Annual Report 2011/12 - gesb.wa.gov.au · of at least 70% reduction in accounts with account balances under $10,000. GESB supported the Department of Treasury to complete this project

Annual Report2011/2012

Issue date: 13 september 2012

2

GESB profi le ................................................ 4

Purpose .................................................................................. 4Strategic objectives ................................................................ 4

Report from the Chairman ........................... 5

Superannuation reform .............................. 7

Objectives ................................................... 8

Sustainable growth ................................................................ 8Cost management ...............................................................20Risk management .................................................................21People management .............................................................21

Corporate overview ...................................22

The board ...................................................24

Members of the board .................................26

Corporate governance ...............................31

Organisational structure ..........................35

Other compliance requirements .................36

Certifi cation of thefi nancial statements .................................40

Financial statements .................................41

Certifi cation ofKey Performance Indicators ..................... 105

Key Performance Indicators ..................... 106

Appendices ............................................... 120

Appendix 1 - Government Goals ........................................ 120Appendix 2 - Legislation administered .............................. 121Appendix 3 - Budget estimate ........................................... 122Appendix 4 - Publications .................................................. 124

Contents

Statement of compliance

In accordance with Section 61 of the Financial Management Act 2006 (FMA), we hereby submit for your information and presentation to parliament, the Annual Report for the Government Employees Superannuation Board, trading as GESB, for the fi nancial year ended 30 June 2012.

The Annual Report has been prepared in accordance with the provisions of the following Acts.

Disability Services Act 1993 Electoral Act 1907 Financial Management Act 2006 Freedom of Information Act 1992 Public Interest Disclosure Act 2003 Public Sector Management Act 1994 State Records Act 2000

The State Superannuation Amendment Bill 2011 (WA) was assented to on 12 September 2011, amending the State Superannuation Act 2000. The amendments deleted mutualisation provisions to enable the introduction of Choice of Fund without the mutualisation of GESB.

RESPONSIBLE MINISTER

The Hon. Christian Porter MLA, Treasurer, Attorney General, was GESB’s responsible Minister until 12 June 2012.

The Hon. Colin Barnett, Premier, Treasurer, Minister for State Development, was GESB’s responsible Minister from 13 to 30 June 2012.

MINISTERIAL DIRECTIVES

No ministerial directives were received during 2011/12.

3

PURPOSE

GESB’s purpose is to improve the long term fi nancial well-being of its members.

GESB’s statutory framework is principally derived from the State Superannuation Act 2000 (SSA) and the State Superannuation Regulations 2001. GESB’s functions under the SSA are to:

administer the SSA; manage the Government

Employees Superannuation Fund (GES Fund);

administer GESB’s schemes; provide information, advice

and assistance to the Treasurer regarding matters relating to superannuation;

provide or facilitate the provision of products and services to:

- members of superannuation schemes administered under the SSA or any other written law; and

- employers in the WA Public Sector; and

perform any other functions conferred upon GESB under any other written law.

In carrying out these functions, GESB is required to act in the best interests of members, as far as is practicable.

STRATEGIC OBJECTIVES

GESB’s primary objective is to deliver value to members and employers within the state government’s policy framework.

GESB achieves its purpose by focusing on four objectives.

1. Sustainable growth - deliver competitive superannuation and retirement products, fi nancial advice and ancillary products and services.

2. Cost management - prudent management of our cost base.

3. Risk management - manage our business responsibly.

4. People management - build a performance culture focused on member value.

Value to members means providing effi cient and competitive superannuation and retirement products and services with above market-average, risk controlled net returns, with highly rated member services. Value to employers means servicing employers through workplace education and advice programs and support around choice. Effi cient administration and competitive investment returns, with appropriate risk management, are delivered within the state government policy framework. These outcomes will continue to be achieved through a focus on members, effi cient operations, and people management, underpinning GESB’s sustainable fi nancial performance.In addition to managing its core business, in 2011/12 GESB allocated resources to support the state government to implement superannuation reforms outlined in Putting Members First - A Review of Superannuation Arrangements for the WA Public Sector (The Whithear Review).

GESB profi le

GESB VALUES

Members fi rstWe are committed to improving our members’ long term fi nancial well-being through understanding their needs and considering their interests in everything we do.

Achieve togetherWe partner with our members providing confi dence in their future. We are positive and energetic in the way we serve our members and in the way we manage their money. We are dedicated to simplifying investment, superannuation and retirement, by using plain language that is easy to understand.

Sustainable performanceWe pride ourselves on being knowledgeable and insightful. We make balanced decisions for the long term. We think ahead and look for ways to improve our performance at every level.

Act with integrityWe make responsible decisions based on thorough analysis, and make a point of sharing our knowledge. We approach every aspect of our work ethically and accountably. We demonstrate our sense of responsibility

4

Financial markets experienced diffi cult conditions in the 12 months to 30 June 2012, with the eurozone debt crisis continuing to disrupt global markets.

The negative returns in the second half of 2011 were offset by positive returns in the fi rst six months of 2012. As a result, GESB’s Readymade diversifi ed plans ended the year modestly better than they started.

These returns illustrated the benefi ts of GESB’s investment diversifi cation strategy. Gains in global fi xed interest, cash and international property offset declines in Australian and international equities.

In the 12 months to 30 June 2012, the GESB Super Balanced Growth plan achieved a gross return of 2.08%. Over the same period, the West State Super Balanced plan and the Retirement Income Allocated Pension Balanced plan achieved gross untaxed returns of 4.22% and 3.52%, respectively.

Despite the continuing sovereign debt crisis the majority of GESB’s diversifi ed Readymade plans, including Gold State, delivered modestly positive net performances. GESB’s total investment portfolio, including member net infl ows and investment performance, increased by 8.87% over the year to 30 June 2012, from $12.06 billion to $13.13 billion.

GESB continued to engage members about their superannuation and 69% remained satisfi ed with services. While this represents a drop in satisfaction, it is indicative of an industry-wide frustration with investment performance and its impact on superannuation and retirement balances.

Meanwhile, satisfaction amongst employers was 91%, up from 81% in 2010/11.

NEW LEADERSHIP

On 30 January 2012, Howard Rosario was appointed as the Chief Executive Offi cer (CEO) of GESB by the Public Sector Commissioner. This followed his nomination by a panel on which the GESB Board participated.

Mr Rosario joined GESB following 22 years at the helm of Westscheme and having demonstrated solid leadership within the superannuation industry.

His appointment comes at a pivotal time. With the Board’s guidance, Mr Rosario is supporting the state government to implement its superannuation reforms and consolidating GESB’s position as a trusted superannuation provider to WA Public Sector employees.

In April 2012, GESB was restructured to help ensure the organisation could continue operating effectively for members at the same time as implementing state and Commonwealth governments’ super reforms.

Central to this was the resizing of the Executive Management Group (EMG). The business was split into four divisions and a Deputy CEO was appointed to support the implementation of superannuation reform.

Andrew MacLeman continued to act as Chief Operating Offi cer leading the Operations division. The Finance division continued to be led by Acting General Manager of Finance, Lee Watson. He was appointed as Chief Finance Offi cer under the Financial Management Act. Steve McKenna continued to act as Chief Investment Offi cer, while the recruitment of a permanent offi cer progressed.

Larry Rudman became Deputy CEO. He assumed responsibility for the Reform division and for the superannuation reform program.

I would like to thank Larry Rudman for his leadership during the permanent CEO recruitment period. Along with the professionalism and dedication of GESB’s staff, he ensured that members continued to benefi t from high standards of service delivery.

JOHN LANGOULANT Chairman

Report from the chairman

5

REFORMING WA STATE SUPERANNUATION

On 30 March 2012, Choice of Fund was introduced. WA Public Sector employees welcomed its introduction. GESB supported the implementation of Choice of Fund through project management, member communications and the provision of the GESB clearing house.

On 9 May 2012, the Treasurer Christian Porter announced that Expressions of Interest for the provision of GESB’s administrative services would be sought in June 2012.

The GESB Board endorsed a Cabinet decision to proceed to wind-up its wholly owned subsidiary GESB Wealth Management Pty Ltd (GWM). While GWM will withdraw from the provision of fi nancial advice during 2012/13, members will continue to have access to education and information services through GESB.

COMMONWEALTH REFORMS

During the next year, GESB will continue to support implementation of a range of far-reaching state and Commonwealth reforms to superannuation. The full extent of the impact on the business will emerge over time. However, GESB is well-placed to meet the demands of this change at the same time as continuing to deliver in terms of service and investment performance for members.

Derek Spray retired after nine years on the GESB Board as a Member Director. I would like to thank him for his service. His expertise in information technology, insurance and banking has been extremely valuable in helping us to continue serving the interests of our members and we wish him well in retirement.

I would also like to thank the GESB Board Directors and committee members for their hard work during the year.

My fi nal thanks must go to the staff of GESB. Their ongoing commitment to members is exceptional. Despite the challenges of managing a business undergoing a signifi cant change in direction and structure, they continue to deliver for members and to take pride in their work.

JOHN LANGOULANTChairman

6

During the year, the following Whithear Review (Putting Members First - A Review of Superannuation Arrangements for the WA Public Sector) recommendations were implemented.

CHOICE OF FUND

Recommendation 5Recommence the communication campaign to inform employees and employer agencies about choice to ensure readiness for implementation of Choice of Fund.On 30 March 2012, Choice of Fund was introduced for WA Public Sector employees. GESB supported the Department of Treasury to implement the project through the provision of project management, member communications and the GESB clearing house.

GESB welcomed the introduction of choice and continues to support members to make informed decisions about their superannuation by providing easy access to education and information resources.

SMALL ACCOUNTS CONSOLIDATION

Recommendation 6Implement streamlined processes for current or former public sector employees to transfer small superannuation holdings to other superannuation funds with a target of at least 70% reduction in accounts with account balances under $10,000.GESB supported the Department of Treasury to complete this project. Inactive members were sent a letter providing information on cashing out or consolidating multiple superannuation accounts, a Benefi t Access Form and follow-up advice in the 2011/12 statements. Inactive West State Super members were also sent information on the untaxed status of the scheme.

OUTSTANDING REFORMS

At 30 June 2012, the following recommendations were still outstanding.

SUPERANNUATION ADMINISTRATION OUTSOURCING

Recommendation 13Arrange for the procurement of superannuation administration services for all state superannuation schemes from a commercial service provider.In May 2012, the Treasurer announced that Expressions of Interest for the provision of GESB’s administrative services would be sought in June 2012.

On 30 July 2012, the Department of Treasury published an Early Tender Advice, ahead of the release of the Expression of Interest on 15 August 2012.

DEFAULT FUND

Recommendation 14Assess the market for the provision of a ‘default fund’ for public sector employee superannuation in parallel with the transaction to procure administration services.Cabinet is not proceeding with this recommendation at this time. GESB Super continues to be the default fund for the majority of WA Public Sector employees.

GESB WEALTH MANAGEMENT PTY LTD

Recommendation 16Arrange for GESB Wealth Management to be wound up as GESB is able to continue providing simple advice to its members without the need for a subsidiary organisation.In July 2012, the GESB Board endorsed a Cabinet decision to proceed to wind-up its wholly owned subsidiary GESB Wealth Management Pty Ltd, a position formally noted by the GWM Board at its August 2012 meeting.

GESB transferred the existing simple superannuation advice service to GESB member services from 1 July 2012.

Superannuation reform

7

SUSTAINABLE GROWTH

Delivering competitive superannuation, retirement and fi nancial products and services.

Performance highlightsFor consistency of comparison, both plan and benchmark returns quoted in this section are gross of fees and taxes. GESB’s investment benchmarks used throughout this Annual Report are based on industry standards, as recommended by Mercer Investments (Australia), GESB’s asset consultant. Please refer to the Key Performance Indicators section of this report for more details regarding plan and benchmark returns.

GESB’s funds under management rose to a new fi nancial year end high of $13.13 billion.

Net infl ows from members totalled $894 million, including voluntary contributions of $570 million.

West State Super Balanced plan, the plan adopted by 88% of West State Super members, achieved a net return of 3.77% for the 12 months to June 2012. Good performances from GESB’s Fixed Income and Property Managers outweighed losses in the Australian equity market and contributed to the plan’s outperformance versus its asset-weighted benchmark. Nevertheless, refl ecting the continued impact of the global fi nancial crisis, West State Super Balanced plan’s performance is lagging its primary investment objective of Consumer Price Index (CPI) plus 3.7% pa over rolling 7 year periods. Over the 7 year period the plan has achieved a net return of 4.95% pa, against the target 6.53% pa.

The combined Gold State Super, Pension and Provident schemes, which are pooled into a single vehicle, achieved a net return of 0.94% for the 12 months to June 2012, and outperformed the asset-weighted benchmark return of 0.64%. The schemes’ 5 year performances, which include the impact of the global fi nancial crisis, are below the primary investment objective of CPI plus 4.0% pa. Over the 5 year period the schemes have achieved a net return of -1.11% pa, against the target 6.75% pa.

A number of initiatives were implemented during the year. GESB completed its fi rst offshore unlisted property investment and a number of similar investments are currently being researched. Approval was also granted for GESB to commence its Medium Term Asset Allocation (MTAA) programme. The MTAA programme will allow exposures to the various underlying asset classes to be varied within defi ned ranges and will complement GESB’s existing Strategic Asset Allocation (SAA) discipline.

GESB completed a major restructure of its fi xed income portfolio, which included the transition of approximately $2.3 billion of securities to four new mandates. Under the new structure two new asset classes were established - global government bonds and diversifi ed fi xed interest. This allows GESB to adopt a more global approach to investing and increase access to a broader set of opportunities in the fi xed income universe.

GESB’s passive currency hedging programme was restructured from an asset class based approach to one targeting foreign currency exposure at overall fund level. This initiative provides GESB with additional fl exibility in managing the risks of the volatile currency markets.

Objectives

8

Despite the continuing sovereign debt crisis the majority of GESB’s diversifi ed Readymade plans, including Gold State, delivered modestly positive net performances. GESB’s total investment portfolio, including member net infl ows and investment performance, increased by 8.87% over the year to 30 June 2012, from $12.06 billion to $13.13 billion.

Of the total portfolio, the defi ned benefi t schemes and reserves accounted for $2.34 billion, West State Super $8.10 billion, GESB Super $1.12 billion and Retirement Income $1.57 billion.

0.01.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

10.00 11.00 12.00 13.00 14.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ Bi

llion

s

Growth in Funds Under Management at 30 June 2012

GESB’s investment benchmarks used throughout this Annual Report are based on industry standards and developed in consultation with our asset consultant, Mercer.

Performance measurement relative to benchmarks In order to accurately assess the impact of active investment decisions it is industry practice to benchmark gross investment returns against specifi c market related benchmarks.

The gross investment returns referred to in this report are the plan investment returns before the impact of fees and taxes. By evaluating the gross investment returns of the various plans against specifi ed market benchmarks (which are similarly reported before the impact of fees and taxes), it is possible to cumulatively assess the value that has been added (or subtracted) via:

1. security selection by the underlying Fund Managers;

2. strategy selection by GESB’s investment team; and

3. asset allocation decisions by GESB’s investment team.

The performance of the Readymade plans are also benchmarked against CPI related targets. When a plan’s performance is assessed against its specifi c CPI related target then the investment returns quoted are net of all fees and taxes. Please refer to the Key Performance Indicators section of this report for more details on plan and benchmark returns.

Care should be taken when comparing investment returns of West State Super and other superannuation funds. GESB does not pay tax on the investment earnings of the fund due to the untaxed status of the fund.

9

Performance highlights Annual Report 2011/2012

West State SuperWest State Super Diversifi ed Plan Gross Performance - 1, 3 & 5 Years

INVESTMENT PLAN 1 YEAR GROSS

RETURN*

3 YEAR GROSS

RETURN*

5 YEAR GROSS

RETURN*

% % pa % paInvestment Plan Cash Plan 5.09 4.74 5.06Benchmark UBSA Bank Bill Index 4.70 4.52 5.27Relative Performance 0.39 0.22 (0.21)Investment Plan Conservative Plan 5.87 8.18 4.29Benchmark Notional Return

on Benchmark Allocation

5.08 7.35 3.74

Relative Performance 0.79 0.83 0.55Investment Plan Balanced Plan 4.22 9.29 1.93Benchmark Notional Return


2.98 8.42 0.79

Relative Performance 1.24 0.87 1.14Investment Plan Growth Plan 1.65 8.75 (0.14)Benchmark Notional Return


1.22 8.35 (1.17)

Relative Performance 0.43 0.40 1.03

* All returns are reported gross of Management Expense Ratio (MER) when compared against a gross investment benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. West State Super does not pay tax on the investment earnings of the fund due to its untaxed status. Returns greater than one year are annualised.

Each of the four West State Super Readymade plans outperformed their asset-weighted benchmarks for the year. On a fi ve year rolling basis, three out of the four plans outperformed their benchmarks. Those plans with a relatively higher weighting to defensive asset classes, such as cash and fi xed income, performed best for the 12 month period. Refl ecting the impact of the global fi nancial crisis, when viewed over a fi ve year period the more conservative plans have also delivered the best performances.

The default West State Balanced plan increased by 4.22% over the past year, bringing its fi ve-year average to 1.93% pa. The West State Growth plan increased by 1.65% over the past year, with a fi ve-year cumulative return of -0.14% pa, while the West State Conservative plan increased by 5.87%, giving a fi ve-year average of 4.29% pa.

The strong performance of the fi xed income asset class was a highlight. GESB’s underlying Fund Managers in the Government Bonds asset class delivered a return of 12.37% and exceeded their benchmark index by 1.30% over the year. Returns from the Diversifi ed Fixed Interest asset class were more muted, but nonetheless a solid contributor to overall returns. Returns for the year were 6.65% versus the benchmark of 4.70%.

In the diversifi ed Readymade plans the positive returns from fi xed income offset the weak performance from the Australian equity market. The Australian equities asset class declined by 8.21% compared to the benchmark ASX 300’s fall of 7.01%.

For commentary on the performance of GESB’s asset classes, see the Asset class performance section.

10

GESB Super GESB Super Diversifi ed Plan Gross Performance - 1, 3 & 5 Years

INVESTMENT PLAN 1 YEARGROSS

RETURN *

%

3 YEARGROSS

RETURN *

% pa

5 YEARGROSS

RETURN *

% paInvestment Plan Cash Plan 5.07 4.78 5.04Benchmark UBSA Bank Bill Index 4.70 4.52 5.27Relative Performance 0.37 0.26 (0.23)Investment Plan Conservative Plan 5.01 8.55 3.81Benchmark Notional Return


4.14 7.30 3.10

Relative Performance 0.87 1.25 0.71Investment Plan Balanced

Conservative Plan3.28 9.96 2.18

Benchmark Notional Return on Benchmark Allocation

2.55 8.27 0.77

Relative Performance 0.73 1.69 1.41Investment Plan Balanced Growth

Plan2.08 9.21 0.62


1.36 8.20 (0.53)

Relative Performance 0.72 1.01 1.15Investment Plan Growth Plan 0.06 9.57 (1.10)Benchmark Notional Return


(0.29) 8.18 (2.46)


* All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross investment benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

Each of the fi ve GESB Super Readymade plans outperformed their asset-weighted benchmarks for the year. On a fi ve year rolling basis, four out of the fi ve plans outperformed their benchmarks.

GESB Super was launched in 2007, just prior to the onset of the global fi nancial crisis. The market for growth assets since this time, such as shares and property, has been relatively poor.

The default GESB Super Balanced Growth plan increased by 2.08% over the past year, bringing its fi ve year average performance to 0.62% pa. The GESB Super Growth plan increased by a negligible 0.06% over the past year, bringing its fi ve year performance to -1.10% pa, while the GESB Super Conservative plan increased by 5.01%, giving a fi ve year average of 3.81% pa.

While the GESB Super diversifi ed plans and the West State Super diversifi ed plans differ in terms of benchmarks and asset allocations, they share substantially the same group of underlying Fund Managers.

For commentary on the performance of GESB’s asset classes please see the Asset class performance section.

11


Retirement IncomeRetirement Income Diversifi ed Plan Gross Performance - 1, 3 & 5 Years


RETURN*

3 YEAR GROSS

RETURN*

5 YEAR GROSS

RETURN*

% % pa % paInvestment Plan Cash Plan 5.08 4.75 5.04Benchmark UBSA Bank Bill Index 4.70 4.52 5.27Relative Performance 0.38 0.23 (0.23)Investment Plan Conservative Plan 5.77 8.10 4.40Benchmark Notional Return


4.78 7.26 3.74

Relative Performance 0.99 0.84 0.66Investment Plan Balanced Plan 3.52 9.09 2.12Benchmark Notional Return


2.57 8.27 0.77

Relative Performance 0.95 0.82 1.35Investment Plan Growth Plan 1.47 8.71 0.09Benchmark Notional Return


0.97 8.27 (1.15)


* All returns are reported gross of Management Expense Ratio (MER) and excluding franking credits when compared against a gross investment benchmark. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

Each of the four Retirement Income Readymade plans outperformed their asset-weighted benchmarks for the year. On a fi ve year rolling basis, three out of the four plans outperformed their benchmarks.


12

Retirement Income - Term Allocated PensionRetirement Income - Term Allocated Pension Diversifi ed Plan Gross Performance - 1, 3 & 5 Years


RETURN*

3 YEAR GROSS

RETURN*

5 YEAR GROSS

RETURN*

% % pa % paInvestment Plan Cash Plan 5.09 4.76 5.07Benchmark UBSA Bank Bill Index 4.70 4.52 5.27Relative Performance 0.39 0.24 (0.20)Investment Plan Conservative Plan 5.74 8.11 4.43Benchmark Notional Return on

Benchmark Allocation4.78 7.26 3.74

Relative Performance 0.96 0.85 0.69Investment Plan Balanced Plan 3.47 9.04 2.14Benchmark Notional Return on

Benchmark Allocation2.57 8.27 0.77

Relative Performance 0.90 0.77 1.37Investment Plan Growth Plan 1.23 8.57 0.11Benchmark Notional Return on

Benchmark Allocation0.97 8.27 (1.15)


* All returns are reported gross of Management Expense Ratio (MER) and excluding franking credits when compared against a gross investment benchmark. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

Each of the four Retirement Income - Term Allocated Pension Readymade plans outperformed their asset-weighted benchmarks for the year. On a fi ve year rolling basis, three out of the four plans outperformed their benchmarks.


13


Gold State Super and Pension schemeThe assets of the defi ned benefi ts schemes, Gold State Super and the Pension scheme, are pooled into a single strategy and invested with a common asset allocation, to manage the funded liability on behalf of the state.

The pooled strategy achieved a gross return of 1.27% for the 12 months to 30 June 2012. On a rolling fi ve year basis the pooled strategy has delivered a return of -0.89% pa. While this return is negative, the asset-weighted benchmark has also performed poorly (refl ecting the impact of the global fi nancial crisis on growth assets), such that the pooled strategy has exceeded its asset-weighted benchmark by 0.93% pa.


RETURN*

3 YEAR GROSS

RETURN*

5 YEAR GROSS

RETURN*

% % pa % paInvestment Plan Gold State, Pension

and Provident1.27 8.66 (0.89)


0.64 8.31 (1.82)


* All returns are reported gross of Management Expense Ratio (MER) when compared against a gross investment benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

For commentary on the performance of GESB’s asset classes, see the Asset class performance section below.

Asset class performanceFor consistency of comparison, both asset class and benchmark returns quoted in this section are gross of fees and taxes. Please refer to the Key Performance Indicators section of this report for more details on plan and benchmark returns.

International Equities

Rate

of R

etur

n%

International Equities Performance10.00

5.000.00

-5.00-10.00

1 Year Ending 30 June 2012

(%)

3 Years Ending 30 June 2012

(% pa)


(% pa) GESB (1.03) 7.13 (4.43) Benchmark 0.18 7.89 (4.13)

All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark except where assets are invested in a Unit Trust. The Unit Trust return component is reported after underlying investment costs have been deducted. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

14

The European sovereign debt crisis and the US debt ceiling stand-off joined to produce negative returns in the international equities at the start of the fi nancial year. Equities then began a modest recovery, but by the end of the fi nancial year the uncertainty surrounding the Greek elections combined with concerns about a slow down in China eliminated the nascent recovery in the performance of international equities.

GESB’s international equity portfolio underperformed its composite benchmark for two primary reasons. Firstly, the portfolio has an underweight position to the US equity markets, which are not considered good value by GESB’s Fund Managers, but nevertheless outperformed other international markets over the fi nancial year. Secondly, GESB maintains an allocation to the emerging markets which are not part of the benchmark and emerging markets also generally underperformed the developed markets over the fi nancial year. GESB remains confi dent in its Fund Managers and that its underweight position in the US and overweight position in emerging markets provides good prospects for future performance.

Although the international equities asset class underperformed its benchmark, value was added to the diversifi ed plans by reallocating investments away from Australian equities and into international equities. Although the returns from international equities were negligible for the fi nancial year they still delivered considerable relative outperformance when compared to the underperforming Australian equities market.

Australian Equities

Rate

of R

etur

n%

Australian Equities Performance10.00

5.000.00

-5.00-10.00


(%)


(% pa)


(% pa) GESB (8.21) 5.00 (2.43) Benchmark (7.01) 5.56 (4.15)

All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

Although the Australian economy has been amongst the strongest in the Western world, the S&P/ASX 300 Accumulation Index fell 7.01% for the fi nancial year. The Australian market was affected by international developments including concerns over European sovereign debt, fears of slower economic growth in China and muted economic conditions in the USA. Australia’s economic strength, driven by the mining sector, also masked the negative impact of the “two-speed economy” which was felt by other sectors of the economy including exporters and retailers.

The modest underperformance of GESB’s Australian equity portfolio against its benchmark for the fi nancial year was due largely to the portfolio’s exposure to the value investing style. Value investing seeks to target companies that trade at discounts to their long term intrinsic value. Although this value bias has caused a degree of relative underperformance over the short term as investors have sought safety in more defensive stocks, over the longer term value investing is an established investment style and GESB remains confi dent in its ability to contribute to outperformance.

15


Private Equity

Rate

of R

etur

n%

Private Equity Performance20.0015.0010.00

5.000.00


(%)


(% pa) GESB 15.29 10.33 Benchmark 0.94 4.83

All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark except where assets are invested in a Unit Trust. The Unit Trust return component is reported after underlying investment costs have been deducted. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised. Due to an asset class restructure in May 2008 returns for fi ve years are not available.

GESB’s private equity programme comprises three distinct strategies - international, domestic and opportunistic property. Approximately 75% of GESB’s private equity investments are in the international markets with the balance invested in the Australian and New Zealand markets. Over the last 12 months the programme has increased its weighting to overseas investments at the expense of domestic investments. This shift is designed to align the allocation of the programme with the broader set of global opportunities in the private equity sector.

GESB’s private equity investments performed well when compared to its listed equity benchmark, with positive revaluations on underlying investments being the major driver of investment returns.

The returns generated by the private equity programme have been achieved despite a diffi cult market environment. Outside of Asia, private equity fundraising and transactions decreased over the year. Initial public offerings were well down on the same period 12 months ago notwithstanding some large social media-related listings in more recent months.

Global Property

Rate

of R

etur

n%

Global Property Performance25.0020.0015.0010.00

5.000.00


(%)



All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised. Due to an asset class restructure in May 2008 returns for fi ve years are not available.

16

The listed property sector continued to recover and outperformed the broader equities market over the year. Listed property stocks offer a relatively attractive dividend yield in the current low interest rate environment. Furthermore, property companies have generally maintained strong balance sheets with cheap access to capital. As economic uncertainty grows, the listed property portfolio continued to be positioned away from stocks reliant on economically sensitive geographies and business strategies.

