for the year ended 30 June Alcoa of Australia Retirement Plan

Transcription

1 Annual Report for the year ended 30 June 2016 Alcoa of Australia Retirement Plan Helpline Issued by Alcoa of Australia Retirement Plan Pty Ltd ABN RSE Licence L as Trustee of the Alcoa of Australia Retirement Plan ABN Registration No. R

2 from the Message Trustee Welcome to the Alcoa of Australia Retirement Plan (Plan) Annual Report to members for This report details the Plan s investment performance for the financial year to 30 June 2016 and includes other important information about your membership in the Plan. Investment Returns Over the year, financial markets have continued to challenge investor confidence. Again we ve seen great volatility in the world s financial markets there were fears of an economic slowdown in China, impacts regarding US economic conditions, concerns regarding the EU including Greece and then the UK electing to leave the EU, falling oil and commodity prices, possible higher US interest rates, etc. While all of Alcoa Plan s investment options delivered positive results for the 2016 financial year, these major events and concerns around the world delivered subdued returns in global investment markets. We continue to closely monitor our investments to ensure we effectively respond to the current environment while maintaining our focus on delivering strong, long-term returns, with the appropriate level of risk. It is important to remember that superannuation is a long term investment and the good news is that the Alcoa Plan s member investment options have shown very good returns over the last five years, with all options exceeding their stated investment objectives. More information on the Plan s investment returns can be found on page 3. Insurance project For the last 16 years, the Alcoa Plan has provided Death and TPD benefits using a self-insurance arrangement under which, the Plan itself has assessed and paid members claims. From 1 July 2016, federal legislation required all Australian super funds to use an external, regulated insurance company to provide insurance cover for accumulation members. The Trustee had to comply with this requirement. In response to that requirement, the Alcoa Plan undertook an extensive comparison of features and premiums available across the industry and, after a thorough tender process, MLC were appointed to provide and manage Death and TPD insurance for our Accumulation Members, starting from 1 July After receiving feedback from our Accumulation members requesting further flexibility with their insurance cover, we will be offering changes in the near future, please stay tuned for further information in the coming months. Strategic review As we have previously advised, in 2015 the Board of Trustees of the Alcoa Plan completed a Strategic Review of the Alcoa of Australia Retirement Plan to outline our options and direction for the future. The Strategic Review had the principal aim of confirming that the Plan was acting in the best interests of members. The review found that while our services, fees and returns are competitive, there are opportunities to further enhance and develop member services and I look forward to announcing further enhancements to the Plan Website, Helpline and member education in the coming months. Finally, as we move towards a new calendar year, we look forward to continuing to provide the best possible services to support you, our members, in either planning for or enjoying your retirement. Anthony (Tom) Adams Chairman Alcoa of Australia Retirement Plan 2

3 Your super Accumulation Section How your benefit works In the Accumulation section, your super works like a bank account. The contributions or allocations your employer makes for you, plus any contributions you make, are invested (after allowing for tax and expenses) according to your choice of investment option(s). Interest is paid on these contributions and your Plan account accumulates over time. So the amount you ultimately receive is directly linked to the Plan s investment performance. The Accumulation Section also includes members in the Allocated Pension Facility and the Retained Benefit Facility (different fees are charged for these categories of membership), as well as Defined Benefit members who have Supplementary Accumulation Accounts. Your options The Alcoa Plan offers you a choice of where to invest your super money. Different members have different financial needs and no one investment option will suit everyone. That s why you have a choice of four options in the Alcoa Plan. Note, if you do not make an investment choice you will not be able to join the Plan. The rate of return you can expect from each investment option will vary according to the asset class(es) your benefit is invested in. Historically, investment options invested mainly in growth assets (e.g. shares and property) have provided the best returns over the long term (more than 10 years). However, these high growth options tend to be subject to the greatest volatility in returns from year to year. On the other hand, with an investment option that is invested mostly in defensive assets, such as fixed interest and cash, you could expect lower returns over the long term but lower volatility in returns from year to year. Please keep in mind past performance cannot be relied upon as an indicator of future performance. See pages 7 9 for a description of each investment option. Investment returns The table below shows the rates credited for each investment option in respect of the Accumulation Section for the 12 months to 30 June The rates are based on the actual performance of the Plan s investments less tax and investment fees. These are the actual rates of interest credited to members in the Accumulation Section and Defined Benefit members who have Supplementary Accumulation Accounts. Growth option Equity option Capital Stable option Cash option July % % % % August % % % % September % % % % October % % % % November % % % % December % % % % January % % % % February % % % % March % % % % April % % % % May % % % % June % % % % Annual Return 2.26% 1.38% 3.09% 2.00% Please remember, past performance is not an indicator of future performance. 3

4 Your super cont... The table below shows the rates credited to the accounts of members in the Retained Benefit Facility for each investment option for the 12 months to 30 June The rates are based on the actual performance of the Plan s investments less allowances for tax on investment earnings and investment expenses. Growth option Equity option Capital Stable option Cash option July % % % % August % % % % September % % % % October % % % % November % % % % December % % % % January % % % % February % % % % March % % % % April % % % % May % % % % June % % % % Annual Return 2.01% 1.14% 2.84% 2.00% Please remember, past performance is not an indicator of future performance. The table below shows the rates credited to the accounts of members in the Allocated Pension Facility for each investment option for the 12 months to 30 June The rates are based on the actual performance of the Plan s investments less allowances for investment expenses. These are higher than the returns credited to Accumulation Section and Retained Benefit Facility as they do not attract investment tax. Growth option Equity option Capital Stable option Cash option July % % % % August % % % % September % % % % October % % % % November % % % % December % % % % January % % % % February % % % % March % % % % April % % % % May % % % % June % % % % Annual Return 2.25% 1.22% 3.29% 2.36% Please remember, past performance is not an indicator of future performance. 4

