Annual Report. IAG & NRMA Superannuation Plan. for the year ended 30 June 2012

Transcription

1 IAG & NRMA Superannuation Plan Annual Report for the year ended 30 June 2012 S YOUR Plan website: Plan Helpline: (1300 IAG NRM) IAG & NRMA Superannuation Pty Limited (ABN ) is the Trustee of the IAG & NRMA Superannuation Plan (ABN ) and the issuer of this Annual Report. GPO Box 4303, Melbourne VIC 3001.

2 Table of contents 1 3 Plan facts and figures Investment returns S 4 Market round-up The Plan s investment strategy and objectives How the Plan s investments are managed How the Plan s assets are invested Large assets of the Plan Use of derivatives FOR ACCUMULATION accounts AND RETIREMENT INCOME STREAM accounts 8 Your benefit Your investment purchases units Recent investment returns YOUR 9 Australian Shares Option Shares Option Growth and Pension Growth Options Balanced and Pension Balanced Options Conservative and Pension Conservative Options Cash and Pension Cash Options 16 Investment performance benchmarks FOR Defined 16 Comparison of annual effective rates of net return and declared rates Defined leaving during the year 18 The Plan s financial statements Accounts as at 30 June 2012 Sub-plan reporting The Plan s financial position 20 The Trustee Changes to the Trustee over the year Meeting attendance A chance to have your say Indemnity insurance Trust Deed and Rules Concessional tax treatment Management assistance 22 Receiving your benefit as a lump sum Receiving your benefit as an allocated pension Receiving your benefit as a lifetime pension Eligible rollover fund and unclaimed money Contribution surcharge tax Restrictions on when you can access your benefits 24 Changes already in place Announced changes 26 Resolving disputes and complaints If you d like more information Questions? S YOUR

3 A message from the Trustee Dear Member, We are pleased to bring you the 2012 Annual Report for the IAG & NRMA Superannuation Plan. Change has become a constant in the superannuation environment and much of our activity over the last 12 months has been in response to ongoing legislative activity. The Trustee has continued to work through these various changes to ensure we are well positioned to meet the new Stronger Super and other legislative and regulatory requirements. Here is an overview of the key activities we ve undertaken over the year: S The Plan s investment performance Four of the Plan s six investment options delivered positive returns over the 2011/12 year, with only the single asset class options of Australian Shares and Shares not making it into the black. It is essential to look at the Plan s performance over the longer term to see more clearly how it has been performing. Compound average annual returns over 10 years are in the vicinity of 5% p.a. for the four options that have been available for this period. (Cash and Australian Shares only became available from 1 July 2005.) Uncertainty across the investment markets has continued to test the nerves of investors, with fluctuating sentiment impacting returns for another year. We look back at the investment markets in detail on 4 and outline some of the factors influencing the current investment landscape. Correction of unit pricing errors During the year, the Trustee identified two errors which affected the unit prices for certain Plan investment options over several weeks. Both of these errors related to the treatment of tax in the calculation of the unit prices by the Plan s custodian. The cause of the errors has been addressed and steps taken to minimise the risk of a recurrence. Following identification of the errors, additional amounts plus interest were credited to the accounts of those members who had been adversely affected. These additional amounts have been added to the earnings shown on the 2012 annual benefit statements. Members who left the Plan and received lower benefits than should have been paid are also being compensated where the shortfall was more than $10. The costs of the rectification will be paid by the Plan s custodian and no member of the Plan will be worse off as a result of these errors. 1 IAG & NRMA Superannuation Plan Annual Report 2012 A new insurer, more options and better value-for-money The Trustee has reviewed the Plan s insurance arrangements, appointing MLC as the Plan s new insurance provider from 1 February Members are now offered even better cover with additional features and flexibility. The Plan moved from a self-insured arrangement for salary continuance benefits to insuring this benefit with MLC, which has resulted in more generous monthly benefits and payment periods for members. A new independent director and chair Following the retirement of the Hon Susan Ryan AO as a director and chair of the Trustee, the remaining directors selected Michelle Tredenick as the new independent director of the Trustee, with effect from 15 March Ms Tredenick brings with her a wealth of experience, gained in her current role as a director of the Bank of Queensland and having previously served on a number of boards including NAB Group Superannuation Fund Pty Limited and the Bank of New Zealand Investment Management Limited. We thank Ms Ryan for her leadership and invaluable contribution to the board for more than 10 years and wish her every success in her new role as Australia s first Age Discrimination Commissioner. Educational webinars now available on the Plan website A number of short, easy-to-understand educational webinars are now available on the Plan website to help you understand more about your super. Understanding market volatility focuses on how your super is affected by the share market, explaining the reasons behind market fluctuations and the impact on various asset types. Insurance is also explained in the webinar, Why personal insurance? Other webinar topics cover contribution strategies and the ins and outs of transition to retirement pensions. You ll find the webinars under the Webinars & planning tools tab on the website and can view them any time at your own pace. YOUR

