AUSTRALIA POST SUPER SCHEME Insight News from the Australia Post Superannuation Scheme Quarter ending June 2018 Formula 1: The formula that defines super for most employee members Back to basics INSIDE THIS EDITION Formula 1: The formula that defines the main APSS benefit for employee members Is your next birthday a super milestone? Get more out of your super this financial year Investment update for the quarter ending 30 June 2018 Some of you have told us that you would like to better understand how your super in the APSS works, so we re going back to basics. This edition of Insight includes the first in a series of articles to help you better understand and connect with your super. In this edition, we look at the main super benefit for APSS employee members the APSS Defined Benefit. It s not like most super benefits you read about in the news because it s determined by a simple formula rather than the performance of investment markets, and there are no fees. Let s take a look. Australia Post Superannuation Scheme ABN 42 045 077 895
Defining your APSS Defined Benefit Can you calculate 2 x 2 x 2? Calculating an APSS Defined Benefit is not that much harder, as we explain here. The APSS Defined Benefit formula combines three elements, often expressed like this: Your 'accrual' rate (e.g. 14.3%) X Final Average Salary (FAS) X Years of service This rate is determined by your member category. For a full member the figure is 14.3%. The rate is different if you re an SG or CSS member (see your annual benefit statement for details). Your FAS is generally the average of your superannuation salaries on your last three birthdays. Your years of employment or service with Australia Post (or an Associated Employer). See the Your Defined Benefit and Member Savings PDS for details. How to work out your FAS Add together your last three years of super salary, then divide by three. For example: $51,300 + $52,000 + $53,000 = $156,300 3 = $52,100 2016 super salary 2017 super salary 2018 super salary 3 year total super salary FAS Calculating a 14.3% Defined Benefit Simple example Extending the above example, let s assume there are 8 years of full-time service. In this case, the APSS Defined Benefit can simply be calculated like this: Accrual rate FAS Years of service Defined Benefit 14.3% x $52,100 x 8 years = $59,602 Note There are procedures in place to make sure your superannuation salary will generally not decrease if your pay decreases. To find out more about your superannuation salary, call Australia Post HR Operations on 1300 363 772, or contact your Payroll or HR Manager if employed by an Associated Employer. Page 2 Australia Post Superannuation Scheme Quarter ending June 2018
Defining your APSS Defined Benefit (cont.) Can it really be so simple? Yes and no! It really is that simple if you ve only ever been a 14.3% member with, for example, no probationary service, no service as an SG Defined Benefit member, no pre-1 July 1990 service, and no catching-up to do. If one or more of those variables do apply to you however, the calculation of your benefit gets a bit trickier as there are more elements involved. That s why we use something behind the scenes called a multiple. You may notice this on your annual benefit statement. It s a number generally derived by multiplying the percentage used in your formula (e.g. 14.3%) by your years of service, but adjusts for any part-time periods. For details on your specific benefit, please login at apss.com.au/memberaccess to check your details, and go to Product disclosure under the Publications & Forms tab at apss.com.au to download Your Defined Benefit & Member Savings Product Disclosure Statement. APSS Defined Benefit in the event of death or total and permanent disablement In the unfortunate event that you become totally and permanently disabled (TPD) or die, the benefit paid to you (or to your beneficiaries) will be at least the same as what would otherwise be paid had you retired or resigned on the date of TPD or death. Some members are entitled to an additional death or TPD benefit If you re a 14.3% member under age 60, an additional benefit will be paid on top of your defined benefit if you die or become TPD. This additional benefit is approximately equivalent to the defined benefit you would have otherwise had at age 60. For example, suppose a 14.3% member died or suffered TPD at age 45, exactly 15 years before their 60th birthday, when their super salary was $53,000: Years of potential membership Member Super from date of death or TPD to age 60 X Category X salary* = Death/TPD Benefit 15 14.3% $53,000 $113,685 PLUS Adjustment:* $1,029 Additional benefit in the event of death or TPD:** $114,714 PLUS APSS Defined Benefit (as calculated in our page 2 example): $59,602 Total APSS Defined Benefit in the event of death or TPD: $174,316 * Super salary is currently used to calculate a death or TPD benefit for most 14.3% members. Although FAS is generally set equal to super salary in all death or TPD benefit calculations for 14.3% members, FAS and super salary may be different (e.g. as