Unlisted Property

Rate

of R

etur

n%

Unlisted Property Performance15.0010.00

5.000.00


(%)

Since Inception Ending 30 June 2012


All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark except where assets are invested in a Unit Trust. The Unit Trust return component is reported after underlying investment costs have been deducted. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised. As this asset class was introduced in October 2009 returns for three and fi ve years are not available.

GESB’s patient approach to the unlisted property sector has proved favourable. Investments to date have taken advantage of transactions priced at what appear to be cyclically low valuations, with the asset class delivering 14.11% pa since October 2009.

A number of opportunistic investments were secured at discounts to appraised net asset value. The purchase of these discounted investments has been a major contributor to the 5.15% pa outperformance versus the benchmark since the programme’s inception in 2009.

To date the focus of the unlisted property strategy has been to invest in Australian funds which are considered to be at the lower end of the risk/return spectrum. This approach was driven by the favourable macroeconomic outlook for Australia relative to the rest of the world and the depth of investment opportunities available at attractive prices. With this portion of the investment program now largely complete the focus of the unlisted property strategy has transitioned to international opportunities.

17


Government Bonds

Rate

of R

etur

n%

Government Bonds Performance15.0010.00

5.000.00


(%)



All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised. Due to an asset class restructure in May 2008 returns for fi ve years are not available.

Note: The above returns largely refl ect the former investment strategies held in this asset class. The current government bond strategies were commenced in the March quarter of 2012 following a major restructure of the fi xed income portfolio. Under this revised structure, GESB has greater fl exibility in managing the changing risks in the fi xed income markets.

Bond markets rallied as interest rates generally declined. Refl ecting increased risk aversion across the global fi nancial markets, the yields on government bonds issued by “safe haven” countries such as the United States, Germany and the United Kingdom fell markedly with 10-year bond yields reaching historic lows. In Australia, the 10-year Commonwealth Government bond yield dropped below 3%. Australian Government bonds have become increasingly attractive to offshore investors seeking higher yielding, AAA-rated securities.

While the European debt crisis continues to be driven by the peripheral countries, investor concerns have switched to the larger and more systemically important markets of Italy and Spain. GESB benefi ted from having minimal exposure to these markets while investing more in the fi nancially secure and stable countries.

Diversifi ed Fixed Interest

Rate

of R

etur

n%

Diversifi ed Fixed Interest Performance8.006.004.002.000.00


(%)



All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised. This asset class was introduced in June 2009 and accordingly returns for fi ve years are not available.

18

Note: The above returns largely refl ect the returns from previous strategies in place since the introduction of this asset class in June 2009. Following a major restructure of the fi xed income portfolio during the March quarter of 2012, the non-government bond strategies from the Global Fixed Interest asset class (now called Government Bonds) were transferred into the Diversifi ed Fixed Interest asset class.

The blend of strategies in this asset class aims to deliver returns above cash as well as providing the defensive characteristics expected from a lower risk, investment grade bond portfolio. The Diversifi ed Fixed Interest asset class invests in a mix of global credit, Australian fi xed income and Australian asset backed securities. Over time the mix and type of strategies may change depending on the available opportunities and market conditions.

Cash

Rate

of R

etur

n%

Cash Performance5.405.205.004.804.604.404.204.00


(%)


(% pa)


(% pa) GESB 5.09 4.73 4.98 Benchmark 4.70 4.52 5.27

All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

Responding to the volatile and weaker global environment as well as a softer domestic economy, the RBA cut rates four times over the 12 months period, taking the offi cial cash rate from 4.50% to 3.50%.

GESB’s cash asset class is split between an institutional cash portfolio managed by Macquarie Investment Management Limited and a bank term deposit portfolio. This combination of strategies aims to generate stable and positive returns in all market environments.

19


CurrencyMany of GESB’s plans invest in the international markets which in turn gives rise to the risk of currency movements. For those plans with international investments GESB strategically targets a level of foreign currency exposure at an overall fund level and hedges all other foreign currency exposure back to Australian dollars. During the year Principal Global Investors was appointed to manage this passive currency hedge programme. This currency hedging approach allows for the effi cient funding of currency hedge cash-fl ows from the most appropriate and liquid asset classes as required.

Looking aheadCentred on the eurozone debt crisis, global investment markets face heightened levels of uncertainty. In such times the importance of maintaining a well diversifi ed investment portfolio is paramount.

Over the coming year, GESB’s investment team plans to continue the development of new asset classes and investment strategies to further expand the sources of performance and reduce portfolio risk. While diversifi cation alone does not guarantee short term returns, the positive performance of GESB’s Readymade plans over the past three years of political uncertainty and market volatility highlights the practical advantages of sound investment diversifi cation.

Specifi c initiatives for 2012/13 include:

assessing the role of private real estate debt as an asset class;

the development of a global infrastructure strategy;

the introduction of new Fund Managers in the international equity asset class;

the introduction of absolute return strategies (multi-asset and bonds); and

the investigation of lower cost, buy and hold, style strategies in the fi xed income and equity markets.

COST MANAGEMENT

Prudent management of our cost base.

Performance highlightsAdministration expenses were under target at $43.4 million, compared to a budget of $45.3 million. GESB delivered the 2011/12 effi ciency dividend of $2.2 million. This was achieved while maintaining service standards.

The cost of administering the schemes was $106 per member.

Other performance highlights included:

increased take-up of eStatements and implementation of eClaims, reducing distribution, administration and processing costs;

reduction in insurance premiums of around 20% from 1 July 2011;

a further reduction of 13% was achieved in SCI premiums in March 2012;

implementation of short form product disclosure booklets, reducing the document from 60 to 8 pages for GESB Super and West State Super; and

reduction in paper by 40%, following the introduction of environmentally friendly printers.

20

RISK MANAGEMENT

Manage our business responsibly.

Performance highlightsGESB has a mature risk management function. A material risks framework has been in place since 2005 and is aligned with the Australian New Zealand Management Standard 4360.

GESB’s risk management activities are centred on the identifi ed material risks that could adversely impact GESB’s ability to deliver benefi ts to members over the long term.

PEOPLE MANAGEMENT

Build a performance culture focused on member value.

Performance highlightsGESB focused on staff retention during the year. This was identifi ed as the most signifi cant people issue.

GESB introduced a range of initiatives to complement existing programs of work. This included the development of a number of retention strategies.

These strategies included activities aimed at increasing staff satisfaction, delivering the Business Plan, providing context to and information on the progress of superannuation reform and providing reassurance about what any resulting changes could mean for staff.

Alongside this, GESB continued to invest in professional development and maintained its successful employee health and well-being program, GESB Goodlife.

OTHER PERFORMANCE HIGHLIGHTS

Other performance highlights during the year included:

successful implementation of Choice of Fund;

member satisfaction with Contact Centre service of 89%;

the Member Services group won the best Contact Centre in Western Australia in the 2012 ATA Awards for the second year running;

SuperRatings awarded GESB Super and Retirement Income Allocated Pension Platinum status for the fi fth year running. West State Super achieved the same level of recognition for the fourth year running;

Chant West awarded GESB its highest rating. GESB Super, West State Super and Retirement Income Allocated Pension achieved Five Apples;

2012 End of Financial Year processing completed in two days, minimising member disruption; and

upgrades to the GESB website and intranet.

21


Corporate overview

GESB governance structure

GESB WealthManagement Pty Ltd

AUDIT AND RISK COMMITTEE

INVESTMENT COMMITTEE

CEO*

executive remuneration and

performance committee

corporategovernance and

external relationscommittee

Subsidiary

Treasurer

GESB Board

*The Public Sector Commissioner is the CEO’s Employing Authority under Section 5 of the Public Sector Management Act 1994.22

GESB internal governance policies and procedures

BOARD CHARTERS AND CODES

Board Charter

Code of Conduct

Audit & Risk Committee Charter

Corporate Governance and External Relations Committee Charter

Investment Committee Charter

Executive Remuneration and Performance Charter

BOARD PROCEDURES

Director selection and appointment

Fit and Proper procedure

Board disclosures of interest procedure and register

Board delegation of authority and register

Board expenses policy

Board and executive performance and evaluation

Corporate proceduresExternal audit(OAG and Ernst & Young)

Assu

ranc

e

Organisational chartersInternal audit(KPMG)

Organisational proceduresFund actuary (Mercer)

Divisional proceduresAustralian Securities & Investments Commissions(Financial Advice)

23

Corporate overview Annual Report 2011/2012

THE BOARD

As a statutory authority, the GESB Board has powers and functions under the SSA and is ultimately accountable to the Treasurer.

The board is responsible for the overall governance and performance of GESB in accordance with the SSA.

The board has responsibility for all matters relating to the operation of GESB and for oversight of its subsidiary, GESB Wealth Management Pty Ltd. In governing GESB, the board sets the values and standards and ensures that GESB’s obligations to its members and other stakeholders are understood and met.

In the course of carrying out its responsibilities, the board must act honestly, fairly and diligently to act, as far as practicable, in the best interests of members.

GESB is not Commonwealth regulated like most other superannuation providers. However, it is subject to the Heads of Government Agreement (HOGA) (see page 29) and, as a matter of good practice, its operations are aligned where practicable with industry standards and Commonwealth regulatory requirements.

GESB’s fi nancial advice subsidiary, GESB Wealth Management Pty Ltd, is Commonwealth regulated by the Australian Securities and Investment Commission and operates under an Australian Financial Services Licence, issued in accordance with the Corporations Act 2001 (Cth).

THE ROLE OF THE MINISTER

Recent amendments to the State Superannuation Act 2000 have combined the previously separate functions of Minister and Treasurer.

The board is accountable to the Treasurer in performing its obligations under the act in the best interests of members, as far as practicable.

The Treasurer has a role in matters that affect the fi nancial rights and obligations of the state along with the general operation of GESB. Specifi c responsibilities of the Treasurer under the SSA include (but are not restricted to):

approving Prudential Guidelines that cover the nature of investments that the board can make;

approving the appointment of Fund Managers;

approving GESB’s Statement of Corporate Intent (SCI) and Strategic Development Plan (SDP);

approving and certifying changes to regulations;

directing the board; and

directing employers around superannuation practice and procedures.

The board

24

BOARD APPOINTMENTS AND ELECTIONS

The board comprises an independent Chairman, three Employer Directors and three Member Directors.

Directors are appointed or elected under Section 8 of the SSA as follows:

the Chairman is appointed by the Governor on the nomination of the Minister after consultation with representative unions;

three Directors are appointed by the Governor of the State of Western Australia as Employer Directors;

three Directors are elected as Member Directors via elections conducted by UnionsWA in accordance with the State Superannuation Regulations 2001; and

the Chairman and Employer Directors are appointed for a term not exceeding fi ve years. Member Directors are elected for a term not exceeding three years.

All GESB Board Directors are eligible for re-appointment or re-election. If a casual vacancy occurs in the offi ce of a Member Director, the Minister may appoint a member to fi ll the vacancy after consultation with representative unions, until the new Member Director is elected. The Minister may also remove a Director in accordance with section 6(2) of Schedule 1 to the SSA.

CHANGES IN MEMBERSHIP OF THE BOARD OF DIRECTORS

During the 2011/12 year, nominations were called for by UnionsWA with respect to the Member Director vacancies that would arise on 4 July 2012 and 15 August 2012 respectively.

On 22 June 2012, the Western Australian Government Gazette included a notice that Mr Glen Townsing would be appointed a Member Director for the term 4 July 2012 to 3 July 2015 and Mr Robert Lewtas had been re-appointed as a Member Director for the term 15 August 2012 to 14 August 2015.

25


Members of the board

John LangoulantChairman(B Econ (Hons))

Mr Langoulant was appointed as Chairman of the board in March 2011, for a term of fi ve years.Mr Langoulant has extensive experience in government and the private sector, including as Under Treasurer of Western Australia.Mr Langoulant is the Chief Executive Offi cer (CEO) of Oakajee Port & Rail. His previous Chief Executive positions were at Australian Capital Equity and the Chamber of Commerce and Industry of Western Australia.Mr Langoulant holds several other board positions, including Chairman of the Telethon Institute for Child Health Research, Chairman of Leadership WA, Chairman of the Dampier Bunbury Natural Gas Pipeline and Chairman of the West Australian Ballet.

Matthew FarrellDeputy Chairman and Member Director(BSc, Dip Ed, MAIP, FAICD)

Mr Farrell was fi rst elected to the board in 1996 and is serving his sixth three year term as a Member Director, which will expire in February 2014. Mr Farrell is currently Deputy Chairman of the board.Mr Farrell is a former Vice President and Industrial Advocate of the State School Teachers’ Union of Western Australia. In 2001, he was made a Life Member of the Australian Education Union.Mr Farrell retired in 2004 after a long career as a lecturer in mathematics for Technical and Further Education (TAFE).Mr Farrell holds a Bachelor of Science degree, a Diploma of Education and a Post Graduate Diploma in Applied Physics. He also holds a Company Directors Course Diploma, is a Fellow of the Australian Institute of Company Directors and is a Member of the Australian Institute of Physics.

Derek SprayMember Director(MAICD)

Mr Spray was fi rst elected as a Member Director of the board in 2003, for a term of three years. Mr Spray’s third three year term will expire in July 2012. Mr Spray is currently a Special Projects Consultant with the Department of the Attorney General and is a Community and Public Sector Union/CSA Councillor. Mr Spray has more than 40 years’ experience in the IT industry and has broad industry experience, which includes the insurance and banking sectors. His areas of expertise are information systems management, business operations management, product management and consultancy. He is a Director of Civil Service Holdings, Civil Service Insurance Agency and CSA Services (trading as Union Financial Services).Mr Spray is a Member of the Australian Institute of Company Directors.

Robert LewtasMember Director(MAICD)

Mr Lewtas was fi rst elected as a Member Director to the board for a term of three years in August 2006. His second three year term will expire in August 2012. Mr Lewtas is currently the Finance and Administration Manager of the WA branch of United Voice. Mr Lewtas’ executive experience includes a 20 year career in TAFE administration and nine years in facilities management at Murdoch University. He joined United Voice, formerly known as the LHMU, in 2005. Mr Lewtas was also a small business owner/operator during his term at Murdoch University. Previously, Mr Lewtas has served on boards for the South Coast Regional Chamber of Commerce (past president), the South Coast Business Development Organisation and Rockingham Community Financial Services Limited.Mr Lewtas has completed the Australian Institute of Company Directors course and is a Member of the Australian Institute of Company Directors.

26

Richard AlderEmployer Director(A Fin, FAICD)

Mr Alder was appointed to the board for a term of fi ve years, which expires in February 2013. He has 37 years of experience in the securities industry. Mr Alder was Managing Partner in the Perth offi ce of JB Were & Son for 16 years, until his retirement in 2003. Prior to this, he spent six years in JB Were’s London offi ce. This provided him with an extensive understanding of global investments.Mr Alder is a Consultant to Australia’s largest listed investment company, Australian Foundation Investment Company Limited. He has also been active within the Perth branches of industry associations, including the Association of Superannuation Funds of Australia, the Committee for Economic Development of Australia (CEDA) and the Securities Institute of Australia (now the Financial Services Institute of Australasia). Mr Alder is active in honorary roles at the Murdoch University Foundation, the Murdoch Veterinary Trust and the Lions Eye Institute. Mr Alder is currently a Director of the Royal Flying Doctor Service, Western Operations, a Trustee of the JP Stratton Trust and an Advisor to the Endowment Committee of Scotch College.

Scott EllisEmployer Director(BJuris, LLB, LLM, Dip International Commercial Arbitration)

Mr Ellis was appointed to the board in October 2010 for a period of three years.Mr Ellis is a Barrister at Francis Burt Chambers specialising in commercial litigation and alternative dispute resolution. Mr Ellis commenced practicing as a lawyer in 1983 and was a partner at Freehills for more than a decade. Mr Ellis holds a Bachelor of Jurisprudence, a Bachelor of Laws and a Master of Laws from the University of Western Australia. He also holds a Diploma in International Commercial Arbitration from Queen Mary College, University of London.Mr Ellis is a Chartered Arbitrator, a Fellow of the Chartered Institute of Arbitrators and a National Councillor of the Institute of Arbitrators and Mediators Australia. He has been a Member of the Superannuation Complaints Tribunal since 2005 and is a Senior Sessional Member of the State Administrative Tribunal.

Catherine NanceEmployer Director (BSc, BA FIAA, F FIN, CFA)

Ms Nance was appointed to the board in March 2011 for a period of fi ve years.Ms Nance is a Partner and Actuary at PricewaterhouseCoopers (PWC), where she heads the national Retirement Incomes and Asset Actuarial Consulting Group.Ms Nance has more than 20 years of professional experience advising governments, companies and superannuation funds in superannuation, employee benefi ts, investment consulting, aged care, fi nance and investment-related work. Ms Nance is a Director of Community CPS Australia Limited and a Director and Chair of the Audit Committee of the Western Australian Treasury Corporation. Ms Nance has a BSc in Pure and Applied Mathematics and Physics and a BA in Statistics from the University of Queensland. She is an Affi liate of the Institute of Actuaries (London), a Member of the Chartered Financial Analysts Institute, a Fellow of the Financial Services Institute of Australasia and a Fellow of the Institute of Actuaries of Australia.

27


MEETINGS

The board meets monthly. The number of meetings attended by each Director during 2011/12 is indicated below.

Director Meetings held whilst a director

Meetings attended

John Langoulant Chairman 15 15

Matt Farrell Member Director 15 14

Richard Alder Employer Director 15 14

Robert Lewtas Member Director 15 14

Derek Spray Member Director 15 11

Scott Ellis Employer Director 15 14

Catherine Nance Employer Director 15 15

BOARD COMMITTEES

The board has a number of committees that assisted in the discharge of its functions under the act.

AUDIT AND RISK COMMITTEE

The Audit and Risk Committee assists GESB and GESB Wealth Management Pty Ltd to fulfi l their statutory, regulatory and fi duciary responsibilities by overseeing GESB’s activities in relation to risk management, compliance, fi nancial management and reporting and the internal and external audit function.

GESB’s Audit & Risk Committee provided the board with assurances that adequate controls and risk management practices were in place across the organisation and were effective in promoting a risk aware culture.

The number of meetings attended by each committee member during the 12 month reporting period is indicated in the table below.

Member Meetings held whilst a committee member

Meetings attended

Robert Lewtas (Chairman) 5 5

Matt Farrell 5 5

Richard Alder 5 3

Scott Ellis 5 4

28

INVESTMENT COMMITTEE

The Investment Committee assists the board in carrying out its responsibility to discharge its statutory, regulatory and fi duciary responsibilities in relation to the prudent management and investment of the assets of the GES Fund.

Given the technical nature of GESB’s investment function, the Investment Committee members were selected for their high levels of fi nancial and investment expertise.

The Investment Committee comprised GESB Board Directors and external appointees. The members of the Investment Committee have suffi cient investment expertise to enable the committee to discharge its duties in line with obligations under its Charter.

The two external appointees are Andre Morony and David McMahon.

Mr Morony has held the position of Chief Investment Offi cer at BT Funds Management and ARIA.

Mr McMahon has held positions as Director of Consulting in Australia for Russell Investment Group, Head of Consulting at Intech and Chief Executive Offi cer of State Super. He is currently a Board Director of Funds SA.

Mr Alder was appointed Chair of the committee in June 2010. He has more than 37 years of experience in investments and is a Consultant to Australia’s largest listed investment company, Australian Foundation Investment Company Ltd.



Meetings attended

Richard Alder (Chair) 5 4

Andre Morony 5 4

David McMahon 5 5

John Langoulant 5 5

Catherine Nance 5 5

29


CORPORATE GOVERNANCE AND EXTERNAL RELATIONS COMMITTEE

The committee assists the board to manage strategies to enhance relationships with key stakeholders, in addition to assisting fulfi lment of its corporate governance obligations, advising it on governance standards and practices and appropriate frameworks, policies and procedures.

The board appointed fi ve Directors and the CEO to the committee to ensure that there is suffi cient representation.



Meetings attended

John Langoulant (Chair) 3 3

Derek Spray 3 1

Catherine Nance 3 3

Scott Ellis 3 3

Robert Lewtas 3 3

EXECUTIVE REMUNERATION AND PERFORMANCE COMMITTEE

The committee assists the board with the appointment, determination of remuneration and monitoring and evaluation of the performance of the Executive Management Group .

During the year, the CEO role’s salary moved back under the auspices of the Salary and Allowances Tribunal.

The number of meetings attended by each committee member is indicated in the table below.


Meetings attended

John Langoulant (Chair) 5 5

Matt Farrell 5 5

30

CORPORATE GOVERNANCE POLICY FRAMEWORK

Effective corporate governance supports compliance with regulatory and legal requirements. It also provides support to an organisation to do what is right for its stakeholders. This incorporates elements of internal controls, ethics, risk functions, policies and procedures and internal and external audit. It is underpinned by transparent disclosure, effective communication and proper measurement and accountability across the organisation.

The board operated within a Corporate Governance policy framework that incorporated legislative and regulatory requirements aligned to industry best practice and the Australian Securities Exchange governance principles. The framework refl ected GESB’s operating environment as a state authority within the fi nancial services market.

In order to be sustainable in this environment, high standards of corporate governance were essential to ensure GESB fulfi lled state, Commonwealth, industry and regulatory compliance obligations, whilst acting in the best interests of members.

In pursuing the board’s purpose to improve the long term fi nancial well-being of members, GESB is committed to transparent, high quality and accountable governance. To facilitate this, the board:

established specialist committees to assist it in discharging its legal and statutory obligations;

granted appropriate delegations to the CEO and relevant business units to enable the day to day operation of the organisation; and

embedded internal and external accountability measures, including organisational Key Performance Indicators (KPIs) and internal and external audit practices.

The board and its committees have individual Charters and are subject to a Code of Conduct that outline the practices and processes the board, individual Directors and committee members adopt to discharge their responsibilities. The board’s focus on good governance is integrated across the operations of the organisation.

OTHER GOVERNANCE MATTERS

Directors’ dutiesIn carrying out its responsibilities, the board must act honestly, fairly and diligently to act, as far as practicable, in the best interests of members.

Under Section 5(1) of the Statutory Corporations (Liability of Directors) Act 1996 a board Director of GESB has the same fi duciary relationship to GESB and the same duties to act with loyalty and in good faith as a Director of a company that is incorporated under the Corporations Act 2001.

Other duties under the Statutory Corporations (Liability of Directors) Act 1996 include a duty to:

act honestly in the performance of the functions of their offi ce;

exercise reasonable care and diligence in the performance of their functions;

not make improper use of information acquired by virtue of their position, to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to GESB;

not make improper use of their position to gain, directly or indirectly, an advantage for themself or for any other person or to cause detriment to GESB; and

attend relevant superannuation conferences.

These duties were also incorporated in the board’s Code of Conduct.

Corporate governance

31

Fit and proper standardsThe board understands the need to have the range of skills, knowledge and experience on the board to effectively govern GESB. Members of the board have to demonstrate competencies in a number of areas.

Operating standards have been developed by the Australian Prudential Regulation Authority (APRA) to cover the fi tness and propriety of superannuation trustees. To achieve best practice, the board decided that GESB would operate under a similar fi t and proper standard for its Board Directors. This policy requires that each board Director meets certain standards of fi tness and propriety upon appointment and on an ongoing basis.

The board’s education program ensured all Directors met and maintained educational and technical competencies, enabling them to effectively discharge their duties in a knowledgeable and prudent manner and in accordance with the requirements of the board’s Fit and Proper Policy. The program is agreed annually with each Director and is tailored to meet their individual needs.

Ethical standardsThe board acknowledged the need for, and the continued maintenance of, high standards of ethical conduct for Directors, management and staff. The board has a Code of Conduct and all staff and Directors were required to comply with GESB’s Code of Conduct.

The organisational values of GESB were promoted via a strong communication program, which included information on its intranet, a quarterly recognition scheme to reward behaviour consistent with those values, and the incorporation of those values into role descriptions and performance management processes.

GESB conducted two staff surveys to understand to what extent staff perceived that they lived these values.

Material interestsThe board had procedures in place that set out the requirements for each Director with regard to the disclosure of interests, in order to avoid actual, potential or perceived confl icts of interest or duty and to provide guidance for dealing with any confl icts in an open and transparent way.

Directors were required to disclose any material or personal interests relevant to the board or GESB and to abstain from discussions or voting on any issues where their judgment may have been infl uenced by any material or personal interests in, or duty to, another organisation.

The board managed and monitored any confl icts or potential confl icts. It relied on the honesty and integrity of each of the Directors to ensure individual Directors discharged their duties to the board.

Compensation and remunerationDirectors and committee members were entitled to the remuneration and allowances determined by the responsible Minister on the recommendation of the Minister for Public Sector Management.

The current remuneration was set in July 2008.

Role Salary (including super)

Chairman, GESB Board $115,976

Directors, GESB Board $57,988

Chair, Audit & Risk Committee $5,450

Directors, Investment Committee $8,720

External members, Investment Committee $13,080

In accordance with government policy, Directors who are public sector employees were not paid additional remuneration for sitting on the board.

32

Risk managementGESB adopted a mature approach to risk management. GESB’s risk management framework sets out GESB’s approach to the identifi cation and management of material risks. GESB’s material operational and strategic risks were reviewed in light of developments within both GESB’s internal environment and the wider superannuation industry.

GESB’s risk environment is used by the board to assist in the identifi cation of material risks.

Some of the key issues infl uencing GESB’s risk environment are:

the ability to attract and retain staff during the implementation of state government superannuation reform and a strong resources sector;

loss of corporate knowledge;

the uncertainty around the impact of the state government reform process on GESB’s operational model and service offering; and

the Commonwealth’s Stronger Super reforms, in particular: - SuperStream; - MySuper; and - account consolidation.

GESB will continue with a program of operational risk reviews focusing on the areas within the organisation with the greatest exposure to risk. This schedule of work will assist with the identifi cation of improved controls and assurance activities. This exercise also further embeds GESB’s risk aware culture throughout all areas of the business.

GESB remains vigilant to the threat of fraudulent access to members’ benefi ts. Identity theft remains a focus. GESB will continue to monitor and review its procedures, to ensure they are in line with industry developments. GESB also continues to refi ne and update its Anti-Money Laundering and Counter-Terrorism Financing program to comply with the requirements for Reporting Entities.

Heads of Government AgreementThe State of Western Australia is a signatory to the Heads of Government Agreement with the Commonwealth in respect to the schemes established under the SSA (GES schemes). The circumstances surrounding the schemes that GESB administers include the complex nature of the defi ned benefi t schemes, the public accountability of the schemes, the state laws governing the schemes and state prudential controls. In recognition of these circumstances, under the HOGA, the Commonwealth agreed to exempt the schemes that GESB administers from the relevant Commonwealth governing legislation for superannuation funds, ie the Superannuation Industry (Supervision) Act 1993 (SIS Act).As a consequence, the SIS Act provides that exempt public sector superannuation schemes, such as the schemes that GESB administers, are deemed to be complying superannuation funds for superannuation guarantee purposes under the Superannuation Guarantee (Administration) Act 1992 and for income tax purposes under the Income Tax Assessment Act 1936.

In return for these exemptions, WA agreed to ensure that members’ accrued benefi ts, subject to a state government guarantee as outlined in Section 31 of the SSA, will conform to the principles of the Commonwealth’s Retirement Income Policy.

33


ComplianceGESB operated in a dual state/Commonwealth compliance environment. GESB’s compliance program was established in accordance with the Australian Standard on Compliance Program AS 3806-2006 and was consistent with Commonwealth regulatory standards and industry good practice.

However, GESB’s compliance framework also incorporated specifi c operating obligations on GESB, such as compliance with its Act and Regulations, the Heads of Government Agreement, state government compliance regulations and unique tax arrangements with both taxed and untaxed schemes operating within the GES Fund.

