, it would be prudent to explore alternative options
before deciding on this as a final outcome.
The reduction in future service benefits for all current Salarylink members must be 0.4% of
Final Average Salary as per the following table. Note that Salarylink would be closed to new
entrants.
Member
Contribution
Rate
1%
2%
2.5%
3%
4%
5%
6%
7%
8%
9%
10%
Current
Salarylink
Benefit
Percentage
10.2
11.4
12.0
12.6
13.8
15.0
16.2
17.4
18.6
19.8
21.0
Future Salarylink
Benefit
Percentage – 5
year reduction
9.8
11.0
11.6
12.2
13.4
14.6
15.8
17.0
18.2
19.4
20.6
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Defined Benefit Strategy Paper
6
Costs
The Council contribution rates in this report relate to employees in each Council that have elected to
make Salarylink contributions. However it must be noted that not all employees are Salarylink
members.
For the Scheme as a whole, approximately 55% of the total salaries of Councils relate to Salarylink
members. As such, an additional cost of 0.6% of salary will translate to a total cost of 0.33% of salary.
The long-term Council contribution rate of 10.9% of salary means an increase in total cost of 1.045%
of salary based on current membership levels. However the maximum possible cost, assuming that all
employees are Salarylink members, is 1.9% of salary.
6.1
Funding Schedule of each Option
The expected Council contribution rates for Salarylink members for each option is shown in the graph
below.
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Defined Benefit Strategy Paper
6.2
Additional Cost of each Option
The additional cost for a sample of Councils is shown in the table below. The cost is expressed as a
percentage of total base superannuation salaries for all permanent staff and takes into account the
proportion of staff that have elected to be Salarylink members.
No of
Employees
Total
Salaries
Salarylink
member
salaries to
total salaries
Option 1& 2
Short-term
Option 1
Long-Term
Option 3
Short-term
Option 4
49
1,200,000
66.1%
0.40%
1.26%
0.20%
0
100
4,300,000
53.6%
0.32%
1.02%
0.16%
0
146
7,300,000
55.3%
0.33%
1.05%
0.17%
0
266
13,100,000
67.7%
0.41%
1.29%
0.20%
0
268
12,300,000
49.0%
0.29%
0.93%
0.15%
0
472
26,200,000
58.5%
0.35%
1.11%
0.18%
0
509
Average
all
Councils
25,700,000
55.3%
0.33%
1.05%
0.17%
0
55.0%
0.33%
1.05%
0.17%
0
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Defined Benefit Strategy Paper
Appendix 1
Summary of Scheme Benefits and Contributions
Full details of the benefit provisions of the Scheme are contained in the Rules of the Local Super . A
brief summary of the benefits and contributions for new employees is set out below.
Definitions
Salarylink benefits refer to benefits determined by the rate of and period for which the member has
made Salarylink contributions. These benefits are defined in terms of salary and service and the
member's contribution rate.
Marketlink benefits refers to benefits of an accumulation nature.
Earning Rate is the rate of return earned on money held in respect of the Salarylink section of the
Scheme, reduced by an allowance for administration costs. That allowance for administration costs is
currently 0.23% per annum. The allowance for administration costs is deducted from the unit price
applied to member benefits.
Final Average Salary is the average annual salary over the 3 years immediately preceding cessation
of service.
Eligibility
All permanent full-time or part-time employees of Local Government councils in South Australia may
elect to make Salarylink and/or Marketlink contributions to the Scheme at any time. All other members
are eligible only for Marketlink membership.
SALARYLINK BENEFITS
The following summary describes the benefits of new members who elect to make Salarylink
contributions.
Retirement Benefit
On cessation of service between ages 55 to 65, a retirement benefit is payable which is equal to:
Benefit Percentage X Final Average Salary.
The Benefit Percentage depends upon the levels at which the member contributes towards Salarylink
benefits. The following table shows the addition to the benefit percentage for each year of service
resulting from a year's contributions to Salarylink benefits at the various levels:Member
Contribution
Rate (%)
1.0
2.0
2.5
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Accrual
Rate (%)
10.2
11.4
12.0
12.6
13.8
15.0
16.2
17.4
18.6
19.8
21.0
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Defined Benefit Strategy Paper
Late Retirement Benefit
If a member remains employed after their 65th birthday, the member's normal retirement benefit is
transferred to the Marketlink section of the Scheme and attracts investment earnings of the selected
investment choice options.
Ill Health Benefit
If a member ceases employment before age 50, with the consent of the Trustee on account of ill
health, the member will receive the accrued Salarylink benefit determined as if the member retired on
the date of termination of service.
Ill Health Retirement Benefit
If a member ceases employment after age 50 and before age 65, with the consent of the Trustee on
account of ill-health, the benefit described above under Ill Health Benefit will be increased by 50% of
the difference between that benefit and the benefit the member would have been entitled to had the
member remained in service until age 65 on the same salary and continued to contribute at the same
Salarylink contribution rate as they were contributing at the date of cessation of service.
Death Benefit
The benefit payable on the death of a member is equal to the benefit the member would have received
at 65 had they continued in employment until that date on the same salary and made Salarylink
contributions until that date at the same rate.
Total and Permanent Disablement Benefit
On total and permanent disablement, the benefit payable is an amount equal to the
member's death benefit.
