2012 Annual report. Queensland Local Government Superannuation Board

Transcription

1 2012 Annual report Queensland Local Government Superannuation Board

2 Contents LGsuper snapshot 1 Chairman and CEO s report 2 Governance statement 4 Trust Deed 6 Board of Directors 7 Management and staff 10 Organisational structure 11 Investments 12 Local Government Superannuation Scheme 2012 Financial statements 20 The Queensland Local Government Superannuation Board 2012 Financial statements 65 Specialist consultants and advisors 80 Contact Level 17, 333 Ann Street Brisbane Qld 4000 GPO Box 264 Brisbane Qld 4001 Toll free Facsimile info@lgsuper.org The Queensland Local Government Superannuation Board ABN AFS Licence No Local Government Superannuation Scheme ABN Disclaimer: This report has been produced by the Queensland Local Government Superannuation Board (ABN AFSL ) (LGsuper) on behalf of the Local Government Superannuation Scheme (ABN ) and provides general information for readers. Whilst this publication has been prepared with all reasonable care, no responsibility or liability is accepted for any error, omission or mistake however caused. LGsuper recommends that you should, before acting on this information, consider your own personal objectives, financial needs and situation. LGsuper recommends you consult a licensed financial advisor if you require advice that takes into account your personal circumstances. LGsuper has representatives that are authorised to provide personal advice on LGsuper products and superannuation in general.

3 LGsuper snapshot Membership There were 94,202 LGsuper members at 30 June 2012, including 14,903 transferred from City Super on 1 July Funds under management LGsuper took care of over $6.3 billion in funds under management at 30 June Members $B 100, ,000 60,000 94,202 6 $6.3 40, , Account types The membership comprised: Accumulation Benefits Fund members 89,933 Council employees Contributory Non-contributory Councillors 32,747 9, ,415 Former council employees and spouses Retained Benefit Spouses Pensioners 43,815 1,166 2,537 47,518 Defined Benefits Fund members 4,269 Investment performance The investment return for the total Scheme was 3.28% before tax and fees for 2011/12. % p.a % Total members 94,202 Employers LGsuper had 92 local government employers, including entities, paying into the scheme at 30 June During 2011/12, 5,174 non-local government employers paid into LGsuper. Administration expenses Administration expenses for running LGsuper were 0.18% in 2011/12. % p.a %

4 Chairman and CEO s report On behalf of the LGsuper Board of Directors, it is our pleasure to present the 2012 annual report. The 2011/12 financial year proved to be another challenging one for investors, as ongoing European debt issues and associated political instability across the region marred global economic conditions. On the back of poor-performing sharemarkets and robust fixed interest markets, LGsuper s highly diversified and well-managed investment strategy again delivered solid returns for members. LGsuper s relatively high allocation to property provided real diversification benefits in the unstable economic environment, returning 7.9% (before tax and fees). Our fixed interest investments produced an excellent 12.4% return, while our investments in alternatives returned an impressive 7.3%. International shares (0.8%) and Australian shares (-9.9%) were the poorest performers, impacted by Europe s ongoing debt problems and poor investor sentiment locally. LGsuper continues to outperform Despite the extreme market volatility of the last 5 years, LGsuper s investment options have continued to outperform most super funds in Australia. The Board is particularly pleased that all of our ready-made investment options, including Balanced and Diversified Growth, were ranked in the top 10 nationally by independent ratings agency SuperRatings, for the 5-year period to 30 June We also had Australia s best performing Balanced investment option for the 2011/12 year, ahead of 49 of our peers. Returning 5.07% for the 12 months to 30 June 2012, our Balanced option was almost 2% ahead of its nearest rival and more than 12 times the median return for Australian super funds balanced options. Similarly, our Stable and Defensive options outperformed all other Australian funds to achieve the coveted national number 1 ranking over the same period. Source: SuperRatings Fund Crediting rate Survey, June 2012 Merger completed LGsuper and City Super successfully merged on 1 July 2011 to become one fund for all current and former Queensland local government employees and their spouses. Management, staff and the Board of Directors of both super funds worked very hard to develop and launch a combined fund that now offers all members better products at a lower cost. While the transition was at times challenging for some members and our staff, just over one year on it s rewarding to reflect on the benefits the merger has already delivered. Low fees All LGsuper members have enjoyed lower administration and investment management fees as a direct result of the merger. Improved insurance We used our size to negotiate a generous insurance package with improved benefits delivered at a lower cost for most LGsuper members. Flexible products Members now have more flexibility in how their benefit is invested following the launch of five new single asset class options and the SR Australian shares option from July In addition, the number of free investment switches each financial year has increased to 12. Binding death benefit nominations were introduced, giving members more control over who receives their super in the event of their death. Enhanced services During the year, LGsuper implemented a workflow management system that allows us to track and process transactions more efficiently and a customer relationship management system that enables us to deliver improved service to our members. We also launched a new website with information tailored to members, retirees and employers, and calculators to help members better manage their super and plan for their retirement. 2