in the example above). In such cases, an adjustment needs to be made. Using our page 2 example, this adjustment would be calculated as follows: $53,000 (super salary) - $52,100 (FAS) = $900 x 14.3% x 8 years = $1,029. When you re over 58, this calculation uses your future FAS at age 60 rather than super salary, and assumes your current super salary remains unchanged to age 60. ** Any additional TPD or Death Benefit that is payable will be in addition to your other APSS benefits. Remember different members have different benefits! Death and TPD benefits are not the same across all APSS member categories. The example on this page is for a 14.3% member. If you re an SG or CSS member, or if you have insurance through an APSS Spouse or Rollover account, please refer to your annual benefit statement and the relevant Product Disclosure Statement for details on how entitlements apply on death or TPD. Also, please remember that there are strict rules governing the payment of your APSS benefit if you suffer TPD. Don t assume it s automatically paid just because you can no longer work as a result of an illness or injury. Read your Product Disclosure Statement for details. Australia Post Superannuation Scheme Quarter ending June 2018 Page 3
Is your next birthday a super milestone? You can start accessing some of your super before you retire once you ve reached your preservation age. You may not think of your 57th birthday as a big one, but if you re turning 57 between 1 July 2018 and 30 June 2019, it s a really special super milestone because it s when you reach your preservation age.* This means you can start accessing part of your super before you permanently retire from the workforce. One way to access that part of your super is by opening an APSS Pension account, and using it as part of a Transition to Retirement (TTR) strategy. A TTR strategy unlocks some of your super (subject to annual limits) before retirement. It s a strategy you might wish to adopt if, for example, you want to supplement your salary and reduce your working hours in the lead up to retirement. To learn more, go to apss.com.au and click under Publications & Forms to find and download the: Getting ready for retirement fact sheet. Your APSS Pension Product Disclosure Statement (PDS) under Product disclosure. You will need to complete the application form in the PDS if you choose to adopt a TTR strategy via the APSS. Please be aware that there are some complex tax rules to consider, which apply to TTR strategies. Also remember that accessing your super early will ultimately lower the amount of super you will have when you are finally retired. If you need help planning your retirement and/or your TTR strategy in relation to your personal tax strategy, the APSS strongly recommends that you seek advice from a licensed financial adviser. *Important! Preservation age is not age 57 for everyone. Your preservation age will depend on when you were born. Go to apss.com.au and look up Preservation age in the Glossary for details. Do you need help? As an APSS member, you are entitled to one hour of financial advice at no obligation to you. Reaching a super milestone is a good time to stop, reflect and consider your future. All APSS members can access free general advice by calling SuperPhone on 1300 360 373, but our service representatives are not licensed to provide personalised financial advice. For such advice, you can choose any financial planner you want. You may wish to consider State Super Financial Services Australia Limited (StatePlus), a licensed financial planning group that the APSS Trustee has a relationship with. You can talk to a StatePlus financial planner over the phone, or arrange a face-to-face appointment at a location convenient to you by calling 1800 620 305. Please note that neither the APSS Trustee nor the Australian Postal Corporation endorses, recommends or guarantees any services provided by StatePlus. The information on this page is of a general nature and does not take into account your personal objectives, financial situation or needs. The APSS Trustee is not licensed to provide financial product advice. Before making a decision about your super, including investment or insurance options, please read the relevant PDS that can be downloaded from the Product disclosure section of apss.com.au under the Publications & Forms tab, or mailed out to you by calling SuperPhone on 1300 360 373. The APSS recommends members seek professional financial and tax advice tailored to their circumstances before making any decision about their super. The APSS Trustee has a relationship with State Super Financial Services Australia Limited, trading as StatePlus, a licensed provider of financial planning services (ABN 86 003 742 756, AFS Licence No. 238430). If you decide to seek financial advice through StatePlus, please note that neither the APSS Trustee nor the Australian Postal Corporation endorses, recommends or guarantees any services provided by that licensed provider of financial planning services. Page 4 Australia Post Superannuation Scheme Quarter ending June 2018
