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POLICE SUPERANNUATION SCHEME

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The Police Superannuation Board (the Board) is a Body Corporate established under the Police Superannuation Act 1990 (the Act).

 

Functions

 

The Board is responsible to the Treasurer for the administration of the Police Superannuation Scheme (the Scheme). The main financial administration arrangements of the Scheme involve:

 

·                     The Police Superannuation Fund — The Fund, established under the Act, records receipts to the Fund (members’ contributions and revenue earned from investment of those monies) and payments from the Fund (the employee share of benefit payments and administration costs).

·                     The Police Superannuation Scheme Employer Contribution Account — The Account was established to record employer contributions on behalf of the members.  The employer share of the benefits paid and administration costs is met from the Account. 

 

The Scheme has the following components:

 

·                     Old Scheme Division — provides pension benefits with a lump sum option. Police officers and cadets who commenced employment on or before 31 May 1990 are members of the Old Scheme Division.

 

·                     New Scheme Division — provides lump sum benefits. Police officers and cadets who commenced employment on or after 1 June 1990 are members of the New Scheme Division.

 

The Old Scheme and New Scheme Divisions were closed to new membership in May 1990 and May 1994, respectively. Police officers and cadets who commenced employment after 3 May 1994 became members of the Southern State Superannuation Scheme which is administered by the South Australian Superannuation Board.

 

Under the Act, the Superannuation Funds Management Corporation of South Australia (Funds SA) is responsible for the investment and management of the Fund and the Account.

 

Structure

 

The Police Superannuation Office (PSO) is a business unit within the Financial Management Services Branch of the South Australia Police Administrative Unit   and is responsible to the Board for the management and administration of the day to day operations of the Scheme.

 

 

AUDIT MANDATE AND COVERAGE

 

Audit Authority

 

Audit of the Financial Report

 

Subsection 31(1)(b) of the PFAA provides for the Auditor-General to audit the accounts of the Scheme for each financial year.

 

Assessment of Controls

 

Subsection 36(1)(a)(iii) of the PFAA provides for the Auditor-General to assess the controls exercised over the Scheme in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities.

 

This assessment also considers whether those controls are consistent with the prescribed elements of the FMF as required by TI 2.


Scope of Audit

 

The audit program covered major financial systems to obtain sufficient evidence to form an opinion on the financial report and internal controls.

 

During 2006-07, areas of review included:

 

·                     cash at bank

·                     receipting and banking of contributions

·                     benefit payments

·                     administration expenses

·                     liability for accrued benefits.

 

The audit of the investment and management of the Scheme assets is undertaken as part of the Funds SA audit.

 

 

AUDIT FINDINGS AND COMMENTS

 

Auditor’s Report on the Financial Report

 

In my opinion, the financial report presents fairly, in all material respects, in accordance with the Treasurer’s Instructions promulgated under the provisions of the Public Finance and Audit Act 1987 and Australian Accounting Standards (including the Australian Accounting Interpretations), the net assets of the Police Superannuation Scheme as at 30 June 2007 and the changes in net assets for the year ended 30 June 2007.

 

Assessment of Controls

 

In my opinion, the controls exercised over the Police Superannuation Scheme in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities except for financial delegations as outlined under ‘Communication of Audit Matters’, are sufficient to provide reasonable assurance that the financial transactions of the Police Superannuation Scheme have been conducted properly and in accordance with law.

 

Communication of Audit Matters

 

Audit matters were detailed in a management letter to the officers responsible for the governance of the Scheme.  A matter raised with the Board related to financial delegations.  While the Board has established and operates under a framework of delegations of authority, delegation requirements are also set by TI 8.  TI 8 was revised effective for 2006-07.  The Board did not obtain formal approval from the responsible Minister for its financial delegations as required by the revised TI 8.  The Board is to obtain the appropriate approval for 2007-08.

 

Responses to other matters raised were also considered satisfactory.

 

 

INTERPRETATION AND ANALYSIS OF THE FINANCIAL REPORT

 

In accordance with AAS 25, the Board has elected to present their financial report in the format of a Statement of Net Assets and a Statement of Changes in Net Assets.  Consequently, a Statement of Cash Flows has not been prepared and benefit related liabilities are disclosed in the notes to the financial statements.

