November 2013 Actuarial review as at 1 July 2013 of Australasia Ltd Superannuation Plan Prepared by Geoff McRae SYDNEY Level 1 2 Martin Place Sydney NSW 2000 T +61 2 9293 3700 F +61 2 9233 5847 MELBOURNE Level 20 303 Collins Street Melbourne VIC 3000 T +61 3 8621 4100 F +61 3 8621 4111 ABN 35 003 186 883 AFSL 239 191 223422_1 www.ricewarner.com
Actuarial review as at 1 July 2013 Table of Contents 1. Purpose and summary...4 1.1 Background...4 1.2 Financial Position...5 1.3 Superannuation Guarantee...6 1.4 Investments...7 1.5 Insurance...7 1.6 Plan experience since 1 July 2010...7 1.7 Shortfall limit...7 1.8 Next valuation...8 2. Investments...9 2.1 Value of Plan assets...9 2.2 Asset distribution...9 3. Plan experience since 1 July 2010... 10 3.1 Investment experience... 10 3.2 Annuities Values... 10 3.3 Salary increase... 10 3.4 The gap... 10 3.5 Additional contribution... 10 3.6 Membership data... 10 3.7 Membership profile... 11 3.8 Benefit changes... 11 3.9 Basis change... 11 4. Actuarial valuation of the Plan... 12 4.1 General... 12 4.2 Investment earnings/salary increase assumptions... 12 4.3 Other assumptions... 12 4.4 Valuation results... 13 4.5 Sensitivity of results... 13 5. Immediate solvency position... 14 5.1 Tests of the adequacy of the Plan s assets... 14 5.2 Vested benefits index... 14 5.3 Past service benefits index... 14 November 2013/223422_1 Page 1 of 34
Actuarial review as at 1 July 2013 5.4 Benefits payable on termination of contributions by the employer... 15 5.5 Benefits payable on retrenchment... 15 5.6 Funding and solvency certificate... 15 6. Company contributions... 16 6.1 Recommendations... 16 7. Insurance protection... 17 Appendix A Summary of benefits and contributions provisions... 18 A.1 Eligibility... 18 Contributions... 18 A.2 Normal Retirement Age... 18 A.3 Normal Retirement Benefit... 18 A.4 Early Retirement... 18 A.5 Late retirement benefit... 19 A.6 Lump sum retirement benefit... 19 A.7 Retirement benefit Account Based Pension... 19 A.8 Death benefit... 19 A.9 Disablement benefit... 19 A.10 Resignation benefits... 20 A.11 Offset for FinSuper members... 20 A.12 Optional spouse s pension... 20 A.13 Additional benefits... 20 Appendix B Revenue accounts... 21 Appendix C Valuation technique and assumptions... 22 C.1 Funding... 22 C.2 Valuation Method... 22 C.3 Actuarial Assumptions... 23 C.4 Investment Earnings... 23 C.5 Cost of Pensions... 23 C.6 Salary Increases... 23 C.7 Other Assumptions... 23 C.8 Rate of Pension indexation... 23 C.9 Promotional Salary Increases... 24 C.10 Total and Permanent Disablement, Death and Resignation... 24 C.11 Post Retirement Mortality... 25 C.12 Early Retirement... 25 November 2013/223422_1 Page 2 of 34
Actuarial review as at 1 July 2013 C.13 Expenses... 25 C.14 Tax... 25 Appendix D Funding and Solvency Certificate for the purposes of Regulation 9.09 of the Superannuation Industry (Supervision) Regulations... 26 of Australasia Ltd Superannuation Plan... 26 D.1 Application... 26 D.2 Trustee Obligations... 26 D.3 Certification... 26 D.5 Events since the Effective Date of this Certificate... 26 D.6 Related Benefit Certificate... 27 D.7 Explanation for the Trustee... 27 D.8 Notifiable Events... 27 D.9 Information to be monitored... 28 D.10 Key Assumptions used in preparing this Certificate... 28 Appendix E Summary of Actuarial Report for the purposes of Australian Accounting Standard AAS25 and Actuarial Statements for the purpose of the Superannuation Industry (Supervision Regulations)... 30 of Australasia Ltd Superannuation Plan... 30 E.1 Summary of Actuary s Report... 30 E.2 Actuary s Statement... 31 Note 1: Summary of Method of Attributing Benefits to Past Service... 33 Note 2: Summary of the Assumption... 34 This report constitutes a Statement of Advice as defined under the Financial Services Reform Act. It is provided by Rice Warner Pty Ltd. which holds Australian Financial Services Licence number 239 191. This report should not be distributed, in whole or in part, without Rice Warner s prior written consent. November 2013/223422_1 Page 3 of 34
1. Purpose and summary This report details the results of the actuarial review of the of Australasia Ltd Superannuation Plan (the Plan) as at 1 July 2013. The purpose of this report is to: Examine the sufficiency of the assets in relation to members accrued benefit entitlements at the valuation date. Determine the Company contribution rate required from the valuation date to ensure that the Plan maintains a satisfactory financial position. Please note that this report should not be used for any other purpose without the consent of the actuary who prepared the report. 1.1 Background The previous actuarial investigation of the Plan was conducted as at 1 July 2010 by Geoff McRae of Rice Warner, and the results contained in his report of October 2010. At that investigation, the membership was five and total assets were valued at $12,782,000. At the date of this investigation the membership of the Plan had decreased to four members (including two who have passed their normal retirement ages) and the assets were valued at $18,290,441. Excluding the occupational risk financial requirement of 0.25% the assets available to fund benefits amount to $18,244,715. The present investigation has been conducted in accordance with: Clauses 7 and 28A of the Trust Deed and in accordance with the Superannuation Industry (Supervision) Act, which requires investigations to be carried out at least every three years. Superannuation Prudential Standard SPS 160 defined benefit matters. The report satisfies the requirements of the Professional Standards (including Professional Standard 400) published by the Institute of Actuaries of Australia. The advice is given in the context of Australian law and practice. No allowance has been made for taxation, accountancy or other requirements in any other country. The Plan is a defined benefit plan, closed to new members. The Plan provides benefits to members on the occurrence of events such as retirement, death, disablement and resignation. Benefits provided are either equal to, or exceed the minimum required for the Company to meet its Superannuation Guarantee obligations. The benefits contain an option for members to take certain benefits as pensions or lump sums. The Plan is a resident regulated fund and a complying fund for the purposes of the Superannuation Industry (Supervision) Act 1993. It is therefore eligible for the concessional tax treatment applicable to complying regulated superannuation funds in Australia. 223422_1 Page 4 of 34