4 Welcome to our MotorServe members The Trustee is delighted that the IAG & NRMA Superannuation Plan is now the default super plan for all new MotorServe employees. Existing MotorServe employees were invited to join the IAG & NRMA Super Plan to take advantage of the Plan s features, particularly its insurance benefits. Stronger Super The Trustee has continued to work with our advisers to understand the requirements and implications of the government s Stronger Super legislation to ensure the Plan s readiness for these changes. We have made solid progress in our preparations. However, there is still considerable work to be undertaken in the coming year. Shorter product disclosure statement (PDS) now available The shorter PDS regime took effect from June This means that all super funds must now provide new members with a shorter eight PDS document. The new heavily prescribed format is intended to allow members to easily compare Plan features with other funds, as well as being a simpler document to read and understand. For more detailed information, visit the Plan website to view and download the new PDS and supporting documents. Reduction of concessional contribution limits The 2012 Federal Budget brought few surprises. However, the deferral until 1 July 2014 of the higher concessional contribution limits for members aged 50 and over with account balances under $500,000 was disappointing. This will necessitate a revision of some members saving strategies. This change highlights the need for careful long-term planning and expert financial advice to help reach savings goals, while allowing for the reduced concessional limits. Nevertheless, members can still use the Plan s transition to retirement pension and take advantage of super s significant tax advantages. Remember, you can call the Plan Helpline to receive limited personal financial advice over the phone. If you need more detailed advice, you can also make a face-to-face appointment through the Plan Helpline. Read the Super News section of this report for a more detailed overview of the key proposals and changes to superannuation. Up to date personal details While you are on the Plan website, why not sign in and ensure your and mobile phone details are up to date. You will need your member number and PIN. If you don t have a PIN, you can call the Plan Helpline on The Plan is committed to reducing our carbon footprint and sending information electronically means not only do you receive it faster, we save money through reduced print and mailing costs, which is a big plus for you and the environment. Please support our commitment by visiting the Plan website and updating your details. IAG & NRMA Superannuation Plan your Plan for life More and more of our members are finding that, as an IAG & NRMA Super Plan member, you have a super plan for life. If you change your employer, you can stay with the Plan and have your new employer pay your superannuation contributions into the IAG & NRMA Plan. Download the Reserved member brochure, When you re on a good thing, make the most of it, from the Plan website for more information or call the Plan Helpline. If you re looking to retire, consider taking advantage of the Plan s Transition to Retirement Income Stream or an account based pension. There s no need to change super funds. You can download a copy of the Retirement Income Stream PDS from the Plan website. To find out more about transitioning to retirement and for personal advice, at no cost over the phone, call the Plan Helpline. If you have a question Please take the time to read this Annual Report. It contains information about the Plan s investment performance for the year to 30 June 2012, the Plan s financial situation and an overview of what s new in super. Understanding superannuation and how you can make the most of it can sometimes feel overwhelming. But we re here to help! Visit the Plan website, or call the Plan Helpline on to have any questions answered. Sincerely, Troy Maguire Senior Manager, Superannuation IAG & NRMA Superannuation Pty Limited S YOUR 2 IAG & NRMA Superannuation Plan Annual Report 2012

5 The Plan at a glance This section provides a brief summary of the operations of the Plan during the year. Further details are set out later in the report. Plan facts and figures Plan membership as at 30 June 2012 Accumulation 8,665 Defined Benefit 460 Lifetime Pension 185 Reserved 5,037 Retirement Income Stream 74 Total 14,421 Net Plan assets as at 30 June 2012 were in excess of $1,150 million. About your Plan In this report, a reference to: IAG means a company in the Insurance Australia Group; NRMA means the National Roads and Motorists Association Limited and its related bodies corporate. The Plan has two sub-plans: The IAG sub-plan for current and former employees and officers (and their eligible spouses) of companies in the Insurance Australia Group, and The NRMA sub-plan for current and former employees and officers (and their eligible spouses) of the National Roads and Motorists Association and its related bodies corporate. Generally, if you joined the Plan after 1 January 1999, you belong to the Accumulation section of the Plan. You will also be in the Accumulation section if you chose to transfer to this section. Otherwise, you belong to the Defined Benefits section. Some members who transferred from the SGIC Staff Superannuation Fund, the RACV Superannuation Fund, the CGU Superannuation Fund or the CGU-VACC Pension Fund are also Defined. In this Annual Report, unless noted otherwise, references to Accumulation members generally cover Reserved members, Retained members, Spouse members and Retirement Income Stream members. Separate investment performance information is provided for Retirement Income Stream members. Investment returns The following is a summary of the investment returns for the year as well as the average returns over the last five years and the last ten years. Accumulation members Investment option Annual return* for the year ended 30 June 2012 (%) Compound average annual rate of return over the last five years (% p.a.) Compound average annual rate of return over the last ten years (% p.a.) Australian Shares n/a Shares Growth Balanced Conservative Cash n/a * This return is the effective rate of net return after taxes and investment related fees and expenses. Retirement Income Stream Investment option Annual return* for the year ended 30 June 2012 (%) Compound average annual rate of return over the last five years** (% p.a.) Pension Growth Pension Balanced Pension Conservative Pension Cash * This return is the effective net rate of return, which is the actual rate of return after investment related fees, the investment management fee and expenses (no tax is levied). ** These options were introduced on 1 July 2007, so longer term performance is only available since that date. Defined Credited to member accounts* Earned on Plan assets Annual return for the year ended 30 June 2012 (%) Compound average annual rate of return over the last five years (% p.a.) Compound average annual rate of return over the last ten years (% p.a.) * This return is the effective rate of net return for compulsory account balances of Defined. Refer 16 for further information. It is important to understand that, while past performance is useful as a guide in reviewing the historical investment returns, it should not be relied upon as indicative of future performance and does not guarantee such performance. S YOUR 3 IAG & NRMA Superannuation Plan Annual Report 2012

