annual report 2013 - parliament of victoria › file_uploads › pcsf_2013_annual... ·...

PARLIAMENTARY CONTRIBUTORY SUPERANNUATION FUND

Annual Report 2013

1 Annual Report 2013

Parliamentary Contributory Superannuation Fund

Annual Report 2013

Contents Page

Report of Operations for the year ended 30 June 2013 2 - 8

Investments report 9 - 18

Appendix 1 – Financial statements 19 - 49

Appendix 2 – Information relating to contributors and pensioners 50

Appendix 3 – Actuarial overview 51 - 54

Appendix 4 – Disclosure index 55 - 56

Parliamentary Contributory Superannuation Fund 2

Report of Operations for the year ended 30 June 2013

Overview

The Parliamentary Contributory Superannuation Fund (the Fund) was established as a continuing fund on 1 December 1968, by the Parliamentary Salaries and Superannuation Act 1968 (the Act). The Fund took over the assets and liabilities of the Parliamentary Contributory Superannuation Fund, previously governed by the Parliamentary Contributory Superannuation Act 1962.

The purpose of the Fund is to provide benefits to Members of Parliament (Victorian) on ceasing their Parliamentary positions. The Fund provides death benefits for the spouse and domestic partner of the deceased member whether he/she is in receipt of a pension benefit or is in Parliamentary Service.

For the year ended 30 June 2013, the Emergency Services Superannuation Board (trading as ESSSuper) under Section 12(2D) of the Act administered the Fund.

Membership of the Fund is compulsory for Members of Parliament who were elected prior to the closure of the Fund on 9 November 2004. Members must contribute at the rate of 11.5% of salary.

The Annual Report is tabled in the Parliament as required under the Financial Management Act 1994. Copies are available to members upon request.

Members receive an Annual Benefit Statement detailing their entitlements. A Member Handbook which provides a guide to the main provisions of the Act is available to members upon request.

A copy of the Act is available online at www.legislation.vic.gov.au or can be inspected by members at ESSSuper, Level 16, 140 William Street, Melbourne.

Closure of the Fund

On 9 November 2004, the Fund was formally closed to new members by the Parliamentary Superannuation Legislation (Reform) Act 2004.

Former and existing members who cease being Members of Parliament cannot resume their membership of the Fund, should they again become elected as Members of Parliament. It should be noted that existing members who re-contest an election or change Houses at an election are unaffected by these changes.

The Fund continues to provide superannuation benefits for existing Members of Parliament, and for some former Members of Parliament (e.g. Pensioners).

New Members of Parliament elected after 9 November 2004 receive a superannuation contribution paid into a regulated Accumulation fund chosen by the Member, or a default regulated Accumulation fund as determined by the Assistant Treasurer (for the 2012/13 financial year these contributions equated to the superannuation guarantee level of 9 per cent).


Trustee of the Fund

The Trustee of the Fund is a body corporate called the Parliamentary Trustee established under the Act. The Parliamentary Trustee must consist of the following people:

• The Minister who shall be Chairperson;

• The President of the Legislative Council;

• The Speaker of the Legislative Assembly;

• a member of the Legislative Council appointed by the Governor in Council; and

• two members of the Legislative Assembly appointed by the Governor in Council.

The members of the Parliamentary Trustee for the 2012/13 period were:

• Chairperson, The Hon. Gordon Rich-Phillips, MLC - Assistant Treasurer;

• The President, The Hon. Bruce Atkinson, MLC;

• The Speaker, The Hon. Kenneth Smith, MLA;

• The Hon. Mr Gavin Jennings, MLC - a member of the Council appointed by the Governor in Council;

• The Hon. Mr Peter Ryan, MLA - a member of the Assembly appointed by the Governor in Council;

• The Hon. Mr Robert Clark, MLA - a member of the Assembly appointed by the Governor in Council.

The Parliamentary Trustee manages the Fund in accordance with the Act, as well as Commonwealth superannuation legislation to the extent that it applies to the Fund as an Exempt Public Sector Superannuation Scheme. (see ‘Compliance with Government Superannuation Standards’ below).

In response to a Public Accounts and Estimates Committee (PAEC) recommendation in October 2007, the Trustees appointed the Chairperson of the Superannuation Complaints Tribunal to advise the Parliamentary Trustee on potentially contentious issues or matters requiring impartial opinion.

Compliance with Commonwealth superannuation standards

The Fund is an Exempt Public Sector Superannuation Scheme under the Commonwealth Superannuation Industry (Supervision) Act 1993 (SIS). The SIS Legislation treats such schemes as complying funds for concessional taxation and superannuation guarantee purposes.

The Heads of Government Agreement (HOGA) signed in May 1996, between the Commonwealth and Victorian Governments, sets out the principles of the Commonwealth retirement incomes policy with which the Victorian Government has agreed to comply. The Agreement includes principles relating to preservation, vesting, protection of members accrued benefits and reporting to members. The Fund is required to comply with these agreed standards.


The HOGA is currently being updated to incorporate recent Commonwealth superannuation changes including the Stronger Super legislative reforms. These reforms include MySuper, SuperStream and new APRA prudential and reporting standards to improve fund governance and fund comparability.

As administrator of the Fund, ESSSuper has a process in place to ensure all aspects of the administration of the Fund comply with the HOGA and are governed by an effective Risk Management Framework (in accordance with the relevant Australian/New Zealand Standard (AS/NZ 4360:2004)).

The Victorian Government has confirmed to the Parliamentary Trustee that there has been no legislative change in the governing rules of the Fund during 2012/13 that would lead to a breach of this Agreement.

Register of members’ interests

Under the Members of Parliament (Register of Interests) Act 1978, the members of the Parliamentary Trustee have completed the required Register of Members’ Interests which is maintained by the Clerk of the Parliament.

Principal professional advisers

The following specialists support the Parliamentary Trustee in running the Fund:

Actuary: Ms Esther Conway / Mr Mark Nelson Principals, Mercer (Australia) Pty Ltd

Investment Adviser: Mercer (Australia) Pty Ltd

Auditors: Victorian Auditor-General (assisted by Deloitte Touche Tohmatsu)

Medical: Medical Practitioners, as approved by the Parliamentary Trustee

Taxation: PricewaterhouseCoopers

Funds Manager: Victorian Funds Management Corporation

The Parliamentary Trustee, the Victorian Funds Management Corporation (VFMC) and any investment manager appointed to make Fund investments must comply with the Borrowing and Investment Powers Act 1987. They also must act in accordance with the Investment Management Guidelines issued when investing the Fund’s Assets. These provisions form an integral part of the prudential guidelines embodied in the funds management agreements entered into with the VFMC and with any fund managers.

No professional adviser has any pecuniary interest in the Fund.

In 2012/13 the Fund employed zero consultants.


Administration

The Emergency Services Superannuation Scheme (ESSS) is administered by the Emergency Services Superannuation Board (ESSB), trading as Emergency Services and State Super (ESSSuper).

A delegation has been established with the Parliamentary Trustee and ESSSuper in respect of the administration of the Fund. The Parliamentary Trustee monitors the terms of the delegation with ESSSuper.

The Fund Administrator (ESSSuper) has confirmed in its formal letter of advice to the Parliamentary Trustee dated 22 August 2013, that all appropriate compliance programs for its administration operations are in place, and that reporting is made on a regular basis.

On Wednesday 13 February 2013 the then Premier announced that the Victorian State Government will introduce legislation to transfer the governance arrangements for the Fund from the Parliamentary Trustee to the Emergency Services Superannuation Board (trading as ESSSuper). It is anticipated that legislation to give effect to this measure will be introduced in the Spring 2013 session of Parliament with a 1 July 2014 commencement date. The transfer of governance arrangements will have no impact on member entitlements or service delivery. Further information will be provided to Fund members when this matter is finalised.

Given the existing administrative arrangements with ESSSuper and the Government's stated intention to transfer the Parliamentary Trustee’s governance arrangements to ESSSuper, in early July 2013 the Parliamentary Trustee formally delegated to ESSSuper the responsibility for running the concluding stages of a Federal Court case that the Parliamentary Trustee had initiated in 2011.

The case involved an appeal against the application of the Superannuation Surcharge Tax to the Fund and, on accepting the delegated responsibility for the case, ESSSuper determined to continue with the formal court process. The matter concluded in the court in early August 2013 and the outcome is not expected for several months.

The Actuarial Report and subsequent funding arrangements

The triennial Actuarial Investigation of the Fund was last conducted as at 30 June 2011.

The Triennial Actuarial report was tabled in Parliament on 7 February 2012 as required by the Act.

In accordance with the Actuarial recommendation, contributions of $9.3 million were made to the Fund from the Consolidated Fund for the year ending 30 June 2013.

The Actuary assesses the funded position of the Fund at 30 June of each year between triennial Actuarial Investigations. At 30 June 2013, the Actuary advised that the Fund’s assets exceeded the accrued liabilities by $21.773 million.

The next triennial Actuarial Investigation is due as at 30 June 2014. Further details of the Actuarial Investigation, and the position at 30 June 2013, are provided in the Actuarial Overview in the Appendices to this report.

Increase in parliamentary pensions

For the duration of the financial year commencing 1 July 2013, the Fund received formal advice that the annual basic salary payable to Members of State Parliament was $140,973.

Accordingly, pensions paid to former Members of Parliament (or spouses) were increased to reflect the increases in basic salary pursuant to the requirements of the Act.


Super update

There have been many changes to the super industry in the past twelve months which may affect your super or retirement benefit.

Concessional contributions

Concessional contributions cap – change to level of cap for over 50s

From 1 July 2013, the concessional contributions cap was increased from $25,000 p.a. to $35,000 p.a. (unindexed) for those aged 60 and over. From 1 July 2014, a $35,000 cap will apply for individuals aged 50 and over.

Excess concessional contributions

Also from 1 July 2013, excess concessional contributions will be able to be withdrawn from the Fund and taxed at the marginal rate (plus an interest charge determined by the Government) rather than the excess concessional contributions tax rate of 46.5% applying to contributions made before 1 July 2013.

Changes to contributions tax

Additional contributions tax for those on incomes over $300,000 p.a.

From 1 July 2012, for individuals who earn more than $300,000 of assessable income per year (including superannuation contributions) the tax on concessional contributions will rise from 15% to 30%.

Superannuation guarantee contribution increase

The superannuation guarantee paid by employers will increase from 9% to 9.25% for the 2013/14 financial year and gradually increase to 12 per cent over the next six years.