5 Your super cont... Performance over the last five years The following table shows each investment option s annual effective rate of net earnings (i.e. the actual rate of return net of tax and investment expenses) over the past five years compared with increases in the cost of living, as measured by the Consumer Price Index (CPI). For more information, you can refer to each investment option s objectives on pages 7 9. For some commentary on this year s investment returns, please turn to page 12. Accumulation Section Growth option Equity option Capital Stable option Cash option CPI 30 June 2016 Accumulation 2.26% 1.38% 3.09% 2.00% 1.00% 30 June 2015 Accumulation 7.94% 9.56% 5.46% 2.52% 1.50% 30 June 2014 Accumulation 13.94% 17.81% 8.52% 3.06% 3.00% 30 June 2013 Accumulation 16.31% 21.05% 9.55% 4.23% 2.40% 30 June 2012 Accumulation 0.78% -2.53% 3.64% 3.96% 1.20% Accumulation compound average effective rate of net earnings for 5 years to 30 June % 9.07% 6.02% 3.15% 1.82% Please remember, past performance is not an indicator of future performance. Retained Benefit Facility Growth option Equity option Capital Stable option Cash option CPI 30 June 2016 Accumulation 2.01% 1.14% 2.84% 2.00% 1.00% 30 June 2015 Accumulation 7.69% 9.30% 5.21% 2.52% 1.50% 30 June 2014 Accumulation 13.67% 17.54% 8.26% 3.06% 3.00% 30 June 2013 Accumulation 16.04% 20.76% 9.29% 4.23% 2.40% 30 June 2012 Accumulation 0.54% -2.77% 3.39% 3.96% 1.20% Retained compound average effective rate of net earnings for 5 years to 30 June % 8.82% 5.77% 3.15% 1.82% Please remember, past performance is not an indicator of future performance. Allocated Pension Facility The following table details the annual effective rate of earnings for the Allocated Pension Facility in the Plan (net of investment expenses). These are higher than the returns credited to Accumulation Section and Retained Benefit Facility as they do not attract investment tax. Pension Growth option Pension Equity option Pension Capital Stable option Pension Cash option CPI 30 June 2016 Accumulation 2.25% 1.22% 3.29% 2.36% 1.00% 30 June 2015 Accumulation 8.67% 10.36% 5.95% 3.02% 1.50% 30 June 2014 Accumulation 14.97% 18.97% 9.25% 3.78% 3.00% 30 June 2013 Accumulation 18.21% 23.51% 10.64% 4.97% 2.40% 30 June 2012 Accumulation 0.10% -4.11% 3.78% 4.73% 1.20% Compound average effective rate of net earnings for 5 years to 30 June % 9.50% 6.54% 3.73% 1.82% 5

6 Your super cont... The table below shows a comparison between the Plan s performance against its own internal benchmarks (which are based on market indices), as well as the SuperRatings Fund Crediting Rate Survey June 2016 medians (which reflect the median performance of the Plan s peers in the market place). For the purpose of comparison, the returns are shown net of investment fees. Alcoa Crediting Rate Benchmark SuperRatings Median Rate Equity 1.38% 6.00% 0.68% Growth 2.26% 5.00% 2.81% Capital Stable 3.09% 3.00% 3.36% Cash 2.00% 1.50% 2.17% Rolling 1 year returns are those disclosed in the SuperRatings Fund Crediting Rate Survey June Alcoa Plan Growth option (target allocation of 71% growth assets) compared to SuperRatings SR50 Balanced (60 76) Index (target allocation of between 60% and 76% growth assets). Alcoa Plan Equity option (target allocation 100% growth assets) compared to SuperRatings SR25 High Growth (91 100) Index (target allocation of between 91% to 100% growth assets). Alcoa Plan Capital Stable option (target allocation 35% growth assets) compared to SuperRatings SR50 Capital Stable (20 40) Index (target allocation of between 20% to 40% growth assets). Alcoa Plan Cash option (nil growth assets), compared to SuperRatings SR25 Secure Index (target allocation 0% 19% growth assets). Past performance in not an indicator of future performance. Your investment choice 6 Making an investment choice You can choose different investment options for your current account balance and any future contributions you make. This choice gives you more control over your desired asset mix and level of risk and return. When you joined the Alcoa Plan, you had the opportunity to choose your investment options. Note, if you do not make an investment choice you will not be able to join the Plan. Changing your investment choice Once you have made your investment choice(s), it will continue to apply until you inform the Plan of a new choice. You may change your investment option (also known as switching ). When you switch your investment options you will be asked to specify whether the change is to apply to only your existing super account balance, future contributions, or both. If you elect to switch your future contributions; this change will come into effect from the day your switch request is received by Mercer, the Plan s administrator. If you elect to switch the balance of your account, provided your instruction is received by the Plan administrator, Mercer, by 4pm (EST) on the last working day of the current month, the switch will apply from the first day of the following month. However, your switch will not actually be processed until crediting rates for the current month have been declared and finalised, at which point your switch will be backdated. If you are a Pension member, when switching you can choose the option from which your pension payments are drawn down from, provided you already have an investment in that option, and payments will be taken from that option when the administrator processes your next pension payment. Call the Plan Helpline on for details on how to make a change. It s usually wise to seek professional financial advice before making any financial decisions. Is there a fee involved? There is no fee to change your investment options. Planning to leave? If you stop working for Alcoa and haven t provided any other instructions, your benefit will be automatically transferred into the Retained Benefit Facility as soon as the Plan s administrator receives notification from Alcoa that you re no longer working for the company. You ll receive advice from the Plan that the transfer has occurred and you ll have the opportunity to select investment options for your Retained Benefit. And, if you re eligible, you will automatically be provided with death (including terminal illness) insurance cover in the Retained Benefit Facility (Total and Permanent Disablement insurance cover is not available in the Retained Benefit Facility). The amount of death insurance cover in the Retained Benefit Facility will be the same as the amount of death insurance cover you have at the date you leave Alcoa. You can opt-out of receiving death insurance cover at any time. For further information please read the Leaving Service fact sheet available on the Plan website at