5 Investments During the financial year the Board made the following appointments to its external investment manager line-up: Looking ahead Building on our achievements over the past 12 months, the Board and management of LGsuper are focused on the following priorities for 2012/13: Asset class Australian Shares International Shares Fixed Interest Alternatives Property Appointed Paradice Perpetual Artisan Brandes Colonial First State MFS Ardea Wellington Hastings Altis implementation of the Australian Government s Stronger Super reforms, including the introduction of a MySuper product and streamlining the administration of member accounts in line with SuperStream obligations further development of our customer relationship management system to provide even better service to members enhancements to our website including an online financial knowledge centre and additional functionality to make it easier for members to understand and manage their super maintaining our low cost position for members. As always, we would like to recognise the significant contribution made by LGsuper management and staff, who constantly strive to ensure our members enjoy a better life in retirement. Brian Roebig OAM Chairman David Todd Chief Executive Officer 3

6 Governance statement The Queensland Local Government Superannuation Board is established under section 208 of the Local Government Act 2009 as a body corporate. Its functions under section 209 of the Local Government Act 2009 are: to act as trustee of the Local Government Superannuation Scheme to manage approved schemes and to act as trustee of, and establish and act as trustee of, related persons schemes. Governance structure Management Operational staff Board of Directors Service providers Board committees The Board functions through a Board of Directors as provided under section 210 of the Local Government Act Section 210 further provides for the role of the Board of Directors, as follows: Under section 210 of the Local Government Act 2009, the composition of the Board of Directors shall be: a. three persons appointed on nomination of LGAQ Ltd b. one person appointed on the nomination of Brisbane City Council c. four persons appointed on the nomination of members of the Scheme and d. if the Trust Deed provides, one or more independent directors. The methodology for the appointment of the Directors is given in the Trust Deed, in particular: employer and member representative directors are appointed for four-year terms member representative directors are appointed following an election by LGsuper members the independent director is appointed by the Board with the term of appointment being determined by the Board up to a maximum of four years a Director can be removed in the same way they were appointed or if they fail to meet strict requirements under superannuation legislation. 1. the Board of Directors is responsible for how the Board performs its responsibilities 2. the Board of Directors must ensure that the Board performs its responsibilities in a proper, effective and efficient way. The Board s functions, responsibilities and powers are further defined through: the Scheme s Trust Deed the Board s Charter the Board s Fit and Proper policy. 4

7 Board remuneration policy Goals LGsuper s goal is to provide members with high quality, low cost superannuation services. To provide exceptional, professional services the Board must attract and maintain quality staff. The Board s remuneration policy aims to achieve this. The Board considers that paying remuneration at market rates and providing challenging work and opportunities for staff to develop personally to be the best they can be will achieve this goal. Incentive payments are only utilised to recognise exceptional performance of staff below manager level. The Board undertakes annual assessment of itself and its staff to determine: whether it has the skills necessary to continue to manage members retirement savings whether it is providing exceptional service to members, through the comparison of performance against key performance indicators the professional development needs of its directors and staff. Independent remuneration consultant The Board utilises the services of an independent consultant, McGuirk Management Consultants (McGuirk), to provide surveys of market salary rates and advice on remuneration practices. McGuirk specialises in remuneration for super funds and financial services organisations in Australia. Board and management remuneration Board and management remuneration is reviewed against market rates every two years with salaries being indexed to AWOTE for intervening years. Staff remuneration Staff remuneration is reviewed against market rates each year to ensure they are being paid at competitive rates. An incentive scheme is paid annually, subject to a review of performance against team and organisation key performance indicators. 5