Freedom of Information

The Fund Administrator ESSSuper complies with the provisions of the Freedom of Information Act 1982 being an “agency” for the purposes of the Act. There was no Freedom of Information (FOI) requests received during the year ended 30 June 2013.

Prudential Superannuation Standard

The Prudential Superannuation Standard provides regulatory objectives for the following compliance activities:

• Risk Management;

• Business Planning;

• Breach Reporting;

• Fitness and Propriety; and

• Financial Advice.

These regulatory objectives are established and monitored by the Department of Treasury and Finance (DTF) in order to protect the superannuation benefits of members of ESSSuper and to minimise any adverse financial impact on Victorian taxpayers.

DTF is currently reviewing the Prudential Superannuation Standard in light of the introduction of APRA standards.


Trustee Indemnity

Since December 1998, the Parliamentary Trustee has Indemnity Insurance.

Indemnity Insurance provides additional protection for the Trustee and the Fund against the financial effects of such things as ‘honest mistakes’ and unexpected legal costs. It is regarded as industry best practice to maintain such insurance.

The Act provides that members of the Parliamentary Trustee are not subject to any action or liability for any thing done or contract entered into by the Parliamentary Trustee where they have acted in good faith in carrying out their duties and functions under the Act.

Auditing of the Fund

In March 2010, the Victorian Auditor-General’s Office advised the Fund that Deloitte Touche Tohmatsu had been appointed to audit the Fund’s financial accounts for the year ending 30 June 2013.

Eligible Rollover Funds

An Eligible Rollover Fund (ERF) is a superannuation fund or approved deposit fund (ADF) regulated under the Superannuation Industry (Supervision) Act 1993, which is specifically designed to receive the benefits of lost members and small superannuation balances that are required to be protected against erosion by fees and charges.

Under the Superannuation Acts (Family Law) Act 2003, following a family law payment split, the Parliamentary Trustee is required to transfer non-member spouse/partner entitlements to an ERF in certain circumstances. These circumstances include where the non-member spouse/partner fails within the specified period to nominate an eligible superannuation fund to accept the entitlement. Where required, the ERF is selected by the Parliamentary Trustee.

Costs and fees

All costs associated with administering the Fund are paid out of the Fund. No deductions are made from any members’ accounts or benefits in respect of the Fund’s Administration Costs.

Privacy

The Parliamentary Trustee has a privacy policy that complies with the requirements of the Information Privacy Act 2000 and Health Records Act 2001. The policy applies to the handling of members’ personal and health information by the Trustee and by the ESSSuper as its delegate. For more information, contact the Secretary to the Parliamentary Trustee.

Protected Disclosure procedure

The Parliamentary Trustee is subject to the Protected Disclosure Act 2012 (formerly the Whistleblowers Protection Act 2001) and has a procedure in place for itself and the ESSSuper as its delegate for reporting of improper conduct in relation to the management and administration of the Fund. There were no reports made under the Protected Disclosure Act 2012 during the year.


Review procedure

A person who is dissatisfied with the Parliamentary Trustee’s decision relating to the entitlement or benefit may request the Parliamentary Trustee, in writing and within 30 days of being notified of the decision (or such longer period as the Parliamentary Trustee allows), to reconsider the matter. On receiving the request, the Parliamentary Trustee will review its decision.

The Parliamentary Trustee will inform the complainant who made the request of the review within 30 days after receipt of the request. If, after this review, the complainant is still dissatisfied with the Parliamentary Trustee’s decision, then he or she has the right to lodge an application to the Victorian Civil and Administrative Tribunal (VCAT).

Subject to VCAT having the jurisdiction to review the matter, VCAT can affirm, vary or set aside a decision, or refer it back to the Parliamentary Trustee to be reconsidered.

A complaint must be lodged with VCAT within certain time limits. For information about VCAT’s jurisdiction and its procedures, contact VCAT on (03) 9628 9700 or go to its website at www.vcat.vic.gov.au.

For more information

Information about members’ benefits and the rules governing the Fund are contained in the Member Handbook. Important personal information about members’ benefits in the Fund is included in the Annual Benefit Statement.

Other documents available for members are the:

• Act governing the Fund;

• actuarial valuation; and

• latest audited accounts and auditor’s report.

For further information about the Fund or benefits, request a Member Handbook or a copy of the Annual Report, please contact:

Brian Frazer Secretary to the Parliamentary Trustee Parliamentary Contributory Superannuation Fund C/- ESSSuper Level 16, 140 William Street Melbourne VIC 3000

P: (03) 8684 4538 F: 1300 766 757 E: [email protected]

Lisa Paxton Senior Administration Officer Parliamentary Contributory Superannuation Fund C/- ESSSuper Level 16 ,140 William Street Melbourne VIC 3000

P: (03) 8684 4464 F: 1300 766 757 E: [email protected]


Investments report

The Parliamentary Trustee’s investment powers are drawn from the Borrowing and Investment Powers Act 1987, subject to the approval of the Treasurer and in the manner approved by the Governor in Council.

The market value of the Fund’s investment portfolio at 30 June 2013 was $333.3 million, compared with $295.8 million for the previous year, an increase of $37.5 million after net withdrawals of $6 million. The comparative composition of the Fund’s investment portfolio for the past two years is set out in the following table:

Investment Portfolio

Market Value 30-Jun-13

Market Value 30-Jun-12

$ Million % $ Million %

Equities Australian Equities 81.7 24.5 70.1 23.7

International Equities (unhedged)

41.9 12.6 32.6 11.0

International Equities (hedged)

35.0 10.5 33.7 11.4

Private Equity 3.3 1.0 1.8 0.6

Inflation linked Property 23.0 6.9 21.7 7.3

Infrastructure 13.4 4.0 9.4 3.2

Indexed Linked Bonds 46.8 14.0 42.4 14.3

Debt and Non Traditional Strategies

Cash 13.9 4.2 21.3 7.2

Diversified Fixed Interest* 51.0 15.3 43.8 14.8

Non Traditional Strategies* 23.3 7.0 19.2 6.5

Total Fund 333.3 100.0 295.8 100.0

Total Overseas Assets 112.9 33.9 95.4 32.3

Total International Currency Exposure 41.9 12.6 32.6 11.0

Note: Due to rounding there may be slight variances in totals. * Non Traditional Strategies includes Absolute Return Funds, Insurance and other non traditional

strategies. Previously Insurance strategies were held in Diversified Fixed Interest.

Reconciliation with Financial Statements

2013

$ Million 2012

$ Million

Financial Statements Total Investments 322.2 289.9

Net Investment Income 10.6 5.5

Brokerage Payable (0.0) (0.0)

Cost of Realising Investments 0.5 0.4

Total 333.3 295.8


Investment Objectives & Performance

In July 2005, the Treasurer announced reforms which provided for the VFMC to take complete responsibility for management of Victoria’s public sector investments. The major change allows the VFMC to determine investment strategies for the Fund based on the Fund Trustee’s objectives. These reforms were fully implemented from 1 July 2006.

The Fund’s investment objectives are generally reviewed at least once every three years. The investment objectives were last reviewed in early 2011 – however, at the conclusion of the review, there were no changes made to the Fund’s investment objectives.

Fund Investment Objectives Fund Investment Performance

Balance Sheet

Target funding ratio of 100% subject to risk tolerances below.

As at 30 June 2013, on the advice of the Fund Actuary, the funding level of the Fund was estimated at 107.07%.

Note: The figure does not include the final tax calculations; therefore the final surplus may differ slightly.

Asset Returns

Target annual return of AWOTE +2% over rolling 4 year periods subject to risk tolerances below.

Over the 4 years to June 2013 the Fund has returned 9.50% p.a. (after fees) relative to an estimated AWOTE + 2% growth of 6.64% p.a. Therefore the Fund is 2.86% p.a. ahead over for the rolling 4 year period.

Risk tolerances

(1) Asset Returns

A less than 5% chance that a rolling 4 years per annum return will be negative.

In maintaining the Fund Investment portfolio, VFMC has taken into account the objective of there being a less than 5% chance that a rolling 4 years per annum return will be negative.

(2) Asset Returns

To earn a positive annual rate of return on an after tax & fees basis in at least four out of every five financial years.

Over the past five financial years the Fund has earned a positive rate of return (after fees and taxes) in the most recent four years. The year to 30 June 2009 was negative, reflecting the impact of the GFC on markets.

(3) Funding Ratio (MV Assets / Accrued Liabilities)

The probability of the funding ratio declining by more than 10% in any one year is to be less than or equal to 10% (or one in 10 years).

In maintaining the Fund Investment portfolio, VFMC has taken into account the objective that the probability of the funding ratio declining by more than 10% in any one year is to be 1 in 10 years.

(4) Contribution Rates

Stability of employer contribution rates as calculated by triennial actuarial valuation.

In maintaining the Fund Investment portfolio, VFMC has taken into account the objective that there be stability of employer contribution rates as calculated by triennial actuarial valuation.


(5) Peer Group

Investment returns should be in the top 50% (1st or 2nd quartile) of returns compared to the stated peer group in a financial year where the median within the peer group returns a negative return.

Returns were positive during the year. The Fund’s return was above that of the median for each of the 1, 3 & 5 years as measured by SuperRatings balanced fund survey.

Active Management

To outperform the notional return on the Fund’s benchmark asset allocation by at least 0.7% per annum on an after fees basis over rolling 3 year periods.

The Fund returned 9.34% p.a. (after fees) over the 3 years to 30 June 2013 compared to a benchmark return of 9.20%p.a. The Fund therefore, although 0.14% p.a. (after fees) ahead of its benchmark target, was behind its objective of outperforming the notional return on the Fund’s benchmark asset allocation by at least 0.7% p.a. on an after fees basis over 3 year rolling periods.

Comparison of Financial Details $’000

2013 2012 2011 2010 2009

Net Investment Revenue 43,534 7,822 28,883 24,500 (33,790)

Changes in net assets after income tax

25,459 (473) 12,549 15,868 (50,643)

Excess of Assets over Liabilities 21,773 (3,686) (3,213) (15,762) (31,630)

Investment Return After Tax 15.31% 3.28% 10.52% 11.28% (11.80)%

The Fund’s return after tax and direct investment expenses for the year ending 30 June 2013 was 14.56%.

The compound average investment return (net of tax before direct investment expenses) over last five years was 5.22%.


