Statement of Corporate Intent 2020/21

March 2020

The following subjects are included in the plan:

Executive summary

1. GESB overview

• 1.1 Statutory framework
• 1.2 Heads of Government Agreement (HoGA)
• 1.3 Our corporate responsibilities, purpose and corporate goal
• 1.4 Our performance
• 1.5 Achievements 2019
• 1.6 Key strategic themes 2019

2. Our strategy - 2020/21

• 2.1 Member experience
• 2.2 Financial performance for members
• 2.3 State and Commonwealth reform
• 2.4 Efficient and effective operations
• 2.5 Positive culture and stakeholders

3. Performance targets

4. Financial forecasts

• Financial Statements and Projections
• Accounting Policies
• Borrowing Arrangements
• Projected Financial Statements - GESB

5. Risk management

Appendix: Schemes profile

Executive summary

This is the Government Employees Superannuation Board’s (GESB’s) Statement of Corporate Intent (SCI) for the 2020/21 financial year. It includes an overview of GESB and its operating environment, key priorities, performance targets and financial forecasts for 2020/21.

In 2020/21, we remain committed to continuing to provide high quality, value for money superannuation and retirement products and services that meet our members’, employers’ and the State’s needs.

Our purpose is to ‘look after our members’ superannuation with excellence’ and our corporate goal is ‘improved long term superannuation benefits for our members’.

Our purpose, goal, strategic objectives and priorities are determined within the context of GESB’s enabling legislation and the ‘National Superannuation Standards’ Heads of Government Agreement (HoGA) between the State of Western Australia (WA) and the Commonwealth. They are also aligned to the WA Government’s Outcomes Based Management (OBM) framework.

In 2020/21 we will be focusing resources on addressing the following key strategic priorities:

• Increasing the use of digital channels to meet evolving member and community expectations for the delivery of superannuation and financial services
• Increasing engagement with employers to assist them in effectively and efficiently discharging their superannuation obligations
• Ensuring our key service providers are strategically aligned in terms of our objectives and are delivering value for money services to the State and members
• Ensuring we maintain a high performing culture and retain high quality people
• Monitoring and managing implementation of Commonwealth superannuation reforms and any State regulatory and legislative amendments. For 2020/21 this includes implementation of the recently legislated member outcomes assessment
• Achieving investment returns that meet or exceed return and risk objectives
• Ensuring cost effective and efficient operations

Our financial forecasts for 2020/21 show projected fund flows, funds under management (FUM), budgeted expenses and capital investment required to support the delivery of our strategic priorities. The financial outcomes for future years, including the potential impacts that will flow from the implementation of Commonwealth and State reforms, are in the Strategic Development Plan (SDP).

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1. GESB overview

1.1 Statutory framework

As a statutory authority, GESB administers a number of Exempt Public Sector Superannuation Schemes (EPSSSs) and is accountable to the Treasurer of Western Australia. An EPSSS is a scheme that the Commonwealth has agreed to exempt from its Superannuation Industry (Supervision) (SIS) Act 1993 legislation. This is in recognition of the complexities associated with, and the relevant State laws governing, public sector schemes.

GESB’s statutory and regulatory framework is principally derived from:

• GESB’s enabling legislation, the State Superannuation Act 2000 (SSA) and the State Superannuation Regulations 2001 (SSR)
• Treasurer’s Guidelines
• The HoGA of July 2014 between the State of WA and the Commonwealth

GESB’s seven-member Board of Directors sets, monitors and reviews the strategic direction of GESB under the State policy framework. GESB is responsible to the Treasurer who approves GESB’s strategic direction through the SCI and SDP. In the performance of its functions, GESB is subject to the written guidelines or approvals of the Treasurer. We are not directly subject to Australian Prudential Regulation Authority (APRA) regulation.

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1.2 Heads of Government Agreement (HoGA)

As with other states and territories, Western Australia is a signatory to the ‘National Superannuation Standards’ HoGA with the Commonwealth. The HoGA applies the principle of national standards to the State superannuation arrangements.

The HoGA impacts broadly on all of the State’s superannuation arrangements and public sector superannuation funds. Most of the specific terms within the HoGA are applicable to the State’s EPSSSs, which include all the schemes administered by the GESB, the Parliamentary Pension Scheme and Judges’ Pension Scheme.

Under the HoGA, the State Government ensures that the EPSSSs conform with the principles of the Commonwealth’s Retirement Incomes Policy where practicable. Broadly, this means that superannuation benefits provided under the GESB administered schemes must meet national standards. These standards include rules around preservation and protection of benefits, vesting of benefits, member disclosures and adequate prudential and supervisory arrangements. Additionally the HoGA requires GESB to provide Commonwealth bodies with certain information on a regular basis.

In exchange for this undertaking, the Commonwealth has agreed to exempt the EPSSSs, or deem them compliant with, certain provisions within the Income Tax Act 1936, SIS and parts of the Superannuation Guarantee (Administration) Act 1992, thereby providing concessional tax treatment of the Government Employees Superannuation (GES) Fund.

GESB and the schemes it administers comply fully with the HoGA. The incorporation of relevant principles is evident in the SSA, SSR and Treasurer’s Guidelines.

