MilitarySuper Annual Report to Parliament 2011-12 · iv CSC Annual Report to Parliament 2011-12 MilitarySuper CSC Annual Report to Parliament 2011-12 MilitarySuper v 1 letter of transmittal

CS

C A

nn

ua

l Rep

ort to

Pa

rliam

ent 2

011-1

2 Milita

rySu

per

CSC Annual Report to Parliament 2011-12MilitarySuper

CSC Annual Report to Parliament 2011-12MilitarySuper

ISSN: 1037 7956 ISBN: 978-1-921246-99-9

© Commonwealth of Australia 2012

All material presented in this publication is provided under a Creative Commons Attribution 3.0 Australia (http://creativecommons.org/licenses/by/3.0/au/) licence.

For the avoidance of doubt, this means this licence only applies to material as set out in this document.

The details of the relevant licence conditions are available on the Creative Commons website (accessible using the links provided) as is the full legal code for the CC BY 3.0 AU licence (http://creativecommons.org/licenses/by/3.0/au/legalcode).

Commonwealth Superannuation Corporation (CSC)

Website www.csc.gov.au

Postal address GPO Box 1907 Canberra ACT 2601

Phone 02 6263 6999

Fax 02 6263 6900

ABN: 48 882 817 243 RSEL: L0001397 Annual report: www.csc.gov.au/reports-and-information/annual-reports

MilitarySuper (only Scheme covered in this report)

Website www.militarysuper.gov.au

ABN 50 925 523 120

RSE R1000306

SPIN CMS0103Au

Annual report www.militarysuper.gov.au/forms-and-publications/publications

Note: All statistics are derived solely from records available to CSC and ComSuper as of the time these statistics were compiled. Where statistics for earlier financial years are quoted, they may vary from those previously published due to the application of retrospective adjustments now reflected in this report. For similar reasons statistical information in this report may also vary from that presented by other agencies.

letter of transmittal1

CSC Annual Report to Parliament 2011-12 MilitarySuperiv CSC Annual Report to Parliament 2011-12 MilitarySuper v

1 letter of transmittal

The Hon Warren Snowdon MP Minister for Veterans’ Affairs Minister for Defence Science and Personnel Minister for Indigenous Health Minister Assisting the Prime Minister on the Centenary of Anzac Parliament House Canberra ACT 2600

Dear Minister

I am pleased to present to you, in accordance with section 30 of the Governance of Australian Government Superannuation Schemes Act 2011, the annual report on the operations of Commonwealth Superannuation Corporation (CSC) for the 2011/12 financial year.

This report details the performance of CSC functions and the administration of the Military Superannuation and Benefits Scheme (MilitarySuper). The report also includes audited financial statements in respect of the management during the year of CSC and the MilitarySuper Fund. This report is one of three CSC reports for 2011/12. CSC’s other reports cover, first, the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the Public Sector Superannuation accumulation plan (PSSap), the 1922 Scheme and the Papua New Guinea Scheme (PNG Scheme), and second, the Defence Forces Retirement Benefits Scheme (DFRB Scheme), the Defence Force Retirement and Death Benefits Scheme (DFRDB Scheme) and the Defence Force (Superannuation) (Productivity Benefits) Scheme (DFSPB).

From 1 July 2011, Commonwealth Superannuation Corporation (CSC) became responsible for the investment and management of the military and public sector superannuation Schemes. CSC is trustee of CSS, MilitarySuper, PSS and PSSap, and administers the 1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB.

Subsection 30(4) of the Governance of Australian Government Superannuation Schemes Act 2011 requires you to cause a copy of this report to be laid before each House of Parliament within 15 sitting days after you receive it.

Yours sincerely,

Tony Hyams, AM Chairman, Commonwealth Superannuation Corporation

12 October 2012

CSC Annual Report to Parliament 2011-12 MilitarySuperiv CSC Annual Report to Parliament 2011-12 MilitarySuper v

contents2

CSC Annual Report to Parliament 2011-12 MilitarySupervi CSC Annual Report to Parliament 2011-12 MilitarySuper vii

Contents1 Letter of transmittal iii

2 Contents v

3 Chairman’s report 1

4 Executive summary 5 Successful trustee board merger and asset integration 6 Global investment environment 7 Investment performance 7 Major 2011/12 events 8 Corporate governance 8 Federal Budget 2012 9 Future directions 9

5 CSC 11 CSC – single trustee authority 12 The CSC Board 13 Board and Board Committees 18 Professional development and performance review 19 CSC’s employees 20 CSC’s resources 20 CSC’s financial management 22 Ecologically sustainable development and environmental performance 23 CSC’s internal governance 23 Outcomes and program structure 25

6 MilitarySuper overview 27 Scheme description 28 SIS compliance 29

7 Investments 31 Asset integration – military and public sector Schemes 32 Investment arrangements and policy 32 Investment objectives 32 Strategic asset allocation 34 Investment managers 34 Custodial services 36 Derivatives 36 2011/12 economic and market summary 36 MilitarySuper performance 38 Investment information 42 CSC’s approach to investment governance 42

2 contents

CSC Annual Report to Parliament 2011-12 MilitarySupervi CSC Annual Report to Parliament 2011-12 MilitarySuper vii

8 Members and services 45 MilitarySuper membership 46 Member communication and services 50

9 Scheme administration 55 Scheme administrator 56 Service Level Agreement 56 Administrator performance 56 Account maintenance 56 Contributions 57 Benefit payments 57 Pension payments 59 Reversionary benefits 60 Invalidity process, classification and review 60 Dispute resolution 62 Complaints and representations 64 Legal claims 65

10 MilitarySuper financial statements 67

11 CSC financial statements 117

12 Appendices 155 Appendix A – Changes to legislation 156 Appendix B –CSC organisational chart at 30 June 2012 157 Appendix C – CSC functional chart 158 Appendix D – Access to information 159 Appendix E – Publications 162 Appendix F – CSC contact officer 164 Appendix G – List of requirements 165 Appendix H – New consultancies 168 Appendix I – Advertising/research 170 Appendix J – National Disability Strategy 171 Appendix K – Summary resource table by outcomes 172 Appendix L – Glossary 173 Index 175

2contents

CSC Annual Report to Parliament 2011-12 MilitarySuperviii CSC Annual Report to Parliament 2011-12 MilitarySuper ix

TablesTable 1: Board & Board Committee meeting attendance in 2011/12 19Table 2: Employee numbers at 30 June 2012 20Table 3: Outcomes & program structure 25Table 4: Investment option objectives & risk profile 33Table 5: Strategic asset allocation at 30 June 2012 34Table 6: Investment managers in 2011/12 35Table 7: MilitarySuper investment option performance 38Table 8: MilitarySuper Scheme assets at 30 June 2012 41Table 9: MilitarySuper membership summary 2011/12 & 2010/11 46Table 10: MilitarySuper contributing member composition 46Table 11: Male and Female MilitarySuper contributors by years of service at 30 June 2012 46Table 12: Exits from MilitarySuper over five years to 30 June 2012 47Table 13: MilitarySuper contributions comparison 2011/12 & 2010/11 57Table 16: Pensioners by benefit class over five years to 30 June 2012 59Table 17: Initial invalidity classifications & invalidity pensions granted 60Table 18: Invalidity entitlement reviews over five years to 30 June 2012 61Table 19: Family law splitting – associate accounts & records 62Table 20: Reconsideration applications for three years to 30 June 2012 63Table 21: Complaints lodged for MilitarySuper in 2011/12 63Table 22: Complaints & representations in 2011/12 65Table 23: Complaints & representations in 2011/12 65Table A1: Freedom of information requests in 2011/12 161Table A2: New consultancies in 2011/12 168Table A3: Advertising & market research expenditure in 2011/12 170Table A4: Summary resource table by outcome 172