Investment Strategy

Strategic Asset Allocation at June 2013

The following table highlights the Strategic Asset Allocation (SAA) adopted in March 2011. The Strategic Asset Allocation adopted is a long term target. Accordingly, there can be variances within asset classes from time to time resulting from funds inflows and outflows as well as short term strategies arising from significant market events.

Asset Allocation

Asset Class

Asset Allocation

Target (%)

30/06/13 (%)

31/03/13 (%)

31/12/12 (%)

30/09/12 (%)

Equities Australian Equities 22.5 24.5 24.7 24.6 24.6

International Equities 22.5 23.1 23.2 23.6 22.7

Private equity 3.0 1.0 0.8 0.9 0.5

Sub Total 48.0 48.6 48.7 49.1 47.8

Inflation linked

Property 7.0 6.9 6.5 6.7 7.0

Infrastructure 4.0 4.0 3.6 3.8 3.9

Indexed Linked Bonds 15.0 14.0 14.4 14.0 14.3

Sub Total 26.0 24.9 24.5 24.5 25.2

Debt and Non Traditional

Strategies

Cash 3.0 4.2 5.2 4.9 6.1

Diversified Fixed Interest

15.0 15.3 15.1 14.9 14.6

Non Traditional Strategies

8.0 7.0 6.5 6.6 6.3

Sub Total 26.0 26.5 26.3 26.4 27.0

TOTAL 100.0 100.0 100.0 100.0 100.0


Investment Performance – Financial Year 2012-13

Summary of Investment Returns

Allocation as at end of period 30/06/2013

1 year 3 years 4 years 5 years

Actual ($ M)

Actual (%)

Target (%)

Actual (%)

Benchmark

(%) Actual (%) pa

Benchmark

(%) pa Actual (%) pa

Benchmark

(%) pa Actual (%) pa

Benchmark

(%) pa

Australian Equities

81.7 24.5 22.5 24.52 21.90 9.88 8.24 10.80 9.43 3.58 2.70

International Equities

76.8 23.1 22.5 28.26 27.07 13.33 12.46 13.08 12.42 4.97 4.68

Private Equities

3.3 1.0 3.0 47.32 21.90 6.62 8.24 7.07 9.43 -7.24 2.70

Infrastructure 13.4 4.0 4.0 13.13 7.62 11.54 7.52 10.76 7.69 10.53 6.30

Property 23.0 6.9 7.0 6.55 8.91 8.47 9.66 6.46 8.04 3.08 4.73

Inflation Linked Bond

46.8 14.0 15.0 1.59 -1.45 7.96 8.08 8.49 8.54 5.95 6.55

Diversified Fixed Interest

51.0 15.3 15.0 4.76 2.78 7.99 6.83 8.64 7.09 7.97 7.83

Non Traditional Strategies

23.3 7.0 8.0 10.21 5.28 6.96 6.35 11.69 6.25 4.45 6.52

Cash 13.9 4.2 3.0 3.70 3.28 4.30 4.32 4.23 4.21 4.47 4.46

Before Fees 333.3 100.0 100.0 15.43 12.98 9.87 9.20 10.07 9.59 5.23 5.37

After Fees 333.1 14.86 12.98 9.34 9.20 9.50 9.59 4.69 5.37

Note: The June quarter’s Property benchmark is a VFMC estimate. Since the performance reports were compiled an actual benchmark quarterly return of 2.57% has been confirmed.

Over the 2012/13 financial year, the PCSF portfolio returned 14.86% (after fees), outperforming the benchmark return of 12.98% as global equities (50% Hedged, Net AUD) returned 27.1% with Japan and Germany outperforming and, for a second year in a row, China and emerging markets underperforming. The 2013 financial year however was a challenging year for the fixed income asset class, given the lower starting point for yields and spreads. The UBS Composite Bond Index returned 2.8%, while the UBS Government Inflation-Linked Bond Index fell 1.5%.

The portfolio added value in asset allocation and in stock selection in Australian and International Equities, Private Equity, Infrastructure, Inflation Linked Bonds, Diversified Fixed Interest and Non Traditional Strategies.

In Asset Allocation, an overweighting on average to the strongly performing Australian and International Equities and underweight exposures to the lower returning, more defensive asset classes, more than offset the cost of being underweight Private Equity and overweight Cash over the year.

International Equities outperformed on value added in all three sub-portfolios; Developed Markets, Emerging Markets and Small Companies.


The Inflation Linked Bonds portfolio outperformed as the positive carry of being overweight non-government securities was reinforced by a further narrowing of credit spreads. A breakeven inflation trade and active duration management also added value.

In Non Traditional Strategies both the Hedge Funds and Opportunistic Strategies sub-portfolios added value from credit and convertible and merger arbitrage strategies.

Market Review – June Quarter and Financial Year

Equities

Despite sluggish global growth, international equities had a very positive year with below average annual volatility. Significant interventions by global Central Banks namely the Fed, ECB and BoJ provided ample liquidity to support equity markets. The MSCI AC World IMI (50% Hedged, Net AUD) returned more than 7.3% for the quarter and 27% for the financial year.

In local currency terms, the Japanese equity market outperformed its developed market peers, rising 10% in the quarter and 52% over the financial year. Decisive policy actions by the Bank of Japan and the Abe Government aimed at ending deflation in Japan provided a fillip to the equity market. US, UK and European equities also posted strong annual returns.

Emerging market equities underperformed Developed Markets, returning 6% in local currency terms for the financial year. China and Brazil performed the worst in the EM bloc, producing negative returns for the financial year as slower than anticipated growth and global fund flows out of EM particularly impacted China and Brazil.

Australian equities had a good year returning about 22%, notwithstanding a return of -2.8% in the June quarter. Higher dividend yields attracted substantial fund flows earlier in the financial year as investors hunted for yield in a low yielding global market environment, with Financials and Telecoms outperforming. The Materials and Energy sectors underperformed significantly as slower global growth together with lower commodity prices negatively impacting earnings.

Bonds

The UBS Composite Bond Index returned 0.4% in the quarter and 2.8% over the year. The UBS Government Inflation Index returned -3.9% and -1.5% respectively, over the quarter and financial year.

Despite better US economic data and lower systemic financial risks, US 10-year bond yields traded in a narrow range of 1.50% - 2.00% for most of the financial year as the Federal Reserve asset purchase program kept bond yields low. In the June quarter, the Federal Reserve signalled that it was likely to reduce the pace of asset purchases if the US economic outlook continued to improve. US 10-year bond yields broke out of their trading range to reach a high of 2.66% before ending the quarter 63bps higher at 2.49% with market participants now pricing the Federal Reserve to normalise policy earlier. Australian 10-year bond yields increased by 35bps in the June quarter despite weaker domestic data as the global bond beta dragged domestic yields higher. Over the financial year, US and Australian 10-year bond yields rose 84bps and 72bps, respectively.

The rise in nominal bond yields was largely driven by a rise in real bond yields. US 10-year real yields increased to 0.49% by quarter end, 94bps and 114bps higher for the quarter and financial year respectively. Given the material rise in real bond yields, the Australian benchmark UBS Government Inflation Index experienced one of its worst quarters, retuning -3.9% in the June quarter. Over the financial year, the UBS Government Inflation Index significantly underperformed its comparable nominal benchmark, returning -1.5%. Australian breakevens fell by 33bps in the June quarter but ended the financial year largely unchanged at 2.52% (+ 3bps).


The RBA lowered the cash rate by 25bps in the quarter as lower inflation provided scope to ease policy and support growth in the non-mining sectors ahead of the upcoming peak in the mining investment cycle. Over the financial year, the RBA lowered the cash rate by 75bps in response to weaker domestic conditions, lower inflation and the persistently high Australian Dollar.

Currency and Commodities

The Australian Dollar (AUD) traded within a narrow range of USD 1.02 to 1.06 for much of the financial year before falling by 12.2% in the June quarter. Falling commodity prices, diminishing carry and the prospect of the Federal Reserve tapering its Quantitative Easing program (expected to support a stronger USD) all weighed heavily on the currency. The AUD fall was further exacerbated by weaker domestic data and extended weakness in the Chinese economy, including a material tightening in credit conditions into quarter end. The AUD finished the financial year 10.7% lower against the USD at $0.915. The RBA trade-weighted index fell by 9.7% and 6.7% for the quarter and financial year, respectively.

The Japanese Yen (JPY) fell 5.7% against the USD in the June quarter as aggressive policy easing by the BoJ continued to weigh on the JPY. The JPY finished the financial year 24.5% lower against the USD.

The GSCI Commodity Index (TR) returned -5.9% in the June quarter due to a fall in gold but managed a gain of 2.0% for the financial year mainly due to oil. Oil prices were broadly flat for the June quarter and 13.7% higher over the financial year. Oil prices were supported by an improvement in US economic data and ongoing Middle East tensions. Gold prices collapsed, falling by 25.4% in the June quarter to US$1192/0z as higher real yields and reduced safe haven demand weighed heavily on gold prices. The sell-off in gold was further exacerbated by Exchange Traded Product related selling of the precious metal. Iron ore, Australia’s main export, fell by 13% to US$116/mt over the financial year in response to weaker Chinese growth and increasing iron ore supply.


Management of the Investment Portfolio – Financial Year 2012-13

Implementation

Victorian Funds Management Corporation (VFMC) has been responsible for implementation of the Fund’s investment strategy since the fourth quarter of 1997.

VFMC is a specialist statutory corporation established to implement the investment strategy of a number of Victorian Public Sector funds.

Following State Government initiated reforms, from 1 July 2006 VFMC assumed complete responsibility for the management of Victoria’s public sector investments.

As well as determining the Fund’s investment strategies based on the Fund’s investment’s objectives, VFMC is also responsible for:

• appointing professional fund managers who have responsibility for the investment of the assets within constraints specified by the Trustee;

• monitoring compliance; and

• reporting to the Trustee on investment performance.

Use of Derivatives

The exposures to the various asset sectors are monitored, taking into account the impact of derivatives on an effective exposure basis.

Investment managers may use derivatives (e.g. options and futures) to improve long-term performance and reduce portfolio risk. They must follow strict guidelines for their use, including the Borrowing and Investment Powers Act 1987. In particular, options and futures must not be used for speculation.

Effective exposure to any asset or asset sector is the sum of the market value of physical assets, the underlying market value represented by futures contracts and the effective exposure derived from options contracts.

