Appendix 2: Actuarial Reports under Section 15 of the Act for Calendar Year 2004
1. Introductions
1.1 A number of employer sponsored superannuation schemes in the private sector operate on the principle of unallocated funding - the amount payable on retirement is determined by reference to a formula stated in the Trust Deed or Act which governs the scheme, and not by reference to contributions which have been allocated to specific members of the scheme.
1.2 This type of superannuation scheme is commonly called a "defined benefit" scheme. The formula defining the benefits may make reference to a member's salary, length of service or membership, or other characteristics such as the contributions the member has himself or herself made. An actuary will recommend to the scheme trustees what contributions should be paid by the employer in order to provide financial security for the promised benefits.
1.3 At intervals of not less than three years, Section 15 of the Act requires the scheme trustees to obtain an actuarial examination of the scheme; the report is to be received by the trustees within 7 months of the date as at which the examination is made; and a copy is to be sent to the Government Actuary when received by the trustees.
1.4 The poor investment experience of the past few years continues to have a detrimental effect on the financial strength of schemes.
1.5 I continue to monitor valuation assumptions, and to discuss with the actuary concerned instances where assumptions differ to a material extent from what appears to be generally accepted practice.
2. Statistical Analysis
2.1 I have analysed all actuarial reports in respect of these "defined benefit" schemes received in my office where the date of the actuary's investigation was in calendar year 2004. The form of this analysis generally follows that for previous years.
Update Required
The analysis covers 43 schemes with 10,138 contributing members and pensioners, and total assets of $1.25 billion.
The results of this analysis are not dissimilar to the results of the corresponding analysis carried out in respect of calendar year 2003, and contained in Appendix B of the Government Actuary's report for the year ending 30 June 2004. However there has been a marked improvement in the investment return.
2.2 The analysis shows the following matters of interest:
- 30 of 43 schemes had an actuarially-assessed surplus of assets over accrued liabilities, 13 of 431 schemes had an actuarial deficit (last year 22 out of 51)
- 7 of the 13 schemes showing an actuarial deficit had a ratio of assets to accrued liabilities (the "funding ratio") of less than 90% (last year 20 out of 29)
- 72% of schemes reporting rates of salary increase had that rate higher than the reported investment yield (last year 61%)
- members of these schemes continue to be generally middle-aged and to earn above-average incomes
- the average pension currently being paid by schemes with actuarial examinations in 2004 is $12,075 pa
Size of scheme
Total assets are: |
Total Number of Schemes |
Average Number of Members & Pensioners |
Average Total Assets
$m |
Average Surplus Assets |
Average Investment Yield % |
Average Salary Increase rate % |
| Less than $5m |
20 |
17 |
2.7 |
$295k |
1.63 |
3.84 |
| Over $5m |
23 |
231 |
52.3 |
$2m |
5.2 |
4.2 |
| TOTALS |
43 |
131 |
29.2 |
$1.2m |
5.1 |
4.1 |
Size of scheme
Total assets are: |
Total Number of Schemes |
Average Age
(Years) |
Average Membership
(Years) |
Average Salary
$ |
Average Pension pa
$ |
| Less than $1m |
20 |
48.2 |
12.7 |
63,791 |
12,813 |
| Over $5m |
23 |
46.3 |
11.7 |
61,354 |
12,017 |
| TOTALS |
43 |
46.4 |
12.17 |
61,532 |
12,075 |
Notes
1. The data is in respect of "defined benefit" superannuation schemes where an actuarial report was made under section 15 of the Superannuation Schemes Act 1989. The date at which the actuarial investigation was carried out is in calendar year 2004.
2. "Total Assets" have been determined as follows: Market Value for 43 schemes.
3. A surplus has arisen when "Total Assets" exceed "the actuarial present value of accrued benefits after allowing for future salary increases".
A deficit has arisen when "Total Assets" are less than "the actuarial present value of accrued benefits after allowing for future salary increases".
4. "Investment yield" is the actual average annual investment earning yield, net of tax and expenses of investment, for the period of the examination ending on the date "as at" which the actuarial investigation was carried out weighted by the asset size.
5. "Salary Increase Rate" is the actual average annual rate of salary increase, for the period of the examination ending on the date "as at" which the actuarial investigation was carried out, for persons who were members of the scheme at the beginning and at the end of that investigation period. The salary increase rate has not been weighted by total salaries.
6. In respect of the actuarial bases used in assessing the present value of the liabilities to pay benefits, excluding the 8 schemes where pensioners are the only scheme members:
- the assumed annual average future rate of investment earnings net of tax was 5.3% and
- the difference between the assumed annual future rates of investment earnings net of tax and the assumed annual future rates of salary increase averaged 1.2%
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