8 Trust Deed A number of amendments were made to the Trust Deed during 2011/12 following the merger with City Super. These amendments were to: bring together the separate accumulation funds for former City Super members and regional council members into one accumulation fund for all members extend the Failure of Health benefit to former City Super members reflect changes made to the Local Government Act allowing members to reduce their employer and standard/compulsory member contributions to the concessional contribution cap each financial year reflect changes made to the Local Government Act enabling former City Super members to reduce their compulsory member contributions due to financial hardship limit the time period in which members must lodge a disability claim to 6 years, to bring the requirement into line with proposed changes to Federal Government legislation provide for new insurance benefits offered to members from 1 July

9 Board of Directors Transitional Board of Directors On 1 July 2011 the Board of Directors merged the Local Government Superannuation Scheme with the Brisbane City Council Superannuation Plan (City Super). For the period since merging with City Super until 30 June 2014, a transitional Board of Directors is in place. This arrangement is designed to provide continuity of oversight during the merger transition period. The transitional Board of Directors consists of: four member representative directors, three of which were elected by LGsuper members in 2008 and one previous City Super member representative nominated by the Trustee of City Super four employer representative directors, three of which were nominated by the Local Government Association of Queensland (LGAQ) in 2008 and one previous City Super employer representative nominated by Brisbane City Council one independent director appointed by the Board, who also acts as Chairman. The next member representative election will take place in Similarly, nominations for employer representative directors will be requested in At 30 June 2012 Independent Director and Chairman Brian Roebig oam Member, Audit and Risk Management Committee Brian Roebig has been independent Director and Chairman since With more than 30 years experience in superannuation and finance, Brian s previous positions include General Manager of National Mutual in Queensland, director of numerous finance and investment-related public companies, Director of South Bank Corporation and Chairman of ASX-listed First Australian Building Society (now part of Bendigo Bank). Brian holds a Bachelor of Arts (Economics), and is a Fellow of both the Australian Institute of Company Directors and the Australian Insurance Institute. 7

10 Board of Directors cont. Member representatives Noel Cass Director Noel Cass has been a director since 2008 and had previously been an LGsuper director from 1995 to Noel has 40 years experience working in local government, including 35 years as a chief executive officer. Noel retired from his position as Chief Executive Officer of Jondaryan Shire Council in He has qualifications in local government administration, accounting and environmental health. Ron Curtis Director Ron Curtis has been an LGsuper director since 1 July 2011, and was a Member Trustee of City Super from He served as Chair of City Super from 2009 to 2011, and also served on numerous City Super committees. Ron s experience as a representative on superannuation fund boards spans back to 1988, and he has been a Brisbane City Council employee in the Industrial Relations area since Fiona Connor Director Member, Audit and Risk Management Committee Fiona Connor has been a director since 2001 and was previously employed by LGsuper from 1990 to Fiona has a Bachelor of Business (Public Sector Management), a Certificate in Governance Practice and Administration and a Diploma of Financial Services (Superannuation). She is also a Graduate Member of the Australian Institute of Company Directors and a Member of Chartered Secretaries Australia. Peter Smith Director Peter Smith has been a director since 2008 and was LGsuper s Chief Executive Officer from 1988 to Peter previously held chief executive and other senior positions with superannuation funds for public utilities, global mining and pharmaceutical companies. Peter holds a Diploma of Financial Services and is a Fellow of the Association of Superannuation Funds of Australia (ASFA). He is a retired member of the National Institute of Accountants and a retired member and Senior Associate of the Australian Insurance Institute. 8