1.2 Financial Position The Superannuation Industry (Supervision) Act 1993 (the SIS Act) requires statements to be made in respect of two measures of the financial position of the Plan, these measures being related to the current and projected (i.e. in three years time) vested benefits and the present value of accrued benefits of members. As in the past, the value of accrued benefits is reported on a lump sum and a pension basis. 1.2.1 Present Value of Accrued Benefits The present value of accrued benefits is the actuarial value (using the assumptions and methodology detailed in this report) of the expected future benefits payable from the Plan to the current members and their dependents in respect of Plan membership completed up to the date of the actuarial investigation. The cost of fund benefits will depend to a large degree on the proportion of pension and lump sum benefits selected by members. The actual proportion in the future when each member leaves the fund is difficult to predict but will depend to a large degree on: The interest rate markets at the time that the member retires. Each member s preference for pensions as opposed to lump sums (control of capital, longevity etc.). The results are shown on: a lump sum basis which assumes that all benefits are taken in lump sum form a pension basis which assumes that all retirement benefits are taken as pensions. Table 1. Results 2013 2010 Lump Sum Pension Lump Sum Pension Assets 18,245 18,245 12,782 12,782 Liabilities for past service 10,686 21,652 9,354 18,802 Surplus (deficit) 7,559 (3,407) 3,428 (6,020) Asset cover 171% 84% 137% 68% Therefore, the Plan assets are sufficient to meet the total of the present value of accrued benefits at the valuation date on a lump sum, but not on a pension basis. On a combined basis assuming 75% of benefits are taken as pensions and 25% as lump sums, assets cover 96% of the liabilities. There has been a strengthening of the results on both bases since 2010, primarily due to: Additional contributions made over the three year period. 223422_1 Page 5 of 34 $000 The use of Challenger annuity rates, balanced by decreases in bond rates since 2010. As noted in Section 1.1 (Background), the actual cost of member s benefits will depend to a large degree on the proportions of lump sum and pension benefits selected by members. Changing
economic circumstances and each member s personal circumstances will influence this member election. In the 2010 valuation report, assuming a 75% pension and 25% lump sum, I recommended the following contribution rates until the date of the next actuarial valuation: A special Company contribution of $1 million to rectify the unsatisfactory financial position of the Plan (this additional contribution was paid in late 2010). A regular Company contribution of 33% of superannuation salaries, the same level as currently being paid. This is in part due to the costs for those who have passed their normal retirement age being a little lower than those for the other members. An additional contribution on the retirement of any members while the Plan is in an unsatisfactory financial condition. The additional contribution should be the amount as calculated by the Plan s actuary to cover any shortfall in retirement benefit funding for that member. I further recommended that the contributions rates should be reviewed in the event of the retirement of both of the senior management members, a significant change to the current investment and economic scenario or a significant change to the Plan s current investment strategy. Following a further review of the financial position of the fund, early in 2012, the contribution recommendation was altered to: a special company contribution of $2,900,000 (paid in May 2012) a regular company contribution of 15% of superannuation salaries. Based on the results of this valuation I recommend that the company continues to make regular contributions at the rate of 18% of superannuation salaries. I further recommend that this contribution be reviewed in the event of: the retirement of either of the senior management members a change in the ten year bond rate such that the rate moves outside of the range of 2.5% to 5.5%, or a significant change in the Plan s current investment strategy (evidenced by the exposure to shares and property moving outside of the range 10% to 35%, other than for the purposes of short term cash flow management) or the value of plan assets. 1.3 Superannuation Guarantee The Company s Superannuation Guarantee obligation is met in full for all members by the minimum benefits provided under the Plan as detailed in the Benefit Certificate. Pursuant to the SIS Act, Funding and Solvency Certificates have been issued to the Trustee as required in the past. A new Funding and Solvency Certificate is appended to this report. The purpose of the Funding and Solvency Certificate is to specify the required Company contributions needed to fund the minimum benefits used to offset the Superannuation Guarantee Charge. Pursuant to the SIS Act, a superannuation plan is solvent if the net value of its assets 223422_1 Page 6 of 34
exceeds the minimum Superannuation Guarantee benefits. At 1 July 2013, the Plan was solvent and based on the assumptions in relation to vested benefits, it is considered likely that an actuary will be able to certify the solvency of the Plan in three years time. 1.4 Investments The Trustee has developed formal objectives and a policy for the investment of the Plan s assets. Given the large proportion of plan liabilities in respect of members who have passed their normal retirement age, the Trustee has adopted an investment strategy of holding principally capital stable investments. We believe that the objectives and policy adopted are within a range of policies which could be considered as appropriate for the Plan. However, given that this defined benefit plan is closed to new entrants and is ageing, the Trustee should continue to plan for anticipated significant outflows. The Trustee regularly monitors the investment manager s performance and we recommend that this continues. 