7 Your investment options Each investment option has guidelines for investing For each investment option, the Trustee has an investment policy that sets investment strategy and objectives that determine how and where your money will be invested. While having an objective and strategy are required by law, having a strategy also helps ensure that your Plan maximises investment returns while maintaining an acceptable level of risk. Please note that the objectives are not a forecast or guarantee of future performance. The investment policy also covers other related matters such as appointment of investment managers and guidelines for investments in futures and options. The Trustee regularly monitors each investment option s performance against objectives and strategy and changes are made where necessary. A copy of the Alcoa Plan s investment policy statement is available by contacting the Plan Helpline on There are different levels of investment risk associated with each of the Plan s investment options. Please refer to the Plan s Product Disclosure Statement (PDS) for more information. You can obtain a copy of the PDS by calling the Plan Helpline on or by logging on to the Plan website at Equity option Objectives The investment objective of the Equity option is to maximise long-term returns by investing almost wholly in shares. The target return for this option is CPI plus 5% over a rolling seven year period. The medium-term strategic asset allocation is indicated in the graph below. Level of risk The assessed probability of a negative return is one year in every three, or 5.4 negative years in 20. Strategies Appoint investment managers to invest Plan assets according to specific guidelines; Spread Plan assets across a range of investments as follows: Invest between 80% and 100% of Plan assets in growth investments (such as shares and property) to take advantage of the higher long-term returns these assets typically provide. Where the assets were invested as at 30 June Growth option Objectives The investment objective of the Growth option is to maximise long-term returns subject to acceptable constraints to contain fluctuations in returns. The target return for this option is CPI plus 4% over a rolling five year period. The medium-term strategic asset allocation is indicated in the graph below. Level of risk The assessed probability of a negative return is one year in every four, or 4.4 negative years in 20. Strategies Appoint investment managers to invest Plan assets according to specific guidelines; Spread Plan assets across a range of investments as follows: Invest between 60% and 90% of Plan assets in growth investments (such as shares and property) to take advantage of the higher long-term returns these assets typically provide. Where the assets were invested as at 30 June % Australian Shares 30 June Global Shares (unhedged) Global Shares (hedged) 30 June Unlisted Property Other investments* *Other investments include infrastructure, private equity and multi-strategy investments. % Australian Shares 30 June Global Shares (unhedged) Global Shares (hedged) Unlisted Property 30 June Australian Fixed Interest Global Fixed Interest 14.0 Credit Other investments* *Other investments include infrastructure, private equity and multi-strategy investments Cash 7

8 Your investment options cont... Capital Stable option Objectives The investment objective of the Capital Stable option is to achieve returns exceeding those available from cash investments over a two or three year period whilst maintaining a high level of stability in returns from year to year. The target return for this option is CPI plus 2% over a rolling three year period. The medium-term strategic asset allocation is indicated in the graph below. Cash option Objectives The investment objective of the Cash option is to generate money market returns whilst maintaining a high level of stability in returns from month to month. The Cash option will be invested exclusively in a high quality portfolio of money market investments. It is not expected that the Cash option will generate a negative return in any one year; however it is statistically possible. The target return for this option is CPI plus 0.5% per year. Where the assets were invested as at 30 June Level of risk % 30 June June 2015 The assessed probability of a negative return is one year in every six, or 1.9 negative years in Strategies Appoint investment managers to invest Plan assets according to specific guidelines; Cash Spread Plan assets across a range of investments as follows: Invest between 10% and 50% of Plan assets in growth investments (such as shares and property) to take advantage of the higher long-term returns these assets typically provide. *Other investments include infrastructure, private equity and multi-strategy investments. Where the assets were invested as at 30 June % June June Australian Shares Global Shares (unhedged) Global Shares (hedged) Unlisted Property Australian Fixed Interest Global Fixed Interest (hedged) Credit Other investments* Cash *Other investments include infrastructure, private equity and multi-strategy investments. 8