Get more out of your super this financial year In the countdown to the end of last financial year, we encouraged you to consider three questions to get more out of your super. Those questions are still relevant in the new financial year that began on 1 July 2018. Here s a quick reminder: 1. Have I saved enough super? Work out your optimal contributions strategy and look at the option to salary sacrifice some of your pay into super, which you can do in the APSS if you re an employee member or, if a non-employee member, by making a personal after-tax contribution and claiming a tax deduction for it. 2. What Government incentives might I benefit from? Government co-contributions and tax offsets are available to help lower-income earners save more super for their retirement. 3. Am I paying too much super tax or fees? When setting your super contributions strategy for 2018-19, be mindful of extra taxes that may apply if you contribute too much. If you re a higher-income earner and/or building up close to $1.6 million in super, there are other considerations. Some fresh incentives to do more with your super also commenced on 1 July 2018 if you re saving to buy a first home or downsizing to a cheaper one in the lead up to your retirement. For more details, read the last (March 2018 quarter) edition of Insight. Important! Don t get caught out contributing too much into super in any financial year. The Government places limits on the amount that can be contributed to super without incurring additional tax on these contributions. The limits, as well as the tax implications, are subject to change. Australia Post Superannuation Scheme Quarter ending June 2018 Page 5
Investment round up Each APSS investment option has its own underlying investment portfolio. Each option s crediting rate is determined by the investment return of its portfolio. With the exception of the Cash option, which is always invested in cash (and cash equivalents), each option has a mix of assets, just in different proportions. A portfolio with a higher allocation to shares and other growth assets (e.g. the High Growth option s portfolio), is expected to deliver higher investment returns and therefore higher crediting rates over longer timeframes. However, the higher the allocation to growth assets, the more volatile the portfolio is considered to be. The more volatile, the higher the risk of the portfolio dropping in value in the short term. Crediting rates to 30 June 2018 Member Savings accounts (including Spouse and Rollover accounts) $ Cash Conserva ve Balanced High Growth 3 months 0.43% 1.11% 1.60% 2.03% 6 months 0.76% 1.50% 1.68% 1.61% 1 year 1.49% 4.23% 6.64% 8.26% 3 years (p.a) 1.57% 6.07% 5 years (p.a) 1.79% 8.18% Transition to Retirement (TTR)* Pensions 3 months 0.43% 1.11% 1.60% 2.03% 6 months 0.76% 1.50% 1.68% 1.61% 1 year 1.49% 4.23% 6.64% 8.26% 3 years (p.a) 1.76% 6.48% 5 years (p.a) 2.06% 9.02% APSS Pensions (Tax free)* 3 months 0.49% 1.32% 2.14% 2.58% 6 months 0.87% 1.76% 2.24% 2.07% 1 year 1.74% 4.64% 7.95% 9.63% 3 years (p.a) 1.84% 6.91% 5 years (p.a) 2.11% 9.29% Note: The compound crediting rates shown above are after investment costs and tax (where applicable). Before 1 July 2017, the Cash option was called Cash Return, and the Balanced option was called Market Return. The Conservative and High Growth options commenced on 1 July 2017, which is why returns for periods longer than 1 year are currently not applicable (). *APSS Pension investment earnings are tax-free, unless you are using an APSS Pension to transition to retirement, in which case earnings may be taxed at up to 15% if you have not turned 65 or met a relevant condition of release and notified the APSS. Use the TTR Pensions table above for the applicable crediting rates where tax applies to an APSS Pension. Important reminder: Past investment returns are not necessarily indicative of future investment returns. Page 6 Australia Post Superannuation Scheme Quarter ending June 2018
Investment round up Asset allocations at 30 June 2018 Asset allocation is the mix of different asset classes (and assets within each class) in an investment portfolio. Strategic Asset Allocation (SAA) refers to the strategy used to achieve a particular investment objective. Actual asset allocation is a snapshot of the mix of assets at a particular point in time. This might vary from the SAA, but only within allowable ranges that are set as part of the overall investment strategy. The following charts show the actual asset allocations as at 30 June 2018 for the four APSS investment options, along with the assets invested to provide benefits to members entitled to an APSS Defined Benefit as required: 26% 20% Public market shares Private markets $ 12% Alterna ve credit 100% 40% 2% Bonds Cash Cash Conserva ve 11% 3% 11% 11% 20% 43% 23% 63% 20% DB 43% 3% 3% 23% 23% Balanced High Growth Defined Benefit Defined Benefit portfolio The Defined Benefit portfolio s investment return (i.e. crediting rate) has no financial impact on the APSS Defined Benefit for most members. This is because