entitlements and the higher benefit entitlement when converted to pension form will lead to an increase in the cost to the Australian Government of providing the benefits for these members. This arises because the accumulated contributions paid from the scheme into the CRF at the time that a benefit becomes payable are lower than the expected value of the benefit payments to be made. Positive investment returns therefore generally increase the cost to the Australian Government of providing the benefits for these members. The schemes’ assets are jointly invested in one pooled investment trust, with professional external investment managers responsible for the management of the investments. The trustee’s investment objective is to outperform the Consumer Price Index (CPI) by 3.5% per annum over 10 years. To achieve this objective, a target asset allocation and asset allocation ranges are set. The current allocation is: Equities 45% (15-75%) Property 10% (5-25%) Infrastructure 1% (0-20%) Alternatives 15% (0-30%) Fixed Interest 14% (0-65%) Cash 15% (0-65%) Source: Product Disclosure Statements of CSS and PSS issued 27 September 2017. We consider the trustee’s current target asset allocation to be suitable, taking into account the largely unfunded nature of the schemes’ liabilities and the Government’s method of funding outlays from the CRF. The earning rate applied to members’ benefits is effectively the actual rate of investment return. The policy is documented and included on the trustee’s website. We consider the trustee’s earning rate policy to be suitable. Earning over the three years to 30 June 2017 are shown in the table below: 2014-15 12.1% 12.2% 2015-16 1.7% 1.9%
- - 2018 5.5 - - - - - - 2019 5.7 - - - - - -0.1 2020 5.9 - - - - +0.1 -0.1 2021 6.1 - - - - +0.2 -0.1 2022 6.4 -0.1 - - - +0.2 -0.3 2023 – 27 35.6 -0.4 +0.3 +0.3 -0.5 +2.2 -2.5 2028 – 32 42.9 -0.9 +0.7 +1.0 -1.0 +4.6 -4.3 2033 – 37 50.4 -1.0 +0.9 +2.0 -1.8 +7.4 -6.4 2038 – 42 56.8 -0.8 +0.6 +3.1 -2.7 +10.2 -8.5 2043 – 47 60.0 - -0.1 +4.2 -3.8 +12.3 -10.0 2048 – 52 57.3 +0.5 -0.5 +4.8 -4.1 +13.5 -10.8 2053 – 57 50.0 +0.7 -0.7 +5.0 -4.4 +13.6 -10.5 The nominal outlays are not significantly impacted by changes in the rate of salary increases for the same reasons as for the unfunded liability above. CPI changes have a more material effect as the majority of the liability is linked to these increases. The investment return impacts upon the amount of funds held for members within CSS and PSS prior to when a benefit first becomes payable. This amount is transferred to the CRF and offsets the total amount of benefit payments in that year. The ‘investment and earning rate policy’ within Section describes how investment returns on these funds impact upon the benefits payable. In the short term higher investment returns will reduce total benefit outlays payable as offsets will be higher. In the longer term total benefit outlays will increase as benefits are typically paid over a long period while offsets are only received in the year that the benefit first becomes payable. The overall amounts of variation are small as there are offsetting impacts and the total benefits payable relating to the assets held are also small. % % A A A A A % %