Update: 14 June 2007

The Earnings Rate policy has been approved by ARIA at its Trustee meeting of 13 June 2007. A copy of the policy can be found here.

Update: 1 June 2007

Allocation of Fund earnings – how are we doing it?

In 2004 we changed the way we allocate earnings to members’ accounts.

This change meant that we could allocate fund earnings more equitably between members who leave the scheme and those who stay. As a result each member’s share of Fund earnings was allocated when they claimed a benefit.

The next step in this process is to allocate unallocated Fund earnings to members’ accounts since 30 June 2003.  This process will be completed during 2007/08.

You will continue to receive your fair share of earnings when you leave the PSS. The changes to the method of allocating earnings simply mean that earnings will now be allocated to your account regularly, rather than on exit. Earnings can be positive or negative, depending on investment returns and will be shown on your Transaction Summary when you get your Member Statement.

A Minimum Amount on Exit (MAE) will apply. The MAE is the balance of your account at 30 June 2003 (this is the date on which the last allocation to continuing members was made) plus contributions from that date to 30 June 2007. Your MAE will be shown on your 2007/08 Member Statement.

How is your benefit affected?

If you are a contributing member, your total benefit is largely unaffected by investment earnings because it is ‘defined’ by your Final Average Salary and a factor called an Accrued Benefit Multiple. Your Accrued Benefit Multiple is determined by how many years you contribute and the percentage rate of contributions you elect to pay. Your taxed equity can now be subject to negative earnings. However, you are guaranteed the value of your defined benefit regardless of earnings but any money paid to your account (e.g. co-contributions or money you have transferred from another fund) will be affected by investment earnings.

If you are a preserved benefit member or associate member, investment earnings have a more direct impact on your benefit. The taxed components of your benefit (your member and productivity components and any money paid to your account such as co-contributions or transfers from other superannuation funds) will grow in line with investment earnings. The earnings will depend on whether you are in the Default Fund or have elected to transfer to the Cash Investment Option.

The untaxed component (your employer-financed component) will continue to grow in line with the Consumer Price Index (CPI) and is not affected by Fund earnings.

You can find more information see our Fund allocation fact sheet

Rule changes pave way for more equitable distribution of earnings for preserved benefit members

Update: 19 September 2006

The SLA (SSOM) Bill 2005 was passed by the Senate on the 19th of September 2006 (including the amendment to the date for negative crediting - 1 July 2007) and is awaiting Royal Assent.

In last year's annual report, we advised members that rule changes had been proposed that will enable the Board to allocate more equitably Fund earnings between members who leave the scheme during a period of negative earnings and those who stay.

It is important to note that these changes will have little impact on PSS contributing members because (with the exception of some benefits transferred from other funds) their total gross benefit is defined by their rate of contributions, length of contributory membership and final average salary with investment performance only affecting the ratio of funded to unfunded components.

We took the first step in a transition phase towards more equitable distribution of earnings with the changes to the crediting and exit rate policies in 2004, which took effect from 1 July 2003.

The rule changes represent the next step in this transition phase. They will enable the Board, in the future, to remove the prohibition on negative crediting rates so that returns more accurately reflect the actual earnings of the Fund and more choices can be offered to members.

However, administration capabilities must be assessed, and upgraded if necessary, before the Board can lift the prohibition on negative rates. This means that, although the Bill is expected to be passed in 2006, it is not expected the Board will make any changes to the relevant policies immediately.

If and when the Board lifts the prohibition, members' balances will not fall below those as at 30 June 2003, and any contributions up until when the Bill takes effect.

In addition to administration capabilities, the Board has to consider:

• allocation of earnings since 1 July 2003 to members (currently the exit rate reflects earning rates since 1 July 2003 and is only being allocated when members exit);
• an appropriate crediting rate policy going forward; and
• application of a negative crediting rate to earnings since 1 July 2003 and to contributions from the commencement of the Bill.

Of course, there may be other factors in the future which will require consideration, but we will give members notice of any changes if and when they are decided.

8 March 2006