2 contents

CSC Annual Report to Parliament 2011-12 MilitarySuperviii CSC Annual Report to Parliament 2011-12 MilitarySuper ix

ChartsChart 1: Preserved benefit members since 30 June 2008 48Chart 2: MilitarySuper pensioners since 30 June 2008 49Chart 3: Seminar & one-on-one information session attendees in 2011/12 51Chart 4: CIC calls received comparison 2011/12 & 2010/11 51Chart 5: CIC emails received comparison 2011/12 & 2010/11 52Chart 6: CIC written enquiries received comparison 2011/12 & 2010/11 52Chart 7: Manual & online investment switch requests in 2011/12 53Chart 8: Average number of days to process benefit payments in 2011/12 58Chart 9: Invalidity classifications by service in 2011/12 60

IllustrationsIllustration1: CSC functional chart 158

2contents

chairman’sreport3

3 chairman’s report

CSC Annual Report to Parliament 2011-12 MilitarySuper2 CSC Annual Report to Parliament 2011-12 MilitarySuper 3

Chairman’s reportI am pleased to present Commonwealth Superannuation Corporation’s (CSC) Annual Report to Parliament 2011/12 for MilitarySuper. CSC’s reports for the other military superannuation Schemes and public sector Schemes are presented separately.

2011/12 was CSC’s first year as trustee of the Australian Government’s Schemes for Australian Defence Force personnel and public sector employees. The implementation of the merger of the trustees of the military and public sector Schemes in accordance with the legislation passed by Parliament in June 2011 has been completed. A new Board was established to replace the previous MSB Board, DFRDB Authority and ARIA.

Significant achievements in 2011/12 included:

> a smooth transition of responsibilities to the new Board

> the establishment of Board committees including an Audit and Risk Management Committee and a Human Resources Committee

> an equitable integration of MilitarySuper Fund assets with those of CSS, PSS and PSSap into one pooled superannuation trust

> the transfer of the custody of all MilitarySuper Fund and ARIA assets now managed by CSC to a new custodian, the Northern Trust Company

> the appointment of Peter Carrigy-Ryan as the inaugural Chief Executive Officer of CSC

> the continuing work on superannuation reforms including preparation of a MySuper product

> working with our scheme administrator on implementation of the government’s decision to transition PSSap administration from ComSuper to Pillar Administration

> preparing for the introduction of pension and salary sacrifice enhancements to the PSSap.

All of these ‘merger’ and other targets were achieved within the first 12 months with minimum disruption to everyday business activities.

The CSC Board has a depth of skill, knowledge and experience that has underpinned this year of achievement. The commitment and contribution from all directors in 2011/12 has been outstanding. It is a privilege to work with such capable people.

I acknowledge and thank CSC employees for their hard work and dedication during this year of change. Our major service providers including custodians, fund managers and scheme administrators have made a valuable contribution.

CSC now manages Schemes and invests $24.7 billion in super on behalf of more than 600 000 members and pensioners. We expect that the scale created by the merger will enable CSC to improve long-term investment performance, reduce cost, strengthen already strong governance practices and enhance services to members.

3chairman’s report


CSC operates in an increasingly sophisticated, regulated and competitive superannuation market. To meet these challenges the Board has embarked on a major planning exercise, the results of which will define our key success targets and govern our priorities. Amongst other activities, the Board is reviewing CSC’s investment and member service offerings, and all governance policies and practices, with the aim of achieving the highest possible standards.

Tony Hyams, AM Chairman, Commonwealth Superannuation Corporation

executivesummary4 successful trustee

board merger and asset integration

global investment environment

investment performance

major 2011/12 events

corporate governance

Federal Budget 2012

future directions

4 executive summary


This report details the performance of CSC functions and the administration of MilitarySuper during the year ended 30 June 2012. This report also includes audited financial statements in respect of the management during the year of CSC and the MilitarySuper Fund.

This report is one of three CSC reports for 2011/12. CSC’s other reports cover, first, CSS, PSS, PSSap and the 1922 Scheme and PNG Scheme, and second, the DFRB Scheme, DFRDB Scheme and DFSPB. All reports can be viewed on CSC’s website at www.csc.gov.au/reports-and-information/

CSC finished the 2011/12 financial year with over $24.7 billion funds under management and 600 000 members and pensioners after integrating all public sector and military superannuation Scheme assets during the year. MilitarySuper comprised over $4.0 billion and more than 152 000 contributors, preservers and pensioners at 30 June 2012.

Performance in CSC’s inaugural year focused on successfully integrating assets into a single investment vehicle and merging trustee boards and employees into one operating entity. CSC’s objectives continue to be consistent long-term investment performance and helping members to make informed decisions about their superannuation Scheme and retirement planning needs. The 2011/12 financial year provided a challenging mix of merger and business-as-usual objectives. CSC achieved these objectives during the year with minimal disruption. Global investment markets were, however, volatile in the 2011/12 financial year.

Investment returns were constrained by disappointing listed share market returns and the unsuccessful performance of some of MilitarySuper Fund’s active investment managers.

In 2011/12, CSC appointed The Northern Trust Company as its provider of custodial services and enhanced the MilitarySuper website, increasing user accessibility and complying with federal government web content accessibility (WCAG) 2.0 guidelines.

Successful trustee board merger and asset integrationCSC was established on 1 July 2011 as trustee of CSS, MilitarySuper, PSS, PSSap, and administers the 1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB, under legislation enacted on 21 June 2011, including the Governance of Australian Superannuation Schemes Act 2011.

The former trustee arrangements of the Military Superannuation and Benefits Board (MSB Board), the Defence Force Retirement and Death Benefits Authority (DFRDB Authority) and the Australian Reward and Investment Alliance (ARIA) were consolidated into one trustee entity. Superannuation Scheme rules, benefits and entitlements did not change.

CSC is now responsible for one of Australia’s largest pools of superannuation assets, providing scale to improve long-term investment performance, increase the efficiency of trustee arrangements for investment and corporate governance, and enable the delivery of more personalised, helpful and high-quality member services.

CSC has a Board of 11 directors with Mr Tony Hyams AM appointed CSC’s inaugural Chairman. Ten directors (including the Chairman) commenced on 1 July 2011 and one director commenced on 13 September 2011.

4executive summary


All CSC directors are appointed by the Minister for Finance and Deregulation; three directors are nominated by the President of the Australian Council of Trade Unions and two directors are nominated by the Chief of the Defence Force. CSC’s Chairman is independent.

Peter Carrigy-Ryan was appointed Chief Executive Officer of CSC on 14 September 2011.

You can read more about CSC directors and employees in section 5 on page 11.