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1.3 Our corporate responsibilities, purpose and corporate goal

Operating under the SSA regulatory framework, we manage the GES Fund and deliver cost effective and trusted products (including insurance) and services to members, employers and the State.

We manage superannuation accounts and investments for over 240,000 (as at 30 June 2019) current and former WA public sector employees. We manage an investment portfolio of $29.5bn (as at 30 June 2019) which includes $26.4bn (89%) managed for members in market-linked schemes (where members bear the investment risk) and $2.9bn managed for the State to support its defined benefit liabilities.

We also administer the GES schemes and other defined benefit schemes for the State and provide information and assistance to the Treasurer on superannuation matters. In accordance with the SSA, the GESB Board also formulates and gives effect to an investment strategy for the fund to achieve prudent diversification and deliver returns that meet or exceed investment objectives.

Our investment framework operates in accordance with Prudential Guidelines for Investments issued by the Treasurer.

Our target cost per member to administer the accumulation schemes for 2020/21 is $174. This is below the median for all superannuation funds and reflects our focus on operating cost efficiency¹. Any net excess of income over expenses in the market-linked schemes is transferred to reserves. These reserves were established to mitigate the impact of an adverse operational event and to cover the cost of implementing reforms and product and service enhancements for members, in accordance with the Treasurer’s Guidelines.

We are primarily a self-funded agency, though we recover the operational costs of administering the State’s defined benefit schemes and other Government related activity including the cost of Government services, from the Consolidated Account.

The State guarantees payment of every benefit payable under a GES scheme^2,3. This is particularly relevant for members of the State’s defined benefit schemes, which are partially unfunded.

Under the SSA, we can only accept Superannuation Guarantee (SG) and salary sacrifice contributions from WA public sector employers.

In carrying out our responsibilities, the GESB Board acts honestly, fairly and diligently to create and build value for members, having regard to the interests of all stakeholders including the State, members, employers, employees, suppliers and the broader community.

At all times, we operate to achieve our purpose under prudent commercial principles, the specific requirements of our governing legislation and broader responsibilities of good corporate citizenship.

Our purpose, corporate goal and strategic objectives reflect State and Commonwealth policy objectives and our governing legislation to act, as far as practicable, in the best interests of members in performing our functions. They are aligned to the WA Government’s Outcomes Based Management (OBM) framework, with GESB having the outcome of contributing to the Government’s goal of sustainable finances (responsible financial management and better service delivery)⁴.

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1.4 Our performance

Performance against our SCI is reported in the Quarterly Performance Report to the Treasurer.

We continue to perform well and are valued by members and employers:

• GESB was recognised as a Top 20 'Best Practice' agency by the Office of the Auditor General (2018/19 Annual Report)
• GESB has consistently achieved a Platinum Rating for the West State Super, GESB Super and Retirement Income Pension schemes recognising GESB as a 'best value for money' fund⁵
• Member satisfaction with the service provided by our Member Services Centre (MSC) remained extremely high over the 2018/2019 financial year at 87%, with 77% of surveyed members scoring GESB 8-10 (out of 10)⁶
• Employer satisfaction with the service provided by GESB is 97%⁷
• Staff satisfaction remains strong at 92%⁸
• GESB's diversified Readymade options continue to achieve investment returns in excess of their primary investment objectives

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1.5 Achievements 2019

In 2019, we successfully implemented a number of initiatives aimed at improving our products and services for members and employers. These included:

• Introduction of a simple digital statement summary to complement annual member statements, which included retirement income projections, aimed at engaging members and assisting them in making informed decisions about their superannuation
• Introduced Click to Chat live online messaging service for member queries
• Enhancements to our Retirement Options Service (ROS) including longer appointment times and improved take away information
• Insurance product enhancements, including the removal of Activities of Daily Living (ADL) definitions for Total and Permanent Disability (TPD) claims
• Online tools including a new contributions calculator, enhancements to our retirement income calculator and information videos
• Introduction of online forms for some services, making it easier for members to interact with their superannuation. The aim is to transition all forms online
• Reintroduction of employer forums to provide agencies with relevant updates on superannuation
• Authorisation by Reconciliation Australia of our Reconciliation Action Plan (RAP) and implementation of a number of related initiatives aimed at making it easier for people from Aboriginal or Torres Strait Island (ATSI) backgrounds to deal with us
• Enhancements to our website to ensure it is readily accessible people with disabilities, resulting in it being assessed as 100% compliant with Web Content Accessibility Guidelines (WCAG) 2.0 level AA criteria
• We updated our Environmental Social and Governance (ESG) policy, which outlines our approach to incorporating ESG factors into our investment process

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1.6 Key strategic themes 2019

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2. Our strategy - 2020/21

In 2020/21 we will remain committed to providing high quality, value for money superannuation and retirement products and services that meet the needs of our members, employers and the State in a responsible manner.

Our strategy focuses on initiatives that enhance our members’ experience and focus on the achievement of appropriate outcomes for members. We will continue to target improvements in service levels and build our digital capability to meet the evolving needs and expectations of members and employers. We will also focus on ensuring that all initiatives are aligned to State policy.

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2.1. Member experience

Services to members

We provide a range of member information and support services (for example, Insurance Claims Consultants (ICC), Member Services Consultants (MSC), ROS and seminars). In 2019, we introduced Click to Chat on our website as a means for members to resolve simple queries online.