11 Board of Directors cont. Employer representatives Cr Paul Bell am Director Chairman, Audit and Risk Management Committee Cr Paul Bell has been a director since 2004 and is President of the Local Government Association of Queensland (LGAQ) and a past President of the Australian Local Government Association (ALGA). Paul is currently a Councillor for the Central Highlands Regional Council and was Mayor of Emerald Shire Council from 1991 to He has been a Councillor since Paul s previous roles include Director of Ergon Energy and Queensland Rail. He is a Member of the Australian Institute of Company Directors and has a Bachelor of Business (Administration). Peter Taylor Director Peter Taylor has been a director since 1998 and is the former Mayor of Toowoomba Regional Council. He was previously Mayor (1994 to 2008) and Councillor (1976 to 1994) of Jondaryan Shire Council and ran his own agricultural business on the Darling Downs for 30 years. He is a Fellow of the Australian Institute of Company Directors, holds a Certificate of Development Practice and is currently studying for a Masters of Development Practice. Louise Dudley Director Member, Audit and Risk Management Committee Louise Dudley has been an LGsuper director since 1 July 2011 and was an Employer Trustee of City Super from Louise is currently Chief Executive Officer of Queensland Urban Utilities (QUU) and previously held senior executive roles with Brisbane City Council including Executive Manager, Water Retail and Director, Finance and Legal Water Transition Program. Louise is a Chartered Accountant with 27 years experience and holds a Bachelor of Commerce and a Certificate of Superannuation Management. She is a graduate member of the Australian Institute of Company Directors and an Associate Member of the Institute of Chartered Accountants. Cr Les Tyrell oam Director Cr Les Tyrell has been a director since 2008 and was previously an LGsuper director from 1995 to Les is the former Mayor of Townsville City Council and is an Executive Member of the Local Government Association of Queensland (LGAQ). He was formerly Mayor (1991 to 2008) and Councillor (1979 to 1991) of Thuringowa City Council and prior to that, ran his own financial services consultancy business for 12 years. Les has a background in accounting and management. 9

12 Management and staff The Chief Executive Officer reports to the Board of Directors on delegated responsibilities for the administration and operation of LGsuper. The Scheme Secretary and Deputy Chief Executive Officer and the General Manager Operations assist him in this role. At 30 June 2012 LGsuper had 56 staff. Chief Executive Officer Scheme Secretary and Deputy Chief Executive Officer David Todd David Todd has been the CEO since 2006 and prior to this he was the Chief Manager Investments from David s previous roles include General Manager Investments for Reinsurance Australia/Calliden (1994 to 2004), General Manager Treasury for TNT (1983 to 1994) and various accounting positions in Australian companies. David has a Bachelor of Commerce (Accounting, Finance and Systems), is a member of CPA Australia and is a Certified Senior Treasury Professional (Finance and Treasury Association). David is a Responsible Officer under the Board s Australian Financial Services (AFS) and Registrable Superannuation Entity (RSE) licences. Ian Harcla Ian Harcla has been the Scheme Secretary and Deputy CEO since Ian s previous roles include General Manager of the Queensland Coal and Oil Shale Mining Industry Superannuation Fund (1989 to 2005) and various audit positions with the Queensland Audit Office. He has a Bachelor of Business (Accounting), a Graduate Diploma in Management and a Graduate Diploma in Applied Finance and Investment. Ian is a Fellow of the Association of Superannuation Funds of Australia (ASFA), a member of CPA Australia and a Graduate Member of the Australian Institute of Company Directors. He is a Responsible Officer under the Board s AFS and RSE licences. General Manager Operations Timothy Willmington Timothy Willmington has been the General Manager Operations since 2006 and has held various positions with LGsuper since Previously, he was employed by QSuper (1986 to 1989). Tim has a Bachelor of Business (Management and HRM), a Diploma of Financial Services (Superannuation), an Associate Diploma of Superannuation Management and is a Fellow of ASFA. He is a Responsible Officer under the Board s AFS and RSE licences. 10

