Illustrative examples
These illustrative examples accompany, but are not part of, AASB 1056.
I Example financial statements of a superannuation entity that has only defined contribution members
II Example financial statements of a (hybrid) superannuation entity that has both defined contribution and defined benefit members
Illustrative Examples I and II provide examples of acceptable styles and formats for a superannuation entity that are consistent with the requirements of AASB 1056 Superannuation Entities. They are not comprehensive.
The styles and formats illustrated are not mandatory. Other styles and formats may be equally appropriate if they meet the requirements of AASB 1056 and other applicable Australian Accounting Standards.
For illustrative convenience, particular notes have been located next to the financial statements to which they most closely relate. Some of the information illustrated as appearing on the face of the financial statements could be disclosed in the notes, and some of the information illustrated as appearing in the notes could be shown on the face of the financial statements.
For simplicity of presentation, comparative information is not shown.
For the purposes of the examples, the following insurance arrangements are assumed.
· The superannuation entity with only defined contribution members has insurance arrangements that involve taking on insurance risk and the entity fully reinsures those risks, giving rise to both insurance liabilities and assets of the entity.
· The hybrid superannuation entity is acting as an agent in respect of the insurance arrangements it has in place for defined contribution members. These insurance arrangements do not give rise to insurance liabilities and assets of the entity. Some components of the benefits for defined benefit members are in the nature of insurance, but separate amounts are not presented in respect of those components.
Illustrative example I
As at 30 June 20XX, Defined Contribution Superannuation Plan (the Plan) has 425,301 members and is a public offer fund open to new members. The Plan is a defined contribution style plan and, as such, members’ accounts are credited or debited each year with contributions and a proportionate share of net investment income and expenses (including income tax expense) of the Plan.
Statement of Financial Position for Defined Contribution Superannuation Plan
as at 30 June 20XX
Note | $000 | |
Assets | ||
Cash | 240,510 | |
Receivables | 324,909 | |
Units in unlisted cash management trusts | 4,921,700 | |
Listed Australian shares held directly | 7,490,663 | |
Units in international share trusts | 3,944,033 | |
Units in unlisted property trusts | 1,269,828 | |
Australian fixed interest securities held directly | 4,212,948 | |
Overseas fixed interest securities held directly | 879,034 | |
Property held directly | 436,978 | |
Reinsurance assets | 6,458 | |
Deferred tax assets | 52,358 | |
Total assets | 23,779,419 | |
Liabilities | ||
Payables | (236,641) | |
Income tax payable | (148,561) | |
Deferred tax liabilities | (364,903) | |
Insurance liabilities | A | (6,519) |
Total liabilities excluding member benefits | (756,624) | |
Net assets available for member benefits | 23,022,795 | |
Member benefits | (22,965,083) | |
Total net assets | 57,712 | |
Equity | ||
Investment reserve | B | (1,655) |
Operational risk reserve | C | (56,057) |
Total equity | (57,712) |
Note A – Insurance contract liabilities
Members can elect to take out term life cover with the Plan up to a maximum of $500,000 per member. The Plan uses the services of an actuary to determine its insurance contract liabilities who bases the calculations on relevant industry-focused mortality tables and the entity’s own claims experience. The entity has reinsured all of its direct insurance risks with EFG Reinsurance (Australia).
Note B – Investment reserve
The investment reserve comprises the difference between the cumulative amount of investment income (net of investment expenses) allocated to members’ accounts compared to the cumulative investment income (net of investment expenses) earned.
Note C – Operational risk reserve
An operational risk reserve is required under Australian Prudential Regulation Authority Standards to maintain adequate financial resources to address potential losses arising from operational risks. The Trustee has assessed a reserve of approximately 0.25% of funds under management as being appropriate for the Plan.