1.5 Insurance The total amount of insurance protection against death and total and permanent disablement benefits is appropriate for these liabilities. 1.6 Plan experience since 1 July 2010 Significant features of the Plan s experience since 1 July 2010 include: Poor investment returns in 2012, resulting in a somewhat lower rate than that assumed in 2010. The Company contributions following the 2010 actuarial review and in 2012. The two senior management employees both attaining normal retirement age. The increased cost of pensions to cover the lifetime pension liability given the low yields in the local bond market. 1.7 Shortfall limit For the purposes of Prudential Standard, SPS 160, a shortfall limit is the extent to which an RSE licensee considers that a fund can be in an unsatisfactory financial position with the RSE licensee still being able to reasonably expect that, because of corrections to temporary negative market fluctuations in the value of fund assets, the fund can be restored to a satisfactory financial position within one year. I have been advised that the trustee has adopted a shortfall limit of 10%. This is reasonable given: The conservative nature of the investment strategy. The limited proportion of Plan liabilities that are subject to salary related fluctuation. 223422_1 Page 7 of 34
Your policy of purchasing annuities to cover retirement pension liabilities when members retire and the anticipated future bond yield movements. 1.8 Next valuation The next valuation is required to be held no later than as at 1 July 2016. We also recommend that a brief review of the coverage of the vested benefits be carried out at the annual review each year. This report was prepared and peer reviewed for Hannover Re by the following consultants. Prepared by Peer Reviewed by Geoff McRae Senior Consultant Phillip Dewhurst Consultant Telephone: (02) 9293 3700 Telephone: (02) 9293 3700 geoff.mcrae@ricewarner.com phillip.dewhurst@ricewarner.com 31 October 2013 223422_1 Page 8 of 34
2. Investments 2.1 Value of Plan assets The assets of the Plan have been taken at their market value of $18,290,000 taken from the accounts of the Plan provided by the Trustee. This is consistent with the approach used in valuing the liabilities. 2.2 Asset distribution Table 2. The Plan had assets invested with the following Life Office Policies at 30 June 2010 and 30 June 2013 Fund 2013 2010 OnePath - Capital Stable $14,819,769 $1,021,657 OnePath - Managed Growth $3,493,240 $10,165,085 OnePath - Cash Fund $141 $1,638,712 Total $18,273,149 $12,825,454 Table 3. Asset class distribution of the Plan s Policies at 30 June 2010 and 30 June 2013 Asset class 2013 2010 Allocation % Australian Shares 17.5 31.7 Overseas Shares 7.5 20.1 Property 2.9 8.3 Other Investments 2.2 0.2 Australian Fixed Interest 29.1 6.9 Overseas Fixed Interest 15.3 11.8 Cash and similar 25.5 21.0 Total 100.0% 100.0% With the changes to the OnePath benchmark allocations from 1 August 2013, these allocations to overseas shares may decrease with a corresponding increase to the allocation to other investments. In my opinion the investment policy remains appropriate for this Plan given current market conditions and expected Plan cash flow in the medium term. Given the current financial position of the Plan and the pending retirements, the continuing appropriateness of the current asset allocation should be carefully monitored. 223422_1 Page 9 of 34
3. Plan experience since 1 July 2010 3.1 Investment experience Over the last three years investment earnings have been 6.4%, -0.4% and 8.4% resulting in an average return of 4.7% per annum. This is somewhat lower than the average of 7.0% per annum for this period assumed in the previous investigation. 3.2 Annuities Values The Trustee policy is to purchase annuities to cover the costs of lifetime pensions when members retire. An indicator of the cost of annuities is the Government ten year bond rates. Rates have been: 1 July 2010-5.10% 1 July 2013-3.76%. 3.3 Salary increase The average salary of members present during the whole inter-valuation period (excluding one who passed normal retirement age more than 12 months prior to the review date) increased by 4.1% per annum over the entire period. This was a little less than the 5.0% per annum plus promotional increases (approximately 0.8%) assumed in the previous valuation. 3.4 The gap The gap between the investment returns and the salary increase during the inter-valuation period was 0.6% per annum which is significantly less than the 1.2% per annum expected on the assumptions made at the previous actuarial investigation. Therefore, the experience of the Plan during the period since the last valuation has been unfavourable. This has a negative effect on the financial position of the Plan. 3.5 Additional contribution In 2010 and 2012 the company made a significant additional contribution. This strengthened the financial position of the Plan. 3.6 Membership data As at 13 June 2010 there were five members of the Plan. This has decreased to four by 30 June 2010, including two members who are now past their normal retirement age. We have been provided with review schedules showing details of the Plan s membership each year, except 2010 where only new salary data was provided. After applying various tests of reasonableness we were satisfied with the quality of the data. 223422_1 Page 10 of 34