9 Your investment options cont... Defined Benefit Section Your retirement benefit is defined Your basic benefit on retirement is based on a calculation that takes into account your years of service and your salary close to retirement. As such, your basic retirement benefit is not affected by how the Plan s investments perform. Additional supplementary contributions can also be made in order to build larger benefits. These include additional defined benefit contributions (Supplementary Defined Benefit Account). Your Supplementary Defined Benefit Account is invested in the same manner as other Defined Benefit assets. You may also make additional contributions in the form of an accumulation-style account (Supplementary Accumulation Account) for an explanation of the reasons behind this year s investment returns, please turn to page 12. Defined Benefit Investment Returns Annual effective rate of net earnings for 2016 (at 30 June 2016) (the actual rate of return net of tax and investment expenses) Compound average effective rate of net earnings (at 30 June 2016) (over the most recent five-year period) Effective rate of net earnings for the year to 30 June 2016 (credited to your accounts in the Plan) Inflation rate for the year to 30 June 2016 (increase in CPI) The Alcoa Plan s Defined Benefit Performance 2.45% p.a. 7.64% p.a. 2.25% p.a. 1.0% p.a. The graph below shows the Plan s annual effective rate of net earnings over the past five years compared with the Consumer Price Index (CPI). Please note that this does not affect your retirement benefit. % June June 2015 Asset Allocation The Defined Benefit assets are invested in accordance with the Growth option asset allocation. Please see page 7 for details. Credited Interest Rate of 2.25% p.a. Supplementary Accumulation and rollover accounts Your Supplementary Accumulation Account (if you have not made an investment choice see below) and rollover accounts are credited with the effective rate of net earnings (see table Defined Benefit Investment Returns above). This is also the rate that will apply to any surcharge account you may have. The rate is based on the actual performance of the Plan s investments less allowances for tax and fees on investment earnings. Investment option for transfers to the Retained Benefit Facility If you stop working and your Defined Benefit is transferred into the Plan s Retained Benefit facility, your whole account balance (including your Supplementary Accumulation Account balance) will be invested in the Cash option, instead of any other options you ve previously selected. Once you are a Inflation rate for the year to 30 June 2016 (increase in CPI) member of the Retained Benefit Facility, you can change investment options at any time, free of charge. For more information please read the Leaving Service fact sheet available on the Plan website at Supplementary Accumulation Accounts You may make additional contributions to a Supplementary Accumulation Account. If you have a Supplementary Accumulation Account and have exercised the investment choice, the investment returns and annual effective rate of net earnings for those investment options are shown on page 3. If you have not made an investment choice in relation to your Supplementary Accumulation benefits your benefits will be invested in the Growth option for Defined Benefit members shown above Australian Shares Global Shares (unhedged) Global Shares (hedged) Unlisted Property Other investments* * Source: Australian Bureau of Statistics 9

10 Where your super is invested The Alcoa Plan has guidelines for investing The money in the Plan is invested so that the Trustee can provide members with their benefits on retirement. The Trustee has an investment policy that sets investment strategy and objectives that determine how and where the Plan s assets will be invested. While having an objective and strategy is required by law, having a strategy helps ensure that your Plan maximises investment returns while maintaining an acceptable level of risk. Please note that the objectives are not a forecast or guarantee of future performance. The investment policy also covers other related matters, such as appointment of investment managers and guidelines for investments in futures and options. The Trustee regularly monitors the Plan s performance against its objectives and strategy and changes are made where necessary. A copy of your Plan s investment policy statement is available on request. Your Plan s investment objectives The broad investment objective is to maximise long-term investment returns, whilst protecting returns from large fluctuations over shorter periods. Your Plan s investment strategies In making decisions on investment strategy, the Trustee will: have regard to the overall circumstances of the Plan and comply with legislative requirements; ensure sufficient liquidity to meet expected cash flow requirements; take advantage of the higher long-term returns of shares and property without unduly risking the security of members benefits; accept an occasional negative annual return in order to gain long-term benefits; and limit investment risk by appropriate diversification both within and between asset classes Cash 15% Multi Strategy Investments 3.7% Private Equity 3.1% Infrastructure 5.0% Global Fixed interest 5.1% Credit 7.4% Australian shares 22.8% Global Shares 25.2% Australian Fixed Interest 7.1% 2016 Credit 7.09% Australian shares 21.58% Cash 16.16% Unlisted Property 6.75% Infrastructure 5.73% Global Fixed interest 4.16% Private Equity 3.33% Global Shares 23.29% Australian Fixed Interest 5.64% 10

11 Where your super is invested cont... Where the Plan s assets were invested Manager Asset Class 30 June June 2016 $m % of Plan Assets $m % of Plan Assets AMP Capital Management Limited Infrastructure Antares Capital Fixed Income Bentham Asset Management Credit Portfolio Colonial First State Investments Limited Diversified Fixed Interest, Short Duration and Infrastructure DBIS THS Partners Global Equities Overseas Shares Dexus Wholseale Property Fund Property FFTW Alternative Fixed Interest Goldman Sachs Asset Management Australian Shares IFM Fixed Income Janus Global Research Growth Fund Overseas Shares Lexington Captial Partners Private Equity Macquarie Funds Management Diversified Fixed Interest, Short Dureation, Private Equity and Cash MFS Investment Management Emerging Markets NAB Cash Portfolio Cash Orbis Global Equity Fund Global Equity Partners Group Private Equity Perennial Investment Partners Limited Australian Shares and Overseas Listed Property Schroder Investment Management Australian Shares and Overseas Shares Tribeca Investment Partners Australian Shares Ubique Australian Shares Total At 30 June 2016 the Plan had the following investments that exceeded 5% of the total Plan assets: Antares Capital 7.59%), Bentham Asset Management (7.39%), Colonial First State Investments Limited (7.34%), Goldman Sachs Asset Management (6.63%), Janus Global Research Growth Fund (5.71%), Macquarie Funds Management Diversified (10.84%), and Schroders Investment Management (22.06%), and Dexus Wholesale Property Fund (5.59%). Keeping an eye on risk The Trustee does not directly use derivative instruments. External managers may use derivatives in managing pooled investment vehicles in which the Trustee invests. Where this is the case, the Trustee considers the associated risks and the controls in place by analysing the managers Derivatives Risk Statements (DRSs). Regular reporting of the managers compliance with their DRSs is received by the Trustee. Environmental, social and ethical considerations Decisions to invest in or realise investments underlying the Plan s investment options are based on key financial and managerial criteria. The Trustee does not separately consider social, environmental or ethical factors or labour standards to make these decisions. The Trustee has also adopted its own DRS that outlines the relationship between the overall investment strategy for the Plan and the use of derivatives. 11