Income Statement for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
Note | $000 | |
Superannuation activities | ||
Interest revenue – direct cash deposits | 8,152 | |
Distributions from cash management trusts | 211,534 | |
Interest from Australian securities held directly | 282,045 | |
Interest from overseas securities held directly | 66,283 | |
Dividend revenue – listed Australian shares held directly | 286,794 | |
Distributions from wholesale international share trusts | 99,325 | |
Net rentals from directly held property | 28,068 | |
Distributions from unlisted property trusts | 82,407 | |
Net remeasurement changes in assets measured at fair value | 1,903,074 | |
Total superannuation activities revenue | 2,967,682 | |
Investment expenses | (55,972) | |
Administration expenses | (41,662) | |
Other operating expenses | E | (1,642) |
Total expenses | (99,276) | |
Net income from superannuation activities | 2,868,406 | |
Net loss from insurance activities | F | (36) |
Profit from operating activities | 2,868,370 | |
Less: Net benefits allocated to members’ accounts | (2,635,776) | |
Profit before income tax | 232,594 | |
Income tax expense | (235,553) | |
Loss after income tax | (2,959) |
Note D – Total revenue | $000 |
Superannuation activities revenue | 2,967,682 |
Insurance contract revenue | 77,810 |
3,045,492 |
Note E – Other operating expenses | $000 |
Trustee fees | (298) |
Commissions paid directly | (323) |
Audit fees | (309) |
Advertising and sponsorship | (712) |
Other operating expenses | (1,642) |
Note F – Insurance activities | $000 |
|
|
Insurance contract revenue | 77,810 |
Less: Outwards reinsurance premiums | (77,806) |
Net premium revenue | 4 |
Reinsurance recoveries revenues | 23,219 |
Insurance contract claims expenses | (22,833) |
Movement in insurance liabilities | (1,059) |
Movement in reinsurance assets | 633 |
Net loss from insurance activities | (36) |
Statement of Changes in Member Benefits for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
$000 | |||
|---|---|---|---|
Opening balance of member benefits | 18,014,382 | ||
Contributions: | |||
Employer | 2,622,940 | ||
Member | 241,812 | ||
Transfers from other superannuation plans | 704,162 | ||
Government co-contributions | 27,746 | ||
Income tax on contributions (refer Note G) | (416,373) | ||
Net after tax contributions | 3,180,287 | ||
Benefits to members | (811,432) | ||
Insurance premiums charged to members’ accounts | (77,810) | ||
Death and disability benefits credited to members’ accounts | 23,880 | ||
Benefits allocated to members’ accounts, comprising: | |||
Net investment income | 2,677,097 | ||
Administration fees | (41,321) | 2,635,776 | |
Closing balance of member benefits | 22,965,083 | ||
Note G – Income tax on contributions | $000 |
Contributions tax | (415,616) |
Contributions surcharge | (757) |
(416,373) |
Statement of Changes in Reserves for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
Unallocated surplus/ (deficiency) | Investment reserve | Operational risk | Total equity | |
$000 | $000 | $000 | $000 | |
Opening balance | – | 3,330 | 57,341 | 60,671 |
Profit/(Loss) for period | (2,959) | – | – | (2,959) |
Net transfers to/from reserves | 2,959 | (1,675) | (1,284) | – |
Closing balance | – | 1,655 | 56,057 | 57,712 |
Statement of Cash Flows for Defined Contribution Superannuation Plan
for the year ended 30 June 20XX
$000 | |
|---|---|
Cash flows from operating activities | |
Interest from cash deposits and cash management trusts | 189,667 |
Interest on Australian fixed interest securities held directly | 310,760 |
Interest on overseas fixed interest securities held directly | 27,819 |
Dividends from listed Australian shares held directly | 267,104 |
Net rentals from property held directly | 25,982 |
Unlisted property trust distributions | 83,691 |
Insurance premiums (inwards) | 77,810 |
Reinsurance recoveries | 22,016 |
Other income | 3,785 |
Administration expenses | (42,846) |
Investment expenses | (55,094) |
Reinsurance premiums (outward) | (77,270) |
Other expenses | (693) |
Income tax paid | (134,470) |
Net cash inflows from operating activities | 698,261 |
Cash flows from investing activities | |
Proceeds from sales of units in unlisted cash management trusts | 680,654 |
Proceeds from sales of shares in Australian listed corporations | 803,730 |
Proceeds from sales of units in wholesale international share trusts | 845,218 |
Proceeds from sales of overseas fixed interest securities | 444,826 |
Proceeds from sales of units in unlisted property trusts | 259,428 |
Purchases of units in unlisted cash management trusts | (1,285,930) |
Purchases of Australian fixed interest securities | (498,898) |
Purchases of shares in Australian listed corporations | (944,767) |
Purchases of units in wholesale international share trusts | (2,684,406) |
Purchases of units in unlisted property trusts | (517,326) |
Purchases of other assets | (201) |
Net cash outflows from investing activities | (2,897,672) |
Cash flows from financing activities | |
Employer contributions | 2,554,872 |
Member contributions | 235,548 |
Transfers from other superannuation plans received | 704,162 |
Government co-contributions received | 27,746 |
Benefits paid to members | (807,070) |
Income tax paid on contributions received | (407,417) |
Contributions surcharge tax paid | (674) |
Net cash inflows from financing activities | 2,307,167 |
Net increase in cash | 107,756 |
Cash at the beginning of the financial period | 132,754 |
Cash at the end of the financial period | 240,510 |
Illustrative example II
As at 30 June 20XX, Hybrid Superannuation Plan (the Plan) has 51,109 defined contribution members and 23,918 defined benefit members. The defined contribution part of the Plan is open to new members. All four of the defined benefit plans in the Plan are closed to new members. The defined contribution members have accounts that are credited or debited each year with contributions and a proportionate share of net investment income and expenses (including income tax expense) of the Plan. The defined benefit members have promised benefits that are determined on the basis of various formulae based on members’ salaries in the final years before they retire.