4. Actuarial valuation of the Plan 4.1 General For the purposes of this actuarial review we have valued the Plan's liabilities using the valuation method and assumptions described in Appendix C (Valuation technique and assumptions). 4.2 Investment earnings/salary increase assumptions The assumptions having the greatest impact in an actuarial valuation are the assumed rates of future investment earnings and rates of increase in members' salaries. The important measure is the gap between the rate of investment return and the rate of salary increase. In the actuarial review of the Plan we have adopted a gap of 2.0% per annum between investment earnings and inflationary salary increases, I have assumed an average inflationary salary increase rate of 4.0% pa, and a long term rate of return, net of tax and investment expenses of 6.0% pa. Allowance has also been made for promotional salary increases at the same level assumed at the previous valuation. Only pre-retirement interest rates have been used as the cost of purchasing pensions is adopted for the valuation of benefits assumed to be taken in lifetime pension form. 4.3 Other assumptions 4.3.1 Mortality, disablement, retirement and resignation rates Rates of mortality, disablement, retirement and resignation used for the ages up to 62 are based on the experience of many similar plans and are set out in Appendix C (Valuation technique and assumptions). 4.3.2 Expenses For the purpose of this investigation we have assumed that future (non-investment) expenses of the Plan will amount to 1.5% of salaries. An expense loading of 10% has been added to the insured portion of death and disablement benefits. These are the same assumptions used in the previous valuation. 4.3.3 Commutation of pensions The cost of Plan benefits depends very significantly on whether members elect to receive lump sum or pension benefits on leaving service. As the present value of pensions is much greater than that of the alternative lump sum benefits we have recommended that the employer provide for the benefits assuming: That past service on a pension s basis is fully funded. Future service contribution rates are set assuming that when members retire, on average: 75% of benefits will be taken as pensions 223422_1 Page 12 of 34
25% will be commuted to lump sums. As it was not intended that the introduction of the account based pension option should increase members benefits, it has been ignored for valuation purposes. 4.4 Valuation results The results of our actuarial valuation based on data as at 30 June 2013 for existing members are shown below on the alternative lump sum and pension bases. Table 5. Alternative lump sum and pension basis $000 Service to 30 June 2013 Lump Sum Pensions Market value of assets at 30 June 2013 (A) $18,245 $18,245 Value of past service liabilities 30 June 2013 (B) $10,686 $21,652 Past service surplus/deficit (Excess of assets over past service liabilities) (A-B) $7,559 ($3,407) The market value of assets in the draft accounts of $18.29 million has been reduced by the ORFR of $45,726. 4.4.1 Service after 30 June 2013 The contributions required to fund future benefits accruing after 30 June 2013 have been calculated as 20% and 36% of salary respectively on a lump sum and pension benefit basis. However, based on our assumptions of 75% of benefits being taken as lifetime pensions and taking account of the two senior management members being over normal retirement age, we recommend that the current company contribution rate of 15% of superannuation salaries be increased to 18%. 4.5 Sensitivity of results The results are not sensitive to modest changes in the interest rate and salary increase assumptions as almost 85% of total liabilities are in respect of members who have passed their normal retirement dates. The factors to which the results are sensitive are: The proportion of benefit taken as a lifetime pension, if the 75% proportion assumed is increased to 85% to total liabilities increase by $1.1 million. The cost of annuities in the market from annuity quotes for Challenger processed recently on the terms used in this valuation for a male 62 with a spouse 60, a change of 0.25% in the ten year bond rate cause about a 9% change in annuity values. Thus an increase of 0.25% in the ten year bond rate causes a decrease of about $1.4 million in total liabilities. 223422_1 Page 13 of 34
5. Immediate solvency position 5.1 Tests of the adequacy of the Plan s assets An important objective of this review is to measure the extent to which benefit expectations of members in respect of service up to the valuation date have been secured. Many measures of this are possible. The indices detailed below have been chosen to demonstrate whether the assets of the Plan are sufficient to ensure its solvency and to measure its ability to meet members' accrued entitlements. 5.2 Vested benefits index This is the total of members' lump sum benefits payable on voluntary termination of service (as reported in the audited accounts of the Plan). It is a minimum below which the market value of the Plan's assets should not be allowed to fall in normal circumstances. A plan which holds insufficient assets to meet vested benefits is said to be in an unsatisfactory financial position under the SIS legislation, requiring certain corrective action by the Trustee. Expressing the Plan's assets of $18,245,000 as a percentage of the vested benefits of $16,080,000 we obtain a vested benefits index of 113% (net of ORFR). The equivalent value of this index at the previous valuation was 96%. The calculations indicate that the Plan is in a satisfactory financial position as at the review date. 5.3 Past service benefits index It may be considered that the members' reasonable benefit expectations should lie somewhere between the minimum (contractual) right to vested benefits and the maximum (but not contractual) immediate payment of fully accrued retirement benefits. Such reasonable benefit expectations might be met if no further member or Company contributions were made to the Plan and active members were to be paid benefits on the first happening of resignation, death, disablement or retirement, the amounts of their benefits being calculated as the portion which is attributable to past service prior to the valuation date. The value of past service benefits at 1 July 2013 amounted to $18,910,000 (assuming 75% of benefits are actually taken as pensions). This is the same amount representing Accrued Benefits under Australian Accounting Standard 25 (AAS25). Therefore, the Accrued Benefits for AAS25 purposes amounted to $18,910,000 at 1 July 2013. The coverage of Accrued Benefits was 96%. The equivalent value of the index at the previous valuation was 78% on the same combined pension and lump sum basis. The Past Service Benefits Index of 96% indicates the assets of the Plan are not adequate to provide the past service benefits of members. A value of 100% for this index would indicate that the Plan was in a balanced financial position. In calculating the index at 1 July 2013, we have applied a minimum of the vested benefit for each member. 223422_1 Page 14 of 34