12 Where your super is invested Some Important Investment Information Despite significant bouts of volatility and the 11th hour shock of the Brexit vote, markets still achieved modest growth in Here s a look at the economy and markets over that rollercoaster year, what s in store for the year ahead. The year that was cont... The financial year was bookended by European Union (EU) exits the threat of a Grexit following the mid 2015 debt crisis in Greece; and the actual vote to Brexit as UK voters elected to leave the EU on 23 June There were few places for investors to hide over July to September Although fears over Greece eventually subsided, market fears quickly elevated in response to the slowdown in China and the US Federal Reserve s (the Fed s) apparent determination to proceed with interest rate lift off. Along with the renewed decline in energy and other commodity prices, plus growing doubts over forecast US earnings growth, markets sold off. More positively, amid rising volatility, the continued decline in the Australian dollar provided something of a cushion against falling global equities for local investors. Toward the end of 2015, tentative signs of improving risk appetite had also become apparent, helping to secure a solid December 2015 quarter. However, investment markets deteriorated sharply as we entered 2016, with developments in China, disappointing US economic data, the introduction of negative interest rates in Japan, and falling oil prices making for a volatile mix in January This resulted in a sharp slowdown in economic growth in key developed economies, contributing to renewed fears of recession and deflation, in turn fuelling volatile equity markets. The Fed moved to calm the market over prospective interest rate rises while Japanese, Chinese and European Central banks moved again to ease monetary conditions. In Australia, the Reserve Bank (RBA) continues to leave the door open to further policy easing, noting the prospect of inflation remaining low for a prolonged period of time. While such measures mitigated recession and deflation risks, markets remained dubious they would lead to a material upturn in global growth. Yet a recovery started in March and financial market returns were able to generally maintain their positive trajectory through April, May and June Market reactions immediately following the shock outcome of the UK s Brexit vote on 23 June to exit the EU were significant. Initial sharp market moves saw the UK market down 7%, Europe down 8.6% and Japan down 8.4%. However, by the end of June markets had started to settle and, in some cases, partly reverse the post Brexit losses. Further offsetting the post Brexit turmoil was some strong some upward movement in the week leading up to the vote, as expectations (incorrectly) grew that the vote would be to stay in the EU. Equity Market Performance Over the year to 30 June 2016, the total return from Australian Shares (including dividends) for Australian Investors was 0.9% for the full Financial Year. Global equities returned 0.4% in unhedged terms, and 1.4% in hedged terms. Superannuation funds finished in modest positive territory at 30 June 2016 in Australia, albeit not as strongly as they have done in the past couple of years. Source: Mercer Investments Past performance is not a reliable indicator of future performance Some investment terms explained Consumer Price Index (CPI) is used to measure the rate of increase in inflation. In Australia, it is based on the change in prices of a selection of household goods and services. Asset class refers to the type of investment such as Australian shares, property securities or Australian fixed interest. Growth assets are assets expected to grow in value over time (although their value may rise and fall in the short term), such as shares and property. Stable assets are assets held to generate an income rather than for long-term growth. They are sometimes referred to as debt or defensive assets. Examples are fixed interest and cash. Asset allocation refers to the range of assets held in the various asset classes such as Australian shares, overseas shares, and property. The Australian Securities Exchange (ASX) is Australia s national share market where shares and other financial instruments can be bought and sold. The ASX provides a regulated environment for these activities to be conducted. S&P/ASX Indices are a series of indices that provide performance benchmarks for a range of market investments. The most common index used in the Australian sharemarket is the S&P/ASX 200 which is based on the Top 200 Australian companies listed on the ASX. 12