Monitoring Liabilities

The liabilities of the Fund are monitored to enable the liquidity of the Fund to be managed with due regard to the special constraints imposed by the nature of the Fund’s constituency due to the electoral cycle.

Investment Performance Monitoring

The principal goals of performance monitoring are to enable the Parliamentary Trustee to:

• compare the returns achieved with the investment objectives of the Fund;

• compare the performance of fund managers against the performance of other relevant managers and market indices;

• highlight the existence of any perceived weakness in the investment strategy; and

• continually assess the likelihood that the Fund’s objectives will be met.


VFMC provides monthly investment reports and performance is monitored on a quarterly basis as part of the Parliamentary Trustee’s quarterly reporting obligations to the Treasurer.

VFMC regularly reviews fund manager performance under advice to the Parliamentary Trustee.

Performance for individual asset sectors is measured against the indices indicated in the following table:

Asset Class Benchmark

Cash UBSA Bank Bill Index

Inflation Linked Bonds UBS Government Inflation linked bond Index (0+ Year)

Diversified Fixed Interest UBSA Composite Bond Index

Australian Equities S&P / ASX 300 Accumulation Index

International Equities MSCI AC World Index IMI Net AUD (50% hedged)

Property Mercer / IPD Australian PPF Index

Private Equity S&P / ASX 300 Accumulation Index

Infrastructure CPI +5%

Non Traditional Strategies UBSA Bank Bill Index + 2% p.a.

TOTAL FUND Asset weighted of each asset class’s benchmark against their strategic weights

Investments

Please refer to Note 17 of the Financial Statements for a breakdown of investments by asset class.

Compliance

VFMC certifies six monthly to the Parliamentary Trustee that the investment portfolio is managed by VFMC in terms of its contractual arrangements with the Parliamentary Trustee, and that fund managers have complied with the investment objectives and guidelines of the Parliamentary Trustee as they relate to the Treasurer’s Prudential Statement.

VFMC reports to the Parliamentary Trustee on implementation of Parliamentary Trustee’s strategy and any changes in fund manager profiles.

Professional consulting advice is sought at least semi-annually in respect of the performance, the adequacy of returns achieved by the Fund and the continuing suitability of the investment strategy.


Investment Sub-Committee – Charter and Delegation

The Parliamentary Trustee’s Investment Sub-Committee consists of two Trustees (The President and the Speaker) and the Fund Secretary.

The Investment Sub-Committee reviews on an ongoing basis a range of investment matters and periodically reports back to the Parliamentary Trustee with recommendations.

Financial Statements

The accompanying financial statements, comprising statement of net assets, a statement of changes in net assets, statement of cash flow and notes to the financial statements are attached as Appendix 1.

Statistics

Details of Contributors and Pensioners are listed in Appendix 2.

Actuarial Overview

The Actuarial Overview is attached as Appendix 3.

_________________________________

Gordon Rich-Phillips MP Assistant Treasurer and Chairperson of the Parliamentary Trustee


Appendix 1 – Financial statements

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013

Assets Note 2013 $’000

2012 $’000

Cash at bank 2,023 3,732

Investments 17 348,310 307,264

Sundry debtors 5 24

Deferred tax assets 7 547 1,516

Income tax refund - 35

Receivables 3 10,612 5,521

Total assets 361,497 318,092

Less liabilities

Derivative instruments 17 26,136 17,304

Benefits payable 453 763

Sundry creditors 448 932

Income tax payable 469 -

Deferred tax liabilities 7 23 14

Total liabilities 27,529 19,013

Net assets available to pay benefits 333,968 299,079

Less:

Liability for accrued benefits 8 312,195 302,765

Surplus / (Unfunded liability) 1, 18(d) 21,773 (3,686)

The Statement of Financial Position is to be read in conjunction with the notes to the financial statements.


OPERATING STATEMENT FOR THE YEAR ENDED 30 JUNE 2013

Note 2013 $’000

2012 $’000

Net investment revenue

Interest 13 954 1,275

Distributions 11,163 23,454

Dividends 441 4

Changes in net market value of investments 16 31,585 (16,211)

Less: Direct investment expenses 4 (609) (700)

43,534 7,822

Contributions revenue

Employer 9,300 9,300

Members 1,102 1,145

10,402 10,445

Total revenue 53,936 18,267

Less:

Operating expenses

Administration expenses 263 1,343

Benefits paid and payable 8(b) 26,592 16,347

Total expenses 26,855 17,690

Changes in net assets for the year before income tax

27,081 577

Income tax expense 6 1,622 1,050

Changes in net assets for the year after income tax

25,459 (473)

Funding position

Balance at the beginning of the year (3,686) (3,213)

Balance at the end of the year 1 21,773 (3,686)

The Operating Statement is to be read in conjunction with the notes to the financial statements.


STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013

Note 2013 $’000

2012 $’000

Cash flows from operating activities

Distributions 11,103 23,567

Contributions received from employers 9,300 9,300

Contributions received from members 1,102 1,145

Dividend receipts 341 (1)

Interest receipts 976 1,340

General administration expenses (550) (526)

Investment expenses received paid (599) (2,578)

Income tax paid (324) (2,131)

Benefits paid to members - Pensions (16,634) (18,618)

Benefits paid to members - Lump sums (840) (757)

Net cash flows from operating activities 12(a) 3,875 10,741

Cash flows from investing activities

Payments for investments (147,973) (184,370)

Proceeds from sale or maturity of investments 134,426 164,960

Net cash flows used in investing activities (13,547) (19,410)

Net decrease in cash held (9,672) (8,669)

Cash and cash equivalents at the beginning of the year 12(b) 27,642 36,311

Cash and cash equivalents at the end of the year 12(b) 17,970 27,642

The Statement of Cash Flows is to be read in conjunction with the notes to the financial statements.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013

1. Operations of the Fund

The Parliamentary Contributory Superannuation Fund (the Fund) is a defined benefit scheme. Benefits are either based on a member’s salary and years of membership in the Fund, or on contributions to the Fund. On 9 November 2004, the Fund was formally closed to new members by the Parliamentary Superannuation Legislation (Reform) Act 2004.

Funding arrangements

The Treasurer of Victoria (on behalf of the Victorian Government) is required under the provisions of the Parliamentary Salaries and Superannuation Act 1968 (the Act) to make sufficient contributions to provide for the payment of benefits after allowing for the share that can be financed out of the assets of the Fund and future member contributions.

Benefits are met from member contributions at a rate of 11.5% of salary, where applicable, as set out in the Act, with the balance of the cost of benefits being met by the Consolidated Fund. On 18 June 1996, the Act was amended to provide that, after 20.5 years of service, no contribution is payable by members on members’ basic salary. The Consolidated Fund’s share of benefits is determined by triennial actuarial investigation.

The Act requires that the Actuary must certify in each actuarial investigation the amount, in equal annual instalments, that is required to be paid to the Fund in each of the next three financial years, in addition to other income of the Fund, to enable the Fund to have its liability fully funded as at the end of each three year period. The Act also requires that the Treasurer of Victoria must approve the making of these payments to the Fund.

As at 30 June 2013, the Fund has an excess of assets over liability position of $21.773m (2012: $3.686m unfunded). Net assets have increased due to positive investment returns.

2. Summary of significant accounting policies

(a) Basis of preparation, statement of compliance and the use of judgements and estimates

The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, in particular Australian Accounting Standard AAS 25 ‘Financial Reporting by Superannuation Plans’ as amended by AASB 2005-13 ‘Amendments to Australian Accounting Standards’ (AAS25), Australian Accounting Interpretations, Standing Directions 4.2 of the Financial Management Act 1994 and relevant Financial Reporting Directions (FRDs) issued by the Minister for Finance and distributed by the Department of Treasury and Finance (DTF).

The financial statements were authorised for issue by the Parliamentary Trustee (the Trustee) on 16 September 2013.

The financial statements have been prepared on the basis required by AAS25, which provides specific measurement requirements for assets, liabilities and for accrued benefits. To the extent that they do not conflict with AAS25, other Australian Accounting Standards have been applied in the preparation of the financial statements.



2. Summary of significant accounting policies (continued)

(a) Basis of preparation, statement of compliance and the use of judgements and estimates (continued)

The preparation of financial statements, in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Fund's accounting policies. The areas needing a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in the relevant notes to the financial statements.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision, and future periods if the revision affects both current and future periods.

The key estimates and assumptions that have significant risk of causing a material adjustment to the value of assets and liabilities are: Valuation of Accrued Benefits (refer Note 8).

- The amount of accrued benefits has been actuarially determined.

Valuation of Investments and Derivatives (refer Note 18).

(b) Accounting Standards and interpretations issued, but not yet effective

At the date of authorisation of the financial report, the following standards which are expected to be relevant to the Fund were in issue but not yet effective. The Trustee anticipates the adoption of these standards will have no material financial impact on the financial report of the Fund.

AASB Amendment / Standard Title

Application date of standard

Application date for the Fund

AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements

1 July 2013 1 July 2013

AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities (Amendments to AASB132)

1 January 2014 1 July 2014

AASB 2012-6 Amendments to Australian Accounting Standards - Mandatory Effective Date of AASB 9 and Transition Disclosures

1 January 2013 Amends the mandatory effective date of AASB 9 to 1 January 2015

AASB 2012-9 Amendments to AASB 1048 arising from the Withdrawal of Australian Interpretation 1039

1 January 2013 Removes the legal status of Interpretation 1039 as a mandatory reporting requirement




(c) Investments and derivatives

Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned and are initially measured at net market value. Investments are included in the Statement of Financial Position at net market value as at reporting date and changes in the net market value of assets are recognised in the Operating Statement in the periods in which they occur.

Net market values are determined as follows:

Short term deposits at the lower of cost and net realisable value inclusive of accrued interest.

Shares and units in listed entities (including listed unit trusts), government and other fixed interest and index-linked securities – by reference to the most verifiable source of market prices at balance date less an appropriate allowance for costs expected to be incurred in realising the investments.

Shares and units in unlisted entities (including unlisted unit trusts): stated at Trustee’s valuation based on the advice of the Fund’s investment managers as at the reporting date using observable and possibly unobservable market inputs. Inputs may include valuations of other investments substantially the same in nature; or discounted cash flows less estimated realisation costs. Where other valuation models are used inputs will be based on a range of observable market data and unobservable inputs. In some instances these inputs are based on assumptions and information that can be subject to considerable estimation and variability thus the resulting investment valuations of the impacted investments are subject to significant estimation uncertainty. Refer to Note 18(e).

