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Legislative Assembly for the ACT: 1999 Week 1 Hansard (18 February) . . Page.. 371 ..

Ms Carnell (continuing):

proportionate basis. (The question uses the term Projected Unit Cost method. It is assumed this is a reference to the Projected Unit Credit method.)

Towers Perrin have advised that use of the Entry Age Normal (EAN) method is not appropriate for calculating the ACT Government's superannuation liabilities under the CSS and PSS schemes as the CSS is closed to new entrants and the PSS was assumed to be closed imminently in the latest Towers Perrin report.

The PUC method is prescribed under most accounting standards for measurement of benefit liabilities (eg FAS 87, IAS 19, CICA 3460). The EAN method does not have specific regard to the service over which benefits have accrued and is very sensitive to the assumed age of new employees. Unless EAN contribution levels are very carefully monitored, the accrued benefit at commencement of service of a new employee may be different from zero.

(2) A comparative series of data can be prepared. However as stated above the use of Entry Age Normal is not a recognised or practical method for the CSS and for the PSS, assuming that it is closed to future new entrants.

As a general comment the accrued liabilities under a PUC method would generally be lower than under an EAN method but both methods would converge over time to the actual benefit liability for members' benefits. The employer contribution rate determined under a PUC method would increase substantially as members age. The EAN seeks to establish a relatively stable employer contribution rate based on the employer cost for a given set of new entrants. However, if benefits were to cease to accrue for any reason, it is likely that the EAN method would provide significantly higher accrued liabilities than could be justified in practice.

(3) (a) (i) The Towers Perrin report assumed a constant level of ACT Government employees.

(ii) The actual membership data as at 30 June 1995 as provided by ComSuper were used. Data as at 30 June 1997 were not available at the time of producing the report.

(iii) It was assumed that the PSS was closed to new entrants from 1 July 1998 and the new entrants would be provided with a 9% accumulation superannuation benefit.

(b) (i) 7% p.a. (see page 21 of Towers Perrin report).

(ii) 1.75% (1/7/97 - 30/6/98), 2.5% (1/7/98 - 30/6/2001), 4.0% (1/7/2001 onwards).

(iii) 1.5% above the inflation assumptions above.

(iv) No assumption included.

(v) No other economic variables included.

(4) (a) Salary costs are modelled with two components: a general salary increase due to inflation and an assumed scale of salary progression.

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