13 How your plan works Your Plan is run by a Trustee company, Alcoa of Australia Retirement Plan Pty Ltd, ABN , RSE Number L according to its governing legal document, the trust deed, and superannuation law. There are six directors in the Trustee company three are appointed by the members of the Plan in accordance with the rules for member representative directors, and three are appointed by your employer. The Plan has a specific set of rules, the Election Rules, applying to the appointment and removal of member representatives and the filling of casual vacancies. If you wish to receive a copy of the Election Rules you can contact the Plan Helpline on or the Plan contact listed on page 21. Directors of the Trustee at 30 June 2016 were: Member representatives Mr Andrew Hacking Mr Peter Rozentals Mr Victor Drought Employer-appointed representatives Mr Anthony (Tom) Adams (Chairman) Ms Melanie Brown Ms Elizabeth White A chance to have your say As half of the directors are elected by the members of the Plan, you get the chance to nominate and vote for a member representative. At the time of the next election, you ll receive full details on the appointment and removal of member representatives. You can also request a set of the election rules at any time by contacting the Plan Helpline. Employer-appointed representatives are trustee directors appointed by Alcoa. Advice about your super While the Trustee can give you information about your benefit in the Plan, neither the Trustee nor your employer can provide you with any advice. You can call the Plan Helpline for limited financial advice over the phone (at no charge) and, as an Alcoa Plan member, you are entitled to receive a free initial consultation with a Mercer financial planner. The limited advice and financial planning services we help our members access are a great resource if you require any advice about superannuation. You can also access up to date information by visiting the Plan website at The website allows you to: view your account balance; update your contact details; update your beneficiaries; view your contribution history, account deductions or surcharge details; view and initiate a change to your investment strategy; and calculate your estimated superannuation benefit on resignation, death and TPD as at the current date. The website also provides access to superannuation calculators, Plan fact sheets and regular legislative updates. Your Plan has these advisers These people provide assistance to the Trustee: Superannuation Consulting Mercer Consulting (Australia) Pty Ltd Investment Consulting JANA Investment Advisers Communication Mercer Outsourcing (Australia) Pty Ltd Auditor PricewaterhouseCoopers Administrator Mercer Outsourcing (Australia) Pty Ltd Legal King & Wood Mallesons Mercer Legal Pty Ltd Risk and Compliance Management Mercer Outsourcing (Australia) Pty Ltd Trustee Indemnity Insurance The Trustee is covered by an insurance policy that is designed to cover any costs in respect of claims against the Trustee. The Trustee Directors are not covered for liability arising from dishonest conduct. The insurance policy is issued to the Aluminium Company of America (the parent company of Alcoa) by the Zurich American Insurance Company. 13

14 How your plan works cont... Special Tax treatment Fees and costs Super is one of the most effective ways to save because it is taxed at a lower rate than many other forms of income. To get this tax advantage, your Plan must operate according to a strict set of laws. To show that your Plan has followed these laws, the Trustee lodges a return each year with the Australian Prudential Regulation Authority. This section shows fees and other costs you may be charged. These fees and costs may be deducted from your money, from the returns on your investment, or from the Plan assets as a whole. The costs of running the Plan are managed carefully. The Trustee is unaware of any event that occurred during the year that would affect this special tax treatment. The Plan is a regulated complying superannuation plan for the purposes of government legislation. No penalties were imposed on the Trustee under the Superannuation or Corporations legislation during the year. Please note that at the time of publication of this report Defined Benefit members do not pay any fees other than Family Law fees where applicable. You need to take into account the impact of tax and insurance costs as well. Please refer to the Plan s Product Disclosure Statement for more information. You should read all the information about fees and costs because it is important to understand their impact on your investment. Fees and costs for particular investment options are set out on page 16. You do not pay GST on any of the fees and charges set on page15. 14

15 How your plan works cont... Significant Fees applicable to Accumulation members Type of fee or cost Amount How and when paid Fees when your money moves in or out of the Plan Investment Fee Administration fee Accumulation investment fee 0.1%pa of your total account balance Retained Benefit Facility investment fee 0.34% pa of you total account balance or 0.1% pa of your total account balance if you select the Cash option*. Accumulation $1.10 per week Retained Benefit Facility $4.35 per week Buy-sell spread Nil N/A Switching fee Nil N/A Advice fees Nil N/A Exit fee Nil N/A Other fees and costs 1 See note 1 See note 1 Indirect cost Growth option: Estimated 0.41% of your total account balance (for other options see table on page 16). * The direct investment fee for the Cash option is 0.1% to reflect the lower cost of investing in cash. Deducted daily in determining the monthly crediting rates. Deducted daily in determining the monthly crediting rates. Deducted from the pooled investment products that form part of the Plan s investments, before passing returns to the Plan. 1 Other fees and costs which may apply to you are: withdrawal fees, family law fees, an Operational Risk Financial Requirement Levy and insurance fees. See Additional Explanation of Fees and Costs in the Alcoa of Australia Retirement Plan PDS Additional information document. This table gives an example of how the fees and costs in the Growth investment option for this product for Accumulation members can affect your superannuation investment over a one-year period. You should use this table to compare this product with other superannuation products. Retained Benefit members and Pension members should refer to the relevant Product Disclosure Statement for examples of the fees that apply to these categories of membership. Example the Growth investment option Balance of $50,000 Direct investment fees 0.1% For every $50,000 you have in the Growth option you will be charged $50 each year. PLUS Administration fees PLUS Indirect costs for the Growth option Equals Cost of product $57.20 ($1.10 per week) Estimated 0.42% And, you will be charged $57.20 in administration fees regardless of your balance. And, indirect costs of $210 each year will be deducted from your investment. If your balance was $50,000 then for that year you will be charged fees of $ for the Growth option. * Additional fees may apply. If you leave the Plan, you will also be charged a withdrawal fee of $60. The indirect investment costs that apply to the other investment options available are set out in the Additional explanation of fees and costs section on page

16 How your plan works cont... Additional explanation of fees and costs Family Law fees This table shows information about Family Law costs. For more information about Family Law and how it may affect your super benefit, contact the Helpline on Type of fee or cost Amount How and when paid Application for information (i.e. benefit valuation) in the format specified under the Family Law Act $100 Charged by the Plan s administrator and payable by the person making the request at the time the request is made. Family Law splitting order $70 per split Generally deducted equally from Member s Account and the non-member spouse s entitlement at the time of the split (unless the non-member spouse is to receive 100% of the benefit in which case he/she will pay the full fee). Estimated indirect investment-related costs Investment option Equity 0.45% Growth 0.42% Capital Stable 0.27% Cash 0.09% 2015/2016 indirect investment costs (% of investment option assets p.a) 16