Over the three months 1 July to 30 September 2013 the Plan has achieved an investment return of 2.8%, which has further improved the financial position. 5.4 Benefits payable on termination of contributions by the employer If the Plan were to be terminated under Clause 18 of the Trust Deed, the members and beneficiaries would be entitled to a share in the total assets of the Plan. By definition, the Plan always has 100% coverage over its liabilities in this situation. 5.5 Benefits payable on retrenchment The benefit payable on retrenchment is usually equal to the member's vested benefit except for members who joined prior to 1 July 1981. For one member a deferred pension payable from his normal retirement date may be elected. As he has already passed his normal retirement date this option has no remaining value. 5.6 Funding and solvency certificate From 1 July 1994 the Government introduced a test of solvency for superannuation plans being used to provide Superannuation Guarantee benefits. To demonstrate that they have passed this test, defined benefit plans must obtain a Funding and Solvency Certificate (FSC) signed by the plan's actuary. These requirements are set out in Division 9.3 of the SIS Regulations. The solvency test is a comparison of Plan assets against minimum requisite benefits, which are the benefits specified in the Plan's Benefit Certificate prepared for the purposes of the Superannuation Guarantee (Administration) Act 1992. The FSC certifies solvency at the commencement of the certificate and also specifies minimum contributions designed to ensure that the Plan is expected to be solvent at the end of the period covered by the certificate. The current FSC for the Plan was prepared in conjunction with the previous actuarial valuation of 1 July 2010. At 1 July 2010, the assets of the Plan exceeded members' minimum requisite benefits, resulting in solvency under this basis. A replacement FSC is contained in Appendix D (Funding and solvency certificate for the purposes of Regulation 9.09 of the Superannuation Industry (Supervision) regulations). The minimum specified contributions are the same as those recommended in this report. As these contributions are expected to be sufficient to at least maintain the coverage of vested benefits, they will also ensure adequate coverage of the minimum requisite benefits. The FSC also specifies various items which are to be monitored over the period of the Certificate. The FSC expires on 30 June 2018. However, the SIS regulations require the FSC to be replaced at least 12 months before expiry and it is anticipated that the next FSC will be issued in conjunction with the next actuarial valuation report. 223422_1 Page 15 of 34
6. Company contributions 6.1 Recommendations At the time of preparing this report, the valuation at 1 July 2013 shows that the Plan s financial position has strengthened significantly due to a large extent, to the additional company contributions in 2010 and 2012. In view of the current financial position of the Plan, the current investment strategy, the financial markets and the results of the current actuarial valuation, I recommend that the Company contribute at the rate of 18% of salaries from 1 July 2013 until the next actuarial valuation which is due on or before 1 July 2016. I further recommend that this contribution be reviewed in the event of: the retirement of either of the senior management members a change in the ten year bond rate such that the rate moves outside of the range of 2.5% to 5.5%, or a significant change in the Plan s current investment strategy (evidenced by the exposure to shares and property moving outside of the range 10% to 35%, other than for the purposes of short term cash flow management) term or the value of plan assets. 223422_1 Page 16 of 34
7. Insurance protection The Plan insures part of its death and disablement benefits with of Australasia Ltd. The insured portion of the death and disablement benefits is calculated as the total death or disablement benefit less 16.667% x past membership x salary. The administration records indicate that, as at 1 July 2013, the total Death benefits, for members aged less than their normal retirement ages, for the Plan amounted to $2,200,000 (TPD benefits are the same). The insured portion was $1,401,000. This leaves a total of $799,000 of Death/TPD risk to be covered by the Plan s Assets. The market value of assets at 30 June 2013, after deducting the vested benefits of those over their normal retirement age is higher than this amount. Thus, there is currently an apparent degree of over-insurance in the Plan. However, given that a significant proportion of the assets are being applied to meet the cost of pension benefits, it is recommended that the current insurance programme be continued. 223422_1 Page 17 of 34
Appendix A Summary of benefits and contributions provisions A full description of the benefits is set out in the Trust Deed, a brief summary being set out below. Please note that there are also special benefits for some members. A.1 Eligibility Immediate upon commencement of employment. Contributions Members: Company: Non-contributory Balance required to provide the benefits A.2 Normal Retirement Age Normal Retirement Age is 62. Certain senior executive have a Normal Retirement Age of 60 and for these members the benefit at 60 is based on membership to age 62. A.3 Normal Retirement Benefit The benefit is equal to an annual pension payable from Normal Retirement Age equal to 1/60 th of Final Average Salary for each year of Eligible Service: Where Final Average Salary = Average Salary over three years preceding retirement. Eligible Service = Total period of membership of the Plan in years and complete months, subject to a maximum of 42 years. The pension will be payable by equal monthly instalments and will continue until the member dies (but with a minimum payment period of five years). Pensions in the course of payment are indexed at a rate of 3% p.a. in arrears. A.4 Early Retirement On retirement of a Member: After attaining age 55* (with the consent of the Company). At any time prior to Normal Retirement Age by reason of ill-health (with the consent of the Company). The benefit payable is calculated in accordance with the formula in A.4 based on membership and Final Average Salary at date of actual retirement. This pension is further reduced by 4% for each year (complete months counting as fraction of a year) that early retirement precedes Normal Retirement Age. * Female members of the Plan at 1 July 1983 have the option of retiring from age 50 (with consent of the Company). 223422_1 Page 18 of 34