The framework provided mechanisms to ensure that incidents were detected and managed appropriately. Ongoing monitoring and reporting in accordance with the compliance program provided assurance to the board, executive and other stakeholders that adequate systems and processes were in place and working effectively to ensure GESB and its employees policies and procedures.

The Compliance Program assisted in informing GESB’s risk profi le to ensure it adequately refl ected the operational environment. GESB monitored its risk and compliance performance against established Key Performance Indicators.

Investment riskRisk management is an integral component of GESB’s investment process. GESB manages investment risk by:

a structured approach to diversifi cation across the major asset classes via a strategic asset allocation framework;

diversifi cation of Fund Managers and investment style within each of the major asset classes; and

a rigorous Fund Manager review process encompassing on site due diligence, selection and ongoing review.

GESB does not manage derivatives directly, but rather through its Fund Managers. Fund Managers are permitted to use derivatives within the restrictions of their mandates and the Treasurer’s Prudential Guidelines for Investments. All of GESB’s Fund Managers are required to provide a Derivative Risk Statement or equivalent statement covering derivative usage in their Risk Management Plan.

RELATIONSHIP WITH STAKEHOLDERS

UnionsThe board comprises seven Directors, including three Member Directors. UnionsWA is responsible for the nominations, elections and appointment of the Member Director positions on the board. These three board positions are currently held by nominees from the CPSU/CSA, United Voice and the State School Teachers’ Union of WA.

GESB works closely with all key public sector unions including those unions that nominate Directors to the board. Information sessions and newsletters covering progress on the introduction of Choice of Fund, investment performance, education services, intra-fund fi nancial advice and changes to Commonwealth superannuation rules were delivered during the year.

EmployersGESB’s employer relationship team met regularly with senior executives in the public sector to:

ensure a seamless transition to choice of superannuation fund; discuss legislative or industry changes that may impact superannuation; explain the superannuation obligations of employers under the State

Superannuation Regulations 2001; encourage employers to partner with GESB as part of their wellness or employee

benefi t program to deliver superannuation education services; understand the agency’s demographic profi le and provide assistance with

workforce planning solutions, such as Transition to Retirement; and ensure there is a regular exchange of information between employers and GESB on

all superannuation related matters.

Executive and senior management meetings were held during the year to help support employers with their superannuation obligations.

34

Organisational structure30 JUNE 2012

INVESTMENTS

Chief Investment Offi cer (Acting)

Steve McKenna Investment strategy Investment

administration and compliance

OPERATIONS

Chief Operating Offi cer (Acting)

Andrew MacLeman Superannuation

administration Project offi ce IT services Intra-fund fi nancial

advice Member services Business development Product management

and communication

FINANCE

Chief Financial Offi cer (Acting)

Lee Watson Financial accounting Tax Mangement

accounting Finance operations Investment operations Premises and

procurement Compliance Risk management Strategy

REFORM

Deputy Chief Executive

Larry Rudman Reform Corporate

communications Legal Group secretariat Human resources

CHIEF EXECUTIVE OFFICER

Howard Rosario

35

FREEDOM OF INFORMATION

GESB provided members with access to all of their personal and account information. An information statement that provides background on the operations of GESB, a description of the documents held and the way in which the public can access the information were made available on the website and at reception.

GESB’s designated freedom of information offi cers during the period were:

Mr Jeff Campbell, GESB, Central Park Level 4, 152 St Georges Tce, Perth for the period 1 July to 19 August 2011;

Mr Damien Stewart, GESB Central Park Level 4, 152 St Georges Tce, Perth for the period 20 August 2011 to 27 April 2012; and

Ms Vesna Odak, GESB Central Park Level 4, 152 St Georges Tce, Perth for the remainder of the reporting period.

DISABILITY SERVICES ACT 1993

GESB is committed to providing its members with access to information about superannuation options and entitlements, regardless of impairment. GESB ensures that members have different ways of receiving information about their superannuation, including email with links to information, internet, telephone and face-to-face communication. Members can choose a communication channel that best suits their needs, including website information and paper statements in a format that is accessible by vision-impaired members.

GESB published its Disability Access and Inclusion Plan during the year, following a period of stakeholder consultation.

The plan provides for:

an update of GESB’s website to best meet the needs of people with disabilities;

training for staff to overcome barriers to providing the same level of service to people with disabilities or a language barrier;

improvements in the publication of the complaints procedure to people with disabilities; and

improved awareness of consultation opportunities with GESB for people with disabilities.

PUBLIC INTEREST DISCLOSURE

GESB’s Public Interest Disclosure Policy and Procedures continued to be maintained in compliance with the Public Interest Disclosure Act 2003. This facility provided GESB Directors and staff with a confi dential means of disclosing public interest information. No public interest disclosures were made in 2011/12.

COMPLIANCE WITH PUBLIC SECTOR STANDARDS

GESB has complied with the Public Sector Standards in Human Resource Management and the Western Australian Public Sector Code of Ethics.

GESB continues to monitor and ensure compliance with its Code of Conduct by making this policy available to all employees via the GESB intranet. All Code of Conduct and internal policies are provided to all new GESB staff during induction sessions. Email activity is consistently monitored and certain material is prevented from being received and/or sent using GESB’s IT systems.

GESB employs an online compliance monitoring tool to assist in ensuring that all Managers are aware of their legal compliance obligations and are meeting them. GESB promotes an ethical climate and a strong culture of compliance via monthly disclosures in every Executive Management Group management and other senior management meetings.

36

Other compliance requirements

Number of full time equivalent employees as at

30 June 2011 30 June 2012

Permanent Public Service Offi cers 42 41

Fixed Term Public Service Offi cers 0 0

GESB Employees 173 157

Total 215 198

HEALTH AND SAFETY INDICATORS

Indicator Target 2011/12 Actual 2011/12

Number of fatalities 0 0

Lost time injury/disease (LTI/D) incidence rate

0 (or 10% improvement on the previous three years)

0

Lost time injury severity rate 0 (or 10% the previous three years)

0

Percentage of injured workers returned to work within (i) 13 weeks and (ii) 26 weeks

Greater than or equal to 80% return

to work within 26 weeks

N/A

Percentage of Managers trained in occupational safety, health and injury management responsibilities

Greater than or equal to 80%

80%

The GESB focus is on a preventative approach, consistent with the principal objective of the Occupational Safety and Health Act 1984 to promote and secure the safety and health of persons in the workplace. A comprehensive induction process, easily accessible web information and ongoing strategies and initiatives are in place to assist staff safety and well-being.

GESB governance arrangementsThe Occupational Health & Safety (OHS) Management Framework comprises a Health, Safety and Well-being Policy issued at board level, Occupational Health and Safety Manual, and an Injury Management System (IMS).

GESB’s business continuity procedures specifi cally provide for employee safety and well-being through a Human Resources (HR) Sub-Plan, People Support Plan and Pandemic Management Plan, along with supporting procedures.

OHS CommitteeGESB has an Occupational Health and Safety Committee that meets regularly and is responsible for hazard inspections, incident reporting, lost time injury reporting and supporting First Aid offi cers, Fire Wardens and Contact Offi cers. The Committee considers matters as they arise and monitors trends in the GESB workplace. Minutes are made available on notice boards.

37


Education and trainingInduction All new staff and contractors receive a comprehensive induction that includes coverage of GESB’s OHS policies, grievance resolution processes and the Employee Assistance Program.

SafetracAll staff are required to complete annual refresher training on OHS online as part of GESB’s compliance framework. The SAFETRAC online training system was developed by lawyers, and covers a full suite of topics, including the law, OHS responsibilities of employers and employees and the powers of Inspectors. The training also provides specifi c guidance on OHS in the offi ce, including preventing risks associated with manual handling, occupational overuse, slips, trips and falls, stress, hazardous substances, biological hazards and electrical hazards. The training covers handling emergencies and reporting requirements.

Manual handlingPeople Sense provided educational sessions on spine care and manual handling with nine sessions to select from over three days in April/May 2012.

OHS and IM training for ManagersOver 80% of Managers attended the in-house half day OHS training from Applied Safety and Risk during 2011.

Trained First Aid Practitioners, Fire Wardens, Contact Offi cersAll GESB First Aid Offi cers received either full training over two days or refresher training in 2011. There are now seven fully trained First Aid Offi cers. Central Park conducts regular training sessions for the GESB Fire Wardens. Contact offi cer training last occurred in 2010.

Training needs and gaps will be monitored by the OHS Committee.

Building evacuationAll staff participate in routine drills of building evacuation procedures.

Preventative measuresWork environmentGESB promotes a safe working environment. All GESB employees are provided with an ergonomic workstation and chair, with low glare lighting to the workstation. The stairwells are well lit and equipped with high visibility markings, anti-slip strips, hand rails and wheelchair refuges on each fl oor, in case of evacuation.

Ergonomic assessmentsA comprehensive ergonomic assessment is conducted by trained staff for all employees and contractors on commencement. The workstation is tailored to individual requirements, including ergonomic keyboard and mouse, foot stools, wrist supports, anti-glare screens, monitor risers and document holders.

Well-beingGESB promotes employee well-being through access to a suite of fl exible work practices and a full and popular annual calendar of initiatives via the GESB Goodlife program. The program provides a calendar of events to promote employee well-being, including preventative strategies such as fruit in the workplace, free fl u vaccines, Healthy Heart Checks, yoga sessions and a variety of information sessions on topics of interest such as men’s health, skin cancer awareness and stress management.

GESB provides paid time off for staff who donate blood and subsidises eye testing and eye glasses. Staff are provided with access to discounted corporate rates for HBF and for travel insurance.

All staff have access to free, independent personal counselling through ORS.

38

Workers Compensation and injury managementGESB has documented procedures for looking after workplace incidents, injuries and Workers Compensation Claims for staff. Trained First Aid offi cers are available as a fi rst line of assistance for injured staff. Incidents are reported to HR. All incidents including near misses are monitored and tracked on the HR System, investigated thoroughly by trained staff, and measures taken to prevent future incidents.

RiskCover, a division of the Insurance Commission of WA, currently manages GESB’s insurance obligations for OHS risk events.

Self-assessment and independent auditGESB commissioned an independent assessment of its OHS systems, policies and procedures during 2011/12. The assessment has identifi ed that while the risks are low and effectively managed, some features of the OHS System are informal and require improved documentation.

EQUAL OPPORTUNITY EMPLOYMENT

Equal opportunity performance is measured by an equity index. An equity index of 100 indicates an even distribution across all levels of an organisation.

Representation Equity index

Women 51.2% 81%

Culturally diverse 19.6% 71%

Indigenous 0% 0%

Disabilities 0.5% 20%

In addition, 26.8% of GESB employees are over the age of 45.

COMPLIANCE WITH PUBLIC SECTOR STANDARDS

GESB has complied with the Public Sector Standards in Human Resource Management and the Western Australian Public Sector Code of Ethics.

GESB continues to monitor and ensure compliance with standards of ethical conduct through:

1. Conducting compulsory on-line compliance training (Safetrac) within a rolling 12-month cycle, which encompasses all applicable items specifi ed in the Accountability and Ethical Decision Making Framework. All employees are required to complete nominated online compliance topics each month.

2. Having a Code of Conduct in place, which was modifi ed in June 2012 to incorporate the offi cial conduct requirements specifi ed under the Public Sector Commissioner’s Instruction No. 8. The revised Code of Conduct was distributed to all staff on 4 July 2012 via GESB’s intranet.

3. Providing all new staff with detailed induction training within a week of commencing employment. This training includes the GESB Code of Conduct, the GESB Whistleblowing Policy, the Information System Usage Policy; and the GESB information Management Policy.

During 2011/12, GESB received one breach claim in relation to a recruitment process. An internal resolution process was followed and the claim was withdrawn.

ELECTORAL ACT 1907

2010/11 2011/12

Advertising agencies

The Brand Agency $56,317 $65,152

Market research organisations

Painted Dog $153,073 $135,980

Figures exclude GST and include expenditure on the design, production and placement of advertising and related market research.

39


40

Certifi cation of the Financial Statements

The accompanying Financial Statements of the Government Employees Superannuation Board (the Fund), have been prepared in compliance with the provisions of the Financial Management Act 2006 from proper accounts and records, to present fairly the fi nancial transactions for the fi nancial year ended 30 June 2012, and the fi nancial position as at 30 June 2012.

At the date of signing, we are not aware of any circumstances which would render any particulars included in the fi nancial statements misleading or inaccurate.

L WATSONChief Finance Offi cer5 September 2012

KM FARRELL JL LANGOULANT Deputy Chairman Chairman5 September 2012 5 September 2012

41

Financial Statements

Note 1: Statement of Signifi cant Accounting Policies .......... 44

Note 2: Cash And Cash Equivalents .......................................51

Note 3: Investment revenue, expenses and Assets ..................52

Note 4: Financial Risk Management Objectives And Policies .....54

Note 5: Employer Contributions, Benefi t Payments And Other Income .....................................................67

Note 6: Liability For Accrued Benefi ts ..................................69

Note 7: Vested Benefi ts ........................................................72

Note 8: Guaranteed Benefi ts ................................................73

Note 9: Employer Funding Arrangements ..............................73

Note 10: Administration Expenses ........................................74

Note 11: Income Tax .............................................................76

Note 12: Apportionment Of Net Assets ...................................78

Note 13: Plant And Equipment ...............................................79

Note 14: Receivables and Payables ........................................80

Note 15: Provision For Employee Benefi ts .............................82

Note 16: Provision For Post-Employment Benefi ts .................83

Note 17: Interest Bearing Loan And Borrowings ....................87

Note 18: Remuneration Of Members Of The Board And Senior Offi cers ................................................88

Note 19: Remuneration Of Auditor ........................................89

Note 20: Related Party Transactions ....................................89

Note 21: Write-Offs..............................................................89

Note 22: Commitments And Contingencies .............................90

Note 23: Explanatory Statement ...........................................91

Note 24: Scheme Information ...............................................93

Note 25: Summary Of Actuarial Report ..................................96

Note 26: Subsequent Events ..................................................98

Note 27: Judgements Made By Management In Applying Accounting Policies ..............................98

Note 28: Key Sources Of Estimation Uncertainty ...................98

Note 29: Accommodation Expenses ........................................99

Note 30: Employee Benefi ts Expense ......................................99

Note 31: Other Expenses ..................................................... 100

Note 32: Changes In Net Market Value Of Other Assets ......... 100

Note 33: Intangible Assets ................................................. 101

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2012

STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 30 JUNE 2012

2012 2011

Note $’000 $’000

REVENUEInvestment RevenueInterest 3 189,689 169,758Dividends and Distributions 3 323,156 274,433Other Investment Income 3 1,271 1,049Realised Changes in Net Market Value of Investment Assets 3 (81,746) 762,205Unrealised Changes in Net Market Value of Investment Assets 3 (57,099) (64,165)

Total Investment Revenue 375,271 1,143,280

Superannuation RevenueContributions IncomeMember 533,754 495,533Employer 5(A) 1,289,385 1,280,367Inward Transfer from Other Funds 177,169 178,157

Total Superannuation Revenue 2,000,308 1,954,057

Other RevenueGroup Life Insurance Proceeds 33,710 29,950Other Income 5(C) 19,361 7,792

Total Other Revenue 53,071 37,742

Total Revenue 2,428,650 3,135,079

EXPENSESSuperannuation Benefi t Payments 5(B) 1,080,324 974,669Group Life Insurance Premium 67,964 75,171Administration Expenses 10 39,382 43,471Investment Expenses 3 34,118 33,518Changes in Net Market Value of Other Assets 32 4,017 4,502Changes in Net Market Value of Financial Liabilities 23 27,956 (2,099)Loan Interest 17 27,471 29,401

Total Expenses 1,281,232 1,158,633

CHANGE IN NET ASSETS BEFORE INCOME TAX 1,147,418 1,976,446

INCOME TAX EXPENSE 11(A) (73,600) (73,838)

CHANGE IN NET ASSETS AFTER INCOME TAX 1,073,818 1,902,608

NET ASSETS AVAILABLE TO PAY BENEFITS AT THE BEGINNING OF THE FINANCIAL YEAR

11,608,114 9,705,506

NET ASSETS AVAILABLE TO PAY BENEFITS AT THE END OF THE FINANCIAL YEAR 12,681,932 11,608,114

This statement should be read in conjunction with the accompanying notes.

42

STATEMENT OF NET ASSETS AS AT 30 JUNE 2012

2012 2011

Note $’000 $’000

ASSETSInvestment AssetsCash and Cash Equivalents 2 40,547 41,054Investments 3 12,996,338 12,171,714Derivative Financial Assets 4(B) 156,707 73,167Other AssetsReceivables 14(A) 158,813 184,288Deferred Tax Asset 11(C) 7,328 6,422Prepayments 558 620Plant and Equipment 13 1,534 1,791Intangible Assets 33 7,313 9,498

Total Assets 13,369,138 12,488,554

LIABILITIESDerivative Financial Liabilities 4(B) 28,081 14,093Contributions Paid in Advance 1,649 1,412Payables 14(B) 181,055 383,771Provision for Employee Benefi ts 15 4,132 4,543Provision for Post Employment Benefi ts 16 2,263 2,087Interest Bearing Loans and Borrowings 17 442,086 444,835Current Tax Liabilities 11(C) 27,805 29,490Deferred Tax Liabilities 11(C) 135 209

Total Liabilities 687,206 880,440

NET ASSETS AVAILABLE TO PAY BENEFITS 12,681,932 11,608,114

REPRESENTED BYLiability for Accrued Benefi ts Related to Funded Liabilities 6 12,706,796 11,518,350Reserves 6 98,550 82,314Fund (Defi cit)/Surplus (123,414) 7,450

TOTAL 12,681,932 11,608,114

This statement should be read in conjunction with the accompanying notes.

43

Financial Statements Annual Report 2011/2012

A) BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The fi nancial statements constitute a general purpose fi nancial report which has been prepared in accordance with Australian Accounting Standard AAS25 Financial Reporting by Superannuation Plans as amended by AASB 2005-13 Amendments to Australian Accounting Standards (AAS25), and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) as applied by the Treasurer’s Instructions (TI) and the State Superannuation Act 2000 (SSA). Several of these accounting standards are modifi ed by the TI to vary application, disclosure, format and wording.

The Financial Management Act 2006 and the TI are legislative provisions governing the preparation of fi nancial statements and take precedence over Australian Accounting Standards and other authoritative pronouncements of the AASB. The modifi cations are intended to fulfi l the requirements of general application to the public sector, together with the need for greater disclosure and to satisfy accountability requirements. If any such modifi cation has a material or signifi cant fi nancial effect upon the reported results, details of that modifi cation and where practicable, the resulting fi nancial effect, are disclosed in individual notes to these fi nancial statements.

The fi nancial statements have been prepared on the accrual basis of accounting using the historical cost convention, except for investments, derivatives and certain fi nancial liabilities which are measured at net market value.

The fi nancial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000), unless otherwise stated.

The judgements that have been made in the process of applying GESB’s accounting policies that have the most signifi cant effect on the amounts recognised in the fi nancial statements are included at Note 27.

The key assumptions made concerning the future, and other key sources of estimation uncertainty at reporting date that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year, are included at Note 28.

The fi nancial statements have been prepared in accordance with the reporting format prescribed under paragraph 22(a) of AAS25. The Standard applies to general purpose fi nancial reports of each superannuation plan in the private or public sector that is a reporting entity.

GESB has both defi ned contribution and defi ned benefi t schemes. AAS25 states that in this circumstance, the reporting formats applicable to defi ned benefi t schemes should be used. The format adopted by GESB includes a ‘Statement of Changes in Net Assets’, a ‘Statement of Net Assets’, and ‘Notes’ thereto.

B) APPLICATION OF AUSTRALIAN ACCOUNTING STANDARDS

The fi nancial statements comply with AAS25. Since AAS25 is the principal accounting standard that applies to fi nancial statements of superannuation funds, other standards, including Australian Accounting Standards issued by the AASB are also applied where necessary except to the extent that they differ from AAS25.

The accounting policies adopted are consistent with those of the previous fi nancial year. From 1 July 2011, GESB has adopted all the standards and interpretations mandatory for annual periods beginning on or after 1 July 2011. Adoption of these standards and interpretations did not have any effect on the Statement of Changes in Net Assets or Statement of Net Assets of GESB.

Note 1: Statement of Signifi cant Accounting Policies

44

C) ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

Relevant Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ended 30 June 2012. These are outlined in the table below:

ACCOUNTING STANDARDS AND INTERPRETATIONS EFFECTIVE FOR ANNUAL REPORTING

PERIODS BEGINNINING ON OR AFTER

EXPECTED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR BEGINNING

2010-8Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112]

1-Jan-12 1-Jul-12

AASB 9Financial Instruments

1-Jan-13 1-Jul-13

AASB 10Consolidated Financial Statements

1-Jan-13 1-Jul-13

AASB 13Fair Value Measurement

1-Jan-13 1-Jul-13

AASB 119Employee Benefi ts

1-Jan-13 1-Jul-13

AASB 1053Application of Tiers of Australian Accounting Standards

1-Jul-13 1-Jul-13

AASB 12Disclosure of Interests in Other Entities

1-Jan-13 1-Jul-13

AASB 2012-2Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities

1-Jan-13 1-Jul-13

AASB 2012-4Amendments to Australian Accounting Standards – Government Loans

1-Jan-13 1-Jul-13

AASB 2012-5Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle

1-Jan-13 1-Jul-13

AASB 2012-3Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities

1-Jan-14 1-Jul-15

Management is in the process of assessing the impact of these standards and amendments on the future fi nancial status for GESB.

45


D) INVESTMENTS AND DERIVATIVES

Investments and derivatives are initially recognised at cost, being the fair value of the consideration given.

After initial recognition, investments and derivatives have been measured at net market value after allowing for estimated costs of realisation. Changes in the net market value of investments and derivatives are brought to account in the Statement of Changes in Net Assets, in the period in which they occur.

Net market values have been determined as follows.

Equities in listed companies and other listed securities by reference to relevant market quotations at 30 June each year, at last sale price quoted by the relevant Stock Exchange at the close of business on the balance date.

Units in managed funds by reference to redemption prices determined by the managers of the funds at 30 June each year.

Derivatives are measured at market rates at close of business on the balance date.

Unlisted unit trusts are recorded at the redemption value per unit as reported by the managers of such trusts. These values are verifi ed by confi rming unit holdings and movements in unit prices against appropriate market indices.

Estimated costs of realisation have been deducted in determining net market value. Net market value is considered a reasonable approximation of fair value.

Purchases and sales of fi nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date, ie the date that the fund commits to purchase or sell the asset.

E) PLANT AND EQUIPMENT

Plant and equipment is initially recognised at cost and is carried at cost less accumulated depreciation, impairment and any accumulated losses. Plant and equipment is depreciated using the straight line method over their expected useful life ranging from four to 11 years, depending on the nature and use of the asset. Written down value is considered a reasonable approximation of net market value.

Items costing less than $1,000 are expensed in the year of acquisition.

DerecognitionAn item of plant and equipment is derecognised upon disposal or when no further future economic benefi ts are expected from its use.

Impairment of AssetsPlant and equipment is tested for any indication of impairment at each reporting date. Where there is an indication of impairment, the recoverable amount is estimated. Where the recoverable amount is less than the carrying amount, the asset is written down to the recoverable amount and an impairment loss is recognised. Unless an asset has been identifi ed as a surplus asset, the recoverable amount is the higher of an asset’s fair value less costs to sell and the depreciated replacement cost.

The risk of impairment is generally limited to circumstances where an asset’s depreciation is materially understated or where the replacement cost is falling. Each relevant class of assets is reviewed annually to verify that the accumulated depreciation refl ects the level of consumption or expiration of the asset’s future economic benefi ts and to evaluate any impairment risk from falling replacement costs.

The recoverable amount of assets identifi ed as surplus assets is the higher of fair value less costs to sell and the present value of future cash fl ows expected to be derived from the asset. Surplus assets carried at fair value have no risk of material impairment. Surplus assets at cost are tested for indications of impairment at each reporting date.

F) INTANGIBLE ASSETS

All acquired and internally developed intangible assets are initially measured at cost.

Acquisitions of intangible assets and internally generated intangible assets costing $50,000 or more are capitalised. The cost of utilising the assets is expensed (amortised) over their useful lives.

The cost model is applied for subsequent measurement requiring the asset to be carried at cost less any accumulated amortisation and any accumulated impairment losses, which is considered a reasonable approximation of net market value.

Amortisation for intangible assets with fi nite useful lives is calculated for the period of the expected benefi t (estimated useful life) on the straight line basis using rates which are reviewed annually. All intangible assets controlled by GESB have a fi nite useful life and zero residual value. The expected useful lives for each class of intangible asset are:

Computer Software Costs 3-5 years

Computer Software Development Projects 3-5 years

Website Costs 3-5 years

Computer Software CostsWhere the computer software is an integral part of the related hardware, it is treated as plant and equipment. Where the computer software is not an integral part of the related hardware, it is treated as an intangible asset.

46

Computer Software Development ProjectsThe costs for computer software development projects are expensed when they are incurred unless they relate to acquisition and/or development of an asset when they may be capitalised and amortised. Costs in relation to feasibility studies during the planning phase of a project and training costs after implementation of the software system are expensed. Costs incurred in developing the system specifi cations and implementation, to the extent that they represent future economic benefi ts that can be reliably measured, are accumulated as ‘Works in Progress’ until the asset is fi nalised and in production, at which time costs are capitalised and amortised over their estimated useful life.

Website CostsWebsite costs are charged as expenses when they are incurred unless they relate to the acquisition or development of an asset when they may be capitalised and amortised. Costs in relation to feasibility studies during the planning phase of a website, and ongoing costs of maintenance during the operating phase are expensed. Costs incurred to build or enhance a web site, to the extent that they represent probable future economic benefi ts that can be reliably measured, are accumulated as ‘Works in Progress’ until fi nalised and in production, at which time costs are capitalised and amortised over the estimated useful life.

Impairment of AssetsIntangible assets are tested for any indication of impairment at each reporting date. Where there is an indication of impairment, the recoverable amount is estimated. Where the recoverable amount is less than the carrying amount, the asset is written down to the recoverable amount and an impairment loss is recognised. As GESB is a not-for-profi t entity, unless an asset has been identifi ed as a surplus asset, the recoverable amount is the higher of an asset’s fair value less costs to sell and the amortised replacement cost.

The risk of impairment is generally limited to circumstances where an asset’s amortisation is materially understated or where the replacement cost is falling. Each relevant class of assets is reviewed annually to verify that the accumulated amortisation refl ects the level of consumption or expiration of the asset’s future economic benefi ts and to evaluate any impairment risk from falling replacement costs.

Intangible assets not yet available for use are tested for impairment at each reporting date irrespective of whether there is any indication of impairment.

The recoverable amount of assets identifi ed as surplus assets is the higher of fair value less costs to sell and the present value of future cash fl ows expected to be derived from the asset. Surplus assets carried at fair value have no risk of material impairment. Surplus assets at cost are tested for indications of impairments at each reporting date.

G) INCOME TAX EXPENSE

The Commonwealth Income Tax Assessment Regulations 1997 confi rm that schemes established by section 29 of the State Superannuation Act 2000 are to be constitutionally protected. The following schemes administered by GESB are constitutionally protected and therefore exempt from income tax:

Pension Scheme (including Provident Account)

Gold State Super

West State Super

Retirement products were introduced for members as taxed schemes within the fund and are subject to income tax.

Retirement Income Allocated Pension commenced on 19 March 2003 and is a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 and accordingly is concessionally taxed.

Retirement Income Term Allocated Pension commenced on 17 December 2004 and is a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 and accordingly is concessionally taxed.