We have an ongoing commitment to enhance the breadth and quality of these services to members, which can be accessed through seminars, face-to-face, webinars, over the phone, in printed materials and on-line. Delivery and cost of these services are reviewed on an ongoing basis to ensure they meet the SIS requirements with respect to cost allocation, accessibility and alignment with strategic objectives.

As the MSC, ROS and ICC services are provided by Link, service standards and measures are in place to ensure the level of service provided remains high.

We recognise that member and community expectations relating to the delivery of superannuation and financial services continue to evolve. We are committed to continuous improvement in our tools, systems and processes to ensure that members can interact with GESB via a range of channels and be serviced in an efficient, timely and informed manner.

Member communication and information

During 2020/21 we will continue to encourage members to engage with their superannuation and make informed choices through timely, relevant information and tools. This will include the use of digital communications to raise awareness and understanding, for example how salary sacrificing can improve retirement outcomes and of GESB’s insurance cover and premiums.

Electronic member engagement

Our digital strategy will continue to evolve to improve the efficiency and effectiveness of the digital channel as a self-service, information distribution and communication tool, in order to increase member awareness and engagement with their superannuation. This includes strategies to use our public website and Member Online system as the default information and education resources for members.

In 2019, we introduced digital statement summaries as part of this strategy to augment the June 2019 member statements. The online member statement summary provides members with an easy to view summary of their account balance, insurance and other key information, a link to download their full statement, access calculators and other information, as well as providing a retirement income projection where appropriate. Statement summary open rates demonstrate an increase in member engagement compared to previous statement periods.

We have also implemented electronic communication by default for compliance related documents. Increasingly all other member correspondence such as confirmation of investment switches and of contributions received will be moved to the electronic channel. This will include the use of SMS messaging for member-initiated actions.

We are increasingly moving to online (as opposed to paper) forms for members, unless they specifically request otherwise.

Aboriginal and Torres Strait Islander (ATSI) members

In July 2019, we launched our first RAP and we are currently developing the next iteration – our Innovate RAP for July 2020.

Our vision for reconciliation is to engage with ATSI peoples in ways that will meet their needs and help to improve superannuation incomes. We recognise that building strong, respectful partnerships with ATSI peoples and communities is essential in achieving reconciliation.

After months of meetings, consultation and drafting, we put together our RAP as our formal commitment to move towards reconciliation, including the actions we plan to take. Our RAP is designed to promote reconciliation by formalising our efforts to meet the needs of ATSI peoples with financial education programs, offer work experience and employment opportunities through the WA Public Sector Commission’s Aboriginal traineeship program, and create awareness of Aboriginal history and culture by training our staff and recognising important dates throughout the year.

In the process of working on our RAP and related goals, we have built relationships with a number of partners. We have also engaged Indigenous Managed Services (IMS) to assist us in understanding how to provide better services to our ATSI members. They developed and conducted cultural awareness programs for GESB staff and relevant Link employees initiated in 2018 and ongoing. The training covered the rich cultural history of Aboriginal people, and identified opportunities to develop relationships with other Aboriginal stakeholders and better service our members.

Currently, we participate in the Public Sector Commission’s Aboriginal Traineeship program, the national Indigenous Superannuation Working Group, and apply the AUSTRAC rules on alternative identification for Aboriginal members. We also acknowledge the Traditional Owners at the commencement of all Board and relevant staff meetings and seminars.

Product

Under our corporate strategy to be an excellent default superannuation provider, we focus on providing high quality, value for money default products. Implementation of new products is typically only in response to legislative or regulatory change and we do not seek to introduce any products or services that may complicate future State policy considerations around the provision of superannuation. We do however, monitor product performance and strategy to ensure we continue to meet member needs and are aligned to Commonwealth retirement income policy.

In addition to superannuation, we provide TPD and Salary Continuance Insurance (SCI) for GESB Super and West State Super (WSS) accumulation scheme members through group insurance policies with AIA.

We implemented changes to insurance premiums and to terms and conditions effective 1 October 2019 following a pricing review conducted at the end of the rate guarantee period. A key enhancement was the removal of use of ADL definitions in assessment of TPD claims. A focus for the coming year will be implementing elements of the Insurance In Superannuation Working Group (ISWG) Voluntary Code of Practice as well as responding to the changes to insurance in superannuation from the Commonwealth’s ‘Protecting Your Superannuation’ (PYS) and ‘Putting Members Interests First’ (PMIF) legislative packages within the context of GESB’s statutory framework.

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2.2. Financial performance for members

Investment performance

Formulating and giving effect to investment strategy and prudently managing investment risk for members and the State are key responsibilities of the GESB Board. GESB’s investment strategy and approach have resulted in sound investment returns and efficient investment costs.

A comprehensive Investment Governance Framework sets out our investment approach and obligations, and establishes clear accountability and responsibility frameworks for the Fund’s investment decision-making, implementation, monitoring and review functions.

A comprehensive investment performance monitoring regime is also maintained. The principal goals of performance monitoring are to:

• assess the extent to which the Board’s investment objectives are being achieved
• identify and quantify the sources of investment performance divergence from applicable benchmarks and
• compare the performance of the Fund’s investment options against the performance of other relevant peer funds and comparators

The main determinant of investment performance is the Strategic Asset Allocation – the long-term allocation of assets between broad asset classes (equities, cash, property, etc.) – for each investment option. This allocation has a major impact on the risk and return profile of each investment option within the Fund.