A.5 Late retirement benefit The normal retirement pension will be increased by 8% p.a. for the period from the normal retirement date to the late retirement date to allow for its later payment. A.6 Lump sum retirement benefit Members may commute their pension for a lump sum. The lump sum commutation at age 60 for those females who have elected age 60 as their Normal Retirement Age is $11 lump sum for each $1 per annum of pension foregone. In respect of all other members the lump sum commutation rate at age 62 (normal retirement age) is $10 lump sum for each $1 per annum of pension foregone. The commutation rates are adjusted for early or late retirement. A.7 Retirement benefit Account Based Pension From 19 August 2009 members have had the option of commuting their retirement pensions and applying them as the starting balance of an account based pension, subject to their commuting at least half of their life pensions in this manner. The commutation rates at age 62 are $17 for each $1 of their life pension for those females who have elected age 60 as their normal retirement age and $16.50 for other members. These rates are adjusted for retirement at other ages. A.8 Death benefit The death benefit prior to Normal Retirement Age is a lump sum equal to the greater of: five times salary, or The capital value of the benefit which would have been payable if the member had retired on the date of his death. A.9 Disablement benefit The lump sum benefit upon a member becoming totally and permanently disabled: more than five years Normal Retirement Age is equal to the death benefit calculated in A.8, or within five years of Normal Retirement Age is equal to the lump sum equivalent of: The early Retirement Benefit plus 20% x (Normal Retirement Age n) x (Death Benefit Early Retirement Benefit). Where n = member s age on date of disablement. 223422_1 Page 19 of 34
A.10 Resignation benefits 10% x eligible service x FAS x Vesting Factor: Vesting Factor = 60% for 0-10 years service* 70% for > 10 years service* 80% for > 11 years service* 90% for > 12 years service 100% for > 13 years service * for the part eligible service that falls after 30 June 1998 the vesting factor is subject to a minimum of 70%, a minimum of 80% from 30 June 2000 and 90% from 30 June 2002. Note: Category A Resignation Benefit is multiplied by nl/ns. Where: ns = nl = Plan Service at normal retirement date in years and complete months. Plan Service to age 62 in years and complete months. A.11 Offset for FinSuper members If the company contributes to an Award Fund for the member the retirement benefits are reduced by 10% x the Award Contribution Rate x Final Average Salary for each year (and complete month) since 1 July 1991 of paying an Award Contribution. A reduction also applies to the Resignation Benefit. The Company no longer contributes to FinSuper as there are no members to whom it applies. A.12 Optional spouse s pension On retirement a portion of the pension benefit may be surrendered to provide a pension to the member s spouse. Provided at least 10% of the pension is surrendered, the pension to the spouse will be at least 60% of the member s remaining pension. If the spouse is more than 10 years younger than the member, the spouse s pension may be reduced. A.13 Additional benefits Some members have additional accumulation benefits which are payable in addition to the benefits described above. 223422_1 Page 20 of 34
Appendix B Revenue accounts The revenue accounts for the Plan for the 12 month periods ending 1 July 2010 and 30 June 2013 are detailed in Table 6. Table 6. Revenue accounts Year ending 30 June 2013 $000 30 June 2010 $000 Plan at Beginning 16,663 11,649 Income Company contributions 304 636 Net Investment Income 1,417 765 Transfers from other Plans - - Expenditure Benefits Paid/Payable - 127 Group Life Insurance 1 4 Other Expenses 56 50 Surcharge - - Tax 37 87 Plan at End 18,290 12,782 These details have been extracted from audited accounts for the years ending 30 June 2010 and dropped accounts for the year ending 30 June 2013. 223422_1 Page 21 of 34
Appendix C Valuation technique and assumptions C.1 Funding Funding is the making of advance provision to meet the cost of accruing benefits. This provides security for members benefits and spreads the cost of providing those benefits over a reasonable future period of years. There is considerable choice about the rate at which this advance provision can be made. The rate might be decided by having a funding objective, a target or aim. This objective could be to reach and then maintain a particular target funding level which is the ratio of assets to liabilities, and let the contribution rate vary. Alternatively, the Company might have an objective of a stable rate of contribution and be less concerned with variations in the funding level. The true cost to the Company of operating any superannuation plan over the life of the plan is the amount of benefits paid out plus the expenses of running the plan, less contributions made by members, and the return on investments. The long-term cost to the Company of operating the Plan will therefore not depend upon the actuarial valuation assumptions or methods which are used to determine the recommended Company contribution rate. Instead, it will depend upon the actual experience of the Plan. It is only the timing of payments from the Plan which will alter with the assumptions and methodology. The Trustee must ensure that the funding arrangements provide adequate security for members benefits at the valuation date, and are likely to do so as liabilities arise in the future. There are several valuation methods available to an actuary and whichever one is appropriate will depend on the funding objective, and the expectations concerning the future experience of the Plan. C.2 Valuation Method For this review the technique known as the Attained Age Normal method of funding has been chosen. This is the same method used for the previous valuation. Under the Attained Age Normal method, a theoretical (or normal ) contribution rate is derived for each category to meet the cost of future service benefits, which are the benefits arising from periods of Plan Membership to be competed after 1 July 2013. The method of financing adopted is appropriate for the Plan given that it is closed to new entrants and consequently has an ageing membership. Under the Attained Age funding method, if the valuation assumptions are borne out in practice, and there is no past service surplus/deficit, the contribution rate as a percentage of salaries will remain stable until the last member has left the Plan. 223422_1 Page 22 of 34