17 How your plan works cont... Insurance costs The cost of insurance premiums is also passed on to eligible Accumulation and Retained Benefit members by deduction from their accounts. Please refer to the Plan s Product Disclosure Statement for more details. Indexation of fees The withdrawal fee, establishment fee (currently nil), and the switching fee and Family Law fees may be indexed in the future as the Plan s costs increase over time. Fee increases (other than indexation) The Trustee has the right to increase fees at any time. You will receive at least 30 days notice of any increase in fees. Surcharge An additional tax known as Surcharge may apply to certain contributions and some termination payments made by your employer for the financial years The Surcharge has now been removed on contributions and termination payments made on or after 1 July Although the Surcharge has been removed in respect of contributions made after 1 July 2005, it applies in respect of the period up to 30 June This means that the Australian Taxation Office (ATO) will continue to issue Surcharge assessments and amended Surcharge assessments in respect of contributions and termination payments made before 1 July If the Plan is required to pay Surcharge tax in respect of you, the tax payable is deducted from your account in the Plan. If you roll over benefits into the Plan from another super fund, any liability to pay the Surcharge for contributions made to that fund that has not been paid may be transferred to the Plan. If we receive a Surcharge assessment or amended surcharge assessment after you have left the Plan, we will return it to the ATO. The ATO will either forward it to the fund to which your benefit was paid or to you if your benefit was paid directly to you. 17

18 How your plan works cont... Financial summary This is a summary of the Plan s audited accounts for the year ended 30 June You can request a copy of the audited accounts and auditor s report from the Plan Helpline. Statement of change in financial position $ 000s Net assets at 30 June ,987,349 Plus Net investment revenue 38,730 Employer contributions 84,423 Member contributions 9,923 Transfers from other funds 9,191 Total revenue 142,267 Less Benefits paid 135,526 General administration expenses 2,849 Income tax benefit 7,006 Group life premium 215 Total expenses 145,596 Equals Net Assets at 30 June ,984,020 Statement of financial position at 30 June 2016 Assets $ 000s Investments 1,996,573 Other assets 247 Total assets 1,996,820 Less Liabilities Benefits payable 3,214 Provision for income tax 8,242 Other liabilities 1,344 Total liabilities 12,800 Equals Net assets at 30 June ,984,020 Represented by: Member funds 1,974,490 Liability for unpaid TPD claims 4,500 Operational risk reserve financial requirement reserve* 5,030 *The Alcoa Plan is required by law to maintain an Operational Risk Financial Reserve (ORFR). The purpose of the Reserve is to provide funding for incidents where loss may arise from operational risks. To comply with the legislation the Alcoa Plan must establish a reserve of 0.25% of Plan assets which is around $4.2m. The Alcoa Plan introduced an ORFR Levy which applies to all members of the Alcoa Plan. The Levy commenced in the Alcoa Plan on 1 January 2014 and is required to be established by 30 June The Plan has reached its target reserve amount by 30 June Movements in the ORFR are set out below: Operational Risk Financial Reserve 18 As at 30 June 2014 As at 30 June 2015 As at 30 June 2016 $930,000 $2,964,429 $5,030,041

19 Your 2016 super update From a superannuation changes viewpoint, the major event of was the May 2016 federal Budget, with the Government announcing an extensive package of reforms aimed at making the superannuation system fairer, more flexible and more sustainable. The Government s response to the recommendations of the Financial System Inquiry, which was announced in October 2015, is also expected to lead to other significant superannuation changes over time. The following sections first outline reforms that came into effect recently or take effect soon. The May 2016 Budget superannuation changes that the Government is proceeding with are then briefly set out followed by an overview of the Government s response to the superannuation recommendations of the Financial System Inquiry. The final section notes a further proposed reform that is yet to be legislated. IMPORTANT: At the time of preparing this Annual Report, the proposed superannuation changes in the May 2016 Budget and subsequent superannuation changes announced by the Government had not been legislated and they may be amended before being legislated. Please contact the Helpline for current status. Recent and upcoming changes under current legislation Changes in age pension assets and income tests From 1 January 2016, the proportion of a defined benefit pension paid from both corporate and public sector superannuation funds which is exempted from the age pension income test has been capped at 10%. From 1 January 2017, the age pension assets test will be varied so that: The level of assets which can be held before they start to impact the age pension will be increased, which will result in an increase in the age pension for some retirees. The rate at which the age pension is reduced for each $1,000 of additional assets will be increased from $1.50 to $3.00 per fortnight. This will significantly reduce the age pension for some pensioners. Both of these changes were announced in the May 2015 federal Budget. Concessional contributions limit for The concessional (before tax) contribution limit for is $35,000 for those aged 50 or over at 30 June Concessional contributions include employer and salary sacrifice contributions. The cap for younger people is $30,000. IMPORTANT: The May 2016 Budget outlines changes that, if implemented as proposed, would reduce the concessional contribution limit for all ages for and later years. Non-concessional contributions limit for The non-concessional (post tax) contribution limit for is $180,000 (the same as for ). However, a member under age 65 on 1 July 2016 can (unless they have already done so in the prior two years) generally bring forward two years of non-concessional contributions and make non-concessional contributions of up to $540,000 in This bring-forward provision will automatically be triggered if non-concessional contributions of more than $180,000 are made in IMPORTANT: Following the May 2016 Budget, the Government has announced changes that, if implemented as proposed, would affect the non-concessional contributions limit for and later years. Lost super accounts The account balance threshold for lost super to be transferred to the ATO increased from $2,000 to $4,000 from 31 December 2015 and will increase to $6,000 from 31 December These accounts will attract an interest rate equal to increases in the Consumer Price Index (CPI) after being transferred to the ATO. The following changes were announced in (or following) the May 2016 Budget: Superannuation objective: The Government proposes to enshrine in legislation a superannuation objective to provide income in retirement to substitute or supplement the Age Pension. Non-concessional contribution limit: From 1 July 2017, the Government proposes to reduce the annual non-concessional contribution limits for all ages to $100,000, allowing a bring-forward amount of $300,000 for those aged under 65 unless they brought forward contributions in or whereupon transitional arrangements will apply. Members with a superannuation balance of $1.6 million or more will no longer be eligible to make post tax contributions and members with a balance close to $1.6 million will only be able to bring forward contributions that take their balance to $1.6 million. They will then not be able to make further post tax contributions. Co-contribution: From 1 July 2017, the Government proposes that individuals will not be eligible for the government co-contribution in an income year if their non-concessional contributions exceed their limit for the year or if their superannuation balance is $1.6 million or more. Annual concessional contribution limit reduction: From 1 July 2017, the Government proposes to reduce the annual concessional contributions limits for all ages to $25,