13 Organisational structure Chief Executive Officer David Todd * + ^ (7) Oversees and reports to the Board of Directors on all aspects of the administration and operation of LGsuper. Responsible for the development and implementation of investment strategy. Scheme Secretary and Deputy Chief Executive Officer Ian Harcla * + ^ (6) Undertakes scheme secretarial duties and responsible for corporate governance. Oversees the finance and compliance functions, including the handling of member complaints. General Manager Operations Timothy Willmington * + ^ (22) Responsible for administration, marketing and communications, information technology, insurance and member services and advice functions. Manager Finance Patrick Rochford (22) Manager Scheme Administration David Sleeman * (4) Investment Manager Guy Rundle (1) Manager Compliance Stuart Meekin (1) Project Manager Barbara Matthews * (25) Manager Marketing and Communications Lyndal Ferrari * (6) Manager Member Services and Advice Rhonda Maden * (1) Manager Information Technology Rob Fox (5) Insurance Manager Rob Paré (1) * Authorised representative under Australian Financial Services Licence No Responsible Officer under Australian Financial Services Licence No ^ Responsible Officer under RSE Licence Figures in brackets indicate number of completed years of service at 30 June

14 Investments The Board of Directors general investment objectives for LGsuper assets are: to invest the assets as permitted by the Trust Deed or by law to prudently manage all aspects of risk in relation to LGsuper assets, by ensuring: assets are adequately diversified assets have an appropriate level of liquidity assets are sufficient to meet benefit payments when they fall due any third party to whom investment decisionmaking is delegated exercises integrity, prudence and professional skill in fulfilling the investment tasks delegated to them, and the actions of the third party are fully accountable to the Board. The Board of Directors holds the following beliefs: Our primary objective is to provide a secure source of retirement income for LGsuper members. The Board adheres to the principles of capital market theory which maintain that over the long term, prudent investment risk-taking is rewarded with incremental returns. So, while capital preservation is important, the Board regards prudent risk-taking as justifiable. Our main goal is to set an appropriate level of investment risk, and then subject to this, create value by maximising the return per unit of risk. For the accumulation section, the primary risk measure is defined as the volatility of returns. Peer group risk (i.e. the risk of underperforming other superannuation funds of a similar nature) is assessed as a secondary measure. For the defined benefit section, risk is defined relative to the liabilities. Strategic asset allocation is the primary determinant of LGsuper returns. It is set with reference to an asset model that factors in longterm expected return and risk characteristics. Other things being equal, a strategy that comprises a more diverse exposure to asset class and manager risks is preferable to one with concentrated risk exposures. For asset classes for which assumptions are expected to be less robust, or for which there are additional important considerations such as illiquidity, a practical limit is imposed. For the introduction of a new asset class into the strategy to be worthwhile in terms of risk and/ or return, and taking into account the overall governance, it must be awarded an allocation sufficiently large so as to have a meaningful impact on the total fund or option s expected characteristics. Our investment objectives are long-term in nature, and the Board does not believe it has the capability to tactically adjust the strategic allocations to asset classes or currencies to exploit short-term changes in market conditions. However, the strategic asset allocation is expected to be reviewed periodically (typically annually) to allow for significant changes to market conditions and/or long-term asset class assumptions. The Board recognises that markets can move outside long-term fair value ranges and will implement medium-term tilts to strategic allocation to add return/reduce risk. This dynamic approach to strategic allocation is typically over a 3 year+ time horizon. 12

15 Accumulation Benefits Fund Aggressive Diversified Growth Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to achieve returns of 4.5% p.a. above inflation over 5-year periods Risk high Fees (2011/12) 0.18% administration 0.50% investment management Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Aim to achieve returns of 4.0% p.a. above inflation over 5-year periods Risk medium to high Fees (2011/12) 0.18% administration 0.49% investment management Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Member funds invested $M 200 Member funds invested $M

16 Accumulation Benefits Fund cont. Diversified Growth plus Reserves Balanced Stable Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to achieve returns of 4.0% p.a. above inflation over 5-year periods Risk medium to high Fees (2011/12) 0.18% administration 0.49% investment management Aim to achieve returns of 3.5% p.a. above inflation over 5-year periods Risk medium Fees (2011/12) 0.18% administration 0.44% investment management Aim to achieve returns of 2.5% p.a. above inflation over 5-year periods Risk medium to low Fees (2011/12) 0.18% administration 0.35% investment management Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Member funds invested $M Member funds invested $M Member funds invested $M