GESB Super and GESB Super (Retirement Access) are complying superannuation funds under the Superannuation Industry (Supervision) Act 1993 and accordingly are concessionally taxed. All further references in the fi nancial statements to GESB Super include both schemes.

GESB apportions investment income and expenses to the taxed and non-taxed schemes of the fund on the basis of the proportion of funds under management. Other expenses are apportioned on the basis of actual or allocated cost.

Current tax is the expected tax payable on the taxable income for the year using the concessional tax rate of 15% for fund income and any adjustment to tax payable in respect of previous years.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date.

Deferred income tax is recognised on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting surplus nor taxable surplus or defi cit.

47


Deferred income tax assets are recognised for all deductible temporary differences and carry-forward unused tax losses, to the extent that it is probable that a taxable surplus will be available against which the deductible temporary differences, and the carry-forward unused tax losses can be utilised. However, this would not apply where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting surplus nor the taxable surplus or defi cit.

The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that suffi cient taxable surplus will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable surplus will allow the deferred tax assets to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

H) REVENUE

Revenue is recognised and measured at fair value of the consideration received or receivable to the extent that it is probable that the economic benefi ts will fl ow to the fund and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised.

InterestInterest revenue on cash and other fi nancial assets carried at net market value is recorded according to the terms of the contract and when the fund’s right to receive the interest is established.

Dividends and Distributions Revenue is recognised when the right to receive payment is established.

Changes in Net Market ValueChanges in the net market value of investments and derivatives are calculated as the difference between the net market value at sale, or at balance date, and the net market value at the previous valuation point. All changes are recognised in the Statement of Changes in Net Assets.

Contributions and Transfers In Contributions and transfers in are recognised when control of the asset has been attained and are recorded, gross of any tax, in the period to which they relate.

Group Life Insurance ProceedsInsurance claim amounts are recognised where the insurer has agreed to pay the claims lodged and has transferred the claim amount to the fund.

I) LIABILITY FOR ACCRUED BENEFITS

Accrued benefi ts are the benefi ts that the fund is committed to provide in the future in respect of the membership at reporting date.

The liability represents the fund’s present obligation to pay benefi ts to members and other benefi ciaries and has been calculated on the present value of expected future payments arising from membership of the fund up to reporting date. For defi ned benefi t schemes, the amount stated has been determined by reference to expected future salary levels and by application of a market-based, risk adjusted discount rate and appropriate actuarial assumptions. For defi ned contribution schemes, the liability has been calculated as the difference between the carrying amount of the assets and the carrying amount of non-interest bearing liabilities at balance date.

The liability for accrued benefi ts is measured annually at reporting date by the fund actuary, Mercer (Australia) Pty Ltd, as part of a comprehensive actuarial review of the fund.

J) VESTED BENEFITS

Vested benefi ts are the benefi ts that are not conditional upon continued membership of the fund and include benefi ts which members are entitled to receive had they terminated membership at reporting date.

Under the provisions of the State Superannuation Act 2000, member entitlements are vested as follows:

Pension scheme - no vesting rights until retirement at age 55 years or over or earlier death or disablement, although on redundancy members have an option to elect for either:

an actuarial deferred pension payable upon attainment of age 55 years, or

an immediate cash payment including a State subsidy equal to 2.5 times the member’s primary unit contributions, or

a transfer of membership to Gold State Super and retention of their transferred service entitlements.

48

Provident scheme - same vesting rights as the Pension scheme except for redundancy:

Subsidised Provident members made redundant do not have the right to a deferred pension.

Non-subsidised Provident members made redundant do not have the right to a deferred pension or state subsidy.

Gold State Super, West State Super, Retirement Income Allocated Pension, Retirement Income Term Allocated Pension and GESB Super - full vesting from inception.

K) RECOGNITION OF BENEFITS PAYABLE

All benefi t entitlements that were paid or became payable during the fi nancial year have been included within the Statement of Changes in Net Assets. All accrued benefi t entitlements that were due and payable as at balance date have also been recognised as a liability within the Statement of Net Assets. Benefi ts payable are valued at net market value which comprise the entitlements of members who ceased employment prior to the year end but had not been paid at that time. Benefi ts payable are settled within the industry standard of 30 days.

L) INVESTMENTS IN CONTROLLED ENTITIES

GESB is the sole unit-holder and benefi ciary of the SB Investment Trust. The trust liquidated during the year. The trust distributed its net assets to GESB, amounting to $887.

GESB is the sole shareholder of GESB Wealth Management Pty Ltd (GWM), with total issued and paid-up capital of $3,150,000. GWM commenced trading in April 2007 and its principal activity is to provide fi nancial advice to members of superannuation schemes managed by GESB. As at 30 June 2012, GWM has total assets of $1,513,951 (2011 - $1,662,286) and total liabilities of $465,645 (2011 - $358,815). For the year ended 30 June 2012, GWM reported a total net loss after income tax of $255,165 (2011 - net loss after income tax of $334,197).

In July 2012, the GESB Board endorsed the cabinet decision to proceed to wind up its wholly owned subsidiary GESB Wealth Management Pty Ltd (GWM), a position formally noted by the GWM Board at its August 2012 meeting. On this basis the book value of the investment in GWM has been written down to the Net Assets of the entity as at 30 June 2012.

GESB is the sole unit-holder of the Macquarie Global Private Equity Fund. As at 30 June 2012, Macquarie Global Private Equity represents 5.59% of Investment Assets and is recognised at net market value in the Statement of Net Assets. Management has determined that the holding in Macquarie Global Private Equity Fund is not material in accordance with AASB 1031. GESB will continue to monitor the materiality of the holding in Macquarie Global Private Equity Fund.

M) EMPLOYEE BENEFITS

Long Service and Annual Leave - these benefi ts have been calculated in accordance with the provisions of AASB 119 ‘Employee Benefi ts’. These benefi ts are assessed based on projected future remuneration rates at which the liabilities are expected to be paid. In addition, the long service leave liability also considers the experience of employee departures and periods of service. The liability for these benefi ts is disclosed as aggregate amounts that arise from employee benefi ts.

The liability for annual and long service leave due to be settled within 12 months after the end of reporting date is recognised and measured at the undiscounted amounts expected to be paid when the liabilities are settled. Long service leave expected to be settled more than 12 months after the end of reporting date is measured at the present value of amounts expected to be paid when the liabilities are settled. In determining the present value of future cash outfl ows, the market yield as at reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. Leave liabilities are in respect of services provided by employees up to reporting date.

Superannuation - GESB’s employees have an entitlement to superannuation under one of the schemes established under the State Superannuation Act 2000.

Employees may contribute to the Pension scheme, a defi ned benefi t pension scheme now closed to new members, or to the Gold State Super scheme, a defi ned benefi t lump sum scheme also closed to new members. Employees who are not members of either of these schemes become non-contributory members of West State Super or GESB Super. West State Super has been closed to new members since April 2007. GESB contributes to these schemes in compliance with the State Superannuation Act 2000 which would satisfy the Commonwealth Government’s Superannuation Guarantee (Administration) Act 1992.

An unfunded employer liability exists in relation to the employer share of pension benefi ts and the pre-transfer service liability for those employees who transferred to the contributory lump sum scheme (Gold State Super). The liability has been recognised by provision in the Statement of Net Assets at the present value of the future payments, by application of actuarial factors provided for this purpose. On an annual basis, GESB’s actuary, Mercer, separately calculates the liabilities under each of these schemes using the projected unit credit method.

As per AASB 119 ‘Employee Benefi ts’ West State Super and GESB Super are defi ned contribution plans where the current service superannuation contribution is paid by GESB for its employees. Per AASB 119 the liability in relation to the transferred service of employees who transferred from the Pension scheme to Gold State Super is treated as a defi ned benefi t plan. Per AASB 119, the Pension scheme is treated as a defi ned benefi t plan. The expected future benefi t payments are discounted to present value using market yields at reporting date on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outfl ows.

49


The superannuation expense of the defi ned benefi t plans is made up of the following elements:

current service cost;

interest cost (unwinding of the discount);

actuarial gains and losses; and

benefi ts paid

Actuarial gains and losses of the defi ned benefi t plans are recognised immediately as income or expense in the Statement of Changes in Net Assets.

The superannuation expense of the defi ned contribution plans is recognised as and when the contributions fall due.

Employment On-Costs - Employment on-costs, including workers’ compensation insurance, fringe benefi ts tax and payroll tax, are not employee benefi ts and are recognised as liabilities and expenses when the employment to which they relate has occurred.

N) RECEIVABLES AND PAYABLES

Receivables which generally have a term of seven to 14 days are recognised as the amount receivable less any allowance for impairment. The collectability of receivables is reviewed on an ongoing basis and any receivables identifi ed as uncollectible are written-off. The provision for uncollectible amounts (impaired receivables) is raised when debts are overdue and all reasonable efforts to recover these debts have been unsuccessful. Receivables are carried at nominal value, which approximates net market value.

Payables represent liabilities for member benefi ts due and payable, and the value of goods and services provided to the Fund prior to the end of the fi nancial year, which are unpaid. Payables are normally settled within the payment terms stated on the invoice ranging from 30 to 90 days. Payables are carried at nominal value, which approximates net market value.

O) GOODS AND SERVICES TAX (GST)

Revenues, expenses and assets, with the exception of receivables and payables, are recognised net of the amount of GST to the extent that the GST is recoverable from the taxation authority. Where GST is not recoverable, it is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable.

Receivables and payables are stated inclusive of GST.

The net GST position from the taxation authority is included as part of payables in the Statement of Net Assets.

P) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include deposits held at call with a bank or fi nancial institution and highly liquid investments, if any, with short periods to maturity which are readily convertible to cash on hand and are subject to insignifi cant risk of changes in value.

Q ) SUPERANNUATION CONTRIBUTIONS (SURCHARGE) TAX

For constitutionally protected funds, the recording, assessment and collection of the superannuation contributions surcharge tax, commonly referred to as the ‘superannuation surcharge’, against members of the schemes administered by GESB is performed by the Australian Taxation Offi ce (ATO). As a consequence, neither the expense nor the liability for the contributions surcharge has been recognised within these Financial Statements. Effective 1 July 2002, payment arrangements for this tax liability can be made through GESB upon instructions from members. Members may instruct GESB to withhold a portion of their benefi ts to be held in trust pending the assessment of their tax liability. This amount will be placed in an interest bearing account, earning interest at CPI + 2%. When the tax liability is due, GESB will issue a cheque payable to the ATO on behalf of the member.

R) BORROWING COSTS

GESB does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with these assets would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). All other borrowing costs are expensed as incurred.

S) PROVISIONS

Provisions are liabilities of uncertain timing and amount. GESB only recognises a provision where there is a present legal or constructive obligation as a result of a past event and when the outfl ow of economic benefi ts is probable and can be measured reliably. Provisions are reviewed at each Statement of Net Assets reporting date and adjusted to refl ect the current best estimate.

T) ACCRUED SALARIES

Accrued salaries represent the amount due to staff but unpaid at the end of the fi nancial year, as the end of the last pay period for that fi nancial year does not coincide with the end of the fi nancial year. Accrued salaries are settled within a few days of the fi nancial year end. GESB considers the carrying amount of accrued salaries to be equivalent to the net market value.

50

U) DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

A fi nancial asset is derecognised when:

the rights to receive cash fl ows from the asset have expired; or

the Fund transfers substantially all the risks and rewards of ownership of the asset.

A fi nancial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

V) LEASES

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfi lment of the arrangement is dependent on the use of a specifi c asset or assets and the arrangement conveys a right to use the asset.

Finance leases, which transfer to GESB substantially all the risks and benefi ts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the Statement of Changes in Net Assets.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that GESB will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the Statement of Changes in Net Assets on a straight-line basis over the lease term. Lease incentives are recognised in the Statement of Changes in Net Assets as an integral part of the total lease expense.

W) INTEREST BEARING LOANS AND BORROWINGS

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at net market value. Gains and losses are recognised in the Statement of Changes in Net Assets.

X) COMPARATIVES

Certain comparatives have been reclassifi ed to conform with the current year presentation.

Note 2: Cash and Cash Equivalents

2012$’000

2011$’000

Cash and Cash Equivalents 40,547 41,054

Cash and cash equivalents earn interest at fl oating rates on daily bank deposit rates and are invested in fi nancial institutions with at least an AA- credit ranking.

51


INV

EST

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RE

VE

NU

E A

ND

EX

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S

20

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20

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Inte

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and

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Net

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$’00

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INTE

RNAL

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Inve

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Wea

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aged

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5

EXTE

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102,

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69,6

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5,33

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31,1

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5

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Div

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106,

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- 82

262,

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1,19

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- 26

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Inte

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- 87

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381

311,

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(38,

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345,

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- -

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Priv

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96,2

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51,7

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vest

men

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2,02

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) -

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3,81

23,

898

12,8

23

Unl

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ty -

9,62

6 -

- 6,

115

15,7

41 -

7,311

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6,30

913

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Gove

rnm

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onds

25,9

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15,6

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- -

- -

- To

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anag

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61,

271

(81,

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(55,

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348,

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167,8

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4,43

31,

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762,

205

(64,

165)

1,14

1,40

5

TOTA

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189,

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323,

156

1,27

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116

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4,43

31,

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762,

205

(64,

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Inve

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ses

Exte

rnal

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27,5

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ees

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42,

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Inve

stm

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sts

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Tota

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34,1

1833

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NET

INVE

STM

ENT

REVE

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3 1

,109

,762

Note 3: Investment Revenue, Expenses and Assets

52

INVESTMENT ASSETS

2012 2011

Net Market Values

Net Market Values

NOTE $’000 $’000

INTERNALLY MANAGED PORTFOLIOInvestment in GESB Wealth Management Pty Ltd 1,105 3,150Term Deposits (A) 867,268 146,179

868,373 149,329

EXTERNALLY MANAGED PORTFOLIOAustralian Equities 2,527,607 2,949,460Cash Managers 1,039,280 651,842Diversifi ed Fixed Interest 1,723,148 3,573,563Global Property 929,467 764,764International Equities 3,401,967 3,041,381Lower Risk Return Seeking Strategy - 163,754Private Equity 732,861 576,508Socially Responsible Investments - 133,288Unlisted Property 181,162 167,825Government Bonds 1,592,473 -

(B) 12,127,965 12,022,385

TOTAL INVESTMENT ASSETS 12,996,338 12,171,714

(A) TERM DEPOSITS

During the previous reporting period, GESB introduced direct investments in term deposits as part of its cash portfolio. Australian banks are currently offering attractive rates to depositors who are willing to commit to term deposits.

(B) EXTERNALLY MANAGED PORTFOLIO (INCLUDING CASH MANAGERS)

The majority of the external investments are comprised of individual investment pools managed by Australian-based Fund Managers, via GESB’s custodian NAB Asset Servicing (NAS).

53


A) OBJECTIVES, STRATEGIES, POLICIES AND PROCESSES

GESB is responsible for the prudent management and investment of the assets of the fund. To fulfi l this statutory responsibility and meet its legal and fi duciary obligations, the board has an integrated investment governance framework to govern its processes in formulating investment objectives, setting strategic asset allocations and developing appropriate investment strategies.

The Treasurer issues Prudential Guidelines for Investments to the board incorporating the roles and responsibilities of both parties and are subject to review annually.

A board investment committee reports to and advises the board about investment matters. The committee draws on expertise outside the board, and meets regularly to consider, approve and monitor all strategic aspects of the fund’s investment activities. The committee is comprised of both Board Directors and external appointees, who have been appointed for their specialist professional expertise and who discharge their duties as specifi ed in the committee’s charter.

The Investment Division provides strategic advice to the board and Investment Committee in setting investment objectives, asset allocation, investment strategy and fund manager selection.

Rebalancing of the portfolio occurs on a regular basis in accordance with board approved policies. The assets of the portfolio are managed by specialist fund managers, who are appointed subject to Treasurer’s approval. Each fund manager is required to invest the assets managed by it in accordance with the terms of a written investment mandate and report regularly on compliance with the mandate. The board monitors fund manager performance as well as compliance with investment management agreements and Prudential Guidelines for Investments. Derivative exposure is managed in accordance with the fund’s Risk Management Statement as recommended by the Australian Prudential Regulation Authority.

The fund’s principal fi nancial instruments, other than derivatives, comprise units in pooled trusts, equities, fi xed interest securities, cash and short-term deposits. The main purpose of these fi nancial instruments is to generate a return on investment.

The fund also has various other fi nancial instruments such as receivables, payables and borrowings, which arise directly from its operations. These are mainly current in nature.

The fund does not directly enter into derivative transactions. The fund may enter into derivative transactions, including fi xed interest future and foreign exchange contracts, via its fund managers.

Risks arising from holding fi nancial instruments are inherent in the fund’s activities, and are managed using a process of ongoing identifi cation, measurement and monitoring. The main risks arising from the fund’s fi nancial instruments are credit risk, market risk, price risk, foreign currency risk, interest rate risk and liquidity risk. GESB reviews and establishes policies for managing each of these risks and they are summarised below.

B) USE OF DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are usually separated into three generic classes - forwards, options and swaps - although individual products may combine the features of more than one class. GESB makes use of derivative fi nancial instruments via the portfolios held by its Fund Managers.

The Treasurers Prudential Guidelines for Investments allow the use of derivative fi nancial instruments.

Under the investment strategy of GESB, derivatives are principally used as an effective alternative to physical assets and to gain access to, or allow fl exibility in fi nancial markets, in order to manage and structure the fund’s investment portfolio to achieve a desired level of total exposure to various asset classes. Derivatives are not utilised to leverage the investment portfolio.

In line with the organisation’s net market value accounting policy, derivatives are valued on a marked-to-market basis, which involves the calculation and recognition of unrealised gains and losses on all current positions. Accordingly, the Financial Statements refl ect all unrealised gains and losses on derivatives.

Note 4: Financial Risk Management Objectives and Policies

54

As at 30 June 2012 the signifi cant derivative positions held by GESB’s Fund Managers were as follows:

2012 2011

$’000 $’000

Derivative Assets:Swaps 6,565 5,814Futures 1,410 3,533Options 221 - Forward Foreign Exchange Contracts 148,497 63,820Warrants 14 -

Total Derivative Assets 156,707 73,167

Derivative Liabilities:Swaps 12,860 4,017Futures 1,275 2,259Options 779 237Forward Foreign Exchange Contracts 13,167 7,580

Total Derivative Liabilities 28,081 14,093

Total Net Derivatives 128,626 59,074

All derivative fi nancial assets and liabilities are classifi ed as Level 2 in the fair value hierarchy, except futures which belong to Level 1. Refer to Note 4(G).

C) CREDIT RISK

Credit risk arises from the fi nancial assets of GESB, which comprise cash and cash equivalents, receivables, investments and derivative fi nancial instruments. Credit risk represents the risk that the counterparty to the fi nancial instrument will fail to discharge an obligation and cause the fund to incur a fi nancial loss.

With respect to credit risk arising from the fi nancial assets of the fund, other than derivatives, the fund’s exposure to credit risk arises from default of the counterparty, with the current exposure equal to the net market value of these investments as disclosed in each applicable note. This does not represent the maximum risk exposure that could arise in the future as a result of changes in values, but best represents the current maximum exposure at reporting date.

Credit risk arising from derivative fi nancial instruments is, at any time, generally limited to those with positive fair values.

In accordance with the fund’s policy it minimises credit risk by undertaking transactions with a large number of creditworthy third parties in various countries. GESB does not have any signifi cant exposure to any individual counterparty or industry other than the Government of Western Australia in respect of GESB’s unfunded superannuation liability.

In addition, receivable balances are monitored on an ongoing basis with the result that the fund’s exposure to bad debts is not signifi cant.

Credit quality per class of fi nancial instrumentA key indicator of assessing the credit quality of fi nancial assets is through the use of credit ratings. The credit ratings used are the lower of Standard & Poor and/or Moody’s rating categories, in accordance with the investment policy. Exposure in each grade is monitored on a periodic basis. This review process assists GESB to assess the potential loss as a result of risks and to take corrective action where necessary.

55


The table below shows the credit quality by class of asset for fi nancial instruments:

AT 30 JUNE 2012 AAA TO AA- A1+ TO A1 A2 BBB+ TO B- CCC TO C D OTHER* TOTAL

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets held at net market value:

Asset Backed Securities 8,165 436 - 2,851 - - 1,545 12,997

Cash and Deposits 1,745,984 127,008 - 317 - - - 1,873,309

Convertible Notes - - - - - - 247 247

Discount Securities 67,022 407,283 - - - - 48,867 523,172

Fixed Interest Bonds 1,505,291 342,981 - 298,709 - - 284,699 2,431,680

Floating Rate Notes 74,126 76,332 2,930 14,978 - - 36,393 204,759

Indexed Annuities 9,616 - - - - - 6,168 15,784

Indexed Bonds 146,806 - - 7,116 - - - 153,922

Mortgage Backed Securities

204,981 7,268 - 1,733 - - 48,259 262,241

Perpetual Securities 2,451 5,314 - 2,152 - - - 9,917

Zero coupon bonds - - - - - - 40 40

3,764,442 966,622 2,930 327,856 - - 426,218 5,488,068

AT 30 JUNE 2011 AAA TO AA- A1+ TO A1 A2 BBB+ TO B- CCC TO C D OTHER* TOTAL

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets held at net market value:

Asset Backed Securities 17,959 2,221 - 4,095 7,741 1,325 4,362 37,703

Cash and Deposits 680,846 - - - - - 19,961 700,807

Convertible Notes - - - - - - - -

Discount Securities 344 327,680 4,183 - - - 97,639 429,846

Fixed Interest Bonds 1,396,420 274,495 - 207,761 - - 439,888 2,318,564

Floating Rate Notes 274,123 110,266 - 21,848 - - 6,901 413,138

Indexed Annuities 17,662 - - - - - 5,983 23,645

Indexed Bonds 240,078 - - 12,303 - - - 252,381

Mortgage Backed Securities

334,750 9,326 - 6,361 15,579 572 209,755 576,343

Perpetual Securities - - - - - - - -

Zero coupon bonds - - - - - - 38 38

2,962,182 723,988 4,183 252,368 23,320 1,897 784,527 4,752,465

* The fund’s custodian uses the Standard and Poor’s (S&P) rating category to determine credit quality for each fi nancial asset. Not all fi nancial assets are rated by S&P. Although some fi nancial assets are unrated this does not imply that they are non investment grade. The investment quality of the portfolio is managed through compliance with the Fund Manager Investment Agreement.

GESB’s interest bearing fi nancial instruments portfolio is managed in a manner that is consistent with investment restrictions and credit rating limits contained within each fund manager’s mandate and individual investment agreements.

56

D) MARKET RISK

Market risk relates to the risk of loss due to a change in market and economic conditions (eg interest rate change, equity price fl uctuations or exchange rate fl uctuations). GESB invests in Australian and overseas equities, fi xed interest securities, property and other fi nancial securities and therefore is exposed to market risk on all of its investment assets.

Market risk comprises three types of risk: price risk, foreign currency risk and interest rate risk.

Market risk is minimised through ensuring that all investment activities are undertaken in accordance with established mandate limits and investment strategies.

The fund also indirectly enters into derivative transactions via its Fund Managers, principally fi xed interest rate swaps and foreign exchange contracts to further mitigate its market risks.

The market risk disclosures are prepared on the basis of the fund’s direct investments and not on a look through basis for investments held in the fund.

i) Price RiskPrice risk is the risk that the net market value of investments in equities decreases or increases as a result of changes in market prices, whether those changes are caused by factors specifi c to the individual equity price or factors affecting all equities in the market. Price risk exposure arises from the fund’s investment portfolio.

To limit price risk the fund diversifi es its investment portfolio in line with its investment policy. Additionally, the fund invests in other asset classes that tend to be negatively correlated to equities which may generate profi ts when equities generate losses. The fund monitors its exposure to various indices on an ongoing basis throughout the year to ensure the accuracy of pricing.

The effect on the Statement of Changes in Net Assets due to a reasonably possible change in market factors, as represented by the equity market indices, with all other variables held constant, is indicated in the table below.

CHANGE IN EQUITY PRICESAFTER TAX CHANGE IN NET ASSETS AND NET ASSETS

AVAILABLE TO PAY BENEFITS

2012%

2011

%

2012$’000

2011

$’000+/-10 +/- 15 752,801/(752,801) 1,099,062/(1,099,062)

The sensitivity is based on reasonably possible changes expected over the following fi nancial year using economic and fi nancial forecasts published by one of the big four Australian banks. The analysis was performed on the same basis for the year ended 30 June 2011.

ii) Foreign Currency RiskCurrency risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate due to changes in foreign exchange rates. GESB, in consultation with its asset consultants, has diversifi ed its overseas portfolio. GESB believes that the long term benefi ts from investing overseas outweigh the effect of possible short-term currency fl uctuations.

In GESB’s agreement with its Fund Managers, and in accordance with the fund’s policy, the management of currency risk is covered in some detail. GESB’s international Fund Managers are able to use transactions such as currency forward contracts and swaps in order to manage the currency exposure of the fund. The terms of such contracts must not exceed one year, during which time 100% of the contract commitment must be covered at all times by cash, debt securities or equities denominated in the currency or one highly correlated with the currency sold forward.

Currency risk is managed on an ongoing basis by regular monitoring of the performance of the appointed Fund Managers. The risk is measured using sensitivity analysis.

57


GESB

’s ex

posu

re a

s at 3

0 Ju

ne 2

012

to fo

reig

n ex

chan

ge ra

te m

ovem

ents

on

its in

tern

atio

nal i

nves

tmen

ts is

as f

ollo

ws:

20

12

BR

ITIS

H

PO

UN

DC

AN

AD

IAN

D

OLL

AR

EU

RO

HO

NG

KO

NG

D

OLL

AR

JAPA

NE

SE

YE

NSW

ISS

FRA

NC

US

DO

LLA

RO

TH

ER

C

UR

RE

NC

IES

TO

TAL

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0As

sets

Fina

ncia

l Ass

ets h

eld

at n

et m

arke

t val

ue

585,

706

187,

579

1,10

6,72

220

6,34

292

1,58

813

2,56

64,

787,

346

515,

319

8,44

3,16

8

Liab

ilitie

sFi

nanc

ial L

iabi

litie

s hel

d at

net

mar

ket v

alue

(370

,252

)(1

31,8

35)

(966

,731

)(1

43,7

98)

(690

,441

)(5

9,07

2)(4

,388

,031

)(3

37,0

85)

(7,0

87,2

45)

Net

exp

osur

e21

5,45

455

,744

139,

991

62,5

4423

1,14

773

,494

399,

315

178,

234

1,35

5,92

3

20

11

BR

ITIS

H

PO

UN

DC

AN

AD

IAN

D

OLL

AR

EU

RO

HO

NG

KO

NG

D

OLL

AR

JAPA

NE

SE

YE

NSW

ISS

FRA

NC

US

DO

LLA

RO

TH

ER

C

UR

RE

NC

IES

TO

TAL

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0As

sets

Fina

ncia

l Ass

ets h

eld

at n

et m

arke

t val

ue

498,

852

225,

637

1,52

4,72

519

2,22

662

7,919

149,

583

4,14

1,83

358

5,55

17,9

46,3

26

Liab

ilitie

sFi

nanc

ial L

iabi

litie

s hel

d at

net

mar

ket v

alue

(341

,498

)(1

75,4

58)

(1,3

49,4

40)

(143

,908

)(4

65,8

85)

(82,

959)

(3,6

33,8

32)

(406

,257

)(6

,599

,237

)

Net

exp

osur

e15

7,354

50,1

7917

5,28

548

,318

162,

034

66,6

2450

8,00

117

9,29

41,

347,0

89

58

The table below analyses the sensitivity of the fund’s net assets to the movement of major currencies to which the fund had signifi cant exposure at 30 June 2012. The analysis calculates the effect of a reasonably possible movement of the currency rate against the Australian Dollar on Net Assets and Investment Returns, with all other variables held constant.