Our Readymade investment options continue to exceed their primary, inflation-plus investment objectives. Growth asset returns have generally been strong over this period, which has assisted in achieving long-term objectives.

In 2019, GESB reviewed the Strategic Asset Allocations of each of our Readymade investment options and minor changes were approved by the Treasurer on the Board’s recommendation. Overall, there was a slight increase in exposure to international equities and infrastructure and slight reduction in exposure to Australian equities and property.

In 2020/21 we will continue to aim for investment returns for members that meet or exceed return and risk objectives.

Reserves

GESB’s superannuation and retirement schemes should generate sufficient revenue to cover all allocated fixed and variable scheme costs. In the 2018/19 financial year the accumulation and retirement income schemes generated a surplus.

Net excess of income over costs for the market-linked schemes has historically been transferred to an Operational Risk Reserve (ORR). GESB’s ORR has a Board endorsed target range of 40-60 basis points of the accumulation and retirement scheme FUM, which is conservative compared to industry standards.

An Accumulation General Reserve (AGR) was established in September 2013. The AGR is designed to support the costs of strategic development, ongoing Commonwealth superannuation reforms and other structural adjustments (for example conducting tenders and reviewing key service provider contracts) that are relevant for the accumulation and retirement income schemes. During 2020/21 GESB is budgeted to drawdown in excess of $8m from reserves to support costs associated with projects including Superstream and SuperMatch initiatives, our digital strategy, insurance changes and other superannuation reform requirements.

Whilst the ORR is on target, surplus funds are transferred to the AGR account that has a target level of five basis points. If the ORR was to move below its target range, the Board has the option to use funds from the AGR to bring it back into the target range.

The Board has committed to undertake an annual review aimed at ensuring that the pricing and reserving policies are aligned to the target ranges of both the ORR and AGR.

Fees/pricing

Pricing for GESB’s market linked superannuation and retirement schemes is determined by the Board based on annual reviews of each scheme’s financial position. The Board sets pricing to recover the cost of providing each scheme, support the viability of GESB, maintain reserves to ensure capital adequacy relative to risk and assets, and meet the Sole Purpose Test.

Pricing recommendations are also aligned with the SIS Act fee rules for MySuper products as per the Treasurer’s Guidelines for Stronger Super. In doing this, the Board recognises the need to provide value to members and the State. The Board’s reserves and pricing reviews for 2019/20 are in process and include independent external advice to ensure a fair and equitable pricing. These reviews will to be finalised and reviewed by the Board before 30 June 2020.

GESB’s fees are currently below industry medians. From September 2019, they were as follows:

• WSS default investment plan annual fees on an account balance of $50,000: $321 (versus industry median for MySuper of $561)⁹
• GESB Super default investment plan annual fees on an account balance of $50,000: $456 (versus industry median for MySuper of $561)⁹
• Retirement Income Pension Balanced investment plan annual fees on an account balance of $200,000: $1,180 (versus industry median of $2,475)⁹
• Annual fees for the Retirement Income – Term Allocated Pension (RI-TAP) Balanced investment plan annual fees on an account balance of $200,000: $1,500 (comparative of industry median not available)

GESB also currently applies ‘user pays’ fees for ROS appointments. This is in line with Stronger Super MySuper legislation that requires funds to ensure there is fair and equitable allocation of costs to members and cross subsidisation is minimised. However, we are currently reviewing ROS fees due to pending legislative changes to the SIS Act resulting from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission).

ROS fees are based on cost recovery only and do not include any profit allocation. The applicable fees for 2019/20 are as follows:

Annual pricing reviews ensure that members continue to benefit from any further cost reductions and fees remain aligned with appropriate cost recovery and reserving principles.

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2.3. State and Commonwealth reform

We will continue working with the relevant State departments and agencies, within the State’s policy framework and will ensure continued compliance with Commonwealth legislation changes where practicable.

Improving Accountability and Member Outcomes in Superannuation Act 2019 - Commonwealth

In April 2019, legislation was passed that focuses on improving accountability and member outcomes Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Act 2019. The legislation contains amendments to SIS, the Corporations Act 2001 and the Financial Sector (Collection of Data) Act 2001.

Major focus areas of the legislation are around strengthening the obligation on superannuation trustees to ensure their MySuper product offering and their choice products are appropriate for their fund’s beneficiaries, and replacing the ‘scale’ test with a ‘member outcomes’ test. It also includes changes that increase accountability of trustee directors and enhance APRA’s regulatory powers.

Nine key measures are captured in the legislative changes, five of which are relevant to GESB:

• Improved accountability and member outcomes in superannuation
• Portfolio disclosure holdings
• Annual member meetings
• Improved reporting standards
• Requirement for trustees not to incentivise employers

In August 2019, APRA released Prudential Standard SPS 515 Strategic Planning and Member Outcomes (effective January 2020) to support the legislative changes. Prudential Practice Guides SPG 515 Strategic and Business Planning and SPG 516 Business Performance Review were also released to provide guidance on sound practice in implementation of SPS 515.