Global investment environmentInvestment market volatility continued in 2011/12, providing significant challenges to superannuation funds. Global financial market returns were primarily affected by:

> an escalation of the European sovereign debt crisis, which extended to Spain and Italy

> the rate of economic slowdown in China and its likely impact on both developed world economic growth and Australia’s raw material exports

> debate over the extent of US economic recovery in the face of tightening fiscal policy, and

> a significant decline in long-term interest rates, both in Australia and overseas.

Australian shares fell 7% during the financial year to 30 June 2012, dragged down by material and energy stocks following reductions in commodity prices. International shares fared comparatively better, trending sideways, although there were significant variations between countries. Index linked and government bonds were the best performing sectors in 2011/12 due to the significant decline in long-term interest rates.

Investment markets are expected to remain volatile, with uncertainty surrounding the European sovereign debt crisis, and US and Chinese economic growth, likely to continue.

Investment performanceMilitarySuper’s Growth Option, the default option in which most members are invested, returned -1.3% net of fees, charges and taxes in the year to 30 June 2012. Returns were constrained by the decline in listed share markets and the underperformance of a number of MilitarySuper Fund active investment managers. This impact offset the positive contribution to performance from MilitarySuper’s government bond and market neutral investments. Superannuation is a long-term investment for retirement and performance should more properly be considered over longer periods. Over the past seven years to 30 June 2012, MilitarySuper’s Growth Option has returned 2.8% per annum.

You can read more about investment performance in section 7 on page 31.

4 executive summary


Major 2011/12 events

New custodian – The Northern Trust CompanyDuring the 2011/12 financial year, CSC appointed The Northern Trust Company as its provider of custodial services. CSC remains responsible for all aspects of its investments including strategy, administration and member communication. Custodial arrangements transitioned from National Australia Bank to The Northern Trust Company as at 11 May 2012.

New member and employer websitesDuring the year, CSC refreshed and enhanced its six superannuation Scheme websites for members and employers, including MilitarySuper’s website. Websites and communication materials were renamed to reflect the trustee entity change to CSC, while website enhancements were introduced to make it easier for members to quickly find the information they need online and to comply with federal government WCAG 2.0 guidelines.

There is more about member services and communication in section 8 on page 45.

Corporate governanceThe CSC Board has embarked on a review and update of its corporate governance framework. The Board’s Operating Policy (available on CSC’s website) explains this framework, covering:

> CSC’s Code of Conduct

> CSC’s Board of directors, director responsibilities and meeting processes

> Board delegated authority

> Board committees

> Risk management and corporate responsibility, and

> CSC’s Board Renewal Policy.

This corporate governance framework review and update will assist CSC to comply with APRA’s new prudential standards, due to take effect by 30 June 2013.

4executive summary


Federal Budget 2012Changes to superannuation were announced in the Federal Budget 2012:

> The concessional super contributions cap, which includes Superannuation Guarantee (SG) and before-tax salary sacrifice contributions, is to be $25 000 per annum for all Australians; this concessional contributions cap also includes employer productivity contributions (which are generally 3%) for defined benefit scheme members.

> Individuals who have annual income over $300 000 will pay tax on their concessional super contributions at the rate of 30% instead of 15%; ‘income’ for this measure includes taxable income, concessional super contributions, adjusted fringe benefits, total net investment loss, target foreign income, tax-free government pensions and benefits, less child support.

Future directionsMajor changes to superannuation regulation and policy will take effect in 2013, with the introduction of MySuper and other recommendations first made in the Super System Review. A key focus for CSC will be to introduce a MySuper product in 2013.

In 2012/13, CSC’s strategic objectives will focus on three areas:

> continuing to improve long-term investment performance

> corporate governance, compliance and risk management, and

> implementation of the enhancements to member products and services.

CSC5 CSC – single trustee authority

the CSC Board

Board and Board Committees

professional development and performance review

CSC’s employees

CSC’s resources

CSC’s financial management

ecologically sustainable development and environmental performance

CSC’s internal governance

outcomes and program structure

5 CSC


CSC – single trustee authorityCommonwealth Superannuation Corporation (CSC) was established as a single trustee body on 1 July 2011 following the merger of the MSB Board, the DFRDB Authority and ARIA. CSC was established by the Governance of Australian Government Superannuation Schemes Act 2011 and is a body corporate, subject to the Commonwealth Authorities and Companies Act 1997.

CSC is trustee of CSS, MilitarySuper, PSS and PSSap, and administers the 1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB. Four superannuation Schemes are regulated (CSS, MilitarySuper, PSS and PSSap) and five Schemes are unregulated (1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB).

This report details the performance of CSC functions and the administration of MilitarySuper during the year ended 30 June 2012. This report also includes audited financial statements in respect of the management during the year of CSC and the MilitarySuper Fund. This report is one of three CSC reports for 2011/12. CSC’s other reports cover, first, CSS, PSS, PSSap, the 1922 Scheme and PNG Scheme, and second, the DFRB Scheme, DFRDB Scheme and DFSPB.

CSC is licensed under the Corporations Act 2001 and the Superannuation Industry (Supervision) Act 1993. CSC manages and invests its members’ superannuation contributions in accordance with provisions of the Military Superannuation and Benefits Act 1991 and the Military Superannuation and Benefits Trust Deed. For more view CSC’s functional chart in Appendix C.

5CSC


The CSC BoardThe principal responsibility of the CSC Board is to manage and invest the superannuation Schemes and Funds in the best interest of members. This involves:

> approving CSC’s investment strategy, core investment beliefs, vision, mission and performance objectives

> reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct, and legal compliance

> monitoring senior executive performance and strategy implementation

> appointing and setting key performance indicators of CSC’s Chief Executive Officer

> approving and monitoring financial and other reporting.

CSC’s 11 directors are appointed by the Minister for Finance and Deregulation. Three directors are nominated by the President of the Australian Council of Trade Unions (ACTU) and two directors are nominated by the Chief of the Defence Force. CSC’s Chairman is independent. Directors are responsible for all aspects of Scheme management, including investment strategy, administration and stakeholder communication.

All CSC’s directors are non-executive directors. CSC directors are appointed for periods not exceeding three years (but are eligible for reappointment). A list of directors holding office between 1 July 2011 and 30 June 2012 is set out below. Ten directors’ terms commenced on 1 July 2011 and one director’s term commenced on 13 September 2011.

5 CSC


Mr Tony Hyams, AM Chairman Appointed 1 July 2011 to 30 June 2014

Mr Hyams was appointed as the inaugural Chairman of CSC on 1 July 2011. He is also Chairman of the Board’s Human Resources Committee. Mr Hyams was Chairman of the predecessor organisations, ARIA and the MSB Board. He was previously the Deputy Chairman of the Australian Maritime Safety Authority and a director of the Australian Government Employees Superannuation Trust and other companies. Mr Hyams is an Independent Adviser to the Credit Suisse Group and is a Governor of WWF Australia. He has degrees in law and commerce from the University of Melbourne.