6 Your Plan s investments Market round-up The year ended 30 June 2012 was difficult for investment markets both in Australia and overseas. The combination of continuing European debt concerns, a flat US economy and lower growth in China triggered falling share markets globally. The broader Australian share market lost 7.0% over the year while international shares remained largely unchanged. Conversely, Australian fixed interest investments (i.e. government and corporate bonds) benefited from the Reserve Bank s reduction in interest rates and from investors seeking safe haven investments. The international demand for high quality Australian fixed interest drove the yields on 10 year government bonds below 3% for the first time for many years. Both Australian and international property investments also performed well over the year. The Growth option, the Plan s largest investment option (and default option where no specific investment choice is nominated), managed a small positive return of 0.5% for the year after fees and taxes. The corresponding returns for the Balanced and Conservative options were 2.5% and 4.9%, respectively, showing the benefits of diversification across a range of asset classes. The Cash option delivered a return of 3.9% after fees and taxes. Not surprisingly, the Plan s Shares and Australian Shares options fell 5.3% and 7.4%, respectively, reflecting returns on the share markets in which they were invested. Details of longer term superannuation and pension option returns are included on 8 in this report. During the year, the Trustee implemented an emerging market share investment strategy seeking to benefit from higher expected growth economies such as China, India, Brazil, Russia, Taiwan and South Korea. These countries do not currently form part of the developed market benchmark for international shares. Two small hedge fund investments were also made this year to diversify the Plan s reliance on listed shares. Looking forward, continued volatile investment markets are expected during the 2013 financial year. Activity in the Chinese economy is likely to continue to slow and the Eurozone is a long way from solving its problems. Against this uncertain background, the Trustee is currently maintaining asset allocations in the various investment options at close to their benchmark levels (see s 10-15). The Trustee is also hedging foreign currency exposures below the neutral position with the view that the Australian Dollar is currently overvalued (and therefore more likely to fall than rise against other currencies over the medium term). While it is difficult not to be concerned about recent market fluctuations, superannuation is a long-term investment, even for those approaching their retirement. Markets invariably perform in cycles and, while the timing of these cycles may vary, markets have historically recovered from periodic lows to establish new highs. As we have seen following the global financial crisis, the market can move from a downturn to an upturn quickly. It is worth noting that, while the values of growth assets (e.g. shares and property) tend to vary the most with downturns, past performance has shown that such growth assets have typically delivered stronger returns over the longer term. Fortunately, a significant benefit of our Plan is the variety of investment options available to members to suit all level of risk appetite. Before making any change to your investment choices, you should speak to a licensed or appropriately qualified financial adviser. For further information about investment choices and for general advice, you can call the Plan Helpline on S YOUR 4 IAG & NRMA Superannuation Plan Annual Report 2012

7 The Plan s investment strategy and objectives For each investment option, the Trustee has set an investment strategy and objective. Please note that the objectives are not a forecast or guarantee of future performance. The Trustee regularly monitors each investment option s performance against its objective. There are different levels of investment risk associated with each of the Plan s investment options. Please refer to the Plan PDS or the Retirement Income Streams PDS for more information. You can download a copy from the Plan website, or you can call the Plan Helpline on Although the Plan offers investment choice for members, the Trustee retains overall responsibility for the investment of the assets of the various options in line with their specific investment objectives. Members can choose the investment option/s that suit their individual needs and preferences. For defined benefit members, investment choice only applies in respect of any additional accumulation accounts in the Plan. How the Plan s investments are managed Specialist investment managers appointed by the Trustee invest in securities such as Australian and overseas shares, property trusts, fixed interest securities, cash and short-term securities or any other investments in line with their appointment. This can be done directly or through pooled funds. The Trustee, through its asset consultants, monitors the activities and performance of all the external managers. During 2011/2012, the Trustee established new overseas shares investments through the Investec Global Emerging Markets Equity Fund and the Wells Fargo Emerging Markets Equity Fund. New alternative investments were established in the AQR Wholesale Delta Fund and the GMO Systematic Global Macro Fund. S YOUR

8 How the Plan s assets are invested This table shows the proportion of Plan s assets invested with each investment manager by asset class. Proportion of total assets as at 30 June Asset Class Investment Manager 30 June 2012 (%) 30 June 2011 (%) Cash IAGAM Cash Management Trust Sub-total Fixed Interest IAGAM Fixed Interest Trust Sub-total Australian Shares Northward Capital BT Core Australian Equity Alleron Northcape Small Cap Dimensional Australian Value Trust Sub-total Overseas Shares IAGAM World Equity Trust Generation IM Global Equity Fund Investec Global Emerging Markets Equity Fund Wells Fargo Emerging Markets Equity Fund Sub-total Property Invesco Global Property APPF Retail Unlisted Property Trust APPF Industrial Unlisted Property Trust GPT Wholesale Office Fund Sub-total Alternative Investments IAGAM Sustainable Investments Trust IAGAM Private Equity Trust AQR Wholesale Delta Fund GMO Systematic Global Macro Fund Sub-total Total Notes: 1. Investment manager engaged by the Trustee to select and manage an investment portfolio across a range of Australian equities investments. 2. IAGAM has appointed specialist international share managers to manage the World Equity Trust s assets. These managers are: Arrowstreet Capital, T. Rowe Price Global Equity Fund and MFS. 3. Investment manager engaged by the Trustee to select and manage an investment portfolio across a range of global listed property investments. 4. The IAGAM Sustainable Investments Trust is invested in the Generation Climate Solutions Fund. 5. Horsley Bridge Partners has been appointed to manage the assets of the IAGAM Private Equity Trust. S YOUR 6 IAG & NRMA Superannuation Plan Annual Report 2012