Investments in Life Insurance Company Statutory Funds – is valued using the actuarial asset share method.

Derivative financial instruments, including financial futures and forward exchange contracts, interest rate swaps, exchange traded options and other options and forward rate agreements – by reference to the most verifiable source of market prices at balance date less an appropriate allowance for costs expected to be incurred in realising the investment.

Relevant estimated costs of realisation have been deducted in determining net market value.

(d) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Changes in net market values (realised and unrealised) are recognised in the Statement of Financial Position in the periods in which they occur. The changes in market value are measured by reference to the market price as at the prior balance date, the purchase price where the investment was purchased during the year, the sale value where the investment was sold during the year, and if held at year-end the net market value at balance date.

Interest – control of a right to receive the interest payment. Interest is recognised as it accrues, using the original effective interest rate of the instrument calculated at the acquisition or date of origin.

Dividends and Distributions – control of a right to receive the dividend or distribution payment is the date the shares/units are quoted ex dividend / ex-distributions.




(d) Revenue recognition (continued)

Employer and Member contributions – control of a right to receive the contributions in the period to which they relate to and are recognised gross of any taxes.

(e) Administration expenses

Administration expenses are incurred by the Fund and are recognised as they are incurred.

(f) Income tax

The Fund is an exempt public sector superannuation scheme and as such is deemed to be a complying fund within the provisions of the Income Tax Assessment Act 1936. Accordingly, the concessional rate of 15% has been applied.

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for using the balance sheet liability method. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the Statement of Financial Position. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities which affects neither taxable income nor accounting profit.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Fund expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

(g) Foreign currency

The financial statements are presented in Australian dollars, which is also the functional currency of the Fund.

Investments at balance date denominated in foreign currencies have been converted to Australian dollars using the last quoted rates of exchange at the end of the financial year. Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction.

Resulting exchange differences are included in the Operating Statement for the year.




(h) Benefits paid and payable

Benefits paid and payable included pensions, lump sums and the movement in actuarially determined accrued benefits for the year ending 30 June 2013 (refer Note 8(b)).

Pensions and lump sums are accounted for on an accrual basis. Benefits expense and payable includes the entitlements of members who ceased employment prior to year-end but had not been paid at that time.

(i) Receivables and payables

Other receivables and payables are carried at nominal amounts which approximate net fair value.

(j) Cash and cash equivalents

Cash and cash equivalents include cash on hand and at bank, money market deposits, exchange traded futures margin accounts and non-investment at-call funds which are readily convertible to cash and which are subject to insignificant risk of changes in value.

(k) Superannuation contributions surcharge

Superannuation contributions surcharge (the surcharge) is levied on surchargeable contributions on the basis of individual member’s adjusted taxable income. The liability for the surcharge is recognised when the assessment is received, as the Trustee considers this to be the point of which it can be reliably measured.

(l) Goods and Services Tax (GST)

Revenues, expenses and assets are stated net of any applicable GST. Where applicable, GST incurred that is not recoverable from the Australian Taxation Office (ATO), has been recognised as part of the expense or asset to which it applies. Receivables and payables are stated with any applicable GST included in the values.

The amount of GST recoverable from and payable to the ATO is included as a receivable and payable in the Statement of Financial Position, the net of which is the GST liability amount payable to the ATO.

Cash flows are presented on a gross basis in the Statement of Cash Flows. The GST components of cash flows arising from investing activities which are recoverable from or payable to the ATO are presented as cash flows from operating activities as part of general administrative expenses paid.

(m) Net market value

Net market value is the amount which could be expected to be received from the disposal of an asset in an orderly market after deducting costs expected to be incurred in realising the proceeds of such a disposal.




(n) Liability for accrued benefits

The liability for accrued benefits, which is mainly of a long-term nature, is actuarially measured on a triennial basis, with yearly updates, and represents the value of the Fund’s present obligation to pay benefits to members and other beneficiaries at the date of the actuarial review. The liability is determined on the basis of the present value of expected future payments, which arise from membership of the Fund up to the date of the actuarial review. The amount reported has been determined by reference to expected future salary levels and by application of a current market-based, risk-adjusted discount rate and appropriate actuarial assumptions.

The report on the latest full actuarial investigations of the Fund, as at 30 June 2011, contains details of the accrued benefit liability at that date. The report also gives details of the basis used to calculate the accrued benefit liability. The liability at 30 June 2013 has been actuarially calculated as an update of the balance of the liability calculated as at 30 June 2012.

The next triennial review will be conducted as at 30 June 2014 and is required to be completed by 31 December 2014.

(o) Rounding off of amounts

Amounts in the financial report have been rounded off to the nearest thousand dollars unless otherwise stated.

3. Receivables

2013 $’000

2012 $’000

Investment income receivable 529 391

Brokerage receivable 10,083 5,130

Total 10,612 5,521

4. Direct investment expenses

2013 $’000

2012 $’000

External fund managers’ (VFMC) fees 609 700

Total 609 700

5. Auditors remuneration

2013 $’000

2012 $’000

Amounts received or due and receivable by the Victorian Auditor General for an audit of the financial statements 18 18

Total 18 18



6. Income tax

Pursuant to Section 45(6) of the Superannuation Industry (Supervision) Act 1993 (SIS), if at all times during a year of income the Fund was an “exempt public sector superannuation scheme”, the Fund is deemed to be a complying superannuation fund for tax purposes. Section 10 of SIS defines an exempt public sector superannuation scheme as a public sector superannuation scheme that is specified in the regulations made for the purposes of the definition under SIS. Regulation 1.04 (4A) of SIS has listed the Fund as an exempt public sector superannuation scheme. Accordingly, for the year ended 30 June 2013, pursuant to Part IX of the Income Tax Assessment Act 1936, as a deemed complying superannuation fund, the Fund is eligible to be taxed at the concessional rate of 15%.

Income tax expense

Major components of income tax expense for the years ended 30 June are:

2013 $’000

2012 $’000

Current tax

Current tax 1,122 1,160

Deferred tax asset 969 269

Deferred income tax

Investment income receivable 9 (8)

Over provision in prior years (478) (371)

Total income tax expense 1,622 1,050

A reconciliation between income tax expense and the accounting profit before income tax multiplied by the applicable tax rate is as follows:

Change in net assets before income tax 27,081 577

Income tax expense calculated at 15% (2012:15%) 4,062 87

Member contributions (165) (172)

Benefits paid 3,989 2,452

Differences between accounting and tax gains (3,570) 2,162

Current pension exemption (1,626) (2,551)

Non deductible expenses 110 150

Imputation and foreign tax credits (700) (707)

Over provision in prior years (478) (371)

(2,440) 963

Income tax expense 1,622 1,050

Deferred income tax

Deferred income tax at 30 June relates to the following:

Deferred income tax liabilities

Investment income receivable / (payable) 9 (8)

Deferred income tax liabilities 9 (8)



7. Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

2013 $’000

2012 $'000

2013 $’000

2012 $'000

2013 $’000

2012 $'000

Unrealised capital losses 547 1,516 - - 547 1,516

Investment income receivable - - (23) (14) (23) (14)

Net tax (assets) / liabilities 547 1,516 (23) (14) 524 1,502

Presented in the Statement of Financial Position as follows:

Balance 30 June 2013

$'000

Balance 30 June 2012

$'000

Deferred tax asset 547 1,516

Deferred tax liability (23) (14)

524 1,502

8. Liability for accrued benefits

The valuation of accrued benefits was performed by the Actuary as part of a comprehensive triennial review undertaken during 2011.

A summary of the financial condition of the Fund prepared by the Actuary as at that date is attached to these statements.

2013

$’000 2012

$’000

(a) Accrued benefits

The liability determined by the Actuary in respect of benefits, which have accrued to members and beneficiaries on the basis of the present value of expected future payments, which arise from membership of the Fund up to 30 June 2013.

312,195 302,765

(b) Changes in accrued benefits

Benefits expense (refer Note 9) 17,162 16,393

(Decrease) / increase in the liability for accrued benefits 9,430 (46)

Benefits expense (per Operating Statement) 26,592 16,347

Liability for accrued benefits at the beginning of the year 302,765 302,811

(Decrease) / increase in the liability for accrued benefits 9,430 (46)

Liability for accrued benefits at the end of the year 312,195 302,765



8. Liability for accrued benefits (continued)

The following financial assumptions were used in estimating the accrued liability:

2013

% 2012

%

Investment return – pension assets 8.0 8.0

Investment return – other assets 7.1 7.1

Salary growth due to inflation 4.0 4.0

9. Benefits expense

2013 $’000

2012 $’000

Pensions 16,323 15,636

Lump sums 839 757

Total benefits expense 17,162 16,393

10. Vested benefits

Vested benefits are benefits which are not conditional upon continued membership of the Fund (or any factor other than resignation from the Fund), and include benefits which members were entitled to receive had they terminated their Fund membership as at the reporting date (refer Note 18(d)).

2013

$’000 2012

$’000

Vested benefits as at 30 June * 345,046 339,368

Net assets as at 30 June 333,968 299,079

Shortfall of assets over vested benefits (11,078) (40,289)

* In calculating the vested benefit we have valued the maximum possible benefits which could have been payable at 30 June 2013. The maximum vested benefits would only be payable if, on the same day (30 June 2013 in this case), all members with less than 12 years service were defeated at an election and all members with over 12 year service retired. If all members had voluntarily retired at 30 June 2013, then the benefits payable would have been lower than the vested benefit figure quoted above.

11. Guaranteed benefits

No guarantees have been made in respect of any part of the liability for accrued benefits (2012: nil).