C.3 Actuarial Assumptions For an actuarial valuation it is necessary to make assumptions about the rates at which members will leave the Plan on account of retirement, resignation, death and disablement. Likewise, rates of future salary growth must be assumed so as to quantify the benefits and contributions payable, and allowance must be made for earnings which will be derived from the existing assets and from investment of future contributions. The result of the valuation may be very sensitive to the assumptions made, in particular to the difference or gap between the assumed rates of investment earnings and salary increases. The assumptions which we have used for the review are set out below. C.4 Investment Earnings Pre-retirement 6.0% per annum after tax (if any) on investment earnings and investment expenses. Post-retirement Not applicable as retirement pensions are purchased. C.5 Cost of Pensions The cost of pensions was assessed from a series of quotations sought from CommInsure and Challenger the market leaders in this class of business. In the event of a retirement, market quotations would be sought. C.6 Salary Increases 4% per annum. C.7 Other Assumptions Allowance is made for the five year pensions guarantee period. assumed to be provided on an actuarially equivalent basis. Reversionary pensions are C.8 Rate of Pension indexation 3% per annum. 223422_1 Page 23 of 34
C.9 Promotional Salary Increases Members are assumed to receive promotional salary increases, on top of general salary increases, according to an age-related scale. Specimen promotional increases are. Table 7. Promotional Salary Increase Age Promotional Salary Increase (%p.a.) 20 5.95 25 4.23 30 3.16 35 2.41 40 1.85 45 1.39 50 1.00 55 0.64 C.10 Total and Permanent Disablement, Death and Resignation Examples of the numbers of members ceasing employment due to death, disablement and leaving service assumed per 10,000 members at each age are given in Table 8. Table 8. Members ceasing employment due to death, disablement and leaving service Age Last Birthday Numbers of members out of 10,000 age x at beginning of year assumed to leave the Plan during the year on account of Resignation Death Disablement 20 1,070 7 1 25 1,000 5 1 30 710 5 2 35 460 7 2 40 380 10 4 45 290 18 9 50 170 30 21 55-53 48 60-89 106 223422_1 Page 24 of 34
C.11 Post Retirement Mortality Assumed to be in accordance with the PA (90) table for pensioners aged 7 years younger than the age in the table. C.12 Early Retirement Table 9. Early retirement Attained Age x Number of members out of 10,000 age x at beginning of year assumed to leave the Plan during year on Account of Retirement 55 1,000 56 1,000 57 1,000 58 1,000 59 1,000 60 1,000* 61 1,000 62 1,000 *10,000 for those members with Normal Retirement Age 60. C.13 Expenses Administration expenses paid from the Plan are assumed to average 1.5% of the members salaries. A loading of 10% has been added to the insured portion of death and disablement benefits. C.14 Tax Where contributions are assumed to be paid, a full allowance for tax at a rate of 15% has been made. 223422_1 Page 25 of 34
Appendix D Funding and Solvency Certificate for the purposes of Regulation 9.09 of the Superannuation Industry (Supervision) Regulations of Australasia Ltd Superannuation Plan D.1 Application This Funding and Solvency Certificate has been prepared for the Trustee of the of Australasia Ltd Superannuation Plan in accordance with Guidance Note 461 issued by the Institute of Actuaries of Australia. This Certificate is effective from 1 July 2013 and expires on 30 June 2018, unless it is replaced earlier or ceases to have effect for other reasons covered in Regulation 9.12 (2) of the Superannuation Industry (Supervision) (SIS) Regulations. It replaces the previous Funding and Solvency Certificated dated 21 October 2010. D.2 Trustee Obligations The Trustee is required under the Regulation to: As soon as practicable, give a copy of this Certificate to each employer-sponsor who is associated with the Plan for Superannuation Guarantee purposes. Notify the Plan s actuary if any of the events listed in Section D7 occurs while this Certificate is in force. Your administrator should be asked to provide the information listed in Section D8 to the actuary on the Trustee s behalf, to enable the actuary to determine if and when the Certificate should be replaced. D.3 Certification I certify that as at 1 July 2013 the Plan was solvent (as defined in Part 9 of the SIS Regulations) i.e. the Plan s Minimum Benefit Index was not less than one. I also certify that, if the Company contributes at a rate of 18% of salaries from 1 July 2013, for the period covered by this Certificate, then based on the assumptions given in Section D9 to this Certificate, the Plan can be expected to remain solvent (as defined in Part of the SIS Regulations) during the period covered by this Certificate. This is the same contribution recommendation as made in the report on the Plan s 1 July 2013 actuarial review. D.5 Events since the Effective Date of this Certificate I am not aware of any events since the effective date of this Certificate that would adversely affect the Certificate s contents. 223422_1 Page 26 of 34