9 Large assets of the Plan Part of the Plan s assets are invested under mandates by investment managers appointed by the Trustee. The securities covered by these mandates remain in the Trustee s name. No individual security under the mandates represented more than 5% of the Plan s total assets. The remaining assets of the Plan primarily consist of units in unit trusts or other pooled funds. The Plan s holdings in the IAGAM Cash Management Trust, the IAGAM World Equity Trust, the IAGAM Fixed Interest Trust and the Dimensional Australian Value Trust each exceeded 5% of the Plan s total assets. Use of derivatives Derivatives are special contracts e.g. futures and forward exchange rate agreements which can be used to manage the risk of changes in the future value of investments. The investment manager is permitted to use derivatives in the management of the Plan assets. These instruments are typically used for the following purposes: hedging; seeking to protect against adverse changes in the market value of assets and movements in currency exchange rates to obtain prices that may not be available if assets are bought directly to reduce the costs of buying and selling assets directly to change the term of a fixed interest security or portfolio to manage cash flows efficiently to manage asset weighting for the different asset classes. Derivatives may not be used for speculative purposes. The Plan held derivatives during the year ended 30 June 2012 in respect of its Australian shares, overseas shares and fixed interest investments. The Plan s exposure to derivatives is limited to 20% of the market value of the assets of the Plan. Within each asset class, exposure to derivatives is limited to 20% of the market value of the asset class. The Plan also holds derivatives to hedge part of the currency exposure in relation to its investment in international shares and alternative investments. Derivatives are not used for speculative purposes. S YOUR 7 IAG & NRMA Superannuation Plan Annual Report 2012

10 Investment information for Accumulation accounts and Retirement Income Stream accounts Your benefit For Accumulation members, your super benefit is your member account balance. For Retirement Income Stream members, it is your retirement income stream account balance. Your account is invested (after allowing for tax and expenses) according to your choice of investment option(s). So the amount you ultimately receive is directly linked to the investment performance of your selected option or mix of options. For Defined, your additional accumulation accounts are invested according to your choice of investment option(s). Your investment purchases units Your account balance is applied to buy what are known as units in your chosen investment option(s). The number of units bought depends on the unit price at the relevant time. For example, if your account balance is $1,000 and the unit price of your selected investment option is $1.00 at that time, then 1,000 units would be bought on your behalf. Unit prices are generally calculated daily and will go up and down as investment markets shift, affecting the value of your units and consequently the value of your investment. The unit price for each option also takes into account tax, investment related fees and other expenses. (Investment earnings in the pension investment options are not taxed.) The value of your account balance at any time is simply the number of units you have multiplied by their unit price at that time. Net returns on your chosen investment options (which may be positive or negative) will be reflected via changes in unit prices. If the net returns for the option are positive, the unit price will increase. If the net investment returns are negative (a loss), the unit price will decrease. The effective rate of net return for a given period can therefore be determined by the proportionate increase (if a positive return) or decrease (if a negative return) in the unit prices from the start to the end of the period. Daily unit prices are posted on the Plan s website. S YOUR Recent investment returns Accumulation accounts The following table shows the relevant returns for each investment option for the past five years ended 30 June plus the average over that period. The annual effective rate of net return is earnings after taxes and investment related fees and expenses. Retirement Income Stream accounts The following table shows the relevant returns for each pension investment option available to retirement income stream members for the past five years ended 30 June plus the average over that period. The annual effective rate of net return is earnings after investment related fees and expenses. No tax is levied on allocated pension accounts. However, these accounts still received the benefit of franking credits attached to dividends on Australian shares. Investment option Effective rate of net earnings (%) Year ended 30 June Compound average rate of net return over the past five years (% p.a.) Australian Shares Shares Growth Balanced Conservative Cash Investment option Effective rate of net earnings (%) Year ended 30 June Pension Growth Pension Balanced Pension Conservative Compound average rate of net return over the past five years (% p.a.) Pension Cash Investment returns for an investment option may be positive or negative. The value of your investment depends on the performance of your chosen option(s). Each option bears a different level of risk, depending on the mix of asset classes that make up the portfolio. More information about the associated risks and allocation of asset classes for each option are detailed on the following s of this report. 8 IAG & NRMA Superannuation Plan Annual Report 2012

11 Your investment options in detail Information in this section applies to Accumulation accounts and Retirement Income Stream accounts* Each of the Plan s options has a specific investment objective and strategy set by the Trustee. The objectives are not a forecast or guarantee of future performance. Each option has a different risk profile and the Trustee s aim is to achieve the best possible returns relative to the level of risk associated with investing in that option. The investment returns for any option fluctuate depending on the volatility of investment markets and the performance of the underlying asset classes. The performance of each asset type is measured against a benchmark set by the Trustee which reviews this performance regularly. The target asset allocation for each option is the proportion of that option that would ideally be invested in each asset class if the Trustee had no particular view that one asset class was likely to outperform any other asset class. However, within the ranges specified in this Annual Report, the Trustee may decide to invest more than the target allocation in an asset class it expects to outperform and less in one it expects to underperform. The aim is to maintain the asset allocations for each investment option within the target ranges stated in this Annual Report. Nevertheless, from time to time, market movements and/or cash flows into or out of an option may cause the actual allocation temporarily to fall outside the target ranges. This will normally be addressed at the next available rebalancing opportunity. When considering the following information, please note that past performance for each investment option should not be relied upon as indicative of future performance and does not guarantee such performance. * Retirement Income Stream members can select from the Pension Growth, Pension Balanced, Pension Conservative and Pension Cash Options. S YOUR 9 IAG & NRMA Superannuation Plan Annual Report 2012