that entitlement is determined by a formula (as explained on page 2), rather than the investment returns of the portfolio. The only exception is where a member has an other offset account. This won t apply to most members. If it does, you ll see it on your annual statement, which will also show this portfolio s crediting rate applied to that offset account, showing the interest charged at the same rate as the crediting rate calculated from the investment return of the Defined Benefit portfolio. You can read more about these other offset accounts in the Your Defined Benefit & Member Savings Product Disclosure Statement available at apss.com.au by clicking Product disclosure under Publications & Forms. Page 7 Australia Post Superannuation Scheme Quarter ending June 2018
Investment round up Behind the numbers After a volatile March quarter, shares and other growth assets consolidated to post gains in the three months to 30 June 2018. True to its label, the High Growth investment option benefited the most from these gains, earning a cumulative 2.0%* crediting rate for the quarter, followed by the Balanced option with 1.6%,* the Conservative option with 1.1%* and the Cash option with 0.4%.* Due to tax-free investment earnings, crediting rates for APSS Pension accounts were slightly higher. Global economy Global economic conditions remained generally supportive during the quarter. The same couldn t be said of the political landscape, with the US targeting Europe and China in a round of proposed tariffs and import restrictions, while anti-establishment political movements gained ground in Europe and Brexit fuelled political infighting. These events failed to rattle investors seriously enough to outweigh the positives of low inflation, low or gently rising interest rates and robust company profits; at least in the June quarter. Economic instability in pockets of the emerging markets, notably in Turkey, was made worse by the global trade tensions. *Numbers with an asterisk are quoted after-tax. If there is no asterisk, the number is before tax. Australia Domestically, the Reserve Bank of Australia (RBA) held the official cash interest rate at 1.5% through the June quarter. With house prices easing in Sydney and Melbourne and inflation staying low, the RBA appears comfortable keeping the cash rate at its record low to support the Australian economy and give households more time to manage down debt. Currency movements over the June quarter centred on a strengthening US dollar. The Australian dollar weakened by 3.6% against the US dollar but made gains against the British Pound, Euro and Yen. What contributed to our return numbers this quarter? Australia s share market was one of the strongest over the June quarter, gaining 8.4%. By contrast, developing economies lagged, with their share markets declining in value by 4.5%. Overall, APSS assets held in public market shares returned a net gain of 2.7% in the June 2018 quarter. Our investments in private markets also had a positive quarter, gaining 3.4% with some help from the strengthening US dollar. We continued to build up the new alternative credit allocation across the Conservative, Balanced and High Growth investment options. Alternative credit gained 2.9% in value for the quarter. Having a diversified investment portfolio generally means that some asset exposures naturally deliver higher returns than others and so it was in the June quarter where low-interest rates continued to restrict the returns on the APSS bond and cash portfolios to 0.7% and 0.5%, respectively. Australia Post Superannuation Scheme (ABN 42 045 077 895) Issuer: PostSuper Pty Ltd (ABN 85 064 225 841) RSE Licence Number L0002714 APSS Registration Number R1056549. Important Note: All investments carry risk and may rise and fall. International investing involves additional risks, including the risk of currency fluctuations. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is not a guarantee of future returns or crediting rates. APSS s crediting rates are calculated fortnightly and are published on apss.com.au under the Investments tab. The information contained in this publication is of a general nature, is not intended to be financial product advice and does not take your personal financial circumstances into account. Before acting on any information contained in this document you should first consider its appropriateness to your financial circumstances. If you have any doubts or require further assistance you may wish to seek the advice of a professional financial adviser. The APSS Trustee does not hold an Australian Financial Services Licence and therefore is not licensed to provide you with financial product advice. The APSS Trustee has a relationship with State Super Financial Services Australia Limited, trading as StatePlus, a licensed provider of financial planning services (ABN 86 003 742 756, AFS Licence No. 238430). StatePlus is responsible for the advice given to APSS members under this arrangement. Issued: 27 July 2018. Page 8 Australia Post Superannuation Scheme Quarter ending June 2018