Key requirements of SPS 515 include:

• Board approved strategic objectives (3-5 years) and a business plan that supports it in achieving desired outcomes
• An annual performance review assessing achievement against strategic objectives
• Significant fund expenditure is to support strategic objectives, be consistent with the best interests of members and be monitored against expected outcomes, and
• An annual assessment of outcomes provided to beneficiaries (outcomes assessment) and a determination made as to whether outcomes can be improved in the future

The legislative requirements outlined above will be implemented by GESB for the 2020/21 financial year, with the first member outcomes assessment being completed first quarter 2021. We are incorporating the strategic and business planning requirements into our current planning process. The Treasurer’s Guidelines for Stronger Super will need to be amended to reflect these legislative requirements. An annual scale assessment will still be undertaken in March 2020 and reported to the Treasurer under the current guidelines.

Treasury Laws Amendments (Protecting Your Superannuation Package) Act 2019 (PYS) and (Putting Members’ Interests First) Bill 2019 - Commonwealth (PMIF)

In February 2019, the Commonwealth Government introduced a suite of legislative changes that will potentially have a significant impact on the wider superannuation industry and on GESB. The PYS package passed in April 2019 while the PMIF passed in October 2019.

Insurance in Superannuation - Commonwealth

Insurance in superannuation has received significant attention recently through the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission), ISWG, Productivity Commission report and changes with the Improved Accountability and Members Outcomes, PYS and PMIF legislative packages.

These reports and legislative packages have focused on ensuring that insurance provided within superannuation is cost effective and meets the needs of members. That is, the provision of insurance that people can rely on, but which doesn’t inappropriately erode their retirement balances.

The Royal Commission highlighted the importance of ensuring community expectations were met with respect to insurance, and in particular during the claims process. The ISWG Code of Practice aims to improve the experience of members in relation to insurance, in particular improved disclosure, ease of making changes to insurance cover and when making claims. The legislated changes described above focus on ensuring people are not provided with insurance they don’t need.

We have recently reviewed the insurance provided to our accumulation scheme members in light of affordability and appropriate product design. We intend to implement all legislated and industry best practices once State legislative changes are in place.

Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) - Commonwealth

The Royal Commission was established on 14 December 2017 to inquire into and report on misconduct in the banking, superannuation and financial services industry. A final report was released in February 2019. The Commission examined:

• the nature, extent and effect of misconduct by a financial services entity (including by its directors, officers or employees, or by anyone acting on its behalf)
• any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations
• the use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations or is otherwise not in the best interest of members

Trust in the financial services industry has been impacted adversely as a result of the Royal Commission as governance, culture and accountability structures and practices failed to meet community expectations. It raised pertinent issues for all board directors and put the spotlight on consumer outcomes. The recommendations focus on enforcement of existing law (the report identified a lack of action from regulators ASIC and APRA), articulation of clear principles and expectations of conduct and improvements in the operations of business models and delivery of service propositions.

GESB was outside the scope of the Royal Commission and the issues raised did not apply directly to GESB schemes or our members, however, the Board is focusing on ensuring our governance, culture and accountability practices continue to evolve to meet community expectations.

Productivity Commission review and default models - Commonwealth

The Productivity Commission (Commission) report setting out recommendations regarding the competitiveness and efficiency of the superannuation system was released in January 2019.

Whilst acknowledging that many default funds on average do a good job, the Commission’s report identified some key issues such as unintended multiple superannuation accounts, insurance eroding member balances, some persistently underperforming funds, a lack of access to simple information and impartial advice and inadequate competition, governance and regulation.

Recommendations included:

• Alternative default fund processes: one default fund for life and shortlist of default funds (Best in Show)
• Implementing an elevated outcomes test
• Insurance in superannuation changes (many of which are included in the legislative changes mentioned above)
• Products that meet members needs with respect to fees, disclosure, benefits etc
• Best practice fund governance

The guiding principle for the assessment of the superannuation industry and any policy recommendations from the Commission that arise out of the inquiry is an overriding focus on outcomes for members.

As with other relevant industry reviews, we will monitor any agreed outcomes from the Commission’s report, to determine the impacts on our strategic direction. This is particularly important with respect to any agreed alternative default fund model.

Retirement Income Review

The Commonwealth Treasurer announced a review into the retirement income system on 27 September 2019, which will cover the current state of the system and how it will perform in the future as Australians live longer and the population ages.

The review will consider the incentives for people to self-fund their retirement, the fiscal sustainability of the system, the role of the three pillars of the retirement income system, and the level of support provided to different cohorts across time.

A consultation paper was released in November 2019 and the final report is be provided to Government by June 2020¹⁰.

Comprehensive Income Product for Retirement (CIPR) - Commonwealth

As part of the May 2018 budget announcements, the Commonwealth Government proposed introducing a retirement income covenant requiring superannuation trustees to formulate a retirement strategy (by 1 July 2020) that assists members to meet their retirement objectives. It will require trustees to offer a CIPR (by 1 July 2022), however member take up is voluntary.

The Commonwealth released a position paper outlining the principles proposed in the covenant for consultation in May 2018, with no further updates being provided to date.

We will monitor the outcomes of the current consultation and will work with the State to determine how we respond to any Commonwealth reform regarding the provision of CIPRs by superannuation funds.