12 Australian Shares Option Strategy Aims to invest 100% of assets in Australian shares (apart from a small cash holding). Investment objective This option aims to achieve a rate of return (net of fees and tax) of at least 5.0% p.a. above inflation (as measured by the Consumer Price Index) over rolling ten year periods. Level of risk high Likelihood of a loss in any one year period is approximately five in twenty. Because shares are market driven investments which respond quickly to changes in market conditions, shares are highly volatile and investors can expect performance to show periods of significantly high growth, as well as periods of poor or even negative returns. Over a longer period of time, shares generally can be expected to produce higher returns than any other asset class. The performance of the Australian Shares Option is measured against a benchmark portfolio, which consists of the target asset allocation as shown below. Target asset allocation Benchmark % Range % Australian shares* Cash* Where the assets were invested as at 30 June 2012: Australian shares 93.9% Cash 6.1% As at 30 June 2012, the Australian Shares Option had investment assets of $30.2M. Recent investment returns The annual effective rate of net return (i.e. actual investment returns less tax and expenses) for the past five years was: Year ending 30 June Rate of return (% p.a.) Five year compound average net rate of return -3.7 S YOUR 10 IAG & NRMA Superannuation Plan Annual Report 2012

13 Shares Option Strategy Aims to invest approximately half the assets in Australian shares and half in overseas shares (apart from a small cash holding). By combining overseas shares with Australian Shares, this option provides greater diversification across countries and industries than the Australian Shares Option. Investment objective This option aims to achieve a rate of return (net of fees and tax) of at least 5.0% p.a. above inflation (as measured by the Consumer Price Index) over rolling ten year periods. Level of risk high Likelihood of a loss in any one year period is approximately five in twenty. Because shares are market driven investments which respond quickly to changes in market conditions, shares are highly volatile and investors can expect performance to show periods of significantly high growth, as well as periods of poor or even negative returns. Over a longer period of time, shares generally can be expected to produce higher returns than any other asset class. Exposure to overseas shares means that there is also a currency risk although the Trustee has chosen to hedge part of this risk. The performance of the Shares Option is measured against a benchmark portfolio, which consists of the target asset allocation as shown below. The Trustee may vary the actual asset allocation at any time either up or down within the below ranges. Target asset allocation Benchmark % Range % Australian shares* Overseas shares* Cash* * Prior to 2009, the benchmark allocation was 65% Australian shares and 35% overseas shares. Where the assets were invested as at 30 June 2012: Australian shares 48.9% Overseas shares 49.4% Cash 1.7% As at 30 June 2012, the Shares Option had investment assets of $68.0M. Recent investment returns The annual effective rate of net return (i.e. investment returns less tax and fees) for the last five years were: Year ending 30 June Rate of return (% p.a.) Five year compound average net rate of return -3.4 S YOUR 11 IAG & NRMA Superannuation Plan Annual Report 2012

14 Growth and Pension Growth Options Strategy Aims to invest the majority of the portfolio (70%), in growth assets such as Australian and overseas shares and property trusts, and the remaining (30%) in less volatile assets such as fixed interest and cash. Investment objective These options aim to achieve a rate of return (net of fees and tax) of at least 4.0% p.a. above inflation (as measured by the Consumer Price Index) over rolling seven year periods. Whilst both the Accumulation Growth and Pension Growth Options are invested in the same pool of assets, returns will differ between them because earnings in the Pension Growth Option are not taxed. Level of risk medium to high Likelihood of a loss in any one year period is approximately four in twenty. While a large portion of the assets is invested in the more volatile share markets, this is partially offset by the stability of the fixed interest and cash components of the portfolio. For this reason, some fluctuation from year to year can be expected. However this fluctuation is not expected to be as great as for the Australian Shares Option and the Shares Option. The performance of the Growth Option and Pension Growth Option are measured against a benchmark portfolio, which consists of the target asset allocation shown below. The Trustee may vary the actual asset allocation at any time either up or down within the below ranges. Target asset allocation Benchmark % Range % Australian shares Overseas shares Property Alternatives Fixed interest Cash Where the assets were invested as at 30 June 2012: Australian shares 28.0% Overseas shares 25.1% Property 11.9% Alternatives 5.4% Fixed interest 25.5% Cash 4.1% As at 30 June 2012, these options had investment assets of, in total, $777.7M. This includes the assets in respect of Defined as explained on 16. Recent investment returns The return for the Growth Option is net of tax and fees. The return for the Pension Growth Option is also net of fees. Whilst no tax is payable on the assets backing the Pension Growth Option, it receives the benefit of franking credits attached to dividends on Australian shares. Year ending 30 June Growth Option Rate of return (% p.a.) Pension Growth Option Five year compound average net rate of return S YOUR For Accumulation members, the Growth Option is also the default option. This means that this option will apply to your superannuation investment if you do not choose an investment option. The Trustee has chosen the Growth Option as the default option because the Trustee views superannuation as a long-term investment. However, it s important that you individually assess your own situation and retirement planning strategy (for example, if you are near to retirement age), as the default option may not be appropriate for you. You are encouraged to make your own choice between the available options and to seek professional advice. 12 IAG & NRMA Superannuation Plan Annual Report 2012