Mr Anthony (Tony) Cole, AO Appointed 1 July 2011 to 30 June 2013

Mr Cole is a member of the Board’s Human Resources Committee. He is a former executive director and investment consulting business leader of the global consulting, outsourcing and investment company, Mercer. Before joining Mercer in 1996, he was executive director of Life Investment and Superannuation Association of Australia. Mr Cole has also held a number of senior federal government appointments including Secretary to the Treasury. Mr Cole is Chairman of the Advisory Board of the Melbourne Institute of Applied Economic and Social Research and a member of the advisory boards of Australian Office of Financial Management and Northern Territory Treasury Corporation. In 1995 he was awarded an Order of Australia for service to government and industry.

General Peter Cosgrove, AC, MC, CNZM Appointed 1 July 2011 to 30 June 2014

General Cosgrove is a retired Australian Army Officer and Chairman of the Board’s Defence Force Case Assessment Panel. He was Chief of the Defence Force from 3 July 2002 to 3 July 2005, when he retired from full-time service after a long and distinguished career. He has numerous board appointments, principal among which is the Qantas Board. He is also on the Board of Trustees of Qantas Superannuation Limited. General Cosgrove is a nominee of the Chief of the Defence Force.

5CSC


Mr Peter Feltham Appointed 1 July 2011 to 30 June 2012 (reappointed from 1 July 2012 to 30 June 2015)

Mr Feltham is a member of the Board’s Audit and Risk Management Committee. He is also a senior industrial officer with the Community and Public Sector Union (CPSU), responsible for superannuation policy within the CPSU. He has worked for the CPSU and its predecessor organisations for more than 25 years in a range of capacities at state and national level as an employee and official. Before the CPSU, Mr Feltham worked for 10 years in the federal public service. Mr Feltham is a nominee of the President of the ACTU.

Ms Nadine Flood Appointed 1 July 2011 to 30 June 2014

Ms Flood is a member of the Board’s Human Resources Committee. She is also National Secretary of the Community and Public Sector Union (CPSU), and a member and director of a number of other bodies, including the ACTU Executive. Ms Flood is a nominee of the President of the ACTU.

Ms Lyn Gearing Appointed 13 September 2011 to 12 September 2013

Ms Gearing has business experience in superannuation, funds management, corporate finance and management consulting. She is currently a Director of Queensland Investment Corporation (QIC), IMB Limited, Garvan Research Foundation and Global Mining Investments Limited.

Ms Peggy Haines Appointed 1 July 2011 to 30 June 2014

Ms Haines is a member of the Board’s Human Resources Committee. She is a former partner with one of Australia’s top law firms specialising in superannuation and financial services law and continues to act as a consultant to Lander & Rogers, Melbourne. Ms Haines also serves as a director of other companies in the financial services sector as well as the Richmond Football Club. She is a fellow of the Australian Institute of Company Directors and an emeritus member of the Law Council of Australia Superannuation Committee.

5 CSC


Ms Winsome Hall Appointed 1 July 2011 to 30 June 2013

Ms Hall is Chair of the Board’s Audit and Risk Management Committee. She is also Chair of Zurich Australian Superannuation Pty Limited and a trustee director of various commercialisation funds as a nominee of AustralianSuper. Ms Hall has previously been a director of listed company Colonial First State Infrastructure and Private Equity, the Financial Industry Complaints Scheme and State Super Financial Services. She has provided best practice advice to the Association of Superannuation Funds Australia and was previously a Senior Advisor in the Department of the Prime Minister and Cabinet and Secretary of the ACT Branch of the CPSU from 1989 to 1993. Ms Hall is a nominee of the President of the ACTU.

Mr John McCullagh Appointed 1 July 2011 to 30 June 2013

Mr McCullagh is a member of the Board’s Audit and Risk Management Committee and Defence Force Case Assessment Panel. Mr McCullagh formerly held the position of CEO of the Military Superannuation and Benefits Board and was part of the transition team which implemented the government’s reforms affecting Australian Government super schemes. Mr McCullagh is a nominee of the Chief of the Defence Force.

Mr Gabriel Szondy Appointed 1 July 2011 to 30 June 2014

Mr Szondy is a member of the Board’s Audit and Risk Management Committee. He has extensive experience in the taxation and superannuation industries and was a senior partner in one of Australia’s top accounting firms. He is a former member of the Military Superannuation and Benefits Board. Mr Szondy holds a number of other appointments including independent director, CARE Super, Director (representative of AustralianSuper) Frontier Investment Consulting Pty Ltd and special advisor to the Chairman of the Centre for Investor Education (CIE).

5CSC


Dr Michael John vertigan, AC Appointed 1 July 2011 to 30 June 2013

Dr Vertigan is a member of the Board’s Audit and Risk Management Committee. Dr Vertigan has experience in the public, higher education, philanthropy and business sectors. He is the former Chairman of the AGEST Super Board and former Secretary of the Victorian and Tasmanian Departments of Treasury and Finance. He also held a number of academic appointments. Dr Vertigan currently holds a number of appointments to government and private sector bodies.

5 CSC


Board and Board Committees CSC has the following Board Committees:

> APS Scheme Reconsideration Advisory Committee

> Audit and Risk Management Committee

> Defence Force Case Assessment Panel

> Human Resources Committee

> Military Superannuation and Benefits Scheme Reconsideration Committee.

CSC may also establish other Board committees from time to time.

The Human Resources Committee comprises:

Mr Tony Hyams, AM, Chairman Mr Tony Cole, AO, Member Ms Nadine Flood, Member Ms Peggy Haines, Member

The Audit and Risk Management Committee comprises:

Ms Winsome Hall, Chair Mr Peter Feltham, Member Mr John McCullagh, Member Mr Gabriel Szondy, Member Dr Michael Vertigan AC, Member

The Military Superannuation and Benefits Scheme Reconsideration Committee comprises a Board representative (who is not a CSC director), a representative from an ADF Service Office, a pensioner representative and a representative from the scheme administrator, ComSuper.

Read more about this Committee on page 63.

The Defence Force Case Assessment Panel comprises a Chairperson, a director of CSC who has been nominated by the Chief of the Defence Force, a person nominated by the Chief of the Air Force, a person nominated by the Chief of the Army, and a person nominated by the Chief of the Navy. It can also include up to two other persons as CSC determines.

5CSC


Table 1: Board & Board Committee meeting attendance in 2011/12

Board meetings (10) ARM Ctte meetings (7) HR Ctte meetings (5)

Attended Eligible to attend



Tony Hyams 10 10 0 0 5 5

Tony Cole 10 10 0 0 5 5

Peter Cosgrove 9 10 0 0 0 0

Peter Feltham 10 10 7 7 0 0

Nadine Flood 7 10 0 0 3 5

Lyn Gearing 6 7 0 0 0 0

Peggy Haines 10 10 0 0 4 5

Winsome Hall 10 10 7 7 0 0

John McCullagh 10 10 7 7 0 0

Gabriel Szondy 9 10 7 7 0 0

Michael Vertigan 10 10 6 7 0 0

Professional development and performance review

Professional developmentThe CSC Board has a professional development program in place for all directors and undertakes regular individual and collective fitness and propriety assessments. Individual director training objectives cover a three year timeframe to provide uniform and comprehensive professional development.

Performance reviewDirectors report to the Chairman against their three year rolling training and development objectives. Each year directors must complete a Trustee Fit and Proper Certification, undertake a self-assessment rating and declare any related party transactions. In addition, CSC’s Human Resources Committee conducts a Board skills audit to compare the current skill mix to skills identified as being required. This review identifies any areas to be improved.