Stronger Super – SuperStream - Commonwealth

GESB will continue to commit resources to ongoing SuperStream changes, in particular Australian Taxation Office (ATO) requirements around reporting. In 2018, the ATO introduced new reporting channels incorporated into the Superstream data standards with a compliance date of 1 April 2019.

The Member Account Attribute Service (MAAS) is the new service for reporting changes to members’ account phases and attributes when they occur (event-based reporting).

The Member Account Transaction Service (MATS) is the new service for reporting member contributions or transactions more frequently and at a transactional level. Previously data was provided on an annual basis, whereas now it is event based reporting when a change in account or transaction occurs. GESB has invested significantly in ensuring it meets the reporting obligations.

Public sector reform – State¹¹

The State Government is undertaking major reform of the public sector to improve outcomes for Western Australians. The reforms aim to strengthen efficiency, accountability and drive high-performance in the public sector to deliver better service to the community.

The roadmap for reform outlines the program of work being undertaken in response to the Service Priority Review, the Special Inquiry into Government Program and Projects, and two CEO working groups. Examples of reform programs include Digital Leadership and Workforce Diversification.

Whilst not directly involved in the reforms, we will ensure we are aligned with them where relevant.

In 2020/21, our small number (around 50 FTE) of highly skilled and experienced staff will continue to operate in a manner aligned to the reform program, delivering value for money outcomes for members and the State efficiently and effectively.

Our mainly outsourced model means we focus on investment strategy, stakeholder management and the provision of superannuation services via outsourced service providers. Strong contract and relationship management, as well as proactive project management in collaboration with Link (our administration provider) enable us to achieve desired outcomes for members and maintain service standards.

We also work collaboratively with and use the services of other public sector agencies.

GESB’s structure and FTE numbers are not forecast to change materially over the next five years.

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2.4 Efficient and effective operations

Provision of cost-effective products and services requires continuous improvement in operating efficiency combined with maintenance of economies of scale. In an industry that has experienced significant increases in costs over the past five years, GESB has contained its costs.

Management of key service provider contracts

Effective management of the major administration contract with Link is important to ensure GESB’s objectives of ‘value to members’ and ‘maintenance of service levels to members and employers’ continue to be achieved. Governance and oversight structures have been established and resources allocated to ensure adherence to the Administration Services Agreement in place with Link.

During the 2018/19 financial year, GESB undertook a benchmarking exercise to inform renegotiation discussions with Link as the first five-year period of the contract expired on 30 June 2019. GESB has exercised the option to extend the Link contract for a further five-year period to 30 June 2024.

In addition to the administration contract with Link, GESB also has material contracts for master custody, asset consulting and insurance services, as well as other smaller outsourced contracts. Sound monitoring and management of all of contracts is undertaken to ensure GESB continues to operate efficiently and effectively for members and the State.

Administration efficiency

As in prior years, GESB will endeavour to continue to efficiently manage its costs and meet efficiency savings required by the State Government.

Capital expenditure

Consideration was given to continuing legislative change and reform and the potential for significant expenditure on intangibles, including computer software development and licences. While fund administration is outsourced to Link, GESB has outsourced other functions to other entities including an Intranet, IT assets, external website and records management system. (GESB uses Department of Finance network and records management infrastructure and Squiz for our public website).

GESB expects to invest $525k in capital programs during 2020/21. Capital expenditure is depreciated in accordance with accounting standards, reflected in administration expenses by scheme, and recovered through fees and charges. Capital expenditure is not funded from the Consolidated Account.

Services to employers

Employers across the WA public sector are key stakeholders in GESB. State Government employers are highly satisfied with GESB’s services, for example providing workplace education sessions to employees (GESB members) and assisting agencies to meet their superannuation obligations¹².

GESB's Key Account Management (KAM) team participated in the indigenous Big Super Day Out in Kununurra and Broome in July 2019 organised by the First Nations Foundation. The event was a huge success with $2.5m in superannuation reunited with indigenous members in Kununurra and $1.6m in Broome. Indigenous Financial Counsellors were integral to the success of the event and the KAM team attended their state conference in October 2019.

An additional resource in the KAM team has been allocated to the WA Department of Health, which has allowed increased activity with Health Service Providers (HSP's) across the state in 2019. For example, Pathwest and Child and Adolescent Health Service have had successful information programs implemented for their employees due to this extra resource.

GESB’s webinar program continues to deliver workplace information sessions for regional employers, allowing us to reach a greater number of our regional members. The KAM team will be introducing a regional webinar program in 2020 for the WA Country Health Service.

As Link is delivering administration services directly to employers, service standards and measures are in place ensuring the current levels of services are maintained. Processes are in place between GESB's KAM team and Link to ensure the team continue to be supported in their roles and in dealing with employer-related issues. The KAM team also engages with employers across the public sector to assist them in discharging their superannuation obligations, improve understanding and efficiencies, and provide support should issues arise.