Statement of Financial Position for Hybrid Superannuation Plan
as at 30 June 20XX
|
|
Note |
$000 |
|
Assets |
|
|
|
Cash |
|
467,803 |
|
Receivables |
|
210,980 |
|
Shares in Australian listed corporations held directly |
|
2,788,084 |
|
Units in international shares trusts |
|
621,631 |
|
Fixed interest securities held directly |
|
3,214,391 |
|
Investment-linked insurance contracts |
|
289,148 |
|
Unlisted property trusts |
|
1,918,116 |
|
Derivatives |
|
32,328 |
|
Deferred tax assets |
|
38,333 |
|
Other assets |
|
5,345 |
|
Total assets |
|
9,586,159 |
|
|
|
|
|
Liabilities |
|
|
|
Benefits payable |
|
(148,058) |
|
Other payables |
|
(42,347) |
|
Income tax payable |
|
(202,812) |
|
Deferred tax liabilities |
|
(797) |
|
Total liabilities excluding member benefits |
|
(394,014) |
|
|
|
|
|
Net assets available for member benefits |
|
9,192,145 |
|
Defined contribution member liabilities |
A |
(2,258,229) |
|
Defined benefit member liabilities |
B |
(6,954,622) |
|
Total net liabilities |
|
(20,706) |
|
|
|
|
|
Equity |
|
|
|
Operational Risk Reserve |
C |
(25,895) |
|
Investment reserve |
D |
(2,980) |
|
Defined benefits that are (over) or under funded |
E |
49,581 |
|
Total equity |
|
20,706 |
Note A – Defined contribution member liabilities
Defined contribution members bear the investment risk relating to the underlying assets and unit prices used to measure defined contribution member liabilities. Unit prices are updated each day for movements in investment markets. Hybrid Superannuation Plan manages market risks, including foreign exchange rate risk, interest rate risk, commodity price risk and equity price risk by obtaining exposure to major asset classes through investment managers with highly-diversified portfolios.
The credit risk on investments in bonds and similar interest-bearing instruments is managed by selecting relevant fund managers that have well-established frameworks and supporting policies for managing credit risk across their portfolios. Those policies include managing concentration of credit risks and managing the balance between secured and unsecured debt.
The Plan closely monitors the inflows of contributions and the withdrawals from its various superannuation plans with a view to maintaining an adequate balance of liquid assets at all times to facilitate paying benefits to any exiting members within the statutory timelines.
Note B – Defined benefit member liabilities
In aggregate for the Plan’s four defined benefit superannuation plans, there were no unexpected events that changed defined benefit member liabilities materially. In line with general market expectations, discount rates are slightly higher at the current reporting date compared with the previous reporting date across all four plans, which had the effect of reducing defined benefit member liabilities. The Plan has no information that would lead it to adjust the assumptions around salary adjustment rates, pension index rates, resignations and mortality, which are all unchanged from the previous reporting period.
The Plan engages qualified actuaries on an annual basis to measure the defined benefit member liabilities in each of its four defined benefit plans. The Plan uses sensitivity analysis to monitor the potential impact of changes to key variables about which assumptions need to be made. The Plan has identified two assumptions (discount rate and rate of salary adjustment) for which changes are reasonably possible that would have a material impact on the amount of the liabilities.
The assumed discount rate for the four plans has been determined by reference to the investment returns expected on the investment portfolio that reflects the opportunities reasonably available to the Plan in investment markets, which also reflects the Plan’s actual investments and investment strategy in respect of defined benefit member liabilities. The assumed discount rate is the same for each of the four defined benefit plans.