CSC’s Chairman liaises with the Minister and other sponsors regarding the required director skill base. These processes help to ensure the CSC Board comprises directors who hold the necessary knowledge and experience in a range of fields including the financial services and superannuation industry, investment governance and management, government, the defence force and legal services.

5 CSC


CSC’s employeesCSC employees are responsible for providing advice to the CSC Board, for implementing Board decisions and for the ongoing management of CSC’s functions and responsibilities.

Specifically, CSC employees are responsible for:

> advising the Board on investment strategy

> implementing Board approved strategies and plans

> managing the relationships with service providers

> managing CSC’s financial affairs

> ensuring CSC meets its responsibilities to maintain correct records

> coordinating advice from external advisers

> ensuring compliance with all relevant legislation and law

> communicating with members and, in particular, preparing and producing annual member statement packs and parliamentary reports

> providing comprehensive administrative and executive support services to the Board.

CSC’s resources

Human resourcesThe combined MilitarySuper Board and ARIA staff at 1 July 2011 was 62. CSC had 61 staff at 30 June 2012.

Employee profileTable 2: Employee numbers at 30 June 2012

Employment category Male Female Total

Full-time employees 25 28 53

Part-time employees 2 6 8

Total 27 34 61

Performance payDuring the 2011/12 financial year, CSC paid a total of $1 188 323 as performance bonuses to 47 employees (paid in July 2011, for performance in the previous financial year, 2010/11). The average performance bonus paid was $25 283.

5CSC


Non-salary benefitsCSC offers its employees a variety of salary packaging benefits. These are individually negotiated and benefits available for packaging include leased motor vehicles, professional membership fees and extra superannuation. Benefits that employees may include in a salary package are those that attract either no fringe benefits tax (FBT) or a concessional rate of FBT.

Professional developmentOngoing employee training and development is an important part of CSC’s human resource management. In addition, it helps CSC meet the ‘adequacy of resources’ requirement of its APRA licence (see CSC’s internal governance on page 23). During the 2011/12 financial year, CSC employees participated in a range of continuing professional development activities, including specialised courses in investment, finance, and business operations.

Work health and safetyUnder the Safety, Rehabilitation and Compensation Act 1988 and the Work Health and Safety Act 2011 (this latter Act came into effect in January 2012, effectively replacing the Occupational Health and Safety (Commonwealth Employment) (OH&S) Act 1991), CSC has a general duty of care that it must meet by taking all reasonably practicable steps to protect the health and safety of its employees and third parties at work. Workers’ compensation, provided by Comcare, covers CSC employees. During the 2011/12 financial year there were:

> no dangerous incidents under section 37 of the Work Health and Safety Act 2011

> no workplace inspections carried out by Comcare

> no remedial provisional improvement notices issued.

Activity locationCSC has two offices; one is located in Canberra and the other is located in Sydney.

Indemnities for officersCSC has the benefit of an indemnity in the Governance of Australian Government Superannuation Schemes Act 2011. In addition, CSC has trustee liability and comprehensive crime insurance which complies with section 912B of the Corporations Act 2001.

5 CSC


CSC’s financial management

Financial resourcesIn its role as superannuation trustee, CSC is responsible for management and investment of its members’ superannuation contributions. CSC also oversees the provision of scheme administration services for its Scheme members.

Costs relating to the investment and management of the Funds are recovered proportionately from the invested funds in accordance with Scheme underlying legislation. Costs incurred by CSC in supporting member administration services of the military Schemes are met through an administration fee paid by the Department of Defence for this specific purpose. Costs incurred by CSC in supporting member administration services of the public sector Schemes are met through a fee arrangement with the employer agencies whereby CSC receives fee income on a per-member or other negotiated basis.

CSC is a Commonwealth authority subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act). The financial management of CSC is carried out in accordance with the requirements of that Act, the Governance of Australian Government Superannuation Schemes Act 2011 and Scheme legislation. CSC operates under a Board approved budget that covers the total costs of CSC performing its functions. Performance against budget is reviewed regularly by the Board. Delegations to staff relating to incoming expenses, including entering into contracts for supply of goods and services, are formally issued and reviewed by the Board.

Financial performanceCSC incurs various costs in managing and investing the Funds for which it is trustee. These include investment manager fees, custodian fees, advisor fees and tax. Part of the CSC expenses are referred to as ‘corporate expenses’; these expenses (see paragraph below) do not reflect the total costs of managing and investing the Funds. Details of investment costs for each of the Funds are provided in the financial statements included in this and CSC’s other reports for 2011/12.

Revenue and expenses were within budget for 2011/12 with CSC recording a surplus of $0.23 million. CSC’s business expenses were $21.6 million, of which $6.7 million was met by the administration fee on the employer agency and government funding to meet merger costs. Expenses balance of $14.9 million was proportionately met from investment assets of MilitarySuper, CSS, PSS and PSSap. Director remuneration is set by the Remuneration Tribunal.

ConsultantsDuring the 2011/12 financial year, CSC entered into 20 new consultancy contracts involving total actual expenditure of $238 181. In addition, 12 ongoing consultancy contracts were active during the year, involving total actual expenditure of $1 167 409.

5CSC


Ecologically sustainable development and environmental performanceCSC is a signatory to the UN Principles for Responsible Investment which aim to act as a framework for global best practice in responsible investment and include commitments to address environmental, social and governance issues in the policies and practices of investors.

CSC is a member of the Investor Group on Climate Change Australia/New Zealand and an investor signatory to the Carbon Disclosure Project. These collaborative industry initiatives address the business and shareholder value implications of climate change.

CSC is a founding investor in Regnan, which provides governance research and engagement services to CSC and its other institutional investors and clients. Regnan focuses on a constructive engagement process that aims to reduce portfolio risk exposures, including those relating to environmental risk.

CSC’s internal governanceCSC is accountable to members of the Schemes it manages under Scheme legislation, the Superannuation Industry Supervision Act and Regulations (SIS), corporations legislation and the general law. Its principal responsibility is to act in good faith, with prudence and in the members’ best interests in respect of the administration and investment of the Funds.

Directors are required by SIS to meet a ‘fit and proper’ standard. This means that they must satisfy both propriety and competency requirements on appointment and thereafter.

In addition to these requirements on individual directors, CSC has a Code of Conduct which guides the exercise of its wide range of discretions.

In performing its functions and duties, CSC will:

> carry out its duties in good faith, prudently and in accordance with the relevant legislation so that the best interests of members are served

> act ethically and impartially at all times.

CSC’s Code of Conduct is available on its website.

In conjunction with its governance principles, CSC’s responsibility for the Funds is supported by comprehensive risk management strategies, plans and compliance programs.

5 CSC


LicencesCSC has both a Registrable Superannuation Entity (RSE) licence (administered by the Australian Prudential Regulation Authority) and an Australian Financial Services (AFS) licence (administered by the Australian Securities and Investments Commission).

Risk managementAs an RSE licensee, CSC has a comprehensive risk management framework in place. This covers a range of business, operational and governance risks and outlines risk minimisation strategies and controls for all identified risks. Regulatory requirements include having a current Risk Management Plan and Risk Management Strategy.