15 Balanced and Pension Balanced Options Strategy Aims to have 50% of the portfolio in growth assets, which will participate in the higher returns expected from shares, property and alternative assets but will be cushioned from the associated high volatility by an equal allocation (50%) to defensive assets. Investment objective These options aim to achieve a rate of return (net of fees and tax) of a least 3.0% p.a. above inflation (as measured by the Consumer Price Index) over rolling five year periods. Whilst both the Balanced Option and the Pension Balanced Option are invested in the same pool of assets, returns will differ between them because earnings in the Pension Balanced Option are not taxed. Level of risk medium Likelihood of a loss in any one year period is approximately three in twenty. With greater levels of diversification and reduced risk, these options are not expected to experience as high a level of year-onyear volatility in investment returns as the Australian Shares Option, Shares Option or Growth Option. The performance of the Balanced Option and Pension Balanced Option are measured against a benchmark portfolio, which consists of the target asset allocation as shown below. The Trustee may vary the actual asset allocation at any time either up or down within the below ranges. Target asset allocation Benchmark % Range % Australian Shares Overseas Shares Property Alternatives Fixed Interest Cash Where the assets were invested as at 30 June 2012: Australian Shares 21.3% Overseas Shares 18.0% Property 8.1% Alternatives 2.4% Fixed Interest 34.4% Cash 15.8% As at 30 June 2012, these options had investment assets of, in total, $92.2M. Recent investment returns The return for the Balanced Option is net of tax and fees. The return for the Pension Balanced Option is also net of fees. Whilst no tax is payable on the assets backing the Pension Balanced Option, it receives the benefit of franking credits attached to dividends on Australian shares. Year ending 30 June Balanced Option Rate of return (% p.a.) Pension Balanced Option Five year compound average net rate of return S YOUR 13 IAG & NRMA Superannuation Plan Annual Report 2012

16 Conservative and Pension Conservative Options Strategy Aims to invest mainly in fixed interest bonds and cash, which are stable investments producing a more predictable return than the Australian Shares, Shares, Growth and Balanced Options in the longer term. The growth component of this portfolio is achieved by a relatively small investment in shares and property. Investment objective These options aim to achieve a rate of return (fees and tax) of at least 2.0% p.a. above inflation (as measured by the Consumer Price Index) over rolling three year periods. Whilst both the Conservative Option and the Pension Conservative Option are invested in the same pool of assets, returns will differ between them because earnings in the Pension Conservative Option are not taxed. Level of risk medium to low Likelihood of a loss in any one year period is approximately one in twenty. Investment returns are expected to remain more stable in the short-term than the returns of the all the other options except the Cash Option. The performance of the Conservative Option and Pension Conservative Option are measured against a benchmark portfolio, which consists of the target asset allocation as shown below. The Trustee may vary the actual asset allocation at any time either up or down within the below ranges. Target asset allocation Benchmark % Range % Australian shares Overseas shares Property Fixed Interest Cash Where the assets were invested as at 30 June 2012: Australian Shares 9.0% Overseas Shares 10.1% Property 5.1% Fixed Interest 44.9% Cash 30.9% As at 30 June 2012, these options had investment assets of, in total, $74.5M. Recent investment returns The return for the Conservative Option is net of tax and fees. The return for the Pension Conservative Option is also net of fees. Whilst no tax is payable on the assets backing the Pension Conservative Option, it receives the benefit of franking credits attached to dividends on Australian shares. Year ending 30 June Conservative Option Rate of return (% p.a.) Pension Conservative Option Five year compound average net rate of return S YOUR 14 IAG & NRMA Superannuation Plan Annual Report 2012

17 Cash and Pension Cash Options Strategy Invests solely in deposits in banks, bills of exchange, promissory notes and other short term securities. Cash is the most stable investment with very little risk of negative returns over the short term. However, the long term performance of cash has historically been lower than returns on the other investment options available under the Plan, particularly during periods of high inflation. Investment objective These options aim to provide capital stability and capital preservation by matching the return on the cash benchmark as measured by the UBS Bank Bill Index after allowance for tax. Whilst both the Cash Option and the Pension Cash Options are invested in the same pool of assets, returns will differ between them because earnings in the Pension Cash Option are not taxed. Level of risk low Likelihood of a loss in any one year period is very small, less than one in twenty. Investment returns are expected to remain more stable than the other options over both the short and long term. As this option is invested only in cash, its performance will be measured by the UBS Bank Bill Index, which is the index for cash. Target asset allocation Benchmark % Range % Cash Where the assets were invested as at 30 June 2012: Cash 100% As at 30 June 2012, these options had investment assets of, in total, $106.8M. Recent investment returns The return for the Cash Option is net of tax and fees. The return for the Pension Cash Option is net of fees. However, no tax is payable. Year ending 30 June Cash Option Rate of return (% p.a.) Pension Cash Option Five year compound average net rate of return S YOUR 15 IAG & NRMA Superannuation Plan Annual Report 2012