Defined member benefits in each of the Plan’s four plans are based on an average of each member’s salary at specified anniversary dates in each of the last three years of their expected membership of their plan. The assumed annual salary adjustments for each of the entity’s four plans has been determined by reference to the Wage Price Index produced by the Australian Bureau of Statistics and in consultation with the employer-sponsors. The rate is the same for each of the ABC, OPQ and RST defined benefit plans. XYZ members are in an industry that is expected to experience generally higher than average salary adjustments.
The other variables about which assumptions have been made in measuring defined benefit member liabilities and for which changes are not considered reasonably possible, or for which reasonably possible changes would not be expected to have a material effect, include: pension index rates, mortality rates and resignations.
The following are sensitivity calculations on a univariate basis for the discount rate and rate of salary adjustment assumptions for the XYZ defined benefit plan and for the ABC, OPQ and RST defined benefit plans in aggregate.
|
Assumption for XYZ plan |
Assumed at reporting date |
Reasonably possible change |
Amount of (increase) decrease in member benefit liability – $000 |
|
Discount rate |
5.0% |
+0.5% –0.5% |
2,280 (2,549) |
|
Salary adjustment rate |
4.0% |
+1.0% –1.0% |
(3,001) 3,350 |
|
Assumption for ABC, OPQ and RST plans |
Assumed at reporting date |
Reasonably possible change |
Amount of (increase) decrease in member benefit liability – $000 |
|
Discount rate |
5.0% |
+0.5% –0.5% |
4,378 (4,809) |
|
Salary adjustment rate |
3.0% |
+1.0% –1.0% |
(5,762) 6,143 |
Note C – Operational risk reserve
The Trustee has assessed an operational risk reserve of approximately 0.25% of funds under management as appropriate for the Plan in respect of both defined contribution member interests and defined benefit member interests.
|
Operational risk reserve |
$000 |
|
|
|
|
Defined contribution membership |
5,657 |
|
Defined benefit membership |
20,238 |
|
|
25,895 |
Note D – Investment reserve
The Investment reserve comprises the difference between the cumulative amount of investment income (net of investment expenses) allocated to members’ accounts compared with the cumulative investment income (net of investment expenses) earned.
Note E – Defined benefit plans that are (over) or under funded
|
|
Note |
$000 |
|
|
|
|
|
ABC |
F |
2,316 |
|
OPQ |
G |
(2,589) |
|
RST |
H |
42,897 |
|
XYZ |
H |
6,957 |
|
|
|
49,581 |
Note F – plan ABC
Based on the existing contribution rate of the employer-sponsor of plan ABC, member benefits are projected, based on current assumptions, to be fully funded within the next two financial years.
Note G – plan OPQ
The employer-sponsor of plan OPQ intends to reduce contributions to the minimum amount required to meet its superannuation guarantee obligations, which is projected, based on current assumptions, to eliminate the surplus to zero within three years.
Note H – plans RST and XYZ
The employer-sponsors of plans RST and XYZ intend to increase their contributions for a period of three financial years to a level that is projected, based on current assumptions, to result in member liabilities being fully funded by the end of those three years.
Note I – Net assets attributable to defined benefit members
In respect of all four defined benefit plans, the entity has worked with the relevant employer-sponsors to develop a contributions strategy to fund the deficits that exist in three of the plans (ABC, RST and XYZ) and use up the surplus in one of the plans (OPQ). At the current rate of contributions from those employer-sponsors, each plan that currently has a deficit of liabilities over assets is scheduled to be fully funded within three years, and the plan that currently has a surplus is scheduled to be in balance within two years.