CHANGE IN CURRENCY RATE

EFFECT ON NET ASSETS / INVESTMENT RETURNS

2012 2011 2012 2011% % $’000 $’000

British Pound/AUD +/- 10 +/- 5 (23,621)/19,326 (7,493)/8,282Canadian Dollar/AUD +/- 5 +/- 5 (2,895)/2,619 (2,389)/2,641EUR/AUD +/- 10 +/- 10 (15,348)/12,557 (15,935)/19,476Hong Kong Dollar/AUD +/- 5 +/- 10 (3,248)/2,939 (4,393)/5,369Japanese Yen/AUD +/- 5 +/- 5 (12,004)/10,860 (7,716)/8,528Swiss Franc/AUD +/- 10 +/- 5 (8,057)/6,592 (3,173)/3,507USD/AUD +/- 5 +/- 10 (20,737)/18,762 (46,182)/56,445Other/AUD +/- 5 +/- 5 (9,256)/8,374 (8,538)/9,437

The sensitivity is based on reasonably possible changes expected over the following fi nancial year using economic and fi nancial forecasts published by one of the big four Australian banks. The analysis was performed on the same basis for the year ended 30 June 2011.

Management believe the reporting date risk exposures are representative of the risk exposure inherent in the fi nancial instruments.

iii) Interest Rate RiskInterest rate risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates. In accordance with the fund’s policy this risk is managed by a combination of duration analysis and derivative positions to enhance the interest rate performance of the investment portfolio. The interest rate risk is measured using sensitivity analysis.

GESB invests in fi nancial assets for the primary purpose of obtaining a return on investments. GESB’s investments are subject to interest rate risk and the return on the investments will fl uctuate in accordance with movements in the market interest rates.

59


INT

ER

EST

RA

TE

RIS

K O

N F

INA

NC

IAL

ASS

ET

S A

ND

LIA

BIL

ITIE

S

The

tabl

e be

low

sum

mar

ises

the

fund

’s ex

posu

re to

inte

rest

rate

risk

s. It

incl

udes

the

fund

’s as

sets

and

liab

ilitie

s at n

et m

arke

t val

ue, c

ateg

oris

ed b

y m

atur

ity d

ates

.

20

12

FLO

AT

ING

IN

TE

RE

ST R

AT

EFI

XE

D R

AT

E 3

M

ON

TH

S O

R L

ESS

FIX

ED

RA

TE

3 T

O

12

MO

NT

HS

FIX

ED

RA

TE

1 T

O 5

Y

EA

RS

FIX

ED

RA

TE

OV

ER

5

YE

AR

SN

ON

-IN

TE

RE

ST

BE

AR

ING

T

OTA

L

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0Fi

nanc

ial A

sset

sAs

set B

acke

d Se

curit

ies

12,9

97 -

- -

- -

12,9

97Ca

sh a

nd D

epos

its60

7,92

0

1,

043

,306

222,

083

- -

- 1,

873,

309

Conv

ertib

le N

otes

- -

- -

247

- 24

7D

isco

unt S

ecur

ities

- -

- -

- 5

23,1

72

523,

172

Fixe

d In

tere

st B

onds

- 27

,283

142,

672

988,

110

1,27

3,61

5 -

2,43

1,68

0Fl

oatin

g Ra

te N

otes

204,

759

- -

- -

- 20

4,75

9In

dexe

d An

nuiti

es15

,784

- -

- -

- 15

,784

Inde

xed

Bond

s15

3,92

2 -

- -

- -

153,

922

Mor

tgag

e Ba

cked

Sec

uriti

es26

2,24

1 -

- -

- -

262,

241

Perp

etua

l Sec

uriti

es -

- 2,

152

4,03

73,

728

- 9,

917

Zero

Cou

pon

Bond

s -

- -

40 -

- 40

Tota

l Fin

ancia

l Ass

ets

1,25

7,62

3

1,

070,

589

366,

907

992,

187

1,27

7,59

0 5

23,1

72

5,48

8,06

8

Fina

ncia

l Lia

bilit

ies

Inte

rest

Bea

ring

Loan

s -

28,4

3827

,686

207,

358

178,

604

- 44

2,08

6Ca

sh a

nd D

epos

its8

37,2

08 -

- -

- 37

,216

Fixe

d In

tere

st B

onds

- -

- -

18,5

54 -

18,5

54M

ortg

age

Back

ed S

ecur

ities

- -

- -

- -

-

Tota

l Fin

ancia

l Lia

bilit

ies

865

,646

27,6

8620

7,35

819

7,15

8 -

497,

856

60

20

11

FLO

AT

ING

IN

TE

RE

ST R

AT

EFI

XE

D R

AT

E 3

M

ON

TH

S O

R L

ESS

FIX

ED

RA

TE

3 T

O

12

MO

NT

HS

FIX

ED

RA

TE

1 T

O 5

Y

EA

RS

FIX

ED

RA

TE

OV

ER

5

YE

AR

SN

ON

-IN

TE

RE

ST

BE

AR

ING

T

OTA

L

$’00

0$’

000

$’00

0$’

000

$’00

0$’

000

$’00

0Fi

nanc

ial A

sset

sAs

set B

acke

d Se

curit

ies

5,62

8 -

2751

331

,535

- 37

,703

Cash

and

Dep

osits

700,

807

- -

- -

- 70

0,80

7Co

nver

tible

Not

es -

- -

- -

- -

Dis

coun

t Sec

uriti

es -

- -

- -

429,

846

429,

846

Fixe

d In

tere

st B

onds

- 20

,688

55,8

691,

091,

985

1,15

0,02

2 -

2,31

8,56

4Fl

oatin

g Ra

te N

otes

413,

138

- -

- -

- 41

3,13

8In

dexe

d An

nuiti

es23

,645

- -

- -

- 23

,645

Inde

xed

Bond

s25

2,38

1 -

- -

- -

252,

381

Mor

tgag

e Ba

cked

Sec

uriti

es15

5,59

7 -

487

39,1

5338

1,10

6 -

576,

343

Perp

etua

l Sec

uriti

es -

- -

- -

- -

Zero

Cou

pon

Bond

s -

- -

38 -

- 38

Tota

l Fin

ancia

l Ass

ets

1,55

1,19

620

,688

56,3

831,

131,

689

1,56

2,66

342

9,84

64,

752,

465

Fina

ncia

l Lia

bilit

ies

Inte

rest

Bea

ring

Loan

s -

14,4

4541

,180

196,

391

192,

819

- 44

4,83

5Ca

sh a

nd D

epos

its7,7

85 -

- -

- -

7,785

Fixe

d In

tere

st B

onds

- -

- 31

,043

36,6

24 -

67,6

67M

ortg

age

Back

ed S

ecur

ities

- -

- -

654

- 65

4

Tota

l Fin

ancia

l Lia

bilit

ies

7,785

14,4

4541

,180

227,4

3423

0,09

7 -

520,

941

61


The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.

At 30 June 2012, if interest rates had moved, as illustrated in the table below, with all other variables held constant, the effect of a change in net Assets and Investment Returns would have been affected as follows:

JUDGEMENTS OF REASONABLYPOSSIBLE MOVEMENTS

EFFECT ON NET ASSETS/INVESTMENT RETURNS

2012Basis Points

2011Basis Points

2012$’000

2011$’000

+/- 50 +/- 50 (71,442)/71,494 (83,758)/83,824

The movements in the change in net assets and net assets available to pay benefi ts are due to higher/lower interest costs from variable rate cash balances and increase/decrease in fair value of fi xed rate investments. The sensitivity is based on reasonably possible changes expected over the following fi nancial year using economic and fi nancial forecasts published by one of the big four Australian banks. The analysis was performed on the same basis for the year ended 30 June 2011.

E) LIQUIDITY RISK

Liquidity risk is the risk that GESB will encounter diffi culty in raising funds to meet commitments associated with fi nancial liabilities.

To control liquidity risk, GESB substantially invests in fi nancial instruments which, under normal market conditions, are readily convertible to cash. In addition, the fund maintains suffi cient cash and cash equivalents to meet normal operating requirements.

The fund’s signifi cant fi nancial liabilities are benefi ts payable to members.

In relation to the contractual maturity of vested superannuation benefi ts these would be considered payable on demand. On demand payments comprise the entire defi ned contribution component and the vested portion of the defi ned benefi t component. Refer to Note 6 and Note 7.

In accordance with the fund’s policy it manages its obligation to pay the defi ned contribution component on an expected maturity basis based on management’s estimates and actuarial assumptions of when such funds will be drawn down by members. The fund considers it highly unlikely that all defi ned contribution members will request to roll over their superannuation balances at the same time. Furthermore, in relation to the vested defi ned benefi t component, the fund has adequate resources readily convertible to cash to satisfactorily meet these obligations when called upon.

The fund’s other signifi cant fi nancial liability is an interest bearing loan which was entered into following successful negotiations with the state government in regard to an agreed payment schedule to discharge the unfunded West State Super liability over 20 years. Refer to Note 17.

Other fi nancial liabilities of the fund comprise trade, other payables and outstanding investment trade settlements which are contractually due within 30 days and derivative fi nancial liabilities which are payable within 12 months.

The table below refl ects the remaining contractual maturities of the interest bearing loan as of 30 June 2012.

2012 2011

$’000 $’000 1 Year or Less 59,652 58,1761 - 2 Years 59,897 58,1762 - 3 Years 59,718 58,1763 - 4 Years 59,527 58,1764 - 5 Years 59,322 58,176Over 5 Years 234,945 290,882

533,061 581,762

62

F) CONCENTRATIONS OF RISK

Concentrations of risk arise when a number of fi nancial instruments or contracts have the same features or have the same underlying exposure, where for example, they are entered into with the same counterparty, or when a number of counterparties are engaged in similar business activities, have activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.

In order to avoid excessive concentrations of risk, GESB monitors its exposure to ensure concentrations of risk remain within acceptable levels as per the investment policy and imposes mandated limits on the use of derivative instruments by fund managers and on maximum concentrations of risk tolerances.

The following table classifi es the fund’s listed equity portfolio by industry sector as at 30 June 2012 and 30 June 2011:

2012 2011

$’000 % $’000 %Consumer Discretionary 576,233 10.18 567,812 9.57 Consumer Staples 498,048 8.80 461,082 7.77 Energy 449,345 7.94 507,396 8.55 Financials 1,486,693 26.25 1,669,022 28.13 Health Care 475,606 8.40 397,611 6.70 Industrials 501,238 8.85 538,395 9.07 Information Technology 472,211 8.34 376,551 6.35 Materials 820,171 14.49 1,049,966 17.70 Telecommunication Services 293,257 5.18 275,946 4.65 Utilities 89,129 1.57 89,669 1.51

5,661,931 100.00 5,933,450 100.00

The following table analyses the fund’s investment portfolio by geographic regions (excluding the effect of foreign currency exposure) as at 30 June 2012 and 30 June 2011:

2012 2011

$’000 % $’000 %Australia 6,376,203 49.11 6,369,168 53.13 Canada 191,931 1.48 228,364 1.91 France 227,661 1.75 271,251 2.26 Germany 290,839 2.24 330,006 2.75 Hong Kong 152,404 1.17 143,344 1.20 Japan 904,394 6.97 409,280 3.41 Netherlands 138,611 1.07 123,762 1.03 Singapore 122,706 0.95 111,681 0.93 Switzerland 151,389 1.17 162,815 1.36 United Kingdom 608,373 4.69 655,162 5.47 United States 3,008,359 23.18 2,456,854 20.49 Other 807,326 6.22 726,808 6.06

12,980,196 100.00 11,988,495 100.00

G) NET MARKET VALUES OF FINANCIAL ASSETS AND LIABILITIES

The fund’s fi nancial assets and liabilities recognised in the Statement of Net Assets are carried at their net market value, which approximates their fair values.

Refer to Note 1 for the methods and assumptions adopted in determining the net market values of investments and derivatives.

GESB uses various methods in estimating the fair value of a fi nancial instrument. The methods are listed below.

Level 1 - the fair value is calculated using quoted prices in active markets or using matrix pricing, including quoted prices for identical securities. An active market is a market in which transactions take place with suffi cient frequency and volume to provide pricing on an ongoing basis.

Level 2 - the fair value is calculated using a valuation model with inputs that can be observed in the actual marketplace. The inputs can be direct (ie as prices) or indirect (ie derived from prices).

Level 3 - the fair value is calculated using inputs that are not based on observable market data (i.e. unobservable inputs). The inputs are entity specifi c and subjective. ‘Entity specifi c’ inputs are where inputs are estimated and calculated internally by a particular fund, specifi c and available to that fund only.

63


The table below sets out the fi nancial assets and liabilities measured at fair value according to the fair value hierarchy as at 30 June 2012.

2012 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

$’000 $’000 $’000 $’000 Financial AssetsAsset Backed Securities - 12,997 - 12,997Cash and Deposits 1,873,309 - - 1,873,309Convertible Notes 247 - - 247Discount Securities - 523,172 - 523,172Fixed Interest Bonds - 2,413,106 - 2,413,106Floating Rate Notes - 204,759 - 204,759Indexed Annuities - 15,784 - 15,784Indexed Bonds - 153,922 - 153,922Listed Equities 5,621,989 - 74 5,622,063Listed Trusts 847,477 - 41 847,518Mortgage Backed Securities - 261,258 983 262,241Perpetual Securities - 9,917 - 9,917Pooled Development Funds 3,159 - - 3,159Pref Shares Redeemable 7,660 - - 7,660Unlisted Equities - - - - Unlisted Trusts - 349,695 732,861 1,082,556Zero Coupon Bonds - - 40 40Total Financial Assets 8,353,841 3,944,610 733,999 13,032,450

Financial LiabilitiesInterest Bearing Loans - 442,086 - 442,086Cash and Deposits 37,217 - - 37,217

Total Financial Liabilities 37,217 442,086 - 479,303

Grand Total 8,316,624 3,502,524 733,999 12,553,147

2011 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

$’000 $’000 $’000 $’000 Financial AssetsAsset Backed Securities - 37,703 - 37,703Cash and Deposits 700,807 - - 700,807Convertible Notes - - - - Discount Securities - 429,846 - 429,846Fixed Interest Bonds - 2,250,898 - 2,250,898Floating Rate Notes - 411,900 1,238 413,138Indexed Annuities - 23,645 - 23,645Indexed Bonds - 252,381 - 252,381Listed Equities 5,840,829 608 81 5,841,518Listed Trusts 741,243 - 41 741,284Mortgage Backed Securities - 574,190 2,153 576,343Perpetual Securities - - - - Pooled Development Funds - - - - Pref Shares Redeemable 9,272 - - 9,272Unlisted Equities - 3,823 - 3,823Unlisted Trusts - 319,146 576,508 895,654Zero Coupon Bonds - - 38 38

Total Financial Assets 7,292,151 4,304,140 580,059 12,176,350

Financial LiabilitiesInterest Bearing Loans - 444,835 - 444,835Cash and Deposits 7,785 - - 7,785

Total Financial Liabilities 7,785 444,835 - 452,620

Grand Total 7,284,366 3,859,305 580,059 11,723,730

64

Quoted market price, less transaction costs represents the net market value determined based on quoted prices on active markets as at reporting date.

For fi nancial instruments not quoted in active markets, GESB uses valuation techniques such as:

quoted prices for similar securities in active markets,

quoted prices for identical or similar securities in markets that are not active, market corroborated inputs; and

inputs that are developed based on available data and refl ect assumptions that markets would use when pricing similar securities. Example of observable inputs includes interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates.

Transfer between categoriesThere were no transfers between Level 1 and Level 2 during the year.

The following table presents the movement in Level 3 instruments:

2012 EQUITIES FIXED INTEREST

TOTAL

$’000 $’000 $’000 Opening Balance 576,508 3,551 580,059Total realised/unrealised gains and losses 69,049 55 69,104Purchases 101,298 - 101,298 Sales (14,001) (3,537) (17,538)Transfers into Level 3 122 1,076 1,198Transfers out of Level 3 - (122) (122)

Closing Balance 732,976 1,023 733,999


TOTAL

$’000 $’000 $’000 Opening Balance 465,349 5,125 470,474Total realised/unrealised gains and losses 36,461 25 36,486Purchases 75,045 - 75,045 Sales - (484) (484)Transfers into Level 3 - 3,429 3,429Transfers out of Level 3 (347) (4,544) (4,891)

Closing Balance 576,508 3,551 580,059

65


Gains or losses recognised in the Statement of Changes in Net Assets for Level 3 transactions are presented in the movement in net market value of investments as in the following table.


TOTAL

$’000 $’000 $’000 Total gains/losses recognised in the Statement of Changes in Net Assets for the period

69,049 55 69,104

Total gains/losses recognised in the Statement of Changes in Net Assets for the period for assets held at the end of the reporting period

69,049 (91) 68,958


TOTAL

$’000 $’000 $’000 Total gains/losses recognised in the Statement of Changes in Net Assets for the period

36,461 25 36,486

Total gains/losses recognised in the Statement of Changes in Net Assets for the period for assets held at the end of the reporting period

(15,545) - (15,545)

For fi nancial instruments classifi ed in Level 3 in the fair value hierarchy some of the inputs to the valuation models are unobservable and therefore subjective in nature. The use of reasonably possible alternative assumptions could possibly produce a different net market value measurement. If the impact of using those alternative assumptions would cause the fair value of Level 3 asset to be higher or lower by 5% the net assets of the fund and the result for the year would have been higher or lower by $36,699,953 (2011: $29,002,950).

H) UNITISED INVESTMENTS

The Fund Managers of unitised investment vehicles have investments in a variety of investment instruments, including derivatives that expose GESB’s investments to a variety of investment risks, including market risk, credit risk, interest risk and currency risk. Note 4C to 4E cover how GESB minimises these risks.

I) SCRIP LENDING

GESB and the National Australia Bank (NAB) entered into a securities borrowing agreement under which legal title to certain of GESB’s assets has been loaned to NAB, notwithstanding the fact that the risks and benefi ts of ownership of the assets remain with GESB. This agreement has been put in place to provide revenue which ultimately enhances the investment return of the fund. As part of the securities borrowing agreement with GESB, NAB obtains collateral from the borrower to cover the value of all assets subject to securities borrowing agreements in accordance with agreed principles and standard market practice. These assets are valued daily and the required collateral is adjusted accordingly.

On 15 August 2012 the board took the decision to discontinue scrip lending and no future contracts will be undertaken.

The total value of assets on loan as at 30 June 2012 is $999.8 million (2011: $1,719.9 million).

66

2012 2011

$’000 $’000 A) EMPLOYER CONTRIBUTIONSPension SchemeEmployer’s Share of Pensions 219,717 221,617

219,717 221,617

Gold State SuperEmployer Contributions 13,528 49,030Recoup Past Service Liabilities 9,170 10,090Recoup Consolidated Account Portion of Lump Sum Benefi ts 279,056 297,916

301,754 357,036

West State SuperEmployer Contributions 479,554 466,545Recoup Treasury Unfunded Liabilities 58,176 58,176

537,730 524,721

GESB SuperEmployer Contributions 230,184 176,993

230,184 176,993

Total Employer Contributions 1,289,385 1,280,367

B) SUPERANNUATION BENEFIT PAYMENTSPension SchemePensions 228,135 230,413Commutation Lump Sums 645 735

228,780 231,148

Gold State SuperRetirement 124,338 137,759Disability 6,185 10,057Retrenchment/Death 10,927 13,241Family Law 1,536 924Financial Hardship 62 179Compassionate 335 260Phased Retirement 22,168 18,376Others 275 271

165,826 181,067

Note 5: Employer Contributions, Benefi t Payments and Other Income

67

2012 2011

$’000 $’000 B) SUPERANNUATION BENEFIT PAYMENTS CONTINUED…West State SuperRetirement 176,797 187,285Disability 13,289 7,496Retrenchment/Death 23,334 24,137Financial Hardship 1,175 1,182Compassionate 2,604 2,454Phased Retirement 65,597 24,080Other 73,520 51,299

356,316 297,933

GESB SuperRetirement 51,951 51,055Disability 1,924 284Retrenchment/Death 5,578 3,724Financial Hardship 199 203Compassionate 416 222Phased Retirement 8,481 191Other 21,866 22,578

90,415 78,257

Retirement Income (Allocated Pension/Term Allocated Pension)Pension 105,904 77,194Commutation Lump Sums 131,562 108,835Death 1,110 224Other 411 11

238,987 186,264

Total Superannuation Benefi t Payments 1,080,324 974,669

C) OTHER INCOMEInsurance Administration Fee 3,328 3,882Service Fee 3,240 3,543Administration Expenses Recovered 12,258 - Other 535 367

Total Other Income 19,361 7,792

68

Gross Accrued Benefi tsThe liability for accrued benefi ts is the fund’s present obligation to pay future benefi ts. For the defi ned contribution schemes the liability has been calculated as the scheme assets less sundry liabilities and income tax liabilities as at reporting date. For the defi ned benefi t schemes the liability has been calculated on the basis of the present value of future benefi t payments of the fund up to measurement date. The amount stated has been determined by adding the liability for accrued benefi ts related to funded liabilities to unfunded liabilities in respect of completed membership (see table below).

GOLD STATE SUPER PENSION SCHEME WEST STATE SUPER

2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000

Gross AccruedBenefi ts

6,531,259 5,933,784 2,878,046 2,560,741 8,093,772 7,457,595

GESB SUPERRETIREMENT

INCOMETERM ALLOCATED

PENSION TOTAL

2012 2011 2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Gross Accrued Benefi ts

1,125,099 896,603 1,544,658 1,231,842 20,833 22,029 20,193,667 18,102,594

Liability for Accrued Benefi ts Related to Funded LiabilitiesThe liability for accrued benefi ts of the fund, related to funded liabilities as at 30 June 2012, was calculated by GESB’s actuary, Mercer (Australia) Pty Ltd, with reference to expected future salary levels and by application of market-based, risk-adjusted discount rates, appropriate to the expected investment returns of the fund and other relevant actuarial assumptions. For the defi ned contribution schemes the liability has been calculated as the difference between the carrying amounts of the assets and the carrying amounts of the sundry liabilities and income tax liabilities as at reporting date. The valuation was undertaken as part of the annual actuarial investigation and is in accordance with the provisions of Section 17 of the State Superannuation Act 2000.

This value may be compared to the net assets of the fund for the purpose of considering the fi nancial position of the fund as at balance date. Details of this liability are set out below.


2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000

Accrued Liability Related to Funded Liabilities

2,280,323 2,272,597 84,197 82,519 7,651,686 7,012,760

GESB SUPERRETIRMENT

INCOMETERM ALLOCATED

PENSION TOTAL

2012 2011 2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Accrued Liability Related to Funded Liabilities

1,125,099 896,603 1,544,658 1,231,842 20,833 22,029 12,706,796 11,518,350

Note 6: Liability for Accrued Benefi ts

69

The treatment of reserves is subject to the Treasurer’s Guidelines for Government Employees Superannuation Fund Reserves. The Guidelines were issued to GESB during the reporting period and have been adhered to by GESB.

No reserves, or any increase in liabilities are accounted for in the fund to cover future expenses for defi ned benefi t administration and government services. These expenses are funded from Consolidated Account appropriations and Gold State Super employer contributions.

The main assumptions used to determine the actuarial value of accrued benefi ts at the last review date were:

The future rate of investment returns (net of investment taxes and net of investment management fees) earned on the fund’s assets would be 7.5% (2011: 7.5%). The future rate of salary infl ation would be 5.0% (2011: 5.5%).

UNFUNDED LIABILITIES IN RESPECT TO COMPLETED MEMBERSHIP

A proportion of member benefi ts are only funded by employers upon the emergence or payment of member entitlements.

The Department of Treasury, for their own purposes, has determined the value of the unfunded liabilities of employers (ie the government) which have arisen in respect of membership of the fund up to 30 June 2012 based on advice from the actuarial fi rm, PricewaterhouseCoopers Securities Ltd. The PricewaterhouseCoopers Securities Ltd valuation of unfunded liabilities adopts a different discount rate to that adopted for funded liabilities. The discount rate adopted is the long term government bond rate 3.30% (2011: 5.3%).

GESB’s actuary considered it appropriate that these values be taken as the amount of the fund’s unfunded liabilities in respect of completed membership as these amounts will not be funded from the fund’s investments. These values are as follows:


2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000

Unfunded Liabilities in Respect of Completed Membership

4,250,936 3,661,187 2,793,849 2,478,222 442,086 444,835

GESB SUPER RETIRMENT INCOMETERM ALLOCATED

PENSION TOTAL

2012 2011 2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Unfunded Liabilities in Respect of Completed Membership

- - - - - - 7,486,871 6,584,244

The unfunded liability in respect of West State Super stands at $442 million as at 30 June 2012 (2011: $445 million). An agreement was reached with the state government that this unfunded amount would be discharged over a 20 year period commencing 15 July 2001.

The unfunded liabilities relating to the West State Super for the current and previous years have been adjusted to refl ect the market value of the WATC loan as prescribed by AAS25.

70

ReservesMovement in reserves

MINIMUM BENEFIT GUARANTEE RESERVE

INSURANCE RESERVE

OPERATIONAL RISK RESERVE

TOTAL RESERVES

$’000 $’000 $’000 $’000 Balance at 1 July 2010 25,762 6,000 49,917 81,679Amount Credited/(Debited) to Reserves1 18,238 - (17,603) 635

Balance at 30 June 20111 44,000 6,000 32,314 82,314

Balance at 1 July 2011 44,000 6,000 32,314 82,314Benefi ts Paid (1,119) (1,498) - (2,617)Contribution to Reserves - - 11,205 11,205Accumulation Schemes Surplus - - 5,999 5,999Investment Performance 1,971 253 (575) 1,649

Balance at 30 June 2012 44,852 4,755 48,943 98,550

1. These Reserves were reset by the board as at 30 June 2011 in line with the Treasurers guidelines for Government Employees Superannuation Fund Reserves.

A description of the reserves and the actuarial recommendation in relation to the reserves is provided in Note 25: Summary of Actuarial Report.

71


Vested benefi ts are benefi ts which are not conditional upon continued membership of the fund (or any factor other than resignation from the fund) and include benefi ts which members were entitled to receive had they terminated their fund membership as at reporting date.

Australian Accounting Standard AAS25 requires the disclosure of vested benefi ts as at 30 June 2012. The latest calculation of vested benefi ts was undertaken by GESB’s actuary, Mercer, as part of a comprehensive investigation of the fund. The levels of vested benefi ts, as reported by the actuary are as follows:


2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000

Gross Vested Benefi ts 6,154,233 6,062,300 2,878,046 2,560,741 8,116,508 7,477,114


PENSION TOTAL

2012 2011 2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Gross Vested Benefi ts

1,125,099 896,603 1,544,658 1,231,842 20,833 22,029 19,839,377 18,250,629

The liability for vested benefi ts of the fund related to funded liabilities as at 30 June 2012 may be compared to the net assets of the fund at reporting date for the purpose of considering the fi nancial position of the fund as at reporting date. These values are as follows:


2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000

Vested Benefi ts Related to Funded Liabilities

2,537,838 2,437,801 84,197 85,519 7,674,422 7,032,279


PENSION TOTAL

2012 2011 2012 2011 2012 2011 2012 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Vested Benefi ts Related to Funded Liabilities

1,125,099 896,603 1,544,658 1,231,842 20,833 22,029 12,987,047 11,706,073

The discount rate adopted to value vested benefi ts was the same rate adopted by GESB’s actuary to value funded accrued benefi ts.

