Overview
The Government continues to address the important but difficult issue of the financing of superannuation liabilities.
The key initiative for 1999-2000 is a one-off payment of $300m into the superannuation provision. This replaces the proposal to invest an additional $200m over four years into the superannuation provision, as outlined in the 1998-99 Budget. It represents an increase of $100m on the previous commitment and also brings forward the bulk of the investment, with the entire $300m to be paid into the superannuation provision in 1999-2000 rather than spread over the period to 30 June 2002, as previously envisaged.
The additional funding recognises the importance of early action to address the past unfunded liability and follows the announcement in the 1998-99 Budget of:
- full funding of employer superannuation liabilities in respect of new entrants to the ACTPS from 1 July 1999; and
- payment of employer contributions to the superannuation provision extended to include budget-funded agencies to reflect the full costs of service provision.
It is important to note that estimates of the Territory’s superannuation expenses incorporated in this budget are based upon actuarial estimates of the liability and emerging cost. Those estimates are currently being subjected to a major triennial review. The results of the review will be available in the second half of 1999 and are likely to show a reduction in the size of the superannuation liability.
The Government will re-assess its long term financing options, taking into account the findings of the triennial actuarial review of accrued superannuation liabilities and emerging costs.
Financing Arrangements
The Government sought during 1998-99 to address the issue of the past unfunded superannuation liability by using a substantial part of the proceeds of the proposed sale of ACTEW. This initiative would have removed the past unfunded liability and provided an increased income stream to be applied to the annual accruing liability.
The Legislative Assembly on 26 November 1998 established the Select Committee on the Australian Capital Territory’s Superannuation Commitments.
In establishing the Select Committee the Assembly resolved that:
(1) the committee be appointed to inquire into and report on the Territory’s superannuation commitments, with special reference to:
(a) the adequacy of the Towers Perrin reports, entitled Report on the Development of Alternative Superannuation Arrangements for the Australian Capital Territory Public Sector and Report on the Financial Management of the ACT Government Financed Superannuation Liabilities as a guide to the magnitude of the Territory’s superannuation commitments;
(b) the efficacy of the proposed one-off funding option to settle the Territory’s unfunded superannuation liability;
(c) any alternatives to the proposed one-off funding option;
(d) the potential downstream impacts on the ACT economy of each of the alternatives identified for meeting the Territory’s unfunded superannuation liability effects; and
(2) the committee report by the first sitting day of February 1999, and the Government take no action on the final ownership aspect of ACTEW until the Assembly has considered the Government’s response to the Select Committee report.
These Terms of Reference were addressed in detail in the Government’s submission to the Select Committee. Notwithstanding the fact that the inquiry into the Territory’s superannuation commitments occurred in the context of the debate over the ownership of ACTEW, the submission focused deliberately on the separate issue of superannuation and the optimal method of funding the Territory’s superannuation commitments.
The submission assessed a number of funding options against the key criteria of:
- minimising the cost to the taxpayer of funding the ACT’s superannuation commitments;
- covering the unfunded superannuation liability; and
- "smoothing" the call on the budget in the medium to long term.
The Committee held public hearings and received submissions from a range of individuals and groups. The Committee’s Report was tabled and debated in the Assembly on 2 February 1999.
Following the debate on the Committee’s Report the Legislative Assembly rejected the proposal to sell ACTEW and therefore the level of sale proceeds that might be used to reduce the superannuation unfunded liability became academic.
Given the decision by the Legislative Assembly to reject the Government’s preferred option for funding superannuation liabilities, other options must now be considered.
Recognising the prominence given to the accuracy of actuarial projections during the Select Committee’s Inquiry, the results of the triennial actuarial review of ACTPS superannuation emerging costs and accrued liabilities will be important in determining a long term financing strategy. The review, based on CSS and PSS data to 30 June 1998 and revised financial and demographic assumptions, is currently underway and expected to be completed in the second half of 1999.
In terms of the 1999-2000 Budget the Government’s decision to apply an additional $300m from ACTEW to the superannuation provision recognises a consistent theme in the submissions to the Select Committee, the Committee’s Report and in the Towers Perrin reports to Government. All parties acknowledged the benefit from the early injections of additional funds to address the past unfunded liability. The Government’s intention had been to fully remove the past liability by a payment of $765m, whereas other parties supported lesser injections of $250-400m.
New Superannuation Arrangements
The Government decision to introduce new superannuation arrangements from 1 July 1999 is an important component of the action to address the financing of superannuation liabilities. The revised arrangements will apply to staff commencing from 1 July 1999 and will be fully funded at the levels required by the Superannuation Guarantee legislation. The new staff will be able to choose the superannuation fund into which their employer contribution is paid. Full funding means there will be no growth in unfunded liabilities in relation to new staff.
Arrangements for existing staff will be remain unchanged, subject to the intention that from 1 July 2000 the ability to transfer from the CSS and the PSS to other funds is expected to be offered on the same basis as developed for CSS and PSS members in the Australian Public Service.
During 1998-99 a default fund was selected through a tender process. The default fund will be available for any new staff from 1 July 1999 who do not nominate a superannuation fund.