12. Statement of cash flows

(a) Reconciliation of change in net assets after income tax for the year to net cash inflows from operating activities

2013

$’000 2012

$’000

Change in net assets for the year after income tax 25,459 (473)

Decrease / (increase) in net market value of investments (31,585) 16,211

Decrease / (increase) in investment income receivable (136) 172

(Decrease) / increase in accrued benefits 9,430 (46)

(Decrease) in benefits payable (310) (2,980)

Decrease / (Increase) in sundry debtors 19 (14)

(Decrease) in sundry creditors (484) (1,168)

(Decrease) / Increase in income tax provisions 513 (1,230)

Decrease in deferred tax asset 969 269

Net cash inflow from operating activities 3,875 10,741

(b) Reconciliation of cash

Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows:

2013

$’000 2012

$’000

Cash at the beginning of the year


Short term deposits – Australia 23,910 32,206

Short term deposits – offshore - 411

27,642 36,311

Cash at the end of the year


Short term deposits – Australia 15,946 23,910

Short term deposits – offshore 1 -

17,970 27,642

13. Interest revenue

2013

$’000 2012

$’000 Bank deposits 90 78 Investments carried at net market value 864 1,197

954 1,275



14. Commitments for expenditure

The Fund has outstanding investment capital commitments in relation to private equity exposure. Commitments contracted for at the reporting date but not recognised as liabilities are as follows:

2013

$’000 2012

$’000

Contracted but not provided for and payable 8,215 2,509

15. Related entity information

(a) Responsible persons and key management personnel

The Trustee of the Fund is the Parliamentary Trustee. The members of the Trustee are appointed in accordance with Section 12 of the Parliamentary Salaries and Superannuation Act 1968. Appointments are dependent upon their positions in the Parliament and appointments made by the Governor in Council.

The members of the Trustee during the year were:

• The Hon. G Rich-Phillips, Chairperson, Assistant Treasurer • The Hon. B Atkinson, President • The Hon. K M Smith, Speaker • The Hon. G W Jennings, a member of the Council, appointed by the Governor in Council • The Hon. P Ryan, a member of the Assembly, appointed by the Governor in Council • The Hon. R Clark, a member of the Assembly, appointed by the Governor in Council

The Secretary of the Trustee during the year was: • Mr B Frazer, Secretary to the Parliamentary Trustee (b) The members of the Trustee received no remuneration as Trustee of the Fund. (c) The members of the Trustee who are members of the Fund contribute to the Fund at the rate of

11.5% (2012: 11.5%) of their Parliamentary salary where required. (d) The Consolidated Fund under the provision of the Act makes contributions to the Fund on

behalf of all Fund members including members of the Trustee. (e) Retiring members of the Trustee are paid their superannuation entitlements on their retirement

from Parliament in accordance with the terms and conditions of the Act. (f) The Secretary to the Parliamentary Trustee received no remuneration from the Fund but was

remunerated by the Fund's administrator, Emergency Services Super Board (ESSB) trading as ESSSuper.

No loans were provided by the Fund to Board Members.



16. Changes in net market value of investments

Investments held at the reporting date (unrealised):

2013 $'000

2012 $'000

Cash and cash equivalents (3) -

Australian equity 12,605 (4,897)

Fixed interest (2,848) 480

Infrastructure 2,613 327

International equity 11,489 (6,392)

Life insurance policies (299) (3,003)

Non traditional strategies 2,752 2,248

Property (763) 341

25,546 (10,896)

Investments sold during the year (realised):

Cash and cash equivalents 22 1

Australian equity 1,633 (4,542)

Fixed interest 1,451 4,182

Foreign exchange - 472

Infrastructure 49 (152)

International equity 2,169 (2,385)

Life insurance policies (105) 1,730

Non traditional strategies 820 (2,059)

Property - (2,562)

6,039 (5,315)

Total 31,585 (16,211)

17. Investments

As required by a Victorian Order in Council and Section 20 of the Borrowing and Investment Powers Act 1987, investment responsibilities for the Fund were transferred to the Victorian Funds Management Corporation (VFMC) on 1 July 2006. However, the Trustee remains responsible for setting investment objectives for the Fund.

VFMC is the appointed fund manager and is responsible for determining and implementing the investment strategy for the Fund. VFMC evaluate and select a panel of investment managers to invest the assets of the Fund across various asset classes.

Each investment manager is required to invest the assets managed by it in accordance with the terms of a written investment mandate.

VFMC obtain regular reports from each investment manager on the nature of the investments made on behalf of the Fund, on the associated risks and the performance against an agreed benchmark.



17. Investments (continued)

2013 $'000

2012 $'000

Investments are represented by the following categories at balance date:

Investment Classes

Cash & cash equivalents 15,925 24,983

Australian Equities 68,875 64,244

Fixed Income Securities 103,538 91,329

Infrastructure 20,243 9,847

International Equities 76,607 66,076

Life Insurance Polices 3,236 3,311

Non-Traditional Strategies 20,061 15,936

Private Equity 3,285 1,771

Property 23,039 21,716

Total 334,809 299,213

Reconciliation of investments attributable to members


Derivative instruments (26,136) (17,304)

Investment income receivable 529 391

Unsettled trades 10,083 5,130

Investments 348,310 307,264

Total 334,809 299,213



18. Financial risk management

(a) Objectives, strategies, policies and processes

The Fund’s activities expose it to a variety of financial risks: market risk (including price risk, foreign exchange risk and interest rate risk), credit risk, liquidity risk and insolvency risk.

The Fund’s overall risk management program focuses on ensuring compliance with the requirements of the Fund’s investment strategy, the Borrowings and Investment Powers Act 1987, the investment guidelines contained in the Prudential Statements issued by the Victorian Treasurer and seeks to maximise the returns derived for the level of risk to which the Fund is exposed. Financial risk management is carried out by the investment managers, VFMC and monitored by the Trustee under policies approved by the Trustee.

As part of its risk strategy, the Fund enters into derivative transactions. Derivatives are a financial product whose existence is derived from the value of, or changes in the value of, an underlying asset. VFMC, in implementing the Fund’s investment strategy on behalf of the Trustee, appoints investment managers who utilise derivatives such as future contracts, options, forwards and interest rate swaps, to gain efficient access to financial markets and allow flexibility in order to manage and structure the Fund’s investment portfolio in line with their investment mandates.

Derivatives are not utilised in a speculative manner nor are they permitted to leverage the investment portfolio. Therefore, whenever derivative positions are created, cash or securities are held to cover any derivative exposures. The face value of the underlying investment valued at current market values is utilised to determine the equivalent dollar value of the derivative position.

The Fund may enter into off-balance sheet forward exchange contracts where it agrees to hedge a proportion of the foreign currency purchases and sales expected in the following months within the Fund’s approved limits. The objective of the contracts is to manage the foreign exchange exposure.

The Fund uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and ratings analysis for credit risk.

As part of its risk management strategy, the Fund uses derivatives and other investments, including share price and bond futures, interest rate swaps and forward currency contracts, to manage exposures resulting from changes in interest rates, foreign currencies, equity price risks, and exposures arising from forecast transactions.



18. Financial risk management (continued)

(b) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: price risk, foreign currency risk and interest rate risk. Market risk is managed and monitored using sensitivity analysis, and minimised through ensuring that all investment activities are undertaken in accordance with established mandates and investment strategies.

(i) Price risk

Equity price risk is the risk that the fair value of equities will fluctuate because of changes in market prices, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

Equity price risk exposure arises from the Fund’s investment portfolio. All securities investments present a risk of loss of capital. Except for equities sold short, the maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. Possible losses from equities sold short can be unlimited.

VFMC mitigates this price risk through diversification and a careful selection of securities and other financial instruments within specified limits set by the Trustee.

The Fund’s overall market positions are monitored on a daily basis by VFMC and are reviewed on a quarterly basis by the Trustee.

Compliance with the Fund’s Act is reported to the Trustee on a regular basis.

Net assets attributable to members include investments in debt and equity securities and related derivatives. At 30 June 2013, the overall market exposures were as follows:

As at

2013 $'000

2012 $'000

Securities designated at fair value through profit or loss * 334,809 299,213

* Includes cash and cash equivalents, investments and receivables from the Statement of Financial Position.

At 30 June 2013, if the equity prices had increased by 10% with all other variables held constant, this would have increased net assets attributable to members by approximately $16.044m (2012: $13.626m). Conversely, if the equity prices had decreased by 10%, this would have decreased net assets attributable to members by approximately $16.044m (2012: $13.626). The analysis is performed on the same basis for 2012.




(b) Market risk (continued)

(ii) Foreign Exchange Risk

The foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Fund holds assets denominated in currencies other than the Australian dollar, the functional currency. It is therefore exposed to foreign exchange risk, as the value of the securities denominated in other currencies will fluctuate due to changes in exchange rates. The risk is measured using sensitivity analysis.

In accordance with the Fund’s policy, VFMC monitors the Fund’s currency position on a daily basis, and the Trustee review it on a quarterly basis. Compliance with the Fund’s policy is reported to the Trustee on a monthly basis.

The foreign exchange risk disclosures have been prepared on the basis of the Fund’s direct investment and not on a look-through basis for investments held indirectly through unit trusts. Consequently the disclosure of currency risk in the note may not represent the true currency risk profile of the Fund where the Fund has significant investments in other trusts which in turn also have exposure to the currency markets.

The table below summarises the Fund’s exposure to foreign exchange risk:

30 June 2013 Australian

Dollars US Dollars Euro Japanese

Yen British

Pounds Other

Currencies Total

A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000

Financial assets at fair value through profit or loss

Assets 328,748 33,082 1,229 - 256 - 363,315

Liabilities (548) (22,924) (1,244) - (3,790) - (28,506)

328,200 10,158 (15) - (3,534) - 334,809 30 June 2012 Australian

Dollars US Dollars Euro Japanese

Yen British

Pounds Other

Currencies Total

A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 Financial assets at fair value through profit or loss

Assets 293,369 23,047 917 - 100 - 317,433 Liabilities - (14,168) (905) - (3,147) - (18,220)

293,369 8,879 12 - (3,047) - 299,213

At 30 June 2013, had the Australian dollar weakened/strengthened by 10% against other currencies to which the Fund is exposed to, with all other variables held constant, the increase/(decrease) respectively in net assets attributable to members would amount to approximately $601,000/($734,000) (2012: $531,000/($649,000)), respectively.





(iii) Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Fund’s interest-bearing financial assets and financial liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The Fund has established limits on investments in interest-bearing assets, which are monitored on a daily basis. The Fund may use derivatives to hedge against unexpected increases in interest rates. The risk is measured using sensitivity analysis.

In accordance with the Fund's policy, VFMC monitors the Fund's overall interest sensitivity on a daily basis and the Trustee review it on a quarterly basis. Compliance with the Fund’s policy is reported to the Trustee on a monthly basis.