West State Super vested benefi ts are calculated on the assumption that all members exit the scheme on balance date and accordingly includes the full cost of the minimum benefi ts guarantee.

Note 7: Vested Benefi ts

72

The payment of benefi ts to members or their benefi ciaries of the Pension scheme, Gold State Super, West State Super, GESB Super, Retirement Income Allocated Pension and Retirement Income Term Allocated Pension is guaranteed by the state under Section 31 of the State Superannuation Act 2000.

Benefi ts paid to members and benefi ciaries of the Pension scheme are guaranteed to the extent that Sections 30, 46, 62 and 83AA of the Superannuation and Family Benefi ts Act 1938 (continued under section 26 (Transitional and Consequential Provisions) of the State Superannuation Act 2000) provide for the state to pay the required employer share of benefi ts. The Consolidated Account is permanently appropriated for the purpose of meeting the state’s obligations.

Note 9: EmployerFunding Arrangements

The Funding policy adopted by the government in respect of the fund is directed at ensuring that benefi ts accruing to members and benefi ciaries are fully funded at the time benefi ts become payable. As such, the actuary has considered long-term trends in such factors as scheme membership, salary growth and average market value of fund assets when advising the government on employer and employee contribution rates. The employer funding arrangements under the State Superannuation Act 2000 (Gold State Super, West State Super and GESB Super) and the Superannuation and Family Benefi ts Act 1938 (Pension scheme) are summarised below.

A) PENSION SCHEME

The level of pension payable is determined by the number of units purchased, the length of service and the fi nal salary of the member. The employer liability is funded only on the emergence of a member’s pension benefi t entitlement and is recouped fortnightly following the payment of each pension.

B) GOLD STATE SUPER

Those employers listed in Division 2 of Schedule 1 of the State Superannuation Regulations 2001 are required under Regulations 29 and 30 to make concurrent employer contributions direct to the fund in respect of contributory members who are their employees.

The remaining employers, as listed under Division 1 of Schedule 1 of the State Superannuation Regulations 2001, are not required to make concurrent contributions. It is government policy that these employer liabilities be met from the Consolidated Account at the time that the benefi ts become payable to members.

In the latter case, contributions are unfunded but notional contributions are placed in departmental budgets so that the superannuation component is accurately refl ected in an agency’s fi nancial statements. The agency forwards the notional Gold State Super contribution to GESB and these are credited direct to a Department of Treasury bank account.

The employer contribution rate for 2012 for contributory members was 15.0% (2011: 15.0%) of a member’s salary, based on a 5.0% member contribution. The employer contribution rate is proportionately less or more where members elect for a contribution rate of 3%, 4%, 6% or 7% of salary. The Consolidated Account liability for 2012 was assessed at 75.0% (2011: 75.0%) of the contributory service benefi t and is payable at the time payment is made to the member.

In respect of those members who transferred their membership from the Pension scheme, the employer liability in relation to service or period of employment constituted as service for the purposes of the Superannuation and Family Benefi ts Act 1938, is calculated at a rate of 12% of fi nal average salary for each year of such service, based upon a 5% member’s average contribution rate to the scheme (this rate is proportionately less where a member’s average contribution rate is less than 5%). This employer liability becomes payable on the emergence (Division 1, Schedule 1 Employers) or payment (Division 2, Schedule 1 Employers) of the benefi t to the member.

C) WEST STATE SUPER

The employer contribution rate payable is determined under state legislation and is currently 9%.

D) GESB SUPER

The employer contribution rate payable is determined under state legislation and is currently 9%.

Note 8: Guaranteed Benefi ts

73

Note 10: Administration Expenses

Details of administration expenses incurred by GESB during the year ended 30 June 2012 are set out below:

2011/2012ACTUAL

2011/2012BUDGET

VARIANCE ACTUAL TO BUDGET

2010/2011ACTUAL

VARIANCE ACTUALTO PRIOR YEAR ACTUAL

NOTE $’000 $’000 $’000 % $’000 $’000 %Employment Expenses (i) 22,832 22,297 535 2% 24,405 (1,573) -6%Information Technology Costs (ii) 6,405 7,141 (736) -10% 6,822 (417) -6%Consultants (iii) 202 260 (58) -22% 158 44 28%Accommodation Costs (iv) 2,562 2,505 57 2% 2,317 245 11%Professional Fees(Actuarial, Legal and Audit) (v) 1,228 1,366 (138) -10% 1,748 (520) -30%Postage, Printing and Record Management (vi) 1,837 2,139 (302) -14% 1,687 150 9%Promotions and Advertising (vii) 436 713 (277) -39% 505 (69) -14%Other Administration Costs (vii) 7,330 8,199 (869) -11% 8,956 (1,626) -18%

42,832 44,620 (1,788) -4% 46,598 (3,766) -8%Less:InvestmentAdministration Costs (ix) 3,450 3,336 114 3% 3,127 323 10%Total Administrative Costs excluding Changes in Net Market Value of Other Assets 39,382 41,284 (1,902) -5% 43,471 (4,089) -9%Changes in Net MarketValue of Other Assets (x) 4,017 4,036 (19) 0% 4,502 (485) -11%

Total Schemes Administration Costs 43,399 45,320 (1,921) -4% 47,973 (4,574) -10%

74

NOTES ON SIGNIFICANT VARIANCES IN ADMINISTRATION EXPENSES

In accordance with Treasurer’s Instruction 945, the following notes are provided where there is ‘signifi cant variation’ between actual expenditure and budget or the prior year’s actual.

‘Signifi cant variation’ is defi ned as a variance of greater than 10% of total administrative expenditure or $250,000, whichever is smaller.

Both actual and budget amounts include direct costs associated with superannuation reform. Actual 2012 Reform costs are $1.6 million (2011: $2.8 million) against a budget of $2.2 million (2011: $3.0 million). Excluding the direct reform costs, the actuals were 3% under budget for 2011/12.

(i) Employment Expenses2011/12 Actual to Budget (Increased cost $535k)The increase in expenditure against budget is due to an increase in the year end post employment benefi ts provision and higher than budgeted restructuring costs. 2011/12 Actual to Previous Year’s Actual (Decreased cost $1,573k)The decrease in expenditure to prior year is due to reduced restructuring costs in the current year.

(ii) Information Technology Costs2011/12 Actual to Budget (Decreased cost $729k), Actual to Previous Year’s Actual (Decreased cost $417k)The decrease in expenditure against budget and prior year is due to lower software license and maintenance costs and lower IT contractor expenses.

(iii) Consultants2011/12 Actual to Budget (Decreased cost $58k) The decrease in expenditure against budget is primarily due to prudent cost control and the timing of reform related activities.2011/12 Actual to Previous Year’s Actual (Increased cost $44k)The increase in expenditure to prior year relates to change management activities supporting superannuation reform.

(iv) Accommodation2011/12 Actual to Previous Year’s Actual (Increased cost $245k)The increase in expenditure to prior year is due to increased utility costs and a scheduled rent increase in June 2012.

(v) Professional Fees (Actuarial, Legal and Audit)2011/12 Actual to Budget (Decreased cost $138k) The decrease in expenditure against budget is due to lower than expected professional fees relating to superannuation reform activities.2011/12 Actual to Previous Year’s Actual (Decreased cost $520k)The decrease in expenditure to prior year is due to a planned reduction in legal and actuarial fees relating to super reform activities.

(vi) Postage, Printing and Records Management Costs2011/12 Actual to Budget (Decreased cost $302k)The decrease in expenditure against budget is due to Choice of Fund communication costs being incurred by Treasury, successful implementation of electronic statements and communication consolidation.

(vii) Promotions and Advertising Costs2011/12 Actual to Budget (Decreased cost $277k), Actual to Previous Year’s Actual (Decreased cost $69k)The decrease in expenditure against budget and prior year is due to a reduction in promotional activity.

(viii) Other Administration Costs2011/12 Actual to Budget (Decreased cost $876k)The decrease in expenditure against budget is primarily due to lower than budget travel expenses, irrecoverable GST and staff training and professional development costs. These decreases were partly offset by an increase in contractor expenditure.Actual to Previous Year’s Actual (Decreased cost $1,626k).The decrease in expenditure to prior year is primarily due to a planned reduction in project contractor expenses, reduced irrecoverable GST and lower staff training and professional development costs.

(ix) Investment Administration Costs2011/12 Actual to Previous Year’s Actual (Increased cost $323k)The increase in expenditure to prior year is due to planned growth in capability within the investment strategy team and increased restructuring costs.

(x) Changes in Net Market Value of Other AssetsActual to Previous Year’s Actual (Decreased cost $485k)There has been a substantial reduction in capital expenditure compared to historic levels. This has resulted in a reduction in this expense in the current year.

75


Note 11: Income Tax

2012 2011

$’000 $’000 A) MAJOR COMPONENTS OF TAX EXPENSECurrent tax expense 74,699 72,933Adjustment to the current tax for prior periods (120) (1,365)Adjustment to the deferred tax for prior periods 131 597Deferred tax expense relating to the origination and reversal of temporary differences (1,110) 1,673

Tax expense reported in Statement of Changes in Net Assets 73,600 73,838

B) EXPLANATION OF THE RELATIONSHIP BETWEEN TAX EXPENSEAND ACCOUNTING SURPLUS

Changes in Net Assets before Tax 1,147,418 1,976,446Changes in Net Assets Related to Constitutionally Protected Schemes (514,717) (1,238,392)Changes in Net Assets Related to WATC Loan (2,749) (30,874)Changes in Net Assets Related to Reserves (16,236) 510

Total Change in Net Assets Related to Retirement Products 613,716 707,690

Tax Expense Calculated at 15% 92,057 106,155

Tax Effect of Expenses that are not Deductible in Determining Taxable Income - Benefi ts paid 59,245 51,411 - Non-deductible expenses 1,132 1,219

Tax Effect of Income that is Not Assessable in Determining Taxable Income- Income from Managed Portfolio 3,036 (2,954)- Member contributions (4,107) (3,993)- Transfers in (57,423) (58,773)- Imputation credits (11,466) (8,270)- Exempt current pension income (10,091) (13,223)- Proceeds from insurance policy (1,035) (797)- Other items (9) (45)

Tax Effect of Other Adjustments- Other deductions (100) (50)- Current tax for prior year (120) (1,365)- Deferred tax for prior year 131 597- No TFN contributions tax 2,350 3,926

Tax Expense Reported in Statement of Changes in Net Assets 73,600 73,838

76

C) RECOGNISED TAX ASSETS AND LIABILITIES2012 2012 2011 2011

$’000 $’000 $’000 $’000 Current Tax Deferred Tax Current Tax Deferred Tax

Opening balance (29,490) 6,213 (18,648) 8,482Charged to income (74,580) 980 (71,568) (2,269)Other payments 76,265 - 60,726 -

Closing balance (27,805) 7,193 (29,490) 6,213

Tax Expense in Statement of Changes in Net Assets (73,600) (73,838)

Deferred Tax Asset at 30 June related to the following: - Unrealised Capital (Gains)/Losses (3,137) (370) - Realised Capital Losses 10,465 6,792

7,328 6,422

Deferred Tax Liability at 30 June related to the following: - Accrued Income (135) (209)

(135) (209)

77


Section 16 of the State Superannuation Act 2000 requires GESB to maintain such accounts within the fund that are considered necessary for the management of the fund and its separate elements and provides guidelines for the apportionment of investment income and expenses between those elements of the fund.

Contribution receipts and benefi t payments have been directly allocated to the relevant scheme.

Investment income and expenses (Note 3) and Fund administration costs (Note 10) have been apportioned between the schemes as follows:

A) APPORTIONMENT OF INVESTMENT INCOME

Section 22 of the State Superannuation Act 2000 provides that GESB is to allocate earnings derived from the investment of the fund between the schemes in accordance with the Treasurer’s guidelines and otherwise as it considers appropriate. Commencing 1 July 2001, as a result of the introduction of Member Investment Choice, the income attributable to the accumulation schemes has been allocated in accordance with income credited to the members’ account. Income is allocated based on actual investment income received in accordance with the Treasurer’s Prudential Guidelines for Reserves.

B) APPORTIONMENT OF NET ASSETS

The Net Assets of the fund have been apportioned between the elements of the fund as described below.

2012 2011

$’000 $’000 Pension Scheme 79,800 82,778Gold State Super 2,161,306 2,279,785West State Super 8,093,772 7,457,598GESB Super 1,125,099 896,603Retirement Income – Allocated Pension 1,544,658 1,231,842Retirement Income - Term Allocated Pension 20,833 22,029WATC Loan (442,086) (444,835)Reserves 98,550 82,314

12,681,932 11,608,114

Note 12: Apportionmentof Net Assets

78

Plant and equipment comprises of computer hardware and offi ce furniture, equipment and renovations. These assets are recorded at written down value which is considered a reasonable approximation of net market value. Details are listed in the table below.

2012 2011

$’000 $’000 Plant and EquipmentComputer Hardware at Cost 155 153Less: Accumulated Depreciation (116) (89)

Total Computer Hardware 39 64Offi ce Furniture, Equipment and Renovations at Cost 2,332 2,369Less: Accumulated Depreciation (837) (642)

Total Offi ce Furniture, Equipment and Renovations 1,495 1,727

Total Plant and Equipment 1,534 1,791

A reconciliation of the carrying amounts of each asset class at the beginning and end of the current and previous fi nancial year is set out in the table below.

2012

COMPUTER HARDWARE

OFFICE FURNITURE,

EQUIPMENT AND RENOVATIONS TOTAL

$’000 $’000 $’000 Carrying Amount at Start of Year 64 1,727 1,791Additions 1 22 23Disposals - (6) (6)Depreciation Expense (26) (248) (274)

Carrying Amount at End of Year 39 1,495 1,534

2011

COMPUTER HARDWARE

OFFICE FURNITURE,

EQUIPMENT AND RENOVATIONS TOTAL

$’000 $’000 $’000 Carrying Amount at Start of Year 91 2,003 2,094Additions - 8 8Disposals (1) (54) (55)Depreciation Expense (26) (230) (256)

Carrying Amount at End of Year 64 1,727 1,791

Note 13: Plant and Equipment

79

A) RECEIVABLES

Represented by:

2012 2011

$’000 $’000 InvestmentsReceivables 142,579 163,294Scrip Lending Fee 483 100Accrued Interest 159 127

143,221 163,521

Pension SchemeRecoup State’s Share of Pensions 5,291 10,381

5,291 10,381

Gold State SuperEmployer Contributions 7,596 7,375Contribution Arrears 2,705 2,468

10,301 9,843

Other Debtors - 543

Total 158,813 184,288

Receivables Past Due but Not ImpairedAs at 30 June 2012, receivables of $2,743,000 (2011 - $2,673,000) were past due but not impaired. The ageing analysis of these receivables is described in the table below.

2012 2011

$’000 $’000 31 - 60 days 36 21961 - 90 days - (17)91 + days 2,707 2,471

2,743 2,673

Receivables Considered ImpairedAs at 30 June 2012 no receivables were considered impaired (2011: $Nil).

Net Market Value and Credit RiskDue to the short term nature of these receivables, their carrying value approximates their net market value.

The maximum exposure to credit risk is the net market value of receivables. GESB does not hold any collateral in relation to these receivables.

Interest Rate RiskDetail regarding interest rate risk exposure is disclosed in Note 4.

Note 14: Receivables and Payables

80

B) PAYABLES

Represented by:

2012 2011

$’000 $’000 InvestmentsPayables 150,939 345,110Management Fees 8,280 8,947

159,219 354,057

GESB SuperBenefi ts Due and Payable 238 247

238 247

Gold State SuperBenefi ts Due and Payable 697 352

697 352

West State SuperBenefi ts Due and Payable 830 2,281

830 2,281

Pension SchemePension Due and Payable 4,614 4,058Retirement Income 173 1,129

4,787 5,187

Other Payables and Accruals 15,284 21,647

181,055 383,771

Net Market ValueDue to the short term nature of these payables, their carrying value approximates their net market value.

Interest Rate Liquidity RiskInformation regarding interest rate and liquidity risk exposure is set out in Note 4.

81


The provision for employee benefi ts for long service leave and annual leave has been calculated by Mercer (Australia) Pty Ltd, in accordance with the provisions of the Accounting Standard AASB 119 Employee Benefi ts.

The value of leave benefi ts has been estimated as described in the table below.

2012 2011

$’000 $’000 Current LiabilityLong Service Leave (a) 1,268 1,576Annual Leave 1,820 2,195Deferred Salary Scheme 66 72

3,154 3,843

Non-Current LiabilityLong Service Leave (a) 978 700

978 700

Total Employee Benefi ts 4,132 4,543

Number of Employees (Head Count) 215 235

(a) Long service leave liabilities have been classifi ed in accordance with Australian Accounting Standard AASB 101.

2012 2011

Long Service Leave $’000 $’000 Within 12 months of reporting date 1,268 1,576More than 12 months after reporting date 978 700

2,246 2,276

The settlement of annual and long service leave liabilities gives rise to the payment of employment on-costs including workers’ compensation premiums and payroll tax. The associated expenses are included at Note 30 ‘Employee Benefi t Expense’ and Note 31 ‘Other Expenses’.

The split between current and non current liabilities has been determined in accordance with the accounting standard AASB 101 ‘Presentation of Financial Statements’. All unconditional leave entitlements as at 30 June 2012 plus any entitlement becoming unconditional within 12 months of that date, has been classifi ed as a current liability in the Statement of Net Assets.

Note 15: Provision forEmployee Benefi ts

82

PRESENT VALUE OF DEFINED BENEFIT OBLIGATIONS AT THE END OF THE YEAR 2012 2011

$’000 $’000 Pension Scheme 1,745 1,631Gold State Super 518 456

Total 2,263 2,087

PENSION SCHEME

Accounting PolicyActuarial gains and losses are recognised immediately in the Statement of Changes in Net Assets in the year in which they occur.

Scheme InformationPension scheme members receive pension benefi ts on retirement, death or invalidity. The fund share of the pension benefi t, which is based on the member’s contributions plus investment earnings, may be commuted to a lump sum benefi t. The employers do not bear the cost associated with indexation of any pension arising from the fund share. The state share of the pension benefi t, which is fully employer-fi nanced, cannot be commuted to a lump sum benefi t.

The following disclosures are in respect of the employer fi nanced benefi ts only.

Reconciliation of the Present Value of the Defi ned Benefi t Obligation

FINANCIAL YEAR ENDING (PENSION SCHEME) 2012 2011

$’000 $’000 Present value of defi ned benefi t obligations at beginning of the year 1,631 1,669 (+) Interest Cost 82 87 (+) Actuarial (gains)/losses 169 21 (-) Benefi ts paid 137 146

Present value of defi ned benefi t obligations at end of the year 1,745 1,631

These defi ned benefi t obligations are wholly unfunded, such that there are no assets. The employer contributes, as required, to meet the benefi ts paid.

Reconciliation of the Fair Value of Scheme Assets


$’000 $’000 Fair value of Scheme assets at beginning of the year - - (+) Employer Contributions 137 146 (-) Benefi ts paid 137 146

Fair value of scheme assets at end of the year - -

Note 16: Provision forPost-Employment Benefi ts

83

Reconciliation of the Assets and Liabilities Recognised in the Statement of Net Assets

AS AT (PENSION SCHEME) 2012 2011

$’000 $’000 Defi ned Benefi t Obligation 1,745 1,631 (-) Fair value of assets - - Defi cit/(surplus) 1,745 1,631 (-) Unrecognised past service cost and/or net (gain)/loss - - (+) Adjustment for limitation on net asset - -

Liability 1,745 1,631

Expense Recognised in the Statement of Changes in Net Assets


$’000 $’000 Interest Cost 82 87Actuarial loss/(gain) 169 21

Superannuation Expense 251 108

Scheme AssetsThere are no assets in the Pension scheme to support the state share of the benefi t. Hence, there is:

no fair value of scheme assets;

no asset allocation of scheme assets;

no assets used by the employer;

no expected return of scheme assets; and

no actual return on scheme assets.

Principal Actuarial Assumptions Used

PENSION SCHEME 2012 2011 2010

% % %Discount rate (active members) 2.84 5.28 5.48 Discount rate (pensioners) 2.84 5.28 5.48 Expected salary increase rate 5.50 4.50 4.50 Expected pension increase rate 2.50 2.50 2.50

The discount rate is based on the nine year Government bond rate. The decrement rates used (e.g. mortality and retirement rates) are based on those used at the last actuarial valuation for the schemes.

Historical Information

FINANCIAL YEAR ENDING 30 JUNE(PENSION SCHEME)

2012 2011 2010 2009 2008

$’000 $’000 $’000 $’000 $’000

Present value of defi ned benefi t obligation 1,745 1,631 1,669 1,727 2,062Fair value of Scheme Assets - - - - - (Surplus)/defi cit in Scheme 1,745 1,631 1,669 1,727 2,062Experience adjustment (gain)/loss - Scheme Assets - - - - - Experience Adjustment (gain)/loss - Scheme Liabilities (151) (4) 9 (466) 599

The experience adjustment for scheme liabilities represents the actuarial loss/(gain) due to a change in the liabilities arising from the scheme’s experience (e.g. membership movements, unit entitlements) and excludes the effect of the changes in assumptions (e.g. movements in the bond rate and changes in pensioner mortality assumptions).

84

Expected Contributions

FINANCIAL YEAR ENDING (PENSION SCHEME) 2013

$’000Expected employer contributions 130

GOLD STATE SUPER (TRANSFERRED BENEFITS)

Accounting PolicyActuarial gains and losses are recognised immediately in the Statement of Changes in Net Assets in the year in which they occur.

Scheme InformationSome former Pension scheme members have transferred to Gold State Super. In respect of their transferred benefi t the members receive a lump sum benefi t at retirement, death or invalidity which is related to their salary during their employment and indexed during any deferral period after leaving public sector employment.

The following disclosures are in respect of the employer-fi nanced benefi ts only.

Reconciliation of the Present Value of the Defi ned Benefi t Obligation

FINANCIAL YEAR ENDING (GOLD STATE SUPER) 2012 2011

$’000 $’000 Present value of defi ned benefi t obligations at beginning of the year 456 540 (+) Interest Cost 23 29 (+) Actuarial (gains)/losses 92 22 (-) Benefi ts paid 53 135

Present value of defi ned benefi t obligations at end of the year 518 456

Reconciliation of the Fair Value of Scheme Assets


$’000 $’000 Fair value of Scheme assets at beginning of the year - - (+) Employer Contributions 53 135 (-) Benefi ts paid 53 135

Fair value of scheme assets at end of the year - -

Reconciliation of the Assets and Liabilities Recognised in the Statement of Net Assets

AS AT (GOLD STATE SUPER) 2012 2011

$’000 $’000 Defi ned Benefi t Obligation 518 456 (-) Fair value of assets - - Defi cit/(surplus) 518 456 (-) Unrecognised past service cost and/or net (gain)/loss - - (+) Adjustment for limitation on net asset - -

Liability 518 456

Expense Recognised in the Statement of Changes in Net Assets


$’000 $’000 Interest Cost 23 29Actuarial loss/(gain) 92 22

Superannuation Expense 115 51

85


Scheme AssetsThere are no assets in Gold State Super for current employees to support the transferred benefi ts. Hence, there is:

no fair value of scheme assets;

no asset allocation of scheme assets;

no assets used by the employer;

no expected return of scheme assets; and

no actual return on scheme assets.

Principal Actuarial Assumptions Used

GOLD STATE SUPER 2012 2011 2010

% % %Discount rate (active members) 2.84 5.28 5.48 Discount rate (pensioners) 2.84 5.28 5.48 Expected salary increase rate 5.50 4.50 4.50 Expected pension increase rate 2.50 2.50 2.50

The discount rate is based on the nine year Government bond rate. The decrement rates used (eg mortality and retirement rates) are based on those used at the last actuarial valuation for the schemes.

Historical Information

FINANCIAL YEAR ENDING 30 JUNE (GOLD STATE SUPER) 2012 2011 2010 2009 2008

$’000 $’000 $’000 $’000 $’000Present value of defi ned benefi t obligation 518 456 540 942 962Fair value of Scheme Assets - - - - - (Surplus)/defi cit in Scheme 518 456 540 942 962Experience adjustment (gain)/loss - Scheme Assets - - - - - Experience Adjustment (gain)/loss - Scheme Liabilities 1 15 (64) (147) 72

The experience adjustment for scheme liabilities represents the actuarial loss/(gain) due to a change in the liabilities arising from the scheme’s experience (eg membership movements, unit entitlements) and excludes the effect of the changes in assumptions (eg movements in the bond rate).

Expected Contributions

FINANCIAL YEAR ENDING (GOLD STATE SUPER) 2013

$’000

Expected employer contributions 35

86

The term loan from the Western Australian Treasury Corporation commenced on 30 May 2001 and was incurred to enable the balances on West State Super members’ accounts at 1 July 2001 to be fully funded from an investment perspective. This funding was a prerequisite for Member Investment Choice, as all monies had to be available to be invested in accordance with the plans chosen by members of West State Super.

The loan is unsecured and is repayable in quarterly instalments over 20 years. It bears interest at a fi xed rate of 6.5699%pa, plus a government guarantee fee of 0.2000%pa increasing to 0.7000%pa from 1 July 2012. The interest and government guarantee fee recognised for the period to 30 June 2012 is $27,470,623 (2011: $29,401,175).

As at 30 June 2012 the market value of the loan is $442,085,736 (2011: $444,834,935), with a premium of $46,901,111 (2011: $18,737,264) from a face value of $395,184,625 (2011: $426,097,671). The premium of $46,901,111 (2011: $18,737,264) represents the difference in present value between the interest rate the loan was fi xed at (6.5699% pa quarterly compounding) and the interest rates applicable on 30 June 2012.

The loan was entered into following successful negotiations with the state government in regard to an agreed payment schedule to discharge the unfunded West State Super liability over 20 years.

NET MARKET VALUE

The carrying amount of the fund’s interest bearing loans and borrowings approximate their net market value. The change in net market value is attributable to changes in the discount rate resulting from market related movements in long term interest rates together with principal and interest repayments.

INTEREST RATE AND LIQUIDITY RISK

Details regarding interest rate and liquidity risk are disclosed in Note 4.

DEFAULTS AND BREACHES

During the current and prior years, there were no defaults or breaches on the interest bearing loans and borrowings.

Note 17: Interest Bearing Loan and Borrowings

87

REMUNERATION OF MEMBERS OF THE BOARD

The number of members of the board, whose total of fees, salaries, superannuation, non-monetary benefi ts and other benefi ts for the fi nancial year, fall within the following bands.

REMUNERATION OF MEMBERS OF THE BOARD $ 2012 2011

0 - 10,000 1 210,001 - 20,000 2 130,001 - 40,000 - 150,001 - 60,000 2 260,001 - 70,000 3 280,001 - 90,000 - 1120,001 - 130,000 1 -

Total Number of Members of the Board is: 9 9

The Total Remuneration of Members of the Board is: $465,531 $385,648

The board is comprised of seven Board Directors. As at 30 June 2012 no positions were vacant. During 2011/12, remuneration in accordance with Section 8(2) of the SSA was paid to seven board directors. One director of the board, namely Derek Spray, did not receive any Director’s fees in accordance with government policy.

REMUNERATION OF SENIOR OFFICERS

The number of senior offi cers, whose total of fees, salaries, superannuation, non-monetary benefi ts and other benefi ts for the fi nancial year, fall within the following bands.