17 Accumulation Benefits Fund cont. Defensive SR Balanced SR Australian Shares Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash * Temporary overweight allocation to Fixed interest pending funding of investment in Alternatives. Aim to achieve returns of 2.0% p.a. above inflation over 5-year periods Risk very low Fees (2011/12) 0.18% administration 0.27% investment management Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to achieve returns of 4.0% p.a. above inflation over 5-year periods Risk high Fees (2011/12) 0.18% administration 0.85% investment management Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to outperform the S&P ASX300 Accumulation Index over 5-year periods Risk very high Fees (2011/12) 0.18% administration 0.82% investment management Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Year ending 30 June Accumulation accounts (%) Pension accounts (%) n/a n/a 2010 n/a n/a 2009 n/a n/a 2008 n/a n/a Avge since inception (% p.a.) Member funds invested $M Member funds invested $M Member funds invested $M

18 Accumulation Benefits Fund cont. International Shares Australian Shares Property Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to outperform a composite index of international shares over 5-year periods Risk high Fees (2011/12) 0.18% administration 0.43% investment management Aim to outperform a composite index of Australian shares over 5-year periods Risk very high Fees (2011/12) 0.18% administration 0.51% investment management Aim to achieve returns of 5% p.a. above inflation over 5-year periods Risk medium to high Fees (2011/12) 0.18% administration 0.58% investment management Year ending 30 June Accumulation accounts (%) Pension accounts (%) n/a n/a 2010 n/a n/a 2009 n/a n/a 2008 n/a n/a Avge since inception (% p.a.) Year ending 30 June Accumulation accounts (%) Pension accounts (%) n/a n/a 2010 n/a n/a 2009 n/a n/a 2008 n/a n/a Avge since inception (% p.a.) Year ending 30 June Accumulation accounts (%) Pension accounts (%) n/a n/a 2010 n/a n/a 2009 n/a n/a 2008 n/a n/a Avge since inception (% p.a.) Member funds invested $M Member funds invested $M Member funds invested $M

19 Accumulation Benefits Fund cont. Diversified Fixed Interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to outperform a composite index of Australian and international fixed interest over 5-year periods Risk very low Fees (2011/12) 0.18% administration 0.26% investment management Aim to protect capital over any 1-year period Risk low Fees (2011/12) 0.18% administration 0.05% investment management Year ending 30 June Accumulation accounts (%) Pension accounts (%) n/a n/a 2010 n/a n/a 2009 n/a n/a 2008 n/a n/a Avge since inception (% p.a.) Year ending 30 June Accumulation accounts (%) Pension accounts (%) yr avge (% p.a.) % p.a. over CPI Member funds invested $M 80 Member funds invested $M

20 Defined Benefits Funds and Insurance Fund Defined Benefits Fund Defined Benefit account (former City Super) Insurance Fund Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Actual asset allocation at 30 June 2012 Australian shares International shares Property Alternatives Fixed interest Cash Aim to achieve returns in excess of salary inflation plus 1.5% p.a. over rolling 3-year periods Aim to ensure there are sufficient funds available to pay benefits for all members Year ending 30 June Investment return (%) Accumulation comparison rate (%) yr avge (% p.a.) % p.a. over AWOTE* 3.57 *Proxy for salary growth Year ending 30 June Investment return (%) Crediting rate (%) yr avge (% p.a.) % p.a. over AWOTE* 2.37 *Proxy for salary growth Year ending (%) 30 June yr avge (% p.a.) 3.63 Fund balance $M Fund balance $M Insurance fund reserves $M Defined Benefits Accumulation Benefits 18