20 Your 2016 super update cont... High income concessional contributions threshold: From 1 July 2017, the Government proposes to lower the income threshold at which high income earners pay additional contributions tax from $300,000 to $250,000. Catch-up concessional contributions: From 1 July 2018, the Government proposes to allow individuals with superannuation balances less than $500,000 that have not reached their annual concessional contributions caps in 2019/20 or later years to make catch up contributions of any unused amounts that have accrued over the five previous years (not counting years prior to 2018/19). Spouse contributions tax offset: From 1 July 2017, the Government proposes to raise the income threshold for the low income spouse to qualify for the maximum spouse contributions tax offset from $10,800 to $37,000. $1.6 million superannuation pension transfer balance cap: From 1 July 2017, the Government proposes to introduce a $1.6 million cap on the amount that individuals can transfer into a superannuation pension account that has tax-exempt investment earnings. Those with pension accounts above $1.6 million at 1 July 2017 would need to transfer the excess to a taxed superannuation account or withdraw it from super. Low income superannuation tax offset: From 1 July 2017, the Government proposes to introduce a Low income superannuation tax offset of up to $500 to offset tax on concessional contributions for a member with an adjusted taxable income up to $37,000. This is to replace the existing Low Income Superannuation Contribution which applies for contributions made up to 30 June Removal of anti-detriment provision: From 1 July 2017, the Government will remove the anti-detriment provision in respect of death benefits from superannuation. This provision allowed some death benefits to be augmented to offset the contributions tax introduced in Transition-to-retirement pensions: From 1 July 2017, the Government proposes to remove the tax exemption on earnings from assets supporting Transition to Retirement Income Streams and also remove the ability for individuals to treat superannuation income stream payments as lump sums for tax purposes. Tax deduction for personal superannuation contributions: From 1 July 2017, the Government proposes to allow all individuals under age 75 (including those aged 65 to 74 who meet the work test) to claim an income tax deduction for any post tax personal contributions they make to superannuation. This option is currently restricted to those who are largely self-employed. Concessions for deferred pension products: From 1 July 2017, the Government proposes to extend the tax-exemption on investment earnings to deferred pension products that meet rules such as restrictions on access to capital. Notice requirements: From 1 July 2017, the Government proposes to reduce some notice requirements for superannuation funds and individuals where superannuation benefits become payable for defined benefit interests. The Government will also permit the ATO to combine its notices on more occasions. Departing Australia superannuation payment tax: From 1 July 2017, the Government proposes to increase the rate of the departing Australia superannuation payments tax to 95 per cent for working holiday makers. Government response to Financial System Inquiry Report On 20 October 2015, the Government released its response to the Financial System Inquiry report. We have outlined below the Government s response to some of the Inquiry s recommendations relating to superannuation: Objective of the Superannuation System: The Government agreed with the Inquiry s recommendation to enshrine the objective of the superannuation system in legislation. It subsequently announced the proposed objective in the May 2016 Budget (see above). The objective will serve as a guide to policy-makers, regulators, industry and the community about superannuation s fundamental purpose. Allocation of new default members and improving efficiency: The Inquiry recommended the introduction of a formal competitive process to allocate new default fund members to MySuper products, unless a review by 2020 concludes the Stronger Super reforms have been effective in significantly improving competition and efficiency in the super system. The Government has asked the Productivity Commission to undertake (i) a study to develop criteria to assess the efficiency and competitiveness of the superannuation system and (ii) a public inquiry to develop alternative models for a formal competitive process for allocating default fund members to products. Both tasks will inform a review of the efficiency and competitiveness of the superannuation system, which the Commission will be asked to undertake following the full implementation of the MySuper reforms (after 1 July 2017). Retirement Phase of Superannuation: The Inquiry recommended super trustees be required to pre-select a comprehensive income product for retirement (CIPR) for members. The product would commence on the member s instruction, or the member may choose to take their benefits in another way. Impediments to product development should be removed. The Government has agreed to support the development of CIPRs and will facilitate trustees pre-selecting these products for members. Further consultation is to occur during