Income Statement for Hybrid Superannuation Plan
for the year ended 30 June 20XX
|
|
Note |
$000 |
|
Superannuation activities |
|
|
|
Interest revenue |
|
190,696 |
|
Dividend revenue – listed Australian shares held directly |
|
91,338 |
|
Distributions from wholesale international share trusts |
|
12,881 |
|
Unlisted property trust distributions |
|
261,878 |
|
Other income |
|
1,496 |
|
Net remeasurement changes in assets measured at fair value |
|
170,804 |
|
Total revenue |
|
729,093 |
|
|
|
|
|
Investment expenses |
|
(27,404) |
|
Administration expenses |
|
(12,042) |
|
Other operating expenses |
J |
(998) |
|
Total expenses |
|
(40,444) |
|
|
|
|
|
Operating result |
|
688,649 |
|
Net benefits allocated to defined contribution member accounts |
|
(142,293) |
|
Net change in defined benefit member benefits |
|
(580,138) |
|
Operating result before income tax expense |
|
(33,782) |
|
Income tax expense |
|
(38,470) |
|
Operating result after income tax |
|
(72,252) |
|
Note J – Other operating expenses |
$000 |
|
|
|
|
Trustee fees |
(198) |
|
Actuarial fees |
(272) |
|
Audit fees |
(216) |
|
Commissions paid directly |
(123) |
|
Advertising and sponsorship |
(189) |
|
Other operating expenses |
(998) |
Statement of Changes in Member Benefits for Hybrid Superannuation Plan
for the year ended 30 June 20XX
|
|
DC member benefits |
DB member benefits |
|
|
|
|
$000 |
$000 |
$000 |
|
|
Opening balance |
2,185,275 |
6,555,825 |
8,741,100 |
|
|
Employer contributions |
127,355 |
349,814 |
477,169 |
|
|
Member contributions |
17,717 |
93,153 |
110,870 |
|
|
Transfers from other super entities |
29,987 |
– |
29,987 |
|
|
Transfers to other super entities |
(40,737) |
– |
(40,737) |
|
|
Income tax on contributions |
(20,148) |
(66,445) |
(86,593) |
|
|
Net after tax contributions |
114,174 |
376,522 |
490,696 |
|
|
|
|
|
|
|
|
Benefits to members |
(187,093) |
(561,278) |
(748,371) |
|
|
Insurance premiums charged to members |
(105) |
(312) |
(417) |
|
|
Death / disability benefits credited |
1,233 |
3,699 |
4,932 |
|
|
Reserve transfers to (from) members: |
|
|
|
|
|
Investment reserves |
1,239 |
– |
1,239 |
|
|
Operational risk reserves |
1,213 |
28 |
1,241 |
|
|
Net benefits allocated, comprising: |
|
|
|
|
|
Net investment income |
145,701 |
|
|
|
|
Net administration fees |
(3,408) |
142,293 |
– |
142,293 |
|
Net change in DB member benefits |
– |
580,138 |
580,138 |
|
|
Closing balance |
2,258,229 |
6,954,622 |
9,212,851 |
|
Statement of Changes in Reserves for Hybrid Superannuation Plan
for the year ended 30 June 20XX
|
|
Note E |
Operational risk Note C |
Unallocated |
equity |
|
|
$000 |
$000 |
$000 |
$000 |
|
Opening balance |
4,219 |
27,136 |
22,671 |
54,026 |
|
Transfers to DC member accounts |
(1,239) |
(1,213) |
– |
(2,452) |
|
Transfers to DB member accounts |
– |
(28) |
– |
(28) |
|
Operating result |
– |
– |
(72,252) |
(72,252) |
|
Closing balance |
2,980 |
25,895 |
(49,581) |
(20,706) |
Statement of Cash Flows for Hybrid Superannuation Plan
for the year ended 30 June 20XX
|
|
$000 |
|
Cash flows from operating activities |
|
|
Interest on cash deposits and debt securities |
128,368 |
|
Dividends from Australian listed corporations |
210,250 |
|
Distributions from international share trusts |
12,981 |
|
Insurance premiums |
4,558 |
|
Other income |
1,295 |
|
Administration expenses |
(11,289) |
|
Investment expenses |
(26,560) |
|
Other expenses |
(714) |
|
Income tax |
(98,299) |
|
Net cash inflows (outflows) from operating activities |
220,590 |
|
|
|
|
Cash flows from investing activities |
|
|
Sales of shares in Australian listed corporations |
601,110 |
|
Sales of fixed interest securities |
128,908 |
|
Sales of derivatives |
4,219 |
|
Sales of investment-linked insurance contracts |
530,886 |
|
Purchases of shares in Australian listed corporations |
(842,316) |
|
Purchases of fixed interest securities |
(179,108) |
|
Net cash inflows (outflows) from investing activities |
243,699 |
|
|
|
|
Cash flows from financing activities |
|
|
Employer contributions |
487,185 |
|
Member contributions |
110,870 |
|
Transfers from other superannuation entities |
29,428 |
|
Transfers to other superannuation entities |
(41,436) |
|
Benefit payments to members |
(769,353) |
|
Tax paid on contributions |
(89,224) |
|
Net cash inflows from financing activities |
(272,530) |
|
|
|
|
Net increase in cash |
191,759 |
|
Cash at the beginning of the financial period |
276,044 |
|
Cash at the end of the financial period |
467,803 |