Total and Temporary Disability Benefit
On total and temporary disablement an income benefit is payable equal to 75% of salary for a period of
two years after an initial waiting period of three months.
Resignation Benefit There are currently 2 options available to a Salarylink member on ceasing employment prior to age 55
as follows:
Option 1 - Basic Super
The benefit payable on resignation is calculated as:(2 x A) + B + C
A
is the contributions paid by the member (excluding any contributions in excess of 5%)
together with earnings at the Growth Option rate.
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B
is the amount of any contributions paid by the member while contributing in excess of 5%
described under (a) above together with earnings at the Growth Option rate, and
C
is any transferred amount which was used to purchase an additional benefit percentage
together with earnings at the Growth Option rate.
The above benefit is subject to a minimum of the present day value of the Member's Accrued
Retirement Benefit, which is a benefit calculated in a similar manner to the normal
retirement benefit, with service counting up to the date of resignation. The present day value
is calculated by discounting the Accrued Retirement Benefit by 3.5% per annum for the
period from the date of termination of service to the member' s 55th birthday.
Option 2 - Retirement Super
The total amount of this benefit is calculated as Member’s Accrued Retirement benefit with a portion
of this benefit available immediately, subject to preservation rules, and the balance required to be
retained in the Scheme until at least age 55. The amount available immediately (but subject to
preservation rules) is the sum of parts A, B and C, of the Basic Super benefit as described above.
The remainder of the benefit up to the Accrued Retirement Benefit is deferred in the Scheme and
th
indexed up to the 55 birthday according to movements in the Consumer Price Index+ 2%. From age
55 the amount is invested in the member’s selected investment option or Growth if nothing is selected.
Superannuation Guarantee
All benefits are subject to a minimum benefit to ensure compliance with the Superannuation Guarantee
legislation.
MARKETLINK BENEFITS
Each member’s Marketlink Account consists of the following:(a) Council contributions paid under an Award or as required under Superannuation Guarantee
requirements,
(b) Any contributions made by members to the Scheme, whether pre or post tax,
(c) Any amounts transferred into the Scheme from another super fund,
(d) Any other amounts received by the Scheme in respect of the member that are not Salarylink
related amounts ie Government co-contributions, Superannuation Guarantee vouchers etc,
(e) deductions for administration, insurance costs and taxation.
For Marketlink accounts, member investment choice is available between the following options:Cash
Conservative
Growth
Australian Shares
International Shares
Sustainable Shares
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Defined Benefit Strategy Paper
Benefits
On exit from the Scheme the member receives the balance of the Marketlink Account
plus any insurance amounts in respect to benefits on death or disablement (where eligible).
CONTRIBUTIONS
Members - Salarylink
New members may choose to make Salarylink contributions of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9%
or 10% of their salary. Members who joined prior to 1 April 2001 also have the option of 2.5% if they
are currently paying this rate. The choice of the contribution can be varied at any time.
Members - Marketlink
Members may elect to make Marketlink contributions (in whole percentages). There is no maximum
level of contributions.
Councils – Salarylink
Each Council currently contributes 6% of Salarylink members' salaries. In addition, in respect of each
Salarylink member the Council is required to pay a minimum contribution of 3% to the member’s
Marketlink Account together with an additional amount of 9% of the difference between the Salarylink
salary and Ordinary Times Earnings as required under the Superannuation Guarantee legislation.
Councils – Marketlink
For Marketlink only members the Council is required to pay a contribution in line with the
Superannuation Guarantee legislation of 9% of Ordinary Time Earnings.
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Defined Benefit Strategy Paper
Appendix 2
Excerpts from Scheme Rules
The relevant clauses from the Trust Deed and Rules are:
Rule 40(a)(i)(B) requires Councils to contribute to the Scheme in respect of Salarylink members “… at
such rate determined by the Trustee from time to time on the advice of the Actuary ...”
Clause 15.3 states that the Actuary’s report to the Trustee shall state:
“15.3.1
15.3.2
any variation necessary in contributions, given no change in benefits, and any
variation necessary in benefits, given no change in contributions; and
any other matter required to be included in the Actuary’s report under the SIS
Act.”
Clause 15.4 states:
“If the Actuary recommends a change in the relationship between contribution levels and
benefit levels the Trustee shall refer the report to the LGA and the Employee Associations for
comment before making any recommendations it thinks fit to make as a result of the report.”
Clause 15.5 states:
“The Trustee shall not make any recommendation to increase the rate of contributions payable
by Councils in terms of rule 40(a)(i) unless it first receives the agreement of the LGA.”
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Defined Benefit Strategy Paper
Appendix 3
Roles
Role of the Actuary
provide a report and recommendations in relation to the actuarial investigation of the Scheme
at least every 3 years.
the Actuary’s report must state the adjustments to benefits assuming no change to Council
contributions and the adjustments to Council contributions assuming no change in benefits.
Role of the LGA
to comment on the recommendations in relation to changes to contributions and/or benefits.
The LGA must agree to any increase in the rate of contributions.
Role of the ASU and AWU
provide comments on the recommendations in relation to changes to contributions and/or
benefits.
Role of the Trustee
receive the report and recommendations from the Scheme Actuary.
provide the Actuary’s report to the LGA, ASU and AWU for comment.
advise Councils of the required contribution rate as agreed by the LGA.
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