The table below summarises the Fund’s exposure to interest rate risks. It includes the Fund’s assets and liabilities at fair values, categorised by the maturity dates:

30 June 2013 Weighted Average Interest

Rate

Floating Interest

Rate

3 months or less

4 to 12 months

1 to 5 years

Over 5 years

Non- Interest Bearing Total

% $'000 $'000 $'000 $'000 $'000 $'000 $'000

Assets

Cash and deposits

3.13 3,392 14,614 - - - - 18,006

Variable interest rate

2.83 44,985 - - - - - 44,985

Fixed interest rate - - - - - - - -

Non-interest bearing

- - - - - - 300,324 300,324

Assets 48,377 14,614 - - - - 300,324 363,315

Weighted Average Interest

Rate

Floating Interest

Rate

3 months or less

4 to 12 months

1 to 5 years

Over 5 years


% $'000 $'000 $'000 $'000 $'000 $'000 $'000

Liabilities

Cash and deposits

- - - - - - - -


- - - - - - - -



- - - - - - (28,506) (28,506)

Liabilities - - (28,506) (28,506)

Net Financial Assets

48,377 14,614 - - - 271,818 334,809





(iii) Interest rate risk (continued)

30 June 2012 Weighted Average Interest

Rate

Floating Interest

Rate

3 months or less

4 to 12months

1 to 5years

Over 5years


% $'000 $'000 $'000 $'000 $'000 $'000 $'000

Assets

Cash and deposits

4.07 9,078 18,622 - - - - 27,700


2.89 35,799 - - - - - 35,799

Fixed interest rate 3.55 - - - - 4,875 - 4,875


- - - - - - 249,059 249,059

Assets 44,877 18,622 - - 4,875 249,059 317,433

Weighted Average Interest

Rate

Floating Interest

Rate

3 months or less

4 to 12 months

1 to 5 years

Over 5 years


% $'000 $'000 $'000 $'000 $'000 $'000 $'000

Liabilities

Cash and deposits

- - - - - - - -


- - - - - - - -



- - - - - - (18,220) (18,220)

Liabilities - - - - - (18,220) (18,220)

Net Financial Assets

44,877 18,622 - - 4,875 230,839 299,213

At 30 June 2013, should interest rates have lowered by 50 basis points (2012: 50 basis points) with all other variables held constant, the increase in net assets attributable to members for the period would amount to approximately $2.063m (2012: $1.818m). If interest rates had risen by 50 basis points (2012: 50 basis points), the decrease in net assets attributable to members would amount to approximately $2.063m (2012: $1.818m). These increases/decreases in net assets attributable to members are calculated on an undiscounted basis.




(c) Credit risk

Credit risk represents the risk that a counterparty will default on its contract obligations resulting in financial loss to the Fund. Investment powers have been delegated to the Fund’s appointed investment managers subject to the restrictions imposed on the Fund by the Borrowing and Investment Powers Act 1987. VFMC manages credit risk through dealing with what it considers creditworthy counterparties. Credit risk is controlled through VFMC’s risk management policies which deal with credit exposure limits, counterparty limits, dealing limits and broker limits. VFMC monitors the performance of the VFMC/Fund appointed investment managers on an ongoing basis and reports periodically to the Trustee.

The net market value of financial assets, including derivatives included in the financial statements, represents the Fund’s exposure to credit risk related to those assets.

At 30 June 2013, the Fund was invested in debt securities with the following credit quality:

Rating 2013 2012

AAA 56.1% 46.0%

AA+ - 5.1%

AA - 7.9%

AA- 8.3% 1.8%

BBB 27.0% 30.3%

BBB- 4.9% 5.4%

Not Rated 3.7% 3.4%

100% 100%

(d) Insolvency risk

The members’ vested benefits of $345m (2012: $340m) exceeds the net assets of the Fund of $333m (2012: $299m) (refer Note10).

The net assets of the Fund of $334m (2012: $299m) exceeds the member’s accrued benefits of $312m (2012: $303m), which gives rise to the fund’s fully funded position of $21.8m (2012: 3.7m unfunded).

The funding requirements of the Fund are addressed in the Act, in that it requires the Actuary to provide a triennial actuarial investigation report for the Fund as at 30 June, prior to 31 December, and to specify a funding amount that will cause the Fund to be fully funded again at the conclusion of the next three year period. The Treasurer of Victoria must approve the making of those payments to the Fund.




(e) Fair value measurements recognised in the Statement of Financial Position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active

markets for identical assets and liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices

included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

As at 30 June 2013

Level 1

$'000 Level 2

$'000 Level 3

$'000 Total $'000

Financial assets

Cash & cash equivalents 14,808 1,117 - 15,925 Australian Equities 6,292 62,583 - 68,875

Fixed Income Securities 6,025 95,700 7,008 108,733

Infrastructure - 17,512 7,903 25,415

International Equities 1,472 75,135 - 76,607

Life Insurance Polices - 3,311 3,404 6,715

Non-Traditional Strategies 7,135 21,713 5,616 34,464

Private Equity 2 239 3,301 3,542

Property 475 3,314 19,250 23,039

36,209 280,624 46,482 363,315

Level 1

$'000 Level 2

$'000 Level 3

$'000 Total $'000

Financial liabilities

Fixed Income Securities - (5,195) - (5,195) Infrastructure - (5,172) - (5,172)

Life Insurance Polices - (3,479) - (3,479)

Non-Traditional Strategies - (14,403) - (14,403)

Private Equity - (257) - (257)

- (28,506) - (28,506)

Total 36,209 252,118 46,482 334,809




(e) Fair value management recognised in the statement of Financial Position (continued)

As at 30 June 2012

Level 1

$'000 Level 2

$'000 Level 3

$'000 Total $'000

Financial assets Cash & cash equivalents 24,983 - - 24,983 Australian Equities 729 63,515 - 64,244 Fixed Income Securities 2,667 87,577 1,990 92,234 Infrastructure - 13,513 - 13,513 International Equities 3,254 62,822 - 66,076 Life Insurance Policies - 3,321 3,302 6,623 Non-Traditional Strategies 5,131 21,051 - 26,182 Private Equity 1 1,862 - 1,863 Property 321 17,765 3,630 21,716 37,086 271,426 8,922 317,434

Level 1

$'000 Level 2

$'000 Level 3

$'000 Total $'000

Financial liabilities Fixed Income Securities - (905) - (905) Infrastructure - (3,666) - (3,666) Life Insurance Policies - (3,312) - (3,312) Non-Traditional Strategies - (10,246) - (10,246) Private Equity - (92) - (92) - (18,221) - (18,221)

Total 37,086 253,205 8,922 299,213

The fair values of financial assets equate to the market value determinations as set out in Note 2(c).

Level 3 Financial instrument transactions

The following table shows a reconciliation of the movement in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period:

Opening Balance

Total realised /

Unrealised gains and

losses Purchased / applications

Transfers into Level 3

Transfers out of

Level 3 Closing Balance

As at 30 June 2013

Fixed Income Securities 1,990 1,117 3,901 - - 7,008

Infrastructure - - - 7,903 - 7,903

Life Insurance Polices 3,302 (231) 333 - - 3,404

Non-Traditional Strategies - - - 5,616 - 5,616

Private Equity - - - 3,301 - 3,301

Property 3,630 21 - 15,599 - 19,250

8,922 907 4,234 32,419 - 46,482





Level 3 Financial instrument transactions (continued)

Opening Balance

Total realised /

Unrealised gains and

losses Purchased / applications

Sales / redemptions

Transfers out of

Level 3 Closing Balance

As at 30 June 2012

Fixed Income Securities 1,491 35 916 - (451) 1,991

Life Insurance Polices 4,428 1,820 3,302 (6,249) - 3,301

Property - - 3,630 - - 3,630

5,919 1,855 7,848 (6,249) (451) 8,922

Gains or losses recognised in the Operating Statement for Level 3 transactions are presented in the movement in net market value of investments as follows:

Gains and losses in Operating Statement

2013 2012

Total $'000

Total $'000

Total gains/(losses) recognised in the Operating Statement for the period 907 1,855 Total gain/ Losses recognised in the Operating Statement for the period for assets held at the end of the reporting period 907 274

An amount of $32.4 million was transferred from Level 2 to Level 3 during the year based on management's reassessment of the significance of unobservable valuation inputs that had been used to derive the fair value of those investments. This reassessment arose from an in-depth review during 2012-13 which was able to access new information about those investment valuations and confirm the absence of current observable inputs to adjust unit trust prices or evidence current observable unit trust prices. Management's review was also informed by expert advice from a number of independent sources, including fund managers and custodian, as well as expert accounting advice. The in-depth review identified unobservable valuation inputs that were significant to the fair valuations of those investments and as required by AASB7 the investments have been transferred to level 3 within the fair value hierarchy.

There have been no significant transfers between Level 1 and Level 2 of the fair value hierarchy during the year.





Gains and losses in Operating Statement (continued)

The investments managed by VFMC on behalf of the Fund include unlisted investments. Some of these unlisted investments are traded on an inactive secondary market, and their fair values at reporting date are based on the prices advised by fund managers or valuations determined by appropriately skilled independent third parties utilising generally accepted and well known methodologies.

Where valuation techniques including discounted cash flows, multiples based analysis, comparison with similar transactions and other techniques considered appropriate in the circumstances have been employed in pricing or valuing investments, the valuations are inherently subject to estimation uncertainty. Given this inherent subjectivity, the underlying inputs and assumptions are reviewed on an ongoing basis to ensure the valuations reflect the best estimates of the economic conditions at reporting date. The value of such investments is set out in the following table:

2013 $'000

2012 $'000

Fixed Income Securities 7,008 916

Infrastructure 7,903 8,631

Life Insurance Polices 3,404 3,301

Non-Traditional Strategies 5,616 2,178

Private Equity 3,301 1,667

Property 19,250 21,395

Total 46,482 38,088

There is a possibility that outcomes within the next financial year would be different from the assumptions used in the current valuation models and a material adjustment to the carrying amounts of the related investments could be required.

The disclosures below provide details of the inputs and assumptions used in the current valuation models. Further detailed information has been provided where available. A significant majority of these investments are held via third party pooled investment vehicles, and as such the Fund is not privy to the detailed assumptions used to value the underlying investment assets.

Fixed Income Securities

Diversified fixed income investments comprise of investments in government, government-related, corporate and securitised bonds, loans and other debt instruments, primarily from Australian issuers but with some limited exposure to international issuers, and fixed interest and currency instruments through externally managed unlisted pooled vehicles and segregated portfolios.