CSC’s risk management framework is kept under review by CSC’s Executive Risk Management Committee and its Audit and Risk Management Committee. This framework is reviewed annually in conjunction with CSC’s strategic business plan and updated or amended as required to meet emerging risk or new business requirements.

ComplianceCSC’s compliance program meets CSC’s AFS licence requirements and underpins CSC’s risk management framework. Employees and service providers are required to provide positive certification that they have complied, or details of any non-compliance, with legislative requirements, contractual provisions, regulatory policy and service standards, in addition to licence conditions. This is done regularly – either monthly or quarterly. CSC’s Audit and Risk Management Committee oversees compliance reporting, remediation where breaches have occurred and any necessary regulatory reporting.

Consistent with CSC’s Breach and Compliance Policy, breach reports are required within a timeframe that enables CSC to make timely regulatory reports, if required.

Fraud controlTo ensure all reasonable measures are taken to minimise the incidence of fraud, CSC maintains a current fraud risk assessment and fraud control plan in accordance with the Commonwealth Fraud Control Guidelines and has effective fraud risk controls in place. No instances of fraud arose during the reporting period of this report.

Internal auditEach year, CSC’s Audit and Risk Management Committee agrees an internal audit plan which takes into account previously identified risks, the results and recommendations of previous internal and external audits, legislative and regulatory change and any anticipated Scheme or business changes.

This plan is additional to audits that can be initiated at any time by CSC’s Audit and Risk Management Committee or the Board to address changed business priorities or risk profile.

5CSC


Outcomes and program structureOutcome 1: Retirement benefits for past, present and future Australian Government employees and members of the Australian Defence Force through investment and administration of their superannuation Funds and Schemes.

Table 3: Outcomes & program structure

Key performance indicator 2011/12 target 2011/12 results

Long-term investment performance – default option

Long-term nominal target of at least CPI + 4.5% per annum average after tax and fees, and positive fund returns in 24 out of 30 years

MilitarySuper’s seven-year investment performance was 2.8% per annum after tax and fees

Compliance with Superannuation Industry (Supervision) Act 1993 (SIS), Superannuation Act 2005, Superannuation Act 1990, Superannuation Act 1976, Military Superannuation and Benefits Act 1991 and the Corporations Act 2001

Compliance with all relevant Scheme and regulatory requirements

CSC continued to meet its obligations under relevant legislation

Status of Registrable Superannuation Entity (RSE) and Australian Financial Services (AFS) Licence holder

Fulfilment of ongoing licence obligations as set out by APRA and ASIC

CSC did not breach licensee law in relation to MilitarySuper

Administration quality as reflected in the satisfaction level of members, other beneficiaries and employers with the service provided through ComSuper, as CSC’s delegate, to standards set by CSC

Implement and monitor industry standard service requirements with ComSuper

Continued overall improvement of member service

MilitarySuper overview6 Scheme description

SIS compliance

6 MilitarySuper overview


CSC is trustee of CSS, MilitarySuper, PSS and PSSap, and administers the 1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB. Four Schemes are regulated (CSS, MilitarySuper, PSS and PSSap) and five are unregulated (1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB). This report details the performance of CSC functions and the administration of MilitarySuper. The report also includes audited financial statements in respect of the management during the year of CSC and the MilitarySuper Fund. This report is one of three CSC reports for 2011/12. CSC’s other reports cover, first, CSS, PSS, PSSap, the 1922 Scheme and PNG Scheme, and second, the DFRB Scheme, DFRDB Scheme and DFSPB.

Scheme descriptionMilitarySuper was established by the Military Superannuation and Benefits Act 1991 (the MilitarySuper Act) and the Military Superannuation and Benefits Trust Deed, replacing the DFRDB Scheme for all new Australian Defence Force (ADF) entrants on 1 October 1991.

Establishment of MilitarySuper followed government initiatives to improve ADF superannuation arrangements. Existing DFRDB contributors had the option to transfer to MilitarySuper before 1 October 1992.

MilitarySuper is a hybrid Scheme with benefits derived from two components:

1. A member component which comprises the member’s own contributions, including any amounts notionally brought over from the DFRDB Scheme, plus earnings on those amounts. Members can choose to invest this component in one of five MilitarySuper investment options.

2. An employer component which is a defined benefit based on the member’s period of membership and final average salary. This benefit is unfunded except for the portion which relates to the employer 3% productivity contributions (paid on a fortnightly basis to the Fund by the employer, the Department of Defence). This means the cost is met by the employer on an emerging cost basis from the Australian Government’s Consolidated Revenue Fund (CRF) when benefits fall due.

Scheme membership is compulsory for new ADF entrants and Scheme rules require a minimum member contribution rate of 5% of a member’s fortnightly salary for superannuation purposes. At three monthly intervals, members can vary their contribution rate from the minimum of 5% to maximum of 10%. Amounts from other super funds can be transferred into MilitarySuper and members can contribute pre-tax amounts and make contributions on behalf of their spouse. These are additional ‘ancillary benefits’ which are invested as per the member’s investment choice and paid with their other benefits.

6MilitarySuper overview


On resignation from the ADF, any member benefit accrued to 30 June 1999 can be paid to the member as a lump sum amount but the balance of their member benefit must be preserved until the member’s preservation age, either in MilitarySuper or another complying superannuation fund selected by the member. The employer component, including productivity contributions, must be preserved in MilitarySuper until the member reaches age 55, or after age 55, preserved in another complying fund until the member’s preservation age.

SIS complianceMilitarySuper is a complying superannuation scheme under the Superannuation Industry (Supervision) Act 1993 and continues to be eligible to have tax payable on the net income assessed at the concessional rate of 15%.

asset integration – military and public sector Schemes

investment arrangements and policy

investment objectives

strategic asset allocation

investment managers

custodial services

derivatives

2011/12 economic and market summary

MilitarySuper performance

investment information

CSC’s approach to investment governance

investments7

7 investments


Asset integration – military and public sector SchemesIn the 2011/12 financial year, CSC integrated the MilitarySuper Fund into a single investment trust, providing all members with the benefits of economies of scale. That trust now includes the assets of all CSC regulated Funds.

Investment arrangements and policyCSC’s internal investment team provides investment advice to the CSC Board, implements and manages Board investment decisions, and monitors, reviews and reports investment performance. The Board can also employ professional advisers to help review investment policy and to examine other aspects of the investment process including investment manager performance and new investment opportunities.

Investment policyTo formulate an investment policy, the Board focused on two primary objectives: to maximise long-term Fund returns and to manage and control business and investment risks.

Investment objectivesMilitarySuper members can invest their member and ancillary benefits in one or a mix of five investment options, with each option providing a different level of risk and potential return. The CSC Board has adopted specific investment objectives for each option (outlined in Table 4). Each option consists of investments across a range of asset classes (see Strategic asset allocation) with differing investment return objectives and risk characteristics.

To set objectives, the Board recognises investment markets are unpredictable and, accordingly, investment objectives will not be achieved in every period. If members do not make a choice, they will be invested in the default option, which is the Growth Option. MilitarySuper’s default investment option is the Growth Option because of Scheme demographics and other fundamental characteristics of the dominant population of MilitarySuper’s membership.