18 Measuring performance Investment performance benchmarks The investments are reviewed to monitor how they are performing against investment objectives. The following are the benchmarks used by the Trustee to measure the performance of each asset class. Asset type Performance benchmark Australian shares Overseas shares Property Alternatives Fixed interest Cash Composite index consisting of the S&P/ASX 300 Accumulation Index and the S&P/ASX Small Ordinaries Accumulation Index Composite index consisting of the MSCI World (ex Australia) Accumulation Index with net dividends reinvested (50% hedged) and the MSCI Emerging Markets Accumulation Index with net dividends reinvested Composite index consisting of the FTSE EPRA/NAREIT Global REIT Index (100% hedged) and the Mercer IPD Unlisted Property Index UBS Australia Bank Bill Index UBS Australia Composite Bond Index (All Maturities) UBS Australia Bank Bill Index Investment information Information in this section applies to Defined As Defined, some of your benefits may be based on your salary and period of service, and some on your account balances in the Plan. The compulsory account balances of Defined are credited with a declared earning rate. The Trustee has chosen to invest the assets supporting the entitlements of Defined in the Growth Option refer 12. The Trustee has generally determined the declared earning rate by averaging actual returns over three years. However, given recent investment returns, the Trustee has elected to place a floor under the earning rate of 0.01% per annum. As a result, the declared earning rate of 3.7% for the year to 30 June 2012 was lower than the rate that would have reflected the performance of the Growth option over the last three years, as the Trustee recoups the cost of applying the floor during previous years. This approach is known as smoothing and results in less fluctuation in the rate of interest being applied to members accounts than would apply if the actual earnings were applied each year. However, over longer periods, the difference in overall result is substantially reduced. Any additional voluntary account balances are invested in the Cash Option or such other option as chosen by the member. Prior to 1 June 2011, the smoothed rate also applied to these account balances. S YOUR 16 IAG & NRMA Superannuation Plan Annual Report 2012

19 Comparison of annual effective rates of net return and declared rates The Plan s annual effective rate of net investment returns (i.e. actual investment returns less tax and expenses) and declared earning rates since 1990 for account balances of Defined are as follows: Year ended 30 June Effective rate of return (% p.a.) Declared earning rate (% p.a.) Five year compound average rate of return (% p.a.) Ten year compound average rate of return (% p.a.) Twenty year compound average rate of return (% p.a.) Twenty-three year compound average rate of return (% p.a.) S YOUR Note: past performance is not an indicator of future performance Defined leaving during the year For Defined leaving the Plan during the year, before a final earning rate is available, benefits are calculated using an interim rate. The Trustee sets interim rates each quarter. 17 IAG & NRMA Superannuation Plan Annual Report 2012

20 The Plan s financial details The Plan s financial statements A summary of the Plan s audited accounts for the 2011 and 2012 years is shown below. Copies of the audited accounts and the auditor s report are available by contacting the Plan Helpline on see 27 for contact details. Accounts as at 30 June Statement of change in net assets 2012 ($,000) 2011 ($,000) NET ASSETS AT START OF YEAR 1,134,381 1,029,058 Plus Contributions 98,174 98,468 Transfers from other funds 16,113 19,016 Insurance proceeds, rebates and other income 2,338 2,863 Investment income 42,647 51,780 Realised investment gains (losses) (10,475) 26,937 Unrealised investment gains (losses) (29,875) 16,397 Total revenue 118, ,461 Less Benefits paid 79,966 84,875 Administration expenses 4,081 3,986 Insurance premiums 2,957 1,642 Contribution surcharge tax 2 6 Income tax expense 11,458 19,629 Total expenses 98, ,138 NET ASSETS AT END OF YEAR 1,154,839 1,134,381 Statement of net assets 2012 ($,000) 2011 ($,000) ASSETS Investments 1,140,650 1,118,517 Investment income receivable 8,960 12,018 Other receivables Deferred tax asset 11,949 8,876 Total assets 1,161,833 1,140,002 Less LIABILITIES Benefits payable 1, Provisions for income tax 3,976 4,081 Derivatives contracts 207 Other (including share creditors) 1, Total liabilities 6,994 5,621 NET ASSETS AT END OF YEAR 1,154,839 1,134,381 S YOUR 18 IAG & NRMA Superannuation Plan Annual Report 2012

21 2012 Sub-plan reporting In accordance with the Plan s Trust Deed, from 1 December 2003, the Plan has been administered as two sub-plans, the IAG sub-plan and the NRMA sub-plan. The following secondary sub-plan report has been prepared for the financial year to 30 June Statement of change in net assets IAG sub-plan ($,000) NRMA sub-plan ($,000) NET ASSETS AT START OF YEAR 987, ,212 Plus Transfers between sub-plans 178 (178) Contributions 86,732 11,442 Transfers from other funds 14,961 1,152 Investment revenue and changes in net market value of investments 1, Insurance proceeds and rebates 2, Total revenue 105,784 13,138 Less Benefits paid 71,190 8,776 Administration expenses 3, Contribution surcharge tax 2 Insurance premiums 2, Income tax expense 10,358 1,100 Total expenses 87,962 10,502 NET ASSETS AT END OF YEAR 1,004, ,848 Statement of net assets Total assets 1,011, ,782 Less Total liabilities 6, NET ASSETS AT END OF YEAR 1,004, ,848 S YOUR The Plan s financial position As noted earlier, the Plan is administered as two sub-plans, the IAG sub-plan and the NRMA sub-plan, each with separate accounts. The Plan s actuary determines how much each employer needs to contribute to ensure that the respective sub-plans have sufficient assets to pay Defined Benefit entitlements in the future. The required level of employer contributions will vary over time depending on how the value of Defined entitlements compares with the assets attributed to each sub-plan to support those entitlements. The market value of the assets attributed to the IAG sub-plan as at 30 June 2012 covered 98.9% of the value of benefits that would have been paid to members registered in that sub-plan if they all left their employment with IAG on that day. For the NRMA sub-plan, the corresponding percentage coverage was 102.0%. Under superannuation law, a percentage coverage of less than 100% is regarded as an unsatisfactory financial position. This is a situation common to most Defined Benefit superannuation funds in Australia at the current time. In order to restore the financial position to a satisfactory level, the employers have increased their contributions to the Plan based on the recommendations of the Plan s actuary. The Plan s financial position has been notified to the Australian Prudential Regulation Authority (APRA), which is the prudential regulator of superannuation funds. The Trustee, together with the Plan s actuary, continues to carefully monitor the Plan s financial position on an ongoing basis. The Trustee confirms that employer contributions have been paid into the Plan as recommended by the actuary. 19 IAG & NRMA Superannuation Plan Annual Report 2012