REMUNERATION OF SENIOR OFFICERS $ 2012 2011

70,001 - 80,000 1 190,001 - 100,000 - 1100,001 - 110,000 2 -150,001 - 160,000 1 -200,000 - 210,000 1 -250,001 - 260,000 1 -270,001 - 280,000 - 1310,001 - 320,000 - 1320,001 - 330,000 - 1360,001 - 370,000 - 1410,001 - 420,000 1 -430,000 - 440,000 1 -440,001 - 450,000 1 -480,001 - 490,000 - 1580,001 - 590,000 1 -1,320,001 - 1,330,000 - 1

Total Number of Senior Offi cers is: 10 8

The Total Remuneration of Senior Offi cers is: $2,769,754 $3,258,184

Three senior offi cers left GESB during the reporting period ended 30 June 2012. They received normal salary, a severance payment and statutory entitlements such as unpaid annual and long service leave. In the previous reporting period, two senior offi cers left GESB and received normal salary, a severance payment and statutory entitlements (included in table above).

In addition, during the previous reporting period Michele Dolin stepped down as Chief Executive Offi cer of GESB. The above table includes her normal salary, a severance payment of 12 months salary and statutory entitlements such as unpaid annual and long service leave.

‘Senior Offi cer’ represents a person, by whatever name called, who is concerned with or takes part in the management of GESB, but excludes any person acting in such a position for a limited period.

In 2011/12, GESB used the services of Jardine Lloyd Thompson Pty Ltd for its Directors and Offi cers Liability Insurance Policy. The premium paid in respect of this insurance was $72,500 (2011 - $80,324) (excluding GST).

Note 18: Remuneration of Members of the Board and Senior Offi cers

88

The total fee paid or due and payable to the Auditor General for the fi nancial years was as follows:

2012 2011

$’000 $’000 Fee for Auditing the Financial Statements and Key Performance Indicators 340 320

Note 20: Related Party Transactions

During the fi nancial year, GESB received from its related party GESB Wealth Management Pty Ltd (GWM), total service fees amounting to $3,783,997 (2011: $3,569,017) in relation to the performance of services as agreed between the parties. The amount receivable as at 30 June 2012 is $334,027 (2011: $329,491).

During the fi nancial year, GESB requested GWM to provide certain fi nancial services to its members, relating to member education and general fi nancial information. A fee was agreed between both parties for the provision of these services to GESB members. For 2011/12 these fees amount to $600,879 (2011: $488,467). The amount payable as at 30 June 2012 is $63,891 (2011: $37,001).

All related party transactions were entered into on a normal commercial basis.

Note 21: Write-Offs

The write-offs made during the current fi nancial year are as follows: $9,486 (2011: $9,001).

Note 19: Remuneration of Auditor

89

OPERATING LEASE COMMITMENTS

2012 2011

$’000 $’000 Commitments in relation to non-cancellable operating leases contracted for at reporting date but not recognised as liabilities are payable:Within 1 Year 3,048 1,946Later than 1 Year and not later than 5 Years 13,359 13,854Later than 5 Years - 3,561

16,407 19,361

GESB is committed to operating leases on four motor vehicles. These leases are non-cancellable and have a term of two years with no renewable options included in the contract. There are no restrictions imposed by these leasing arrangements on other fi nancing transactions.

GESB is committed to a lease agreement on its premises. The property lease is a non-cancellable lease with a 10 year term, with an option to renew the lease at the end of the term for an additional term of fi ve years.

OTHER EXPENDITURE COMMITMENTS

2012 2011 $’000 $’000

Other expenditure commitments, being contracted expenditure additional to the amounts reported in the fi nancial statements, are payable as follows:Within 1 Year 2,763 3,365Later than 1 Year and not later than 5 Years - - Later than 5 Years - -

2,763 3,365

The expenditure commitments relate to contracted expenditure for outsourced information and communication technology services.

Note 22: Commitments and Contingencies

90

In accordance with Treasurer’s Instruction 945, this statement compares 2011/12 Revenue and Expenditure as shown within the Statement of Changes in Net Assets with:

(a) The 2011/2012 Budget fi gures published in the 2010/11 Annual Report

(b) The 2010/2011 Revenue and Expenditure fi gures

NOTE

2011/2012 ACTUAL

2011/2012 BUDGET

VARIANCE ACTUALTO BUDGET

2010/2011 ACTUAL

VARIANCE ACTUAL TO PRIOR YEAR ACTUAL

$’000 $’000 $’000 % $’000 $’000 %REVENUEInvestment RevenueInvestment Revenue (i) 375,271 1,015,049 (639,778) -63% 1,143,280 (768,009) -67%Less: Investment Expenses (ii) (34,118) (40,207) 6,089 -15% (33,518) (600) 2%

Net Investment Revenue 341,153 974,842 (633,689) -65% 1,109,762 (768,609) -69%

Superannuation RevenueContributions IncomeMember (iii) 533,754 486,072 47,682 10% 495,533 38,221 8%Employer 1,289,385 1,270,416 18,969 1% 1,280,367 9,018 1%Rollover into Retirement Products

(iv) 542,810 630,399 (87,589) -14% 550,177 (7,367) -1%

Inward Transfer from Other Funds

(v) 415,347 630,629 (215,282) -34% 476,676 (61,329) -13%

Insurance Proceeds (vi) 33,710 25,976 7,734 30% 29,950 3,760 13%Other Income (vii) 19,361 11,004 8,357 76% 7,792 11,569 148%

Total Superannuation Revenue 2,834,367 3,054,496 (220,129) -7% 2,840,495 (6,128) -0%

Total Revenue 3,175,520 4,029,338 (853,818) -21% 3,950,257 (774,737) -20%

Superannuation Benefi ts (viii) 1,861,312 2,291,858 (430,546) -19% 1,823,365 37,947 2%Administration Expenses (ix) 39,382 41,284 (1,902) -5% 43,471 (4,089) -9%Group Life Insurance Premium

(x) 67,964 75,545 (7,581) -10% 75,171 (7,207) -10%

Changes in Net Market Value of Other Assets

(xi) 4,017 4,036 (19) -0% 4,502 (485) -11%

Changes in Net Market Value of Financial Liabilities

(xii) 27,956 - 27,956 100% (2,099) 30,055 -1432%

Loan Interest 27,471 27,700 (229) -1% 29,401 (1,930) -7%

Total Expenses 2,028,102 2,440,423 (412,321) -17% 1,973,811 54,291 3%

OPERATING RESULT BEFORE TAX FOR THE YEAR

1,147,418 1,588,915 (441,497) -28% 1,976,446 (829,028) -42%

Note 23: Explanatory Statement

91

NOTES TO THE EXPLANATORY STATEMENT

The following notes apply only where a variance from budget or prior year’s actual is greater than 10%, is material and/or deemed signifi cant in the context of the operations of GESB.

(i) Investment RevenueRevenue from investments was $640m (63%) lower than budget and $768m (67%) lower than the prior year. The full year investment performance for the fund was 3.0% as compared to a budget of 8.2% and a prior year result of 11.03%. Details of investment revenue are included in Note 3.

(ii) Investment ExpensesInvestment expenses were $6m (15%) lower than budget. This was due to a delay in implementing planned investment strategies and lower than budgeted investment returns and FUM. Several new managers were introduced during the year and these managers have lower base fees and higher performance fees.

(iii) Member ContributionsTotal member contributions were $48m (10%) higher than budget due to increased salary sacrifi ce and member voluntary contributions.

(iv) Rollover into Retirement ProductsTotal rollovers into retirement products were $88m (14%) lower than budget. The reluctance to take retirement benefi ts in a volatile market have led to lower than expected rollovers into retirement products. Lower fi nancial planning activity and a shift towards self managed super funds has reduced the proportion of benefi ts retained.

(v) Inward Transfer from Other FundsInward transfers from other funds were $215m (34%) lower than budget and $61m (13%) lower than prior year due to lower member consolidation activity, signifi cantly lower than budget member transfer from overseas pension funds and reduced roll in promotional activity.

(vi) Insurance ProceedsInsurance proceeds exceeded budget by $8m (30%) and were $4m (13%) higher than the prior year due to increased death and disability benefi ts.

(vii) Other IncomeOther income was $8m (76%) higher than budget and $12m (148%) higher than the prior year due to the implementation of a new process for the recovery of the defi ned benefi t schemes administration expenses.

(viii) Superannuation Benefi tsSuperannuation benefi ts were $431m (19%) lower than budget due to signifi cantly lower than budgeted exits from Choice of Fund and member reluctance to take benefi ts in a volatile market.

(ix) Administration ExpensesAs per Note 10.

(x) Group Life Insurance PremiumsGroup Life Insurance Premiums were $7m (10%) lower than prior year due to negotiated reductions with external provider AIA and $8m (10%) lower than budget because a forecast increase in insurance cover did not materialise.

(xi) Changes in Net Market Value of Other AssetsAs per Note 10.

(xii) Changes in Net Market Value of Financial Liabilities As per Note 17.

92

One of the functions of GESB is to administer the schemes listed below.

Pension scheme - was the government’s original superannuation scheme and has been closed to new members since 1986. It provides a salary linked unit based pension for retiring members. This scheme is an untaxed scheme.

Provident account - is a lump sum scheme for persons who were not eligible to join the Pension scheme. This scheme was also closed to new members in 1986. For scheme reporting purposes the Provident account is included with the Pension scheme. This scheme is an untaxed scheme.

Gold State Super - is a defi ned benefi t, lump sum superannuation scheme that has been closed to new members since 1995. This scheme is an untaxed scheme.

West State Super - is a market linked accumulation superannuation 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 Benefi t Guarantee amount. These members are classifi ed as having a defi ned benefi t interest. It has been closed to new members since April 2007. This scheme is an untaxed scheme.

GESB Super - is a market linked taxed accumulation superannuation scheme which also includes GESB Super (Retirement Access). GESB Super is open to new employees of the state government.

Retirement Income Allocated Pension - is an allocated pension that enables retiring members to keep their funds with GESB in a concessionally taxed environment, while receiving fl exible periodic payments.

Retirement Income Term Allocated Pension - is a market linked income stream similar to an allocated pension but with restricted redemption options and qualifi es as a complying pension for tax and social security purposes. It has been closed to new members since September 2007.

Note 24: Scheme Information

93

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231,

147

530,

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718,

287

138,

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202,

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9,16

220

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96)

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,115

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RE IN

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98,4

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7,708

430,

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122

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95

In accordance with Clause 63 of Australian Accounting Standard AAS25, the following information is provided in the Actuarial Report on the latest investigation as to the state and suffi ciency of the fund.

The valuation was undertaken in accordance with Section 17 of the State Superannuation Act 2000.

1) EFFECTIVE DATE OF THE LATEST ACTUARIAL INVESTIGATION

The effective date of the latest valuation was 30 June 2012.

2) NAME AND QUALIFICATION OF ACTUARY

The valuation of funded liabilities was undertaken by GESB’s actuary, Mercer (Australia) Pty Ltd. The valuation of unfunded accrued liabilities was performed by PricewaterhouseCoopers Securities Limited on behalf of the Department of Treasury.

3) FUND SUMMARY

The overall fi nancial position of the fund as at 30 June 2012 was as stated in the table below.

2012

$m

Net Assets of the Fund (excluding WATC Loan) 13,124.0

Actuarial Liabilities (inclusive of reserves)West State Super 8,093.8 GESB Super 1,125.1 Retirement Products 1,565.5 Fund Reserves 98.6 Pension Scheme 84.2 Gold State Super 2,280.4

Total Actuarial Liabilities 13,247.6

Net Position (123.6)

In the opinion of the actuary, the net position of the fund in 2011/12 deteriorated slightly due to lower than expected investment returns. The combined funding percentage for Gold State Super and the Pension scheme has decreased from 100.0% at 30 June 2011 to 94.8% at 30 June 2012.

Note 25: Summary of Actuarial Report

96

4) FINANCIAL CONDITION OF EACH SCHEME AS AT 30 JUNE 2012GESB’s actuary reported that in respect of funded liabilities:

a) Pension schemeThe actuary reported that the scheme has a slightly deteriorated fi nancial position and assets no longer match the value of funded accrued benefi ts.

b) Gold State SuperThe actuary reported that the scheme has a slightly deteriorated fi nancial position and assets no longer match the value of funded accrued benefi ts.

c) West State SuperThe actuary reported that the scheme is in a sound fi nancial position as at 30 June 2012, with suffi cient assets to meet the expected payments in respect of the accrued liabilities. The actuary recommended the following reserves to be maintained for West State Super:

Minimum Benefi t Guarantee Reserve $44.9million

The reserve arises from the guarantee provided to West State Super members in respect of their balance as at 30 June 2001 indexed by CPI plus 2%.

Insurance Reserve $4.8million

The self-insured Permanent Partial Disability insurance claims and the run-off in respect of pre-existing conditions for West State Super members are continuing to be provided by GESB. Hence, an insurance reserve has been established to protect the fund from these ongoing risks.

d) GESB SuperThe actuary reported that the GESB Super Scheme is in a sound fi nancial position as at 30 June 2012, with suffi cient assets to meet the expected payments in respect of accrued liabilities.

e) Retirement ProductsThe actuary reported that the Retirement Income Allocated Pension scheme and Retirement Income Term Allocated Pension scheme are in a sound fi nancial position as at 30 June 2012, with suffi cient assets to meet the expected payments in respect of accrued liabilities.

5) RESERVES

In addition to the above funded liabilities and scheme explicit reserves, the actuary recommended that the fund maintains a portion of its assets in the following reserve:

Operational Risk Reserve $48.9million

The operational risk reserve provides GESB with access to funds to protect members’ interests and mitigate the impact of an adverse event. Transfers in and out of the reserve are made in accordance with the GESB’s Reserve Policy.

The current level of this reserve represents the contributions made to this reserve from the accumulation schemes since 30 June 2009. It also includes a contribution from the insurance arrangements and relevant investment returns.

97


In July 2012 the GESB Board endorsed a cabinet decision to proceed to wind up its wholly owned subsidiary GESB Wealth Management Pty Ltd (GWM), a position formally noted by the GWM Board at its August 2012 meeting. On this basis the book value of the investment in GWM has been written down to the Net Assets of the entity as at 30 June 2012.

On 15 August 2012 the board took the decision to discontinue scrip lending and no future contracts will be undertaken.

Note 27: Judgements made by Management in Applying Accounting Policies

EXPENDITURE COMMITMENTS

The fund has entered into an outsourcing arrangement for the provision of information and communication technology services. It has been determined that this arrangement is a services agreement, as all the signifi cant risks and rewards of ownership are retained by Fujitsu Australia Limited.

Note 28: Key Sources ofEstimation Uncertainty

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting periods are:

VALUATION OF ACCRUED BENEFITS

The amount of accrued benefi ts has been actuarially determined. The key assumptions are discussed in Note 6.

POST-EMPLOYMENT BENEFITS

The amount of post-employment benefi ts has been actuarially determined. The key assumptions are discussed in Note 16.

VALUATION OF INVESTMENTS AND DERIVATIVES

Signifi cant judgements and assumptions are required in determining net market value for investments that are classifi ed in Level 3 in the fair value hierarchy. Refer to Note 4(G).

Note 26: Subsequent Events

98

2012 2011

$’000 $’000 Lease Rentals 1,723 1,560Other Accommodation Costs 839 757

2,562 2,317

Note 30: Employee Benefi ts Expense

2012 2011

$’000 $’000 Salaries 16,335 17,243Superannuation - Defi ned Contribution Plans 1,657 1,736Superannuation - Defi ned Benefi t Plans 552 373Long Service Leave (a) 624 652Annual Leave (a) 1,525 1,975Other Related Expenses 2,139 2,426

22,832 24,405

(a) Includes a superannuation contribution component.

Employment on-costs such as workers’ compensation insurance and payroll tax are included at Note 31 ‘Other Expenses’.

Note 29: Accommodation Expenses

99

2012 2011

$’000 $’000 Consultants 202 158Information Technology Services 6,405 6,822Accomodation 2,562 2,317Printing, Postage and Record Management 1,837 1,687Professional Fees 1,228 1,748Promotion and Advertising 436 505Other Expenses (a) 7,330 8,956

20,000 22,193

(a) Includes workers’ compensation insurance, payroll tax and other employment on-costs. Superannuation contributions accrued as part of the provision for leave are employee benefi ts and are not included in employment on-costs.

Note 32: Changes in Net MarketValue of Other Assets

2012 2011

$’000 $’000 DepreciationComputer Hardware 26 27Offi ce Furniture, Equipment and Renovations 248 230

Total Depreciation 274 257

AmortisationIntangible Assets 3,743 4,245

Total Amortisation 3,743 4,245

Total Depreciation and Amortisation 4,017 4,502

Note 31: Other Expenses

100

Intangible assets comprise computer software costs and computer software development projects. These assets are recorded at amortised values. Details provided below.

2012 2011

$’000 $’000 Intangible AssetsComputer Software Costs 59,915 58,822Less: Accumulated Amortisation (53,398) (49,655)Total Computer Software Costs 6,517 9,167Computer Software Development Projects - Work in Progress Costs 796 331

Total Intangible Assets 7,313 9,498

Reconciliation of the carrying amounts of each asset class at the beginning and end of the current and previous fi nancial year is set out in the table below.

2012 COMPUTER SOFTWARE

WORKS IN PROGRESS

TOTAL

$’000 $’000 $’000 Carrying amount at Start of Year 9,167 331 9,498Additions - 1,558 1,558Transfers 1,093 (1,093) - Amortisation Expense (3,743) - (3,743)

Carrying amount at End of Year 6,517 796 7,313

2011 COMPUTER SOFTWARE

WORKS IN PROGRESS

TOTAL

$’000 $’000 $’000 Carrying amount at Start of Year 9,804 1,104 10,908Additions - 2,951 2,951Write-Offs (84) (32) (116)Transfers 3,692 (3,692) - Amortisation Expense (4,245) - (4,245)

Carrying amount at End of Year 9,167 331 9,498

Note 33: Intangible Assets

101

Independent Audit Opinion

102

Auditor General

Page 1 of 3

7th Floor Albert Facey House 469 Wellington Street Perth MAIL TO: Perth BC PO Box 8489 Perth WA 6849 TEL: 08 6557 7500 FAX: 08 6557 7600 XO

FAG

L001

INDEPENDENT AUDITOR’S REPORT To the Parliament of Western Australia GOVERNMENT EMPLOYEES SUPERANNUATION BOARD Report on the Financial Statements I have audited the accounts and financial statements of the Government Employees Superannuation Board. The financial statements comprise the Statement of Net Assets as at 30 June 2012 and the Statement of Changes in Net Assets for the year then ended, and Notes comprising a summary of significant accounting policies and other explanatory information. Board’s Responsibility for the Financial Statements The Board is responsible for keeping proper accounts, and the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards and the Treasurer’s Instructions, and for such internal control as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility As required by the Auditor General Act 2006, my responsibility is to express an opinion on the financial statements based on my audit. The audit was conducted in accordance with Australian Auditing Standards. Those Standards require compliance with relevant ethical requirements relating to audit engagements and that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Board’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Board, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements are based on proper accounts and present fairly, in all material respects, the net assets of the Government Employees Superannuation Board at 30 June 2012 and the changes in net assets for the year then ended. They are in accordance with Australian Accounting Standards and the Treasurer’s Instructions.

103


Report on Controls I have audited the controls exercised by the Government Employees Superannuation Board during the year ended 30 June 2012. Controls exercised by the Government Employees Superannuation Board are those policies and procedures established by the Board to ensure that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions. Board’s Responsibility for Controls The Board is responsible for maintaining an adequate system of internal control to ensure that the receipt, expenditure and investment of money, the acquisition and disposal of public and other property, and the incurring of liabilities are in accordance with the Financial Management Act 2006 and the Treasurer’s Instructions, and other relevant written law. Auditor’s Responsibility As required by the Auditor General Act 2006, my responsibility is to express an opinion on the controls exercised by the Government Employees Superannuation Board based on my audit conducted in accordance with Australian Auditing and Assurance Standards. An audit involves performing procedures to obtain audit evidence about the adequacy of controls to ensure that the Board complies with the legislative provisions. The procedures selected depend on the auditor’s judgement and include an evaluation of the design and implementation of relevant controls. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the controls exercised by the Government Employees Superannuation Board are sufficiently adequate to provide reasonable assurance that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions during the year ended 30 June 2012. Report on the Key Performance Indicators I have audited the key performance indicators of the Government Employees Superannuation Board for the year ended 30 June 2012. The key performance indicators are the key effectiveness indicators and the key efficiency indicators that provide information on outcome achievement and service provision. Board’s Responsibility for the Key Performance Indicators The Board is responsible for the preparation and fair presentation of the key performance indicators in accordance with the Financial Management Act 2006 and the Treasurer’s Instructions and for such controls as the Board determines necessary to ensure that the key performance indicators fairly represent indicated performance. Auditor’s Responsibility As required by the Auditor General Act 2006, my responsibility is to express an opinion on the key performance indicators based on my audit conducted in accordance with Australian Auditing and Assurance Standards.

104

An audit involves performing procedures to obtain audit evidence about the key performance indicators. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the key performance indicators. In making these risk assessments the auditor considers internal control relevant to the Board’s preparation and fair presentation of the key performance indicators in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the relevance and appropriateness of the key performance indicators for measuring the extent of outcome achievement and service provision. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the key performance indicators of the Government Employees Superannuation Board are relevant and appropriate to assist users to assess the Board’s performance and fairly represent indicated performance for the year ended 30 June 2012. Independence In conducting this audit, I have complied with the independence requirements of the Auditor General Act 2006 and Australian Auditing and Assurance Standards, and other relevant ethical requirements. Matters Relating to the Electronic Publication of the Audited Financial Statements and Key Performance Indicators This auditor’s report relates to the financial statements and key performance indicators of the Government Employees Superannuation Board for the year ended 30 June 2012 included on the Board’s website. The Board’s directors are responsible for the integrity of the Board’s website. This audit does not provide assurance on the integrity of the Board’s website. The auditor’s report refers only to the financial statements and key performance indicators described above. It does not provide an opinion on any other information which may have been hyperlinked to/from these financial statements or key performance indicators. If users of the financial statements and key performance indicators are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial statements and key performance indicators to confirm the information contained in this website version of the financial statements and key performance indicators.

COLIN MURPHY AUDITOR GENERAL FOR WESTERN AUSTRALIA Perth, Western Australia 7 September 2012

Certifi cation of Key Performance Indicators

In the opinion of the Board, the key performance indicators are based on proper records, are relevant and appropriate for assisting users to assess the performance of GESB, and fairly represent the performance of GESB for the fi nancial year ended 30 June 2012.

KM FARRELL JL LANGOULANT Deputy Chairman Chairman5 September 2012 5 September 2012

105

The Key Performance Indicators in this report are produced in order to evaluate GESB’s performance in achieving its outcome and delivering its services. Included are key effectiveness and effi ciency performance indicators required by the Financial Management Act 2006 and Treasurer’s Instruction 904. The key effectiveness indicators provide information on the extent to which the agency level government desired outcome has been achieved through the production of the agreed service. The key effi ciency indicators link the service GESB provides to the level of resource inputs required to produce them.

The Performance Highlights section of the Annual Report includes other relevant measures that provide an overview of performance during 2011/12.

GESB’S OUTCOME

GESB has statutory obligations under its enabling legislation to administer superannuation schemes and provide products and services, such as our retirement products, to our members. In doing this we are obligated to act in the best interests of our members. Our outcome is the ‘improved long term fi nancial security of members’. This means supporting members in achieving a comfortable retirement.

GESB’s outcome contributes to the Government Goal of “fi nancial and economic responsibility”. GESB also contributes to the Government Goal of “a stronger focus on the regions” where GESB has specifi c programs in place given that nearly one third of government’s workforce (our members) are regionally based.

KEY EFFECTIVENESS INDICATORS

1. MEMBERS’ OVERALL SATISFACTION WITH GESB

Members’ overall satisfaction with GESB is an important measure in evaluating GESB’s performance in achieving its outcome, which is the ‘improved long term fi nancial security of members’. Achieving member satisfaction through the provision of value for money products and services, engaging members in their superannuation and supporting them in making fi nancial decisions illustrates how GESB helps members improve their long term fi nancial security.

Members’ overall satisfaction with GESB has decreased from 2010/11 to 2011/12. Results indicate that some members have moved from a position of being ‘fairly’ satisfi ed to a more ‘neutral’ position due to a general disconnection with superannuation and GESB rather than any specifi c performance or service issues.

GESB uses an external market research company to conduct its member surveys.

A random sampling process was used to select a representative base of 500 active Gold State Super, West State Super and GESB Super members. To improve accuracy of the results they are weighted by membership type and gender. 500 respondents provide a maximum level of error of up to +/- 4.38% at the 95% confi dence level.

ACTUAL2007/08*

ACTUAL2008/09*

ACTUAL2009/10

ACTUAL2010/11**

ACTUAL2011/12**

TARGET2011/12

Percentage who are fairly satisfi ed, satisfi ed or extremely satisfi ed 90% 82% 75% 75% 69% 80%

* Note: Prior to 2009/10 satisfaction was determined using a seven point scale. Since 2009/10 actual satisfaction has been based on a 10 point scale. On a comparable basis, the 2008/2009 satisfaction level would have been 78%.

** Note: A telephone based survey was used in the 2009/10 survey. Online results only are reported for 2010/11 and 2011/12 consistent with a long term objective to conduct the survey online only. No signifi cant differences in satisfaction levels were identifi ed between the two methodologies.

Key Performance Indicators

106

2. INVESTMENT PERFORMANCE AGAINST BENCHMARKS

Performance by asset classesMeasuring investment performance against benchmarks is an important indicator in evaluating GESB’s performance in achieving its outcome of ‘improved long term fi nancial security of members’. Strategies which achieve above benchmark returns result in higher than average returns for members, improving their long term fi nancial security.

The following tables show the performance of the various asset classes compared to established industry benchmarks. Asset class benchmarks are developed in consultation with GESB’s asset consultant. Commentary on asset class performance is provided in the Performance Highlights section of the Annual Report.

INVESTMENT PLAN 1 YEAR GROSS RETURN*

% pa

3 YEAR GROSS RETURN*

% pa


% paAsset Class Cash 5.09 4.73 4.98Benchmark UBSA Bank Bill Index 4.70 4.52 5.27Relative Performance 0.39 0.21 (0.29)


% pa


% pa


% paAsset Class Government Bonds** 12.37 10.68 N/ABenchmark Citigroup World Government Bond Index,

hedged into Australian Dollars11.07 9.06 N/A

Relative Performance 1.30 1.62 N/A


% pa


% pa


% paAsset Class Global Property^ 6.35 19.57 N/ABenchmark FTSE EPRA/NAREIT Developed Total Return

Index, hedged into Australian Dollars5.87 19.08 N/A



% pa


% pa


% paAsset Class International Equities˜ (1.03) 7.13 (4.43)Benchmark International Equities Composite Benchmark 0.18 7.89 (4.13)Relative Performance (1.21) (0.76) (0.30)


% pa


% pa


% paAsset Class Australian Equities (8.21) 5.00 (2.43)Benchmark S&P/ASX 300 Accumulation Index (7.01) 5.56 (4.15)Relative Performance (1.20) (0.56) 1.72

107



% pa


% pa


% paAsset Class Private Equity˜^ 15.29 10.33 N/ABenchmark 1/3 S&P/ASX 200 Accumulation Index + 2/3

MSCI World ex Australia Index Net Dividends, hedged into Australian Dollars

0.94 4.83 N/A



% pa


% pa


% paAsset Class Diversifi ed Fixed Interest** 6.65 7.00 N/ABenchmark UBSA Bank Bill Index 4.70 4.52 N/ARelative Performance 1.95 2.48 N/A


% pa


% pa


% paAsset Class Unlisted Property˜*** 10.04 N/A N/ABenchmark GESB Customised Unlisted Property Benchmark 9.51 N/A N/ARelative Performance 0.53 N/A N/A

* All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark except where assets are invested in a Unit Trust~. The Unit Trust return component is reported after underlying investment costs have been deducted. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. Returns greater than one year are annualised.^This asset class was established in 2008, following an asset class restructure.** The previously named Global Fixed Interest asset class was restructured in 2012 and resulted in the establishment of two new asset classes called Government Bonds and Diversifi ed Fixed Interest. The purpose of this restructure, as approved by GESB’s Board, was to provide GESB with greater fl exibility in managing the changing risks in the fi xed income markets. The Government Bonds asset class has been benchmarked against the Citigroup World Government Bond Index which is considered one of the most commonly used benchmarks for this style of investing. The Diversifi ed Fixed Interest asset class has been benchmarked against the UBSA Bank Bill Index, which is considered one of the most commonly used benchmarks for fl oating rate debt securities. *** Introduced October 2009

108

Performance against primary objectivesThe primary return objectives for the diversifi ed plans are measured against CPI related targets. Previously each diversifi ed plan was evaluated over a uniform fi ve year time horizon. In order to better calibrate the CPI related targets to appropriate time periods, the time horizons of each plan has been modifi ed to refl ect their expected risk and return profi les. The table below lists the new time horizons against which the primary return objectives are now measured.