7investments


Table 4: Investment option objectives & risk profile

Investment option Objective Overview Risk profile

Cash Option To achieve returns (before tax and after investment fees) that match the UBS Bank Bill Index* over a one year period.

This option aims to maximise protection against capital loss. To do this, it invests only in cash investments such as term deposits, bank bills, commercial paper and other short-term money-market instruments.

This option is expected to experience low volatility and a consistent but lower level of long-term returns compared to MilitarySuper’s other investment options.

Conservative Option

To achieve returns (after tax and investment fees) that exceed the consumer price index (CPI) + 2.5% per annum over rolling three year periods.

This option invests in a conservative mix of assets, mostly defensive assets (such as government bonds and cash), with minimal investment in growth assets (such as shares and real assets).

This option may produce negative returns from time to time. It is expected to experience higher volatility than the Cash Option and lower volatility than the Balanced, Growth and High Growth options.

Balanced Option To achieve returns (after tax and investment fees) that exceed the consumer price index (CPI) + 3.5% per annum over rolling five year periods.

This option invests in a diversified mix of assets, with a moderate bias towards growth assets such as shares and real assets.

This option may produce negative returns from time to time. It is expected to experience higher volatility than the Cash and Conservative options and lower volatility than the Growth and High Growth options.

Growth Option (default option)

To achieve returns (after tax and investment fees) that exceed the consumer price index (CPI) + 4.5% per annum over rolling seven year periods.

This option invests mainly in growth assets (such as shares, real assets and private capital) with some allocation to defensive assets (such as government bonds and cash). It is MilitarySuper’s default option.

This option is likely to experience return volatility in the short to medium term and may produce negative returns from time to time. It is expected to experience higher volatility than all options other than the High Growth Option.

High Growth Option

To achieve returns (after tax and investment fees) that exceed the consumer price index (CPI) + 5.0% per annum over rolling 10 year periods.

This is the most aggressive option. It invests almost entirely in growth assets, with a small allocation to cash. This option’s performance is highly dependent on returns generated by listed share markets.

This option is likely to experience return volatility in the short to medium term and may produce negative returns from time to time. It is expected to experience a higher volatility than all other options.

* UBS Bank Bill Index is a measure constructed to gauge investment performance of short-term cash portfolios. The index comprises 13 bank bills with maturity dates evenly staggered between seven and 91 days.

7 investments


Strategic asset allocationMilitarySuper’s long-term strategic asset allocation for each investment option is shown below in Table 5. The CSC Board can deviate from these long-term allocations for tactical reasons to take advantage of compelling medium-term investment opportunities and/or to allow phased implementations. To facilitate this approach, the Board has set long-term asset allocation ranges for each option (which are shown in brackets in Table 5).

Table 5: Strategic asset allocation at 30 June 2012 (allocation ranges are in brackets)

Investment option

Cash Conservative Balanced Growth High Growth

Cash 100% 50% (30-60%) 10% (5-20%) 5% (2-15%) 3% (2-10%)

Government bonds 0% 16% (10-25%) 15% (5-25%) 5% (0-15%) 0% (0-10%)

Global investment grade credit 0% 8% (0-15%) 7% (0-20%) 5% (0-15%) 0% (0-10%)

Real assets 0% 8% (0-15%) 14% (5-20%) 10% (5-20%) 0% (0-15%)

Market neutral 0% 8% (0-15%) 8% (0-15%) 7% (0-15%) 0% (0-15%)

Private capital 0% 0% (0-5%) 8% (0-15%) 18% (0-25%) 25% (0-30%)

Australian shares 0% 5% (0-15%) 17% (10-30%) 22% (15-35%) 32% (25-50%)

International shares 0% 5% (0-15%) 21% (10-30%) 28% (15-35%) 40% (25-50%)

100.0% 100.0% 100.0% 100.0% 100.0%

Investment managersUnder Scheme legislation, the CSC Board must invest through investment managers (see Table 6). Managers that specialise in particular asset classes are appointed by the Board and must invest according to specific mandates agreed to by the Board.

Mandates include directions on investment types to be held, the maximum and minimum holdings for each investment type, and expected rates of return.

The Board, however, is not involved in individual stock selection. Instead, the Board relies on the demonstrated skill of the particular investment manager in the area of the market in which the manager has been selected to operate on behalf of MilitarySuper.

7investments


Investment managers are paid a fee generally based on the value of assets managed for CSC. Fees reflect investment costs applicable to each particular asset class sector and the investment style employed by each manager, for example passive or active investment management.

In addition, some investment managers are paid a performance fee for exceeding a pre-determined benchmark or hurdle rate of return, within pre-specified risk limits, which is generally a share of any excess risk-adjusted performance above that agreed benchmark.

Table 6: Investment managers in 2011/12

Aberdeen Asset Management PLC

Acorn Capital Limited

AMP Capital Investors

Arcadia Funds Management Limited

Blackrock Investment Management (Australia) Limited

Colonial First State Investments Limited

EIG Global Energy Partners LP

Infrastructure Capital Group Ltd

Goldman Sachs JBWere Asset Management Limited

HarbourVest Partners LLC

Herschel Asset Management Limited

HKAC Asset Management Services (AAFL) Pty Ltd

Hyperion Asset Management Limited

Kohlberg Kravis Roberts & Co LP

Kosmos Asset Management Pty Ltd

K2 Asset Management Ltd

Loomis Sayles & Company L.P.

LSV Asset Management

Macquarie Investment Management Limited

Merlon Capital Partners Pty Ltd

Pacific Equity Partners Pty Ltd

Pareto Australia Pty Ltd

Schroder Investment Management Australia Ltd

Siguler Guff & Company LLC

State Street Global Advisors Australia

Turner Investment Partners

Wentworth Hauser Violich

Note: Investment managers which hold more than 1% of the Fund

7 investments


Custodial servicesDuring 2011/12, CSC appointed The Northern Trust Company as its provider of custodial services. A custodian is a financial institution that holds securities for guaranteed safekeeping on behalf of superannuation trustees. A custodian typically collects income on securities under custody, settles transactions, calculates unit prices and provides accounting and performance reports and analysis. CSC remains responsible for all aspects of its investments including investment strategy, administration and member communication. Custodial arrangements transitioned from National Australia Bank to The Northern Trust Company as at 11 May 2012.

DerivativesInvestment managers who enter into an investment mandate with CSC may use a number of derivative securities such as futures, options and forward exchange contracts to facilitate increases or decreases in the Fund’s exposure to different investment markets. Derivative securities are not to be used for gearing the Fund or any part of the Fund or for placing the Fund in a position where it is short an asset class.

Investment mandates granted to investment managers, which permit the use of derivatives, are to reflect the foregoing policy for the Fund as a whole. Where CSC’s investment managers use derivative securities, CSC’s internal investment team and/or investment advisors will monitor that such use is consistent with CSC’s policy, and advise CSC of any breaches.

2011/12 economic and market summaryAustralia’s economy performed well in the 2011/12 financial year, although economic conditions varied significantly between states. States closely connected to mining and mining service industries displayed robust levels of economic growth and employment. States concentrated in south-eastern Australia experienced more challenging economic conditions than those closely connected to mining due to the negative impact of a strong Australian dollar on manufacturing, tourism and import competing industries.