 

Highlights of the Financial Report

 

 

2007

2006

Percentage

 

$’million

$’million

Change

CHANGES IN NET ASSETS

 

 

 

Contribution revenue

80.9

74.2

9

Investment revenue

152.5

121.2

26

Other income

0.1

0.1

-

Benefit expenses

(57.2)

(44.4)

29

Other expenses

(5.7)

(4.8)

19

Net Increase in Funds

170.6

146.3

17


 

 

2007

2006

Percentage

 

$’million

$’million

Change

ASSETS

 

 

 

Investments

911.0

743.8

22

Other assets

2.5

1.8

39

Total Assets

913.5

745.6

23

LIABILITIES

 

 

 

Current liabilities

0.7

2.0

(65)

Non-current liabilities

-

1.4

(100)

Total Liabilities

0.7

3.4

(79)

 

 

 

 

Net Assets Available to Pay Benefits

912.8

742.2

23

 

 

Statement of Changes in Net Assets

 

Revenues

 

·                     Investment revenue for the year was $153 million ($121 million).

·                     Contribution revenues increased by $6.7 million to $81 million. Of this amount, $37.9 million ($33 million) was received from the Government towards funding the past service liability.

 

For the four years to 2007, the following chart shows an analysis of contribution revenue.

 

The chart shows that over the past four years member and employer contributions have steadily increased.  This is expected as the Scheme is closed and therefore there are no new contributors.  The increase is due mainly to increases in salaries and the employer contribution rates.  From 1 July 2004, the employer contribution rates for the pension and lump sum divisions were increased by 1.5 percent and 1 percent respectively.

 

Past service liability payments represent funding from the Government to meet accrued superannuation liabilities.  The Government expects to fully fund liabilities by 30 June 2034.

 

Expenditure

 

Benefits paid totalled $57.2 million ($44.4 million).  The Old Scheme Division accounted for $55.4 million of this with $32.6 million of benefits taken as pensions, $21.8 million as lump sum payments and $1 million returned to members upon resignation from the Scheme.

 

For the four years to 2007, the following chart shows an analysis of benefits paid.

 


Since 2004 there has been a steady increase in pensions.  This is expected as the pensions paid are affected by increases in final salary and inflation adjustments.

 

In 2007 lump sum payments have increased by $9.8 million.  This increase is due mainly to increases in retirements, final salaries and commutation of pensions by old scheme members.

 

Statement of Net Assets

 

Investments increased by $167.2 million to $911 million.  The following chart illustrates that investments have increased by 83 percent since 2004. 

 

 

The increase in investments reflects an accumulation of investment earnings and contribution revenue.  The above chart shows that investments has increased mainly due to a significant increase in investment revenue.  Investment returns are further discussed in the commentary for Funds SA.

 

 

FURTHER COMMENTARY ON OPERATIONS

 

Liability for Accrued Benefits

 

The estimated liability for accrued benefits increased by $71 million to $1488 million ($1417 million) for which net assets of $913 million ($742 million) were available to pay benefits.  This has resulted in an excess of liabilities over net assets of $575 million ($675 million), which represents the unfunded liability at 30 June 2007.

 

For the four years to 2007, the following chart shows an analysis of the liability for accrued benefits.

 

 

An actuarial review is undertaken every three years with assumptions from this review used to calculate the accrued liability in years between reviews. The 2005 triennial actuarial review resulted in revised assumptions. The most significant change was a reduction in the pensioner mortality rates resulting in a further increase in the Liability for Accrued Benefits.  In 2007 the same assumptions were applied. Refer to Note 3 ‘Liability for Accrued Benefits’ to the financial report for further details.


Net Assets Available to Pay Benefits

 

As previously mentioned, at 30 June 2007 the unfunded liability of the Scheme was $575 million.

 

Analysis of the Police Employer Account revealed net assets available to pay benefits of $480 million compared to an accrued liability of $1153 million.  This represents a shortfall of net assets over accrued liabilities of $673 million.  The Government transferred $37.9 million ($33 million) to the Police Employer Account as funding for the accrued past service liability.

 

Analysis of the Police Superannuation Fund (employee account) revealed net assets available to pay benefits of $433 million compared to an accrued liability of $335 million.  This represents an excess of net assets over accrued liabilities of $98 million.

 

For the four years to 2007, the following chart shows an analysis of net assets available to pay benefits and accrued liabilities for the Police Superannuation Fund (employee account).

 

 

In 2007, excess of net assets has increased by $51 million.  The increase is due mainly to strong investment returns and employee contributions.

 

Pensioners

 

The number of pensioners and pensions paid for the past four years were:

 

 

2007

2006

2005

2004

Pensioners

1 220

1 171

1 158

1 134

Pensions paid ($’000)

32 652

30 398

29 089

27 195

 

Contributions by Members

 

The number of contributors and contributions received from members for the past three years were:

 

 

                                      2007

 

 

 

Old Scheme

New Scheme

Total

2006

2005

Contributors

 

 

 

 

 

  (excludes preserved members)

1 913

313

2 226

2 393

2 464

Contributions received ($’000)

9 904

1 385

11 289

9 714

8 762

 

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