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2.5 Positive culture and stakeholders

We will be implementing and continuing with a number of initiatives to ensure we have a positive and supportive organisational culture underpinned by strong values. These include:

• Development and implementation of GESB’s Diversity and Inclusion Plan 2020/23. This plan will include strategies and targets that look at:
  • Introducing new avenues for recruitment and selection by using new avenues to ensure we provide opportunities to people with a disability and ATSI people
  • Conducting unconscious bias training for all staff to better be aware of our actions and behaviours in everything we do
  • Building partnerships with organisations where we can provide young people with opportunities for work experience
  • Continue with participating in Traineeship programs with the Public Sector Commission
• Development and implementation of our people performance process through an on-line tool (PeopleStreme) which will be incorporated into our intranet environment. These online tools will provide staff with clear transparent view of how their work directly links to our objectives and strategic intent. The modules will also provide information and store records relating to staff training and career development. This process will commence in 1 July 2020
• We will be reviewing our staff satisfaction survey for September 2020 to provide staff with increased ability to assess and comment on GESB’s performance, our leadership, work environment and how we continue to deliver on our purpose and values
• We will also be implementing a tool to measure cultural drivers and behaviours

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3. Performance targets

Our strategic objectives reflect our focus on providing net benefits to members, investment returns that meet or exceed investment objectives, low fees and increased member engagement with their superannuation. We are also focussed on providing ongoing assistance to employers to effectively and efficiently discharge their superannuation obligations.

We use a balanced scorecard approach for performance measurement. The key indicators in this report measure value delivered to members and the quality of the services delivered. These include key effectiveness and efficiency performance indicators, as required by the Financial Management Act 2006.

The following measures and targets have been set for GESB’s strategic objectives for 2020/21:

The 2020/21 forecast was prepared in line with the Treasury mid-year review process in October 2019.

1. ‘Below median’ fees targets GESB fees being lower than the median fee of all superannuation funds as reported by the SuperRatings Benchmark Report.
2. Member Satisfaction is a survey performed by Research Solutions and is the percentage of surveyed members who are satisfied with the service provided by GESB (6 to 10 out of 10).
3. The Budget Administration Cost per Accumulation Account in 2020/21 of $174 is based on total administration costs of $39.9m and average account numbers of 229,122. The budgeted Administration Cost per Defined Benefit Account of $198 is based on total administration costs of $6.2m and average account numbers of 31,289. The cost per Defined Benefit Account will continue to increase as Administration costs remain stable whilst member numbers decrease.
4. Employer Satisfaction is a survey conducted annually by Research Solutions and is the percentage of surveyed employers satisfied with the service provided by GESB over the previous 12 months (6 to 10 out of 10). This target has been 75% since outsourcing with Link in July 2014, and is written into the Link Service Agreement as an abatable service standard.
5. Key assumptions for 2020/21 budget:
   • Projections include assumptions relating to investment performance, salary increases and member behaviour. Any variations between these and actual performance could affect GESB’s key result areas.
   • An investment return of 6.5% is applied for 2019/20 based on medium term (five year) projections.
   • For the cost to asset ratio, costs include operating and investment management expenses.
   • Investment management costs include estimated external investment manager performance fees.
   • GESB schemes continue to be the default fund for most WA public sector employers.
   • GESB’s FTE count remains stable over the forecasting period.

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4. Financial forecasts

Financial Statements and Projections

Total FUM is expected to increase to $33.8bn by 30 June 2021. FUM is reported in the financial statements as investments plus cash and cash equivalents.

Accounting Policies

GESB prepares its financial statements in accordance with Australian Accounting Standards, including AASB 1056 Superannuation Entities and other authoritative pronouncements of the AASB as applied by the Treasurer’s Instructions (TI) and the SSA.

Borrowing Arrangements

On 30 May 2001, the Western Australian Treasury Corporation (WATC) and GESB entered into a $635 million lending facility for a fixed-rate loan. The loan was established to enable the balances on WSS members’ accounts at 1 July 2001 to be fully funded from an investment perspective. This funding was a prerequisite for GESB to introduce Member Investment Choice from 1 July 2001. The loan is unsecured and is repayable in quarterly instalments over 20 years with the loan repayments recouped from Consolidated Account Appropriation, shown in the table in section g of the Projected Financial Statements. It bears interest at a fixed rate of 6.5699% plus a government fee of 0.7% p.a. The interest payment for 2020/21 will be $2.3m.

The projected outstanding balance at the end of each financial year is outlined below.

Projected Financial Statements - GESB

a. Statement of Change in Net Assets

Notes to the Key Variances:

The budgeted investment income figure for 2020/21 reflects a gross medium-term earnings rate of 6.5%.

b. Statement of Net Assets

c. Statement of Net Assets by Scheme

d. Statement of Administration Expenses

Notes to Administration Expenses:

The Administration Expense budget for 2020/21 has increased from the 2019/20 reforecast to allow for legislative changes that may be required.

e. Capital Expenditure

f. Cost Allocations

Total budgeted Cost Allocations for 2020/21 are $49,292k. These include Administration Expenses of $50,168k and User Pays Income of $876k.

The Statement of Administration Expenses (table d above) differs from the Cost Allocations as it excludes Investment Expenses of $2.3m and Depreciation of $288k, while also excluding revenue of $876k.

g. Consolidated Account Appropriation

The following table details GESB’s costs to fund the State share of payments from the defined benefit schemes, Government Services and defined benefit administration, which are recouped by Consolidated Account Appropriation.