22 How your Plan is managed The Trustee The Trustee, IAG & NRMA Superannuation Pty Limited, manages the Plan. The Trustee Board normally has nine directors. Two directors are appointed by Insurance Australia Group Services Pty Limited. Two directors are appointed by National Roads and Motorists Association Limited. Four directors are elected by members of the Plan for a period of three years. One member representative director is elected by NRMA Road Service Patrols and three directors are elected by other employees who are members of the Plan. As at 30 June 2012, there was also one independent director, Michelle Tredenick who was appointed by the other Trustee directors. The directors of the Trustee company as at 30 June 2012 were: Chair and Independent director Michelle Tredenick Company-appointed directors Tom Mooney NRMA Lisa Bray/Nicholas Mowat* NRMA Dennis Fox IAG Carolyn McCann IAG Member-representative directors Mark Gold IAG Christopher Hutchinson IAG Elaine Loo IAG Jonathan Street NRMA Road Service Patrol * Due to a timing error Nicholas Mowat was appointed as a director on 28 June 2012 just prior to Lisa Bray s resignation taking effect on 3 July No meetings of the Trustee were held, nor were any decisions made by the Trustee, during this period. Changes to the Trustee over the year The Hon Susan Ryan AO retired on 9 August Tom Mooney and Carolyn McCann were appointed to the Trustee Board on 21 June 2012, replacing Dianne Day and Nola Watson respectively. On 28 June 2012 Nicholas Mowat was appointed to the Trustee Board replacing Lisa Bray, who resigned on 3 July Our thanks to Susan, Dianne, Nola and Lisa for their contribution while serving on the board. Meeting attendance During the year, four Board meetings were held, together with five meetings of the Risk Management and Compliance Committee and five meetings of the Investment Committee. Attendances were as follows: Board RMCC Investment Committee Susan Ryan AO 0/0 Michelle Tredenick 2/2 Nola Watson 3/3 5/5 Dianne Day 2/3 5/5 4/5 Jonathan Street 3/4 Christopher Hutchinson 4/4 5/5 Elaine Loo 4/4 4/4 Mark Gold 3/4 Dennis Fox 4/4 5/5 Lisa Bray 4/4 Tom Mooney 1/1 Caroyln McCann 1/1 Nicholas Mowat 0/0 As an Alternate Director, Tom Mooney also attended the March 2012 Board and February 2012 Investment Committee meetings as an Alternate for Dianne Day. As an Alternate Director, Carolyn McCann also attended the October 2011 and March 2012 Board meetings as an observer and for the portion of these meetings where Dennis Fox was unable to be present, as an Alternate for Dennis Fox. Directors, Jonathan Street, Dennis Fox and Mark Gold also attended the October 2011 RMCC meeting as observers. S YOUR 20 IAG & NRMA Superannuation Plan Annual Report 2012

23 A chance to have your say As member-representative directors are elected by the members of the Plan, you get the chance to nominate and vote for representatives on the Trustee Board. The Plan has a specific set of rules applying to the appointment and removal of member directors and the filling of casual vacancies. These rules are available by calling the Plan Helpline on Indemnity insurance The Trustee and its directors may be reimbursed and indemnified out of the Plan for all liabilities which they properly incur in administering the Plan including liabilities that arise as a result of an honest mistake. To protect the assets of the Plan against certain losses arising from the conduct of the Trustee and its directors and administrators, the Trustee has taken out trustee indemnity insurance cover. Trust Deed and Rules The Trust Deed and Rules may be amended from time to time. During the year to 30 June 2012, amendments were made to the Trust Deed and Rules to allow for the change of the Plan s insurance arrangement in respect of salary continuance benefits. Concessional tax treatment In order to qualify for concessional tax rates, funds have to be classified as complying superannuation funds under the income tax laws. To be eligible, funds must report regularly to APRA and demonstrate their compliance with superannuation laws and APRA guidelines. The Plan is classified as a complying superannuation fund and the Trustee is not aware of any matter that would cause the Plan to lose its complying status. Management assistance The Plan is administered by Mercer Outsourcing (Australia) Pty Ltd. The administrator performs such functions as determining member benefits, processing and allocating contributions and ensuring all membership data is correct. Contact details for Mercer can be found on 27 of this report. The Plan s compliance status is monitored by the Plan s Compliance Manager. The Trustee is assisted by a number of professional organisations who provide advice and assistance in the administration of the Plan. These include: Superannuation, actuarial and communication consulting Mercer Outsourcing (Australia) Pty Ltd Mercer Consulting (Australia) Pty Ltd Auditor KPMG Insurer Colonial Mutual Life Assurance Society Limited CommInsure (until 31 January 2012) MLC Limited (from 1 February 2012) Investment consulting Mercer Investments (Australia) Ltd Solicitor mackenzie thomas Custodian JPMorgan S YOUR 21 IAG & NRMA Superannuation Plan Annual Report 2012