INVESTMENT PLAN TIME HORIZON FOR PRIMARY OBJECTIVE

Cash Plans 3 years

Conservative Plans 5 years

Balanced Conservative Plan 6 years

Balanced Plans 7 years

Balanced Growth Plan 7 years

Growth Plans 10 years

Performance of West State Super PlansThe primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with a 75% probability of achieving this objective. The probabilities of negative returns were amended to refl ect the latest asset class forecasts of GESB’s asset consultant and are included to allow for adequate risk comparisons to be made between investment plans.

The table below shows the net performance along with the specifi ed multi-year CPI performance targets.

Each investment plan has underperformed its primary objective. The modest underperformance of the Cash option is due primarily to the low level offi cial cash rates. Since the onset of the global fi nancial crisis and in response to the risks facing the economy, the Reserve Bank of Australia has kept offi cial interest rates at a much lower than average rate than previous periods. These lower cash rates in turn reduce the performance available from conservative cash strategies.

For each of the diversifi ed plans, the time horizon for meeting the primary objective includes the impact of the global fi nancial crisis. For these plans the underperformance versus the primary objective is primarily due to the poor performance of “growth assets” such as the equity and property asset classes during the global fi nancial crisis.

INVESTMENT PLAN

OBJECTIVE** MULTI-YEAR PERIOD NET RETURN

% pa#

TARGET RETURN

% pa#

RELATIVE PERFORMANCE

CASH PLAN CPI + 2.2% pa over rolling 3 year periods

The probability of a negative absolute return is expected to be zero

4.56 4.81 (0.25)

CONSERVATIVE PLAN

CPI + 3.3% pa over rolling 5 year periods

Limit the probability of a negative absolute return to 1 in 9.5 years

3.96 6.05 (2.09)

BALANCED PLAN CPI + 3.7% pa over rolling 7 year periods


4.95 6.53 (1.58)

GROWTH PLAN CPI + 4.0% pa over rolling 10 year periods


5.68 6.75 (1.07)

# All returns are reported net of Management Expense Ratio (MER) when compared against a net investment target. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. West State Super does not pay tax on the investment earnings of the fund due to its untaxed status.** In March 2011 GESB’s Board approved changes to the 5-year time horizon for the Cash, Balanced and Growth plans. These changes better refl ect the expected risk and return profi les for each plan.

109


The secondary performance objectives are to outperform the target asset-weighted benchmark by a specifi ed margin over rolling three year periods and outperform the target asset-weighted benchmark over rolling 12 month periods. Asset class benchmarks are developed in consultation with GESB’s asset consultant.

The table below shows the gross performance along with the 12 month and three year performance targets.

Three out of four Readymade plans and one out of four MY plans, exceeded their target over a three year rolling period. The Balanced plan (the plan adopted by the majority of West State Super members) achieved a gross return of 9.29% pa for the three year period exceeding its asset-weighted benchmark of 8.92% pa by 0.37% pa.

The Balanced plan achieved a gross return of 4.22% for the twelve month period exceeding its target of 2.98% by 1.24%.

Six out of eight West State Super plans exceeded their benchmark over a twelve month rolling period.

The relative performance of each plan versus its secondary performance objectives is considered within expectations over both the 12 month and three year rolling periods.

12 MONTHS 3 YEARS

12 Month Gross Plan Return %*

12 Month Benchmark

%

Relative Performance

3 Year Gross Plan Return

% pa*

3 Year Benchmark

% pa

Target 3 Year Target % pa


Cash Plan 5.09 4.70 0.39 4.74 4.52 Benchmark + 0.2% pa

4.72 0.02

Conservative Plan

5.87 5.08 0.79 8.18 7.35 Benchmark + 0.4% pa.

7.75 0.43

Balanced Plan 4.22 2.98 1.24 9.29 8.42 Benchmark + 0.5% pa

8.92 0.37

Growth Plan 1.65 1.22 0.43 8.75 8.35 Benchmark + 0.5% pa

8.85 (0.10)

MY Plan – Global Fixed Interest

12.25 10.21 2.04 10.65 8.77 Benchmark + 0.1% pa

8.87 1.78

MY Plan – Listed Properties

6.17 5.87 0.30 19.46 19.08 Benchmark + 1.1% pa

20.18 (0.72)

MY Plan – Australian Equities

(8.23) (7.01) (1.22) 4.93 5.56 Benchmark + 1.0% pa

6.56 (1.63)

MY Plan – International Equities

(0.71) 0.18 (0.89) 7.15 7.89 Benchmark + 1.2% pa

9.09 (1.94)

* All returns are reported gross of Management Expense Ratio (MER) when compared against a gross investment benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced. West State Super does not pay tax on the investment earnings of the fund due to its untaxed status.

110

Performance of GESB Super plansThe primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with a 75% probability of achieving this objective. The probabilities of negative returns were amended to refl ect the latest asset class forecasts of GESB’s asset consultant and are included to allow for adequate risk comparisons to be made between investment plans.


Both the Cash plan and the Conservative plan have underperformed their primary objectives. The modest underperformance of the Cash option is due primarily to the low level offi cial cash rates. Since the onset of the global fi nancial crisis and in response to the risks facing the economy, the Reserve Bank of Australia has kept offi cial interest rates at a much lower than average rate than previous periods. These lower cash rates in turn reduce the performance available from conservative cash strategies. For the Conservative plan, the time horizon for meeting the primary objective includes the impact of the global fi nancial crisis. The underperformance of the Conservative plan versus the primary objective is primarily due to the poor performance of “growth assets” such as the equity and property asset classes during the global fi nancial crisis.

The remaining diversifi ed plans in GESB Super have not been in operation for a suffi cient time period to assess their performance versus their specifi ed time horizon.

INVESTMENT PLAN OBJECTIVE** MULTI-YEAR PERIOD NET RETURN

% pa#

TARGET RETURN

% pa#




3.94 4.01 (0.07)

CONSERVATIVE PLAN



3.08 5.45 (2.37)

BALANCED CONSERVATIVE PLAN



N/A 5.74 N/A

BALANCED GROWTH PLAN



N/A 6.13 N/A



N/A 6.45 N/A

# All returns are reported net of Management Expense Ratio (MER) and applicable taxes when compared against a net investment target. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. GESB Super was introduced in April 2007 therefore some multi-year period returns are not available. ** In March 2011 GESB’s Board approved changes to the 5-year time horizon for the Cash, Balanced Conservative, Balanced Growth and Growth plans. These changes better refl ect the expected risk and return profi les for each plan.

111




Five out of fi ve Readymade plans and three out of four MY plans^ exceeded their target over the three year rolling period. The Balanced Growth plan (the plan adopted by the majority of GESB Super members) achieved a gross return of 9.21% pa for the three year period exceeding its target of 8.70% pa by 0.51% pa.

The Balanced Growth plan achieved a gross return of 2.08% for the twelve month period exceeding its target of 1.36% by 0.72%.

Seven out of nine GESB Super plans exceeded their benchmark over twelve months.


12 MONTHS 3 YEARS


12 Month Benchmark

%


3 Year Gross Plan

Return % pa*

3 Year Benchmark

% pa




4.72 0.06

Conservative Plan 5.01 4.14 0.87 8.55 7.30 Benchmark + 0.4% pa

7.70 0.85

Balanced Conservative Plan

3.28 2.55 0.73 9.96 8.27 Benchmark + 0.5% pa

8.77 1.19

Balanced Growth Plan

2.08 1.36 0.72 9.21 8.20 Benchmark + 0.5% pa

8.70 0.51

Growth Plan 0.06 (0.29) 0.35 9.57 8.18 Benchmark + 0.6% pa

8.78 0.79


12.26 10.21 2.05 10.45 8.77 Benchmark + 0.1% pa

8.87 1.58


5.25 5.87 (0.62) 20.43 19.08 Benchmark + 1.1% pa

20.18 0.25


(1.07) 0.18 (1.25) 7.63 7.89 Benchmark + 1.2% pa

9.09 (1.46)


(6.63) (7.01) 0.38 7.20 5.56 Benchmark + 1.0% pa

6.56 0.64

*All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross investment benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced.^My SRI - Australian Equities was closed in March 2012. As most Australian share managers now consider environmental, social and governance principles into their broader strategies, a dedicated responsible investment Australian shares option became less relevant.

112

Performance of retirement productsRetirement IncomeThe primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with a 75% probability of achieving this objective. The probabilities of negative returns were amended to refl ect the latest asset class forecasts of GESB’s asset consultant and are included to allow for adequate risk comparisons to be made between investment plans.


The Cash, Conservative and Balanced plans have underperformed their primary objectives. The modest underperformance of the Cash option is due primarily to the low level offi cial cash rates. Since the onset of the global fi nancial crisis and in response to the risks facing the economy, the Reserve Bank of Australia has kept offi cial interest rates at a much lower than average rate than previous periods. These lower cash rates in turn reduce the performance available from conservative cash strategies.

For the Conservative and Balanced plans, the time horizon for meeting the primary objective includes the impact of the global fi nancial crisis. For these plans the underperformance versus the primary objective is primarily due to the poor performance of “growth assets” such as the equity and property asset classes during the global fi nancial crisis.

The Growth plan has not been in operation for a suffi cient time period to assess its performance versus the specifi ed time horizon.


% pa#

TARGET RETURN

% pa#




4.18 4.81 (0.63)

CONSERVATIVE PLAN



3.79 6.15 (2.36)



5.01 6.73 (1.72)



N/A 7.05 N/A

# All returns are reported net of Management Expense Ratio (MER) and inclusive of franking credits when compared against a net investment target. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. Retirement Income Growth Plan was funded in April 2003 therefore the 10 year return is not available. ** In March 2011 GESB’s Board approved changes to the 5-year time horizon for the Cash, Balanced and Growth plans. These changes better refl ect the expected risk and return profi les for each plan.

113




Three out of four Readymade plans and one out of four MY plans exceeded their target over the three year rolling period. The Balanced plan (the plan adopted by the majority of Retirement Income members) achieved a gross return of 9.09% pa for the three year period exceeding its target of 8.77% pa by 0.32% pa.

The Balanced plan achieved a gross return of 3.52% for the year exceeding its target of 2.57% by 0.95%.

Six out of eight Retirement Income plans exceeded their benchmark over twelve months.


12 MONTHS 3 YEARS


12 Month Benchmark

%



% pa*

3 Year Benchmark

% pa




4.72 0.03

Conservative Plan

5.77 4.78 0.99 8.10 7.26 Benchmark + 0.4% pa

7.66 0.44


8.77 0.32


8.77 (0.06)


12.25 10.21 2.04 10.66 8.77 Benchmark + 0.1% pa

8.87 1.79


6.17 5.87 0.30 19.49 19.08 Benchmark + 1.1% pa

20.18 (0.69)


(8.17) (7.01) (1.16) 4.85 5.56 Benchmark + 1.0% pa

6.56 (1.71)


(0.71) 0.18 (0.89) 7.16 7.89 Benchmark + 1.2% pa

9.09 (1.93)

* All returns are reported gross of Management Expense Ratio (MER) and excluding franking credits when compared against a gross investment benchmark. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced.

114

Retirement Income - Term Allocated PensionThe primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with a 75% probability of achieving this objective. The probabilities of negative returns were amended to refl ect the latest asset class forecasts of GESB’s asset consultant and are included to allow for adequate risk comparisons to be made between investment plans.


The Cash, Conservative and Balanced plans are underperforming their primary objectives. The modest underperformance of the Cash option is due primarily to the low level offi cial cash rates. Since the onset of the global fi nancial crisis and in response to the risks facing the economy, the Reserve Bank of Australia has kept offi cial interest rates at a much lower than average rate than previous periods. These lower cash rates in turn reduce the performance available from conservative cash strategies.

For the Conservative and Balanced plans, the time horizon for meeting the primary objective includes the impact of the global fi nancial crisis. For these plans the underperformance versus the primary objective is primarily due to the poor performance of “growth assets” such as the equity and property asset classes during the global fi nancial crisis.

The Growth plan has not been in operation for a suffi cient time period to assess its performance versus the specifi ed time horizon.


% pa#

TARGET RETURN

% pa#




3.91 4.81 (0.90)

CONSERVATIVE PLAN



3.60 6.15 (2.55)



4.87 6.73 (1.86)



N/A 7.05 N/A

# All returns are reported net of Management Expense Ratio (MER) and inclusive of franking credits when compared against a net investment target. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. Retirement Income - Term Allocated Pension Growth plan was funded in November 2005 therefore the 10 year return is not available. ** In March 2011 GESB’s Board approved changes to the 5-year time horizon for the Cash, Balanced and Growth plans. These changes better refl ect the expected risk and return profi les for each plan.

115




Three out of four Readymade plans and one out of four MY plans exceeded their target over the three year rolling period. The Balanced plan (the plan adopted by the majority of Retirement Income - Term Allocated Pension members) achieved a gross return of 9.04% pa for the three year period exceeding its target of 8.77% pa by 0.27% pa.

Six out of eight Retirement Income - Term Allocated Pension plans exceeded their benchmark over twelve months.

The Balanced plan achieved a gross return of 3.47% for the year outperforming its target of 2.57% pa by 0.90%.


12 MONTHS 3 YEARS


12 Month Benchmark

%



% pa*

3 Year Benchmark

% pa




4.72 0.04

Conservative Plan

5.74 4.78 0.96 8.11 7.26 Benchmark + 0.4% pa

7.66 0.45


8.77 0.27


8.77 (0.20)


12.26 10.21 2.05 10.65 8.77 Benchmark + 0.1% pa

8.87 1.78


6.21 5.87 0.34 19.48 19.08 Benchmark + 1.1% pa

20.18 (0.70)


(8.24) (7.01) (1.23) 4.78 5.56 Benchmark + 1.0% pa

6.56 (1.78)


(0.69) 0.18 (0.87) 7.17 7.89 Benchmark + 1.2% pa

9.09 (1.92)

* All returns are reported gross of Management Expense Ratio (MER) and excluding franking credits when compared against a gross investment benchmark. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced.

116

Gold State Super, Pension and Provident schemes The assets of the defi ned benefi ts schemes, Gold State Super, Pension and Provident schemes, are pooled into a single strategy and are invested with a common asset allocation to manage the funded liability on behalf of the state.

The primary objective is to deliver investment performance in excess of the CPI + 4% over a rolling 5 year period, with a 75% probability of achieving this objective.

The table below shows the net performance along with the 5 year CPI performance targets.

The defi ned benefi t schemes have underperformed their objective primarily due to a material allocation to the poor performance of “growth assets” such as the equity and property asset classes during the global fi nancial crisis.

INVESTMENT PLAN

OBJECTIVE MULTI-YEAR PERIOD NET RETURN

% pa#

TARGET RETURN

% pa#


Gold State, Pension and Provident


Limit the probability of the funding index (Assets/Accrued Benefi ts) being below 100% to less than 1 in 5 years

(1.11) 6.75 (7.86)

# All returns are reported net of Management Expense Ratio (MER) when compared against a net investment target. Net returns are the returns received by the fund.


The table below shows the actual performance along with the 12 month and three year performance targets.

Over the three year rolling period the strategy has achieved a return of 8.66% pa, underperforming its target of 8.81% pa by 0.15% pa.

12 MONTHS 3 YEARS


12 Month Benchmark

%



% pa*

3 Year Benchmark

% pa



Gold State, Pension and Provident

1.27 0.64 0.63 8.66 8.31 Benchmark + 0.5% pa

8.81 (0.15)

* All returns are reported gross of Management Expense Ratio (MER) when compared against a gross investment benchmark. Gross returns can be useful in analysing the performance of Managers or portfolios before other factors are introduced.

117


KEY EFFICIENCY INDICATORS

GESB provides access to competitive superannuation and retirement products, intra-fund fi nancial advice, insurance cover through superannuation and a wide range of information, education services and resources for members. Value is delivered to members by providing effi cient and competitive superannuation and retirement products and services with above market-average, risk controlled net returns and highly rated member services including member education and advice services.

1. Average administration cost per member accountThe average cost per member of administering the schemes decreased by 13% in real terms and 11% in nominal terms compared to the previous year and is 11% under target due to both cost savings and higher than targeted member account numbers. The cost savings have been achieved as a result of strong cost management. Effective cost management has a positive impact on member balances and state liabilities, which delivers benefi ts to both members and the state.

2007/08 2008/09 2009/10 2010/11 2011/12*

Target $125.29 $143.64 $133.48 $124.66 $119.27

Nominal Cost $126.54 $123.94 $123.41 $119.53 $105.98

Real Cost $138.27 $133.56 $128.54 $120.87 $105.98

The direct costs of superannuation reform have been excluded from the total administration costs in order to maintain comparability with prior year’s fi gures. For illustrative purposes the following table shows the nominal cost per member account including superannuation reform costs.

2007/08 2008/09 2009/10 2010/11 2011/12

Nominal Cost $137.85 $140.28 $138.81 $127.43 $110.49

Nominal Cost - Target Nominal Cost - Actual Real Cost - Actual

$150

$145

$140

$135

$125

$120

$115

$110

$105

$1002007/08 2008/09 2009/10 2010/11 2011/12

* This is the base year, so nominal and real costs are the same.

118

2. Investment Management Expense Ratio (investment management costs as a percentage of portfolio mean value invested) The cost of managing GESB’s investments is an important element in assessing investment performance in addition to achieving above benchmark returns within agreed risk levels. Besides direct investment management costs incurred by GESB, external specialist investment managers are appointed to invest funds in specifi c asset classes. Both internal and external management costs have been included in determining this indicator in order to illustrate the full investment management costs incurred by GESB. In addition to the costs refl ected below, the cost to accumulation scheme members includes a contribution to reserves of 0.13%. The indicator refl ects investment management costs as a percentage of portfolio mean value invested for the year.

Investment management costs were under target for the majority of the year as a result of the negotiation of lower fees with investment managers, changes to asset allocations and investment managers and the introduction of a Term Deposit program. However, a review of the underlying costs associated with GESB’s Private Equity program has resulted in the recognition of an additional 0.1% of investment costs for the fund as a whole. The impact of this change is that the actual costs for 2011/12 were 0.41%, 0.05% above the original 2011/12 target of 0.36%, which has not been adjusted. In addition the prior year results for 2009/10 and 2010/11 have been restated to refl ect this increase in costs. The prior year results for 2007/08 and 2008/09 have not been restated to refl ect this increase as the regulations relating to these indirect costs, only came into effect from 1 July 2009 and as such, the private equity fund manager is not able to provide reliable information prior to this date.

INVESTMENT MANAGEMENTEXPENSE RATIO

ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL TARGET

2007/08 2008/09 2009/10 2010/11 2011/12 2011/12

Investment Management Expense Ratio - Investment Management Costs as a Percentage of Portfolio Mean Value Invested

0.35 0.33 0.46 0.44 0.41 0.36

119

GOVERNMENT GOALS

GESB’s contribution to the achievement of the Government Goals is indirect as its priority is to act in the best interest of members, as far as practicable. GESB provides superannuation services to current and former public sector employees and their partners, while other government agencies provide services to all Western Australians.

Financial and economic responsibility GESB manages fi nances responsibly so as to support the effi cient and effective delivery of services to members.

Stronger focus on the regionsAround one third of GESB’s members are based in regional Western Australia. GESB provides regional members with access to the same education and information resources as those in the metropolitan areas. This is done via seminars, presentations and one-to-one meetings.

Appendix 1

120

LEGISLATION ADMINISTERED

During 2011/12, GESB was directly responsible for administering the following state legislation:

State Superannuation Act 2000; State Superannuation Regulations 2001; and

Superannuation and Family Benefi ts Act 19381.

STATE LEGISLATION IMPACTING ON ACTIVITIES

As a state public sector entity and employer, GESB was responsible for complying with a wide range of state legislation. This included:

Corruption and Crime Commission Act 2003

Disability Services Act 1993 Electoral Act 1907 Equal Opportunity Act 1984 Fair Trading Act 1987 Financial Management Act 2006 Freedom of Information Act 1992 Family Court Act 1997 Industrial Relations Act 1979 Judges Salaries and Pensions Act 1950

Minimum Conditions of Employment Act 1993

Occupational Safety and Health Act 1984 Parliamentary Commissioner Act 1971 Pay-roll Tax Assessment Act 2002 Parliamentary Superannuation Act 1970 Public Interest Disclosure Act 2003 Public Sector Management Act 1994 Salaries and Allowances Act 1975 Stamp Act 1921 State Records Act 2000

State Supply Commission Act 1991 Statutory Corporations (Liability of

Directors) Act 1996 Unclaimed Money

(Superannuation and RSA Providers) Act 2003

Unclaimed Money Act 1990 Workers’ Compensation and

Rehabilitation Act 1981 Government Employees Superannuation

Board (Policy Instruments) Regulations 2009

COMMONWEALTH LEGISLATION IMPACTING ON ACTIVITIES

Age Discrimination Act 2004 A New Tax System

(Goods and Services Tax) Act 1999 Anti-Money Laundering and

Counter-Terrorism Financing Act 2006 Bankruptcy Act 1966 Competition and Consumer Act 2010 Corporations Act 2001 Child Support (Registration and

Collection) Act 1988 Disability Discrimination Act of 1992

Family Law Act 1975 Financial Sector (Collection of Data)

Act 2001 Financial Transaction Reports Act 1988 Income Tax Assessment Act 1936 Privacy Act 19882

Retirement Savings Accounts Act 1997 Sex Discrimination Act 1984 Superannuation Contributions Tax

(Members of Constitutionally Protected Superannuation Funds)

Superannuation Contributions Tax Assessment and Collection Act 1997

Superannuation Guarantee (Administration) Act 1992

Superannuation (Resolution of Complaints) Act 1993

Veterans’ Entitlements Act 1986 Workplace Relations Act 1996 Superannuation Industry (Supervision)

Act 1993

1 The provisions of the Superannuation and Family Benefi ts Act 1938 are deemed to continue under section 26 of the State Superannuation(Transitional and Consequential Provisions) Act 2000.

Appendix 2

121

Appendix 3

BUDGET ESTIMATE 2012/13

Statement of Changes in Net Assets

BUDGET

2013

$’000Net Assets Available to pay Benefi ts at the Beginning of the Financial Year 12,663,311REVENUEInvestment RevenueRealised Income 314,282Realised Changes in Net Market value of Investment Assets 314,282Unrealised Changes in Net Market value of Investment Assets 419,042

Income from Investments 1,047,606

Superannuation RevenueContributions

Member 465,022Employer 1,297,718

Rollover into Retirement Products 559,595Inward Transfer from other funds 414,508Member Insurance Benefi ts Received 37,134Other Income 20,975

2,794,952

TOTAL REVENUE 3,842,558EXPENSESSuperannuation Benefi t Payments 2,489,120Administration Expenses 43,271Treasury Funded Reform Expenses 2,466Group Life Insurance Premiums 61,861Investment Expenses 38,056GWM Financial Advice Fees 3,152Changes in Net Market Value other Assets 4,692Loan Interest 25,582

TOTAL EXPENSES 2,668,200

CHANGES IN NET ASSETS BEFORE INCOME TAX 1,174,358INCOME TAX EXPENSE (80,282)CHANGES IN NET ASSETS AFTER INCOME TAX 1,094,076

Net Assets Available To Pay Benefi ts At The End Of The Financial Year 13,757,387

122

STATEMENT OF NET ASSETS

BUDGET

2013

$’000ASSETSCash and Cash Equivalents 23,419Investments 14,118,108Plant and Equipment 1,387Intangible Assets 5,944Receivables 33,785Prepayments 1,926Deferred Tax Assets 9,234

TOTAL ASSETS 14,193,803

LiabilitiesContributions Paid in Advance 1,613Unpaid and Accrued Liabilities 3,949Payables 49,248Provision for Employee Entitlements 4,351Provision for Post Employment Liabilities 1,935Interest Bearing Loans & Borrowings 357,008Current Tax Liabilities 18,312

TOTAL LIABILITIES 436,416

NET ASSETS AVAILABLE TO PAY BENEFITS 13,757,387

123

PUBLICATIONS

GESB produces and updates a range of publications specifi c to each scheme to ensure members are provided with the latest information relevant to them. GESB aims to use plain English so members can understand their options and entitlements and employer agencies can understand their super obligations. Below is a list of main publications.

FOR ALL MEMBERS

Super contribution brochure and form - personal top up contributions

Super consolidation brochure and form - consolidation of super

Spouse contribution brochure and form

Commonwealth Government Super Co-contribution brochure and form

Proof of identity fact sheet

Tax and super fact sheet

Monthly investment update

Transition to Retirement fact sheet

Resolving your complaint

Privacy statement

Investment choice

GESB fi nancial advice

GESB fi nancial advice Financial Services Guide

Tax fi le number fact sheet

Change of details

Transferring your UK pension to GESB

Notifi cation of retirement or resignation

Contribution splitting fact sheet and form

Annual fund update

Newsletters

FOR GESB SUPER MEMBERS

Product Information Booklet

Schedule of fees

Welcome fl yer

Salary sacrifi ce fact sheet

FOR WEST STATE SUPER MEMBERS


Schedule of fees

Salary sacrifi ce fact sheet

Understanding your West State Super account

FOR GESB SUPER AND WEST STATE SUPER MEMBERS

Insurance application form

Insurance variation form

Super and insurance fact sheet - protecting yourself and your family

Understanding the GESB insurance claims process

Accessing your super fact sheet

Contributing to your super

Investment choice brochure

Age and life event fact sheet

Professional and executive category fact sheet and form

Investment choice

FOR GOLD STATE SUPER MEMBERS

Gold State Super essentials

Going part-time fact sheet

Salary maintenance fact sheet

Taking unpaid leave fact sheet

Your super and divorce fact sheet

Resigning from the WA public sector fact sheet

Your super and redundancy fact sheet

Transition To Retirement

Your super and insurance

FOR RETIREMENT INCOME MEMBERS


Schedule of fees

Change of details form

Withdrawal form

FOR EMPLOYER AGENCIES

GESB Super induction fl yer

Transition to retirement

Department report for Gold State Super members form

Notifi cation of unpaid leave form

Retirement checklist

OTHER PUBLICATIONS

Annual Report

WEBSITE

These publications are available on the GESB website at gesb.com.au

Appendix 4

124

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126

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127

09

/12

GE

SC

00

50

Government Employees Superannuation Board ABN 43 418 292 917

How to contact us

Member Services Centre 13 43 72 Facsimile 1800 300 067 gesb.com.au PO Box J 755, Perth WA 6842 Level 4 Central Park, 152 St Georges Terrace, Perth

Documents

Annual Report 2011/12 - gesb.wa.gov.au · of at least 70% reduction in accounts with account balances under $10,000. GESB supported the Department of Treasury to complete this project