Saturday, 18 June 2016

Queensland Budget 2016: Government advised to take less from super fund

Amy Remeikis - June 14 2016

The state government was advised not to take more than $2 billion from the state's public service superannuation fund just a year before yesterday's state budget locked in a $4 billion transfer.

A 2015 report by the State Actuary said $2 billion was the "maximum" that should be moved from the super fund.

The 2016 Queensland budget will focus on innovation, investment and infrastructure while creating jobs and paying down debt.

Treasurer Curtis Pitt had defended the $4 billion move to shore up the state's balance sheet, saying the government had been advised it could take up to $5 billion from the scheme's surplus but had chosen to be "conservative" and leave a $1 billion buffer.

But documents tabled in Parliament by the Treasurer on Tuesday show the government was advised that repatriating $4 billion would create a 50 per cent probability, using conservative investment return estimates, of the fund going in to deficit.

Using that same metric, a $5 billion repatriation had a 62 per cent probability of producing a deficit in the super fund.

The documents reveal the advice to government changed after the government provided the State Actuary with "greater policy clarity" on how fiscal principles should apply to the management of long term liabilities of the fund.

The 2015 report from the State Actuary, Wayne Cannon, recommended the government only take $2 billion from the scheme.

"Based on my assessment of the current and projected future funding position of the scheme, I believe that a maximum surplus repatriation of $2.0 billion represents an appropriate response to the high level of surplus, maintaining a reasonable capital buffer to protect the funding position against adverse experience," he reported.

"Based on QIC's asset models, this results in the following expected outcomes over the next five years."

In a flurry of correspondence between Under-Treasurer Jim Murphy and Mr Cannon between April and May, the State Actuary was advised that the government wished to "provide greater policy clarity" to how the fiscal principles which set out how it met its long term liabilities.

"The government has determined that in interpreting the fiscal principle; 1 – overfunding of the Government's defined benefit scheme should be minimised; and 2 – the funding of the defined benefit scheme is to be managed in accordance with the spirit of the APRA funding and solvency standards applying to corporate defined benefit schemes".

 APRA is the Australian Prudential Regulation Authority, which guides corporate schemes that tend to be less conservative than how governments manage their own funds.

Using that advice Mr Cannon advised the government, through the Under-Treasurer, that the risks associated with repatriating a maximum of $5 billion would increase the risk the government would be called on to contribute funds "as part of a restoration plan".

"In my view, this risk is greater than it appears on face value as the circumstances in which a deficit arises – ie – adverse investment markets, subdued economy etc – are likely to be ones where the Government is unlikely to have easy access to cash to repair the deficit, either through receipts or borrowings," Mr Cannon warned.

"In effect, there is a 'doubling up' of the risks facing the sponsor.  In order to ensure the ongoing funding of the scheme, it is critical that the Government recognises this issue and stands ready to contribute additional funds should adverse experience occur in future.

"In conclusion the scheme is very well funded and there is scope to repatriate some of the surplus.

"Based on the criteria listed above, a maximum repatriation of $5 billion could be undertaken whilst maintaining consistency with the APRA funding standards, allowing for the contribution suspension and a small buffer against adverse experience."

In late April, Mr Cannon advised the Under-Treasurer of the probabilities of deficit at 30 June 2020, based on repatriation scenarios up to $6 billion.

Based on what the government settled on - $4 billion – there is a 19 per cent chance the scheme will go into deficit – based on the return to the scheme's investment in liberal market conditions – and a 50 per cent chance it will go into deficit on the accounting basis measure, which is more conservative and reflective of a more depressed global market.

Mr Pitt has repeatedly defended the move as following on from advice of the State Actuary and said the government would continue to meet all of its responsibilities, as it is legislatively set out to do.

"I would make the point that this is not actually a superannuation fund," Mr Pitt said on Tuesday.

"This is a cash management by the government. It is about looking at our long term liabilities and of course we want to have those fully funded and that is our fiscal principle.

"But, of course, people must be paid when they leave the defined benefit scheme, last year we had 3500 people leave the scheme – guess what, they all got paid, they all got given their entitlements because that is what the government is legislatively obligated to do. We will continue to do that.

"Any scare campaign being run by the Opposition was proven false last year and they will continue to run it this year and it's not true.

"We will continue looking at what the Actuary tells us, taking his advice and ensuring that we give consideration to what he's asked. We were given the opportunity based on the most recent advice to consider repatriating $5 billion and we have not done that. We have taken $4 billion through this process.

The $34 billion closed fund has been described by Mr Pitt as Australia's only fully funded public servant super scheme, and Mr Pitt said on Tuesday the decision to take $4 billion instead of $5 billion was "conservative".

The Opposition said the move had put the scheme at risk.

"This is the reckless act of a desperate Government that could end up costing every taxpayer in Queensland," shadow Treasurer Scott Emerson said.

"Labor has not accepted the Independent State Actuaries advice and is instead taking twice as much as the Actuary has recommended."

"In his advice to the State Government, the State Actuary said in relation to the risk posed by raiding more than the recommended $2 billion.

"...This raid has substantially weakened the position of the superannuation fund and the State Actuaries advice has confirmed that.

"Despite facing serious fiscal challenges in government, the LNP never contemplated raiding the superannuation entitlements of hardworking Queenslanders."
This story has been brought to you by the Emerald Chamber of Commerce Inc.
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