D.6 Related Benefit Certificate In certifying the Plan s solvency it is necessary to compare the Plan s assets with the Minimum Requisite Benefits payable from the Plan for Superannuation Guarantee purposes. I have taken these benefits to be those described in the Superannuation Guarantee Benefit Certificate prepared by Geoff McRae FIAA dated 25 October 2013. The expiry date of that Benefit Certificate is 30 June 2018. That Benefit certificate covers the period to the expiry of this Funding and Solvency Certificate. D.7 Explanation for the Trustee This Certificate certifies that the Plan is solvent (as defined in the Regulations for Superannuation Guarantee purposes, i.e. minimum Superannuation Guarantee benefits are covered by the assets). It also certifies that on reasonable assumptions about the future the Plan is likely to remain solvent during the period covered by this Certificate. However, I do not, and cannot, guarantee that the Plan will remain solvent, even in this limited sense, for the period covered by this Certificate. D.8 Notifiable Events The following events will cause this Certificate to expire. On expiry a further actuarial review of the Plan s financial position may be required, followed by issue of a replacement Certificate within three months of the expiry of the previous Certificate. The extent of the actuarial review will depend on the reason for the expiry of the previous Certificate. Information in the form of that described in Section D8 is either: Not supplied to the actuary within six months of the Plan s review date or such other time frame as determined by the actuary, or Supplied to the actuary but is considered by the actuary as being adequate to enable the actuary to conclude that the Certificate does not need to be revised. Any benefit increase after the date of this Certificate other than those certified by the Plan s actuary as not requiring a revision to the Certificate. Any repatriation of surplus to an Employer associated with the Plan. The actuary receives written advice from the Trustee in relation to any other event, not listed in Section D8, which the Trustee after discussion with the actuary, believes has had or will have a significant adverse effect on the Plan s financial condition and the actuary has concluded that this Certificate should be replaced. The rate of return on the Plan s assets for any twelve month period ending on a Plan review date is less than -5%. Both of the senior management members of the Plan retire. 223422_1 Page 27 of 34
D.9 Information to be monitored The information below is to be prepared by the Trustee, or by the Plan s administrator on the Trustee s behalf, with effect from each annual review date of the Plan and advised to the actuary within six months of the Plan s review date: total assets at net market value total vested benefits total benefits paid during the year to former members total minimum requisite benefits (as described in the benefit certificate dated 25 October 2013) total employer contribution paid during the year and rate of contribution (for each benefit category) number of members and total salaries at the review date (for each benefit category) declared rate of interest for the year and interim rate of interest to apply following the review date investment return for the period since the last review date whether there has been any major change in investment holdings or strategy during the year whether there have been any other major changes to the plan during the year. The Trustee should also advise the actuary if it becomes aware of any pending retirements from the Plan. The actuary will notify the Trustee if any advice necessitates a revision to this Certificate. D.10 Key Assumptions used in preparing this Certificate Financial assumptions (applicable to the period after the date of this Certificate) Investment returns: Pre-retirement 6% Post-retirement not applicable This return is net of investment tax and investment expenses. Salary increases: Rate of pension indexation: 4% p.a. Additional age-related promotional salary increases were also assumed. 3% p.a. 223422_1 Page 28 of 34
Other Assumptions Assumptions have been made regarding the rate at which members are expected to leave the Plan on account of retirement, death, disablement and resignation. These rates are the same as those used for the actuarial review as at 1 July 2013. Geoff McRae Principal, Rice Warner Actuaries Fellow of the Institute of Actuaries of Australia 25 October 2010 223422_1 Page 29 of 34
Appendix E Summary of Actuarial Report for the purposes of Australian Accounting Standard AAS25 and Actuarial Statements for the purpose of the Superannuation Industry (Supervision Regulations) of Australasia Ltd Superannuation Plan E.1 Summary of Actuary s Report The effective date of the most recent valuation of the of Australasia Ltd Superannuation Plan was 1 July 2013 covering the period from 1 July 2010 to that date. The valuation was undertaken by Geoff McRae, Fellow of the Institute of Actuaries of Australia, on behalf of Rice Warner Actuaries Pty Ltd, and the results are set out in a report dated October 2010. A summary of this report follows: As at 30 June 2013, the net realisable value of the assets of the Plan, based on draft accounts supplied by the Trustee, amounted to $18,290,000. From 30 June 2013, and amount of $45,000 has been reserved to satisfy the Occupational Risk Financial Requirement (ORFR), Plan assets net of the ORFR amount total $18,245,000. This is also the value of assets used in determining the recommended contribution rate. For the three months ending 30 September 2013, the Plan s assets have earned a return of 2.5%. The Plan has no liability in respect of pensioners, postponed retirements or deferred benefits for former members or dependants. However, two members have passed their normal retirement age. The present value of accrued benefits as at 1 July 2013 for the purposes of Australian Accounting Standard AAS25 was $18,910,000. This amount also constitutes the value of the liabilities in respect of accrued benefits as defined in Division 9.5 of the Superannuation Industry (Supervision) (SIS) Regulations. A summary of the method of attributing benefits to past membership is set out in Note 1 below. The accrued benefits have been valued using the same assumptions as were adopted for the actuarial review. A summary of these assumptions is set out in Note 2 below. The above figure includes accumulation liabilities of $628,000 taken at face value. The total of members' vested benefits for the purpose of Australian Accounting Standard AAS25, i.e. voluntary resignation benefits or early retirement benefits, as at 1 July 2013 amounted to $16,080,000. The value of accrued benefits was not covered by the Plan's assets, but wanted benefits were covered, the ratios of the assets to these totals are as follows: Present value of accrued benefits - 96% Vested benefits - 113% 223422_1 Page 30 of 34