21 Investment managers The Board regularly reviews investment manager performance and contribution to overall objectives. In addition, the Board ensures external managers comply with the guidelines, requirements and objectives specified in their Investment Management Agreements. LGsuper allows managers to use derivatives in order to hedge risk and/or increase transactional efficiency. Managers who use derivatives must adopt an acceptable Derivative Risk Statement that specifies how derivatives are used and what controls are in place. The Board also has an Investment Policy Statement that details its investment policies and procedures. The table at right shows the number of mandates/unit trusts held with external managers at 30 June Total Scheme investment returns At 30 June yr 3 yrs 5 yrs 7 yrs 10 yrs Total return (before tax and fees) Composite benchmark % p.a. above/below benchmark Administration and investment management expenses Year ending 30 June Administration expenses as % of FUM* Investment management expenses as % of FUM Average FUM ($M) , , , , ** 3,706.2 * After the deduction of administration expenses relating to investment and insurance. ** After the deduction of Securities Lending Commission. Australian shares International shares Property Alternatives Socially Responsible Fixed interest Cash Acorn Capital Ltd Altis AMP Capital Investors AMP RIL Balanced Fund Ardea Arrowstreet Fund Artisan Emerging Markets BlackRock Brandes Bridgewater BT Grosvenor Colonial First State Dexus Domaine SEQ Eley Griffiths EQT Goodman Group GPT Hastings Independent Invesco JCP Investment Partners K2 Advisors Lazard Thematic LGsuper (internal) Lend Lease Macquarie Funds Management Merlon Capital MFS Morgan Stanley Investment Mgt Northcape Capital Palisade Investment Partners Paradice Perennial Perpetual PIMCO QIC Retirement Villages Group Rockspring Rogge Global Partners Sanders Capital Stone Harbor Vianova Asset Management Vontobel Wellington Westbourne Capital Total 6,309.9 FUM $M 19

22 Local Government Superannuation Scheme 2012 Financial statements ABN

23 2012 Financial statements Contents Statement of Changes in Net Assets for the year ended 30 June Statement of Net Assets as at 30 June Notes to and forming part of the Financial Statements 24 Note 1 Statement of Significant Accounting Policies 24 Note 2 Operation of the Scheme 28 Note 3 Division of Scheme 30 Note 4 Investments and Derivatives 33 Note 5 Changes in Net Market Value 37 Note 6 Other Investment Income 37 Note 7 Fixed Assets 38 Note 8 Direct Investment Expenses 38 Note 9 Scheme Administration Expenses 38 Note 10 Related Parties 39 Note 11 Benefits Paid 41 Note 12 Benefits Due and Unpaid 41 Note 13 Auditors Remuneration 41 Note 14 Income Tax 42 Note 15 Receivables/Unsettled Trades 43 Note 16 Payables/Unsettled Trades 43 Note 17 Accrued Benefits 43 Note 18 Vested Benefits Defined Benefits Funds 44 Note 19 Guaranteed Benefits 45 Note 20 Funding Arrangements 45 Note 21 Actuarial Investigation 45 Note 22 Segment Information 46 Note 23 Commitments and Contingent Liabilities 46 Note 24 Successor Fund Transfer from City Super 47 Note 25 Significant Post Balance Date Events 47 Note 26 Risk Management 48 Certificate on Behalf of The Queensland Local Government Superannuation Board 55 Independent Report by Approved Auditor to The Trustee of The Local Government Superannuation Scheme 56 Attachment A - Summary of Actuarial Report 2009 LGsuper 58 Attachment B Summary of Actuarial Report 2008 City Super 60 21

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67 The Queensland Local Government Superannuation Board 2012 Financial statements ABN AFS Licence No

68 Contents Directors Report 67 Statement of Comprehensive Income 69 Statement of Cash Flows 70 Balance Sheet 71 Statement of Changes in Equity 72 Notes to and Forming Part of the Financial Report 73 Directors Declaration 76 Auditor s Report 77 66

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71 The Statement of Comprehensive Income is to be read in conjunction with the notes to and forming part of the financial statements set out on pages

72 The Statement of Cash Flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages

73 The Balance Sheet is to be read in conjunction with the notes to and forming part of the financial statements set out on pages

74 The Statement of Changes in Equity is to be read in conjunction with the notes to and forming part of the financial statements set out on pages

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82 Specialist consultants and advisors Actuarial advice Mr J Smith BA (Maths), FIAA The Heron Partnership, Melbourne Asset consultants Towers Watson Auditors Auditor General of Queensland, Brisbane (external) Ernst & Young, Brisbane (internal) Bank Commonwealth Bank of Australia, Brisbane Information services Bravura, Sydney Master custodian JP Morgan Investor Services, Sydney Senior Medical Officer Dr E Pollard MBBS FRACP, Brisbane Solicitors King & Company, Brisbane Mr S Fynes-Clinton, Barrister at Law, Brisbane Tax consultant PricewaterhouseCoopers, Brisbane Group Life Insurers AIA Australia Limited One Path Life Limited

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