Notes to the Key Variances:

The budgeted cost allocations for Gold State Super (GSS), Parliamentary and Judges and Pension Schemes are primarily based on the charges levied by the third party administrator.

h. Accumulation Scheme Surplus / (Deficit)

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5. Risk management

We have developed our Risk Management Strategy (RMS) to facilitate management of all risks that may adversely impact members, staff, assets, operations, and outsourced service providers. The RMS meets the requirements of subsection 52 (8) of the Superannuation Industry (Supervision) Act 1993 and the Australian Risk Management Standard AS/NZS ISO 31000:2009.

• We have a strong risk management and compliance culture that ensures the protection of fund assets, and information
• We view Risk Management as an important element of good corporate governance
• Risk management embeds a process of forward thinking and proactive management in the organisation. It is incorporated into the strategic planning process and is dynamic and responsive
• Risk management is an integral part of all GESB processes and included in the responsibilities of the Board and all GESB management and all staff are engaged in the identification, assessment, and control of risks

The Board completes a review of the material risks in the first quarter of every year and approves the material risks for the coming financial year. These material risks contemplate the risk environment of GESB and are taken into consideration in the development of the SCI and SDP for the corresponding year. Our Risk Environment captures the internal and external issues and events that have the potential to influence GESB’s material risks.

The Executive Management Group (EMG) continuously monitors the key areas that can influence GESB’s risk environment.

Our material risks are:

1. Loss of leadership and key staff adversely impacting capacity and capability
2. Failure to deliver sound long term investment returns that meet or exceed objective
3. Failure to achieve satisfactory outcomes in relation to material outsource providers
   • Insurance
   • Outsourced Administrator
   • Custodian
   • Asset Consultant
4. Failure to maintain constructive stakeholder relations
5. Material operational risk event
6. Failure to maintain alignment between government policy and GESB's strategic direction
7. Financial crimes against the State or GESB

Our current risk environment is stable. Although the material risk, ‘Financial crimes against the State or GESB’ has a high residual risk rating due to the impact of cyber risk, it is considered to be within the Board’s risk appetite, as are all other material risks.

Material risks are reviewed at least quarterly with reporting to the EMG, Audit and Risk Committee (ARC) and the Board and appropriate treatments being implemented.

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Appendix

Schemes profile

Under the SSA, GESB is responsible for the administration of seven schemes:

• Pension Scheme and Provident Schemes - these were the Government’s original superannuation schemes and have been closed to new members since 1986. They provide a salary linked unit based lifetime pension for retiring members. These schemes are untaxed schemes.
• Gold State Super (GSS) - a defined benefit, lump sum superannuation scheme that has been closed to new members since 1995. This scheme is an untaxed scheme.
• West State Super (WSS) - a market linked accumulation scheme established to comply with the provisions of the Commonwealth’s Superannuation Guarantee (Administration) Act 1992. Within the scheme there are certain members entitled to a Minimum Benefit Guarantee amount. These members are classified as having a defined benefit interest. It has been closed to new members since April 2007. This scheme is an untaxed scheme.
• GESB Super - a market linked taxed accumulation scheme that also includes GESB Super-Retirement Access¹³. GESB Super is open to new employees of the State Government and is currently the default scheme for employers using GESB as their default superannuation fund.
• Retirement Income Pension - an allocated pension that enables retired or retiring members to keep their funds with GESB in a concessionally taxed environment, while receiving flexible periodic payments. This scheme includes a Transition to Retirement (TTR) sub-class, which has taxation on earnings applied.
• Retirement Income Term Allocated Pension - a market linked income stream similar to an allocated pension but with restricted redemption options and qualifies as a complying pension for tax and social security purposes. It has been closed to new members since September 2007.

  The taxation treatment of the GESB Super, Retirement Income Pension and Retirement Income Term Allocated Pension schemes is similar to APRA regulated funds.

  The following table provides information on the FUM and member numbers for each scheme, including the change from the 2017/18 financial year to the 2018/19 financial year.

GESB also administers the Parliamentary Pension Scheme (PPS) (which has 4 contributing members and 115 pensioners as at 30 June 2019) and Judges’ Pension Scheme (JPS) (55 active members and 72 pensioners as at 30 June 2019) on behalf of the Parliamentary Superannuation Board and the Department of Treasury, respectively. These schemes are wholly unfunded and do not form part of the GES Fund.

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1 SuperRatings Annual Benchmarking Survey (February 2019).
2 State Superannuation Act 2000, Division 5, Sections 31 and 32.
3 Note: Benefit Payment Guarantee excludes investment market losses except for West State Super Minimum Benefit Guarantee, which is funded from a specific reserve.
4 Department of Treasury, Government of Western Australia; Outcomes Based Management; Guidelines for us in the Western Australian Public Sector (2017).
5 SuperRatings Annual Benchmarking Survey (February 2019).
6 GESB Member Services Satisfaction Research (Financial Year 18/19), Research Solutions.
7 GESB Employer Satisfaction and Engagement Research (November 2019) Research Solutions.
8 GESB Employee Satisfaction Survey (September 2019) GESB Human Resources.
9 SuperRatings SMART database February 2020.
10 https://treasury.gov.au/review/retirement-income-review
11 https://www.wa.gov.au/government/public-sector-reform
12 Research Solutions Annual Employer Satisfaction Research 2019.
13 Retirement Access was a taxed accumulation scheme for retired members set up to enable them to make lump sum withdrawals. It closed to new members in 2008 and all members were transferred into GESB Super.