The valuation of diversified fixed income investments are primarily based on third party pricing servicers, brokers, market makers and valuation methodologies determined to be appropriate by the manager or their independent valuation agent. Such methodologies applied may include discounted cash flow, amortised cost, direct comparison and others. Assumptions which may be subject to estimation uncertainty would include appropriate credit spread and other risk premium, future risk free rate, future cash flows, identification of appropriate comparables, future economic and regulatory conditions.





Infrastructure Investments

Infrastructure investments comprise both domestic and international exposures to transport, social, energy and other infrastructure assets through unlisted pooled vehicles and unlisted trusts.

The valuations of unlisted infrastructure investments are primarily based on a discounted cash flow methodology. Key inputs which are subject to estimation uncertainty include the choice of: risk free discount rates in the main ranging between 8.8% - 11.3% (2012: 9.2% to 10.25%); risk premium; asset utilisation rates (which includes airline passenger volumes and mix at a foreign airport, and also includes assuming the renewal of existing gas transmission contracts upon their expiry at forecast volumes and pricing for another investment); capital expenditure forecasts; operating costs and other estimated future cash flows dependent on the longer term general economic forecasts and the forecast performance of applicable underlying assets (including gearing forecasts, expected foreign tax rates, long term retail price index, counter party risks and group tax relief).

Life Insurance Policies

The valuation of insurance investments is primarily based on a discounted cash flow methodology.

The Fund has unit holdings in VFMC Trusts which have an exposure to US life insurance policies which are valued by an independent valuer. The portfolio of policies is valued using the actuarial asset share. The actuarial asset share method is based on the assumptions of probabilities of insured’s mortality and premium payments on the valuation date. Other assumptions and interdependencies in the valuation model include weighted average discount rate applied to the portfolio of 16.4% (2012:18.9%), life expectancy estimates obtained from qualified providers and expected premium payments based on “back solving” premiums’ optimisation method.

Private Equity Investments

Private equity investments comprise of both domestic and international exposures to venture capital, buyout, special situations and expansion capital sectors. These investments include externally managed unlisted pooled vehicles and trusts.

The valuations of unlisted private equity investments are primarily based on multiples of earnings, discounted cash flow, market equivalents and other market accepted methodologies. Assumptions which may be subject to estimation uncertainty would include the identification of appropriate comparables, estimated future profits, risk free rate, risk premium, estimated future cash flows and future economic and regulatory conditions.

Property Investments

Property investments comprise externally managed unlisted property trusts with exposure to domestic and international commercial, industrial, retail and development property market.

The valuation of unlisted property investments are primarily based on discounted cash flow, capitalisation and direct comparison methodologies. Assumptions which may be subject to estimation uncertainty would include the identification of appropriate comparables, estimated future profits, free rate, risk premium, estimated future cash flows and future economic and regulatory conditions.





Non Traditional Strategies Investments

The non traditional strategies investments comprise investments in hedge funds and other non traditional investments that do not fit within the definition of other asset classes but which provide diversification benefits to the total portfolio. Investments are made through externally managed unlisted pool vehicles.

The valuation of non traditional strategies investments are primarily based on prices quoted on an exchange or traded in a dealer market. For less liquid securities, valuation methodologies are set out by each manager. Depending on the investment, the methodologies applied include discounted cash flow, amortised cost, direct comparison and other market accepted methodologies. The investment manager may choose to appoint independent valuation agents to seek independent price verification.

19. Contingent assets and liabilities

There are no known contingent assets and liabilities as at 30 June 2013. 20. Subsequent events

The Superannuation Legislation Amendment Bill 2013 was introduced into the Parliament on 20 August 2013 and had its second reading on 21 August 2013. The transfer of the assets and liabilities of the Parliamentary Contributory Superannuation Fund to the Emergency Services Superannuation Scheme is provided for in Division 2 of the Bill. In addition, the Bill provides that the Emergency Services Superannuation Board becomes the successor in law to the Parliamentary Trustee from the commencement date of the Bill, and that the Parliamentary Trustee will cease to exist on the same date. If passed by the Parliament, the transfer would not be expected to have any impact on service delivery and would not impact member entitlements.

Other than the matters discussed above, nothing has arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and/or unusual nature likely, in the opinion of the entity, to affect significantly the operations of the Fund, the results of those operations, or the state of affairs of the Fund.


PARLIAMENTARY CONTRIBUTORY SUPERANNUATION FUND

STATEMENT BY TRUSTEE

In the opinion of the Trustee of Parliamentary Contributory Superannuation Fund:

a. The attached financial statements for the Parliamentary Contributory Superannuation Fund

have been prepared in accordance with Standing Directions 4.2 of the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards including Interpretations, and other mandatory professional reporting requirements.

b. We further state that, in our opinion, the information set out in the Statement of Financial

Position, Operating Statement, Statement of Cash Flows and accompanying notes, presents fairly the financial transactions during the financial year ended 30 June 2013 and financial position of the Fund at 30 June 2013.

c. At the time of signing, we are not aware of any circumstance which would render any

particulars included in the Financial Statements to be misleading or inaccurate.

Signed in accordance with a resolution of the Parliamentary Trustee

Dated at Melbourne this 16th day of September 2013.

GORDON RICH-PHILLIPS MP BRIAN FRAZER MARK PULI Assistant Treasurer Secretary to the Chief Executive Officer and Chairperson Parliamentary Trustee ESSSuper of the Parliamentary Trustee


Appendix 2 – Information relating to contributors and pensioners, for the year ending 30 June 2013

Contributors

Number as at 1 July 2012 59

Exits

Deaths 0

Retirements 1

Number as at 30 June 2013 58

Pensioners

Number as at 1 July 2012 182

New Pensioners

Member 1

Spouse 5

Deaths

Member 3

Spouse 1

Number as at 30 June 2013 184

Suspended Pension from 24/11/2006 (returned to Parliament)

1

183


Appendix 3 – Actuarial overview


Appendix 4 – Disclosure index

Ministerial Directions

FRD 22D – Standard Disclosures in the Report of Operations

Reference Requirement Page Reference

General Information

FRD 22D Manner of Establishment of the entity and relevant Minister. 2-3

FRD 22D Objectives, functions, powers & duties of the entity. 2-3

FRD 22D Nature and range of services provided. 2

FRD 22D Organisational Structure, including members of the Board, Audit Committee, CEO, senior officers and their responsibilities.

3

FRD 22D Workforce data for the current and previous period, including a statement on the application of employment and conduct principles.

-

FRD 22D Statement of Occupational Health and Safety matters, including performance details.

-

Financial Information

FRD 22D Summary of financial results, with comparatives for the preceding four periods. 11

FRD 22D Summary of significant changes in financial position. 18

FRD 22D Summary of operational and budgetary objectives, including performance against the objectives and significant achievements

19, 21

FRD 22D Events occurring after balance date that may significantly effect subsequent period's operations

45

FRD 22D Details of consultancies over $100,000. 4

FRD 22D Details of consultancies under $100,000. 4

FRD 22D Significant factors affecting the entity's performance. 9-10

Other Relevant Information

FRD 22D Application and operation of the Freedom of Information Act 1982. 6

FRD 22D Statement on compliance with building and maintenance provisions of the Building Act 1993

-

FRD 22D Application and operation of the Whistleblowers Protection Act 2001 (the Act) and disclosures required by the Act

7

FRD 22D Statement on implementation and compliance with the National Competition Policy (including compliance with the requirement of the policy statement Competitive Neutrality Policy Victoria, and any subsequent reforms).

-

FRD 22D Summary of an entity's environmental performance. -

FRD 14 List of funds managed, a statement specifying which members are covered by each fund, the types of benefits provided and the basis of employer funding.

2,4

FRD 14 Terms and conditions of membership for each fund managed, including any changes during the period.

2, APPENDIX 2

FRD 14 Report on investment performance. 10,12

FRD 14 Actuarial Overview APPENDIX 3

FRD 15B Executive Officer Disclosures -

FRD 29 Workforce Data Disclosures -

FRD 30A Standard requirements for the design and print of annual reports. ANNUAL REPORT


Other Information (including compliance with legislation)

FRD 10 Disclosure Index identifying compliance with statutory disclosure and other requirements.

APPENDIX 4

FRD 24C Reporting of Officer-based environmental data by Government entities. -

FRD 29 Workforce Data Disclosures in the Report of Operations-Public Service Employees (including Appendix A - Example tables and associated note illustrating requirements)

-

SD 4.5.5 Risk Management Compliance Attestation. 3,4

SD 4.2 (g) General and financial information of operations not in financial statements. 11

SD 4.2 (j) Report of Operations to be signed and dated by member of entity. 2-8,17

FINANCIAL STATEMENTS

Financial Statements required under Standing Direction 4.2 in Part 7 of the Financial Management Act 1994

SD 4.2(a) Financial Statements prepared in accordance with relevant standards. 19-50

SD 4.2(b) Statements of Financial Performance (Income Statement). 20

SD 4.2(b) Statements of Financial Position (Balance Sheet). 19

SD 4.2(b) Statement of Cash Flows. 21

SD 4.2(b) Notes to the financial statements. 22-46

SD 4.2(c) Accountable Officers declaration (Compliance with Australian Standards, Other Mandatory Professional Reporting Requirements and Ministerial Directions)

47

SD 4.2(d) Rounding amounts 27

SD 4.2(e) Financial Statement review and recommendation by Audit Committee -

Other disclosures as required by FRDs in the notes to the Financial Statements

FRD 03A Accounting for Dividends. 25

FRD 21B Responsible Person and Executive Officer Disclosures. 32

FRD 100 Financial Reporting Directions-Framework. 22

FRD 101 Compliance with Australian equivalents to International Financial Reporting Standards.

22

FRD 104 Foreign Currency-presentation and functional currency. 25

FRD 110 Cash Flow Statements. 21

FRD 114A Financial Instruments-general Government entities and public non-financial corporations.

32-47

FRD 120G Accounting pronouncements applicable to 2012/13 reporting period. 23

This Annual Report is printed on Precision, an Australian-made paper.

Precision is PEFC Certified and made from elemental chlorine free bleached pulp sourced from sustainably managed forests and non controversial sources. It is manufactured by an ISO 14001 certified mill using renewable energy sources.

annual report 2013 - parliament of victoria › file_uploads › pcsf_2013_annual... ·...

Documents