Australia’s gross domestic product (GDP) increased by around 4% in the last year. Unemployment remained at a relatively low level of just under 5% and underlying inflation declined to the bottom of the Reserve Bank of Australia’s (RBA) target range of 2% to 3%. In an environment of low inflation and elevated bank funding costs, and uncertainty surrounding the likely future rate of global economic growth, the RBA lowered Australia’s official cash rate during the financial year from 4.75% to 3.5%.

7investments


Global economic data for the 2011/12 financial year was weaker than Australian economic data. In the US, the rate of economic recovery continued to be slower than expected, except for a brief period of weather-induced stronger growth in the first quarter of 2012.

Slower growth led many commentators to expect that the US Federal Reserve would further ease monetary conditions, particularly with the unemployment rate remaining stubbornly high. European countries struggled generally, with very weak economic conditions prevailing in nations where the debt burden was highest and austerity measures were most severe.

Chinese economic growth slowed in 2011/12, responding to a deliberate tightening of policy by Chinese authorities in an attempt to keep inflationary pressures and house price increases under control. However, the slowdown in Chinese economic growth had a dampening impact on the demand for both Australia’s raw materials and exports from other developed nations.

Within this global environment, Australian shares fell by 7% over the year as measured by the S&P/ASX 300 Accumulation Index. This reduction was largely due to very large declines in the price of materials and energy stocks. However, other market sectors fared better, with more defensive sectors such as telecoms, utilities and heath care achieving strong positive returns. Global shares were flat in 2011/12, although this masked significant differences between individual countries. The MSCI World ex Australia Accumulation Index returned 0.3% in hedged Australian dollar terms and -0.5% in unhedged terms. The difference between these returns reflected that the size of the difference in Australia’s short-term interest rate to the rest of the world (which increased hedged returns) was somewhat larger than the size of the decline in value of the Australian dollar in 2011/12 (which increased unhedged returns).

Standout performances in 2011/12 were those asset classes such as index linked bonds and government bonds which were exposed to the significant decline in long-term interest rates.

Strong performances from these asset classes were underpinned by the very large capital gains delivered by a significant decline in global long-term interest rates. Long-term interest rates reduced in the 2011/12 financial year because investors factored in more subdued global economic growth and realised lower interest rates over the long term are a useful tool to reduce chronic debt levels. Australian and global government bonds both increased by 13% in the year to 30 June 2012. Australian cash recorded a solid return of just under 5%.

Having strengthened in 2010/11, the Australian dollar declined modestly in 2011/12. Reductions against the US dollar, Japanese yen and British pound were not fully offset by an increase against a very weak Euro and some emerging market currencies. During the year, the Australian dollar declined by a little under 2% on a trade weighted index (TWI) basis.

7 investments


MilitarySuper performance

Performance by investment optionTable 7: MilitarySuper investment option performance

Option

Investment option performance to 30 June 2012(after tax and fees, % per annum)

1 year 3 years 5 years 7 years 10 years Since inception*

Cash 3.9% 3.9% 4.4% 4.7% N/A 4.6%

Conservative 4.0% 3.2% 1.7% 3.8% N/A 4.7%

Balanced 1.0% 2.7% -0.4% 3.4% N/A 5.5%

Growth -1.3% 1.8% -1.9% 2.8% 4.4% 5.3%

High Growth -4.3% 0.7% -4.2% 1.4% N/A 4.6%

* Growth Option commenced on 1 October 1991; all other options commenced on 1 July 2003

Cash OptionMilitarySuper’s Cash Option returned 3.9% net of fees and tax over the financial year to 30 June 2012, benefiting from attractive rates paid on longer-dated bank bills and term deposits. This option has performed broadly in line with its return objectives in recent years.

Conservative OptionMilitarySuper’s Conservative Option returned 4.0% net of fees and tax over the financial year to 30 June 2012, benefiting from the strong performance of government bonds and market neutral assets, which more than offset the negative contribution to performance from this option’s small allocation to listed Australian and international shares. This option has modestly underperformed its return objective over three years to 30 June 2012 due to the disappointing performance from MilitarySuper’s illiquid debt investments and low listed share market returns.

Balanced OptionMilitarySuper’s Balanced Option returned 1.0% net of fees and tax over the financial year to 30 June 2012. This option has underperformed its return objective over the last five years to 30 June 2012 due to negative returns from listed share markets and the disappointing performance from a number of MilitarySuper’s active investment managers.

7investments


Growth OptionMilitarySuper’s Growth Option returned -1.3% net of fees and tax over the financial year to 30 June 2012, reflecting the negative performance of listed Australian and international shares. This option has underperformed its return objective over the past seven years due to relatively low returns from listed share markets and the disappointing performance from a number of MilitarySuper’s active investment managers.

High Growth OptionMilitarySuper’s High Growth Option returned -4.3% net of fees and tax over the financial year to 30 June 2012. Similarly to the Growth Option, this option’s 2011/12 performance was dragged down by negative returns from Australian and international listed shares.

Longer-term performance is also below the return objective due to low listed share market returns and the disappointing performance of some active managers.

Performance by asset class

Australian sharesMilitarySuper’s Australian share portfolio returned -10.5% (after fees but before tax) over the financial year to 30 June 2012, which was below the market index return of -7.0%. Performance was negatively impacted by an overweight allocation to small companies, which underperformed the broad market index by more than 7%.

MilitarySuper’s Australian shares managers were more successful over the longer term, outperforming the broader market index by 0.9% per annum over the past five years, and by 0.4% per annum over the past seven years, to 30 June 2012.

International sharesInternational shares were flat over the 12 months to 30 June 2012. This performance, however, masked significant differences between individual countries. In particular, the US market rose modestly, while some markets, especially in Europe and Asia, experienced sizeable declines. MilitarySuper’s international shares portfolio returned -3.7% (after fees but before tax) over the year on an unhedged basis, which was below the market index return and reflected the underperformance of most of the Scheme’s active investment managers. MilitarySuper’s international shares managers were more successful over the longer term, outperforming the market index by 0.2% per annum over the past seven years to 30 June 2012.

Real assetsMilitarySuper’s real assets portfolio returned 2.7% (after fees but before tax) over the financial year to 30 June 2012. Performance was constrained by some MilitarySuper Australian property and infrastructure investments. Looking ahead, MilitarySuper infrastructure investments are expected to have a strong long-term linkage to inflation and a lower correlation to shares. Performance from MilitarySuper’s infrastructure investments was somewhat mixed over the year to 30 June 2012.

7 investments


Private equityPrivate equity returned 2.3% (after fees but before tax) over the financial year to 30 June 2012 after the impact of currency hedging is taken into account.

The private equity portfolio has made no new commitments since 2009. As such, the portfolio is maturing and receiving cash distributions from the periodical realisation of investments.

Market neutralThe objective of investing in this asset class is to target a broad range of fundamentally different sources of returns in comparison to traditional asset classes such as shares and real assets.

This asset class returned 7.7% (after fees but before tax) over the financial year to 30 June 2012 after the impact of currency hedging is taken into account, reflecting the ability of this asset class to achieve robust returns even in environments of weak listed share market performance.

Global investment grade creditAssets within this asset class were integrated with those of the public sector Schemes midway during the 2011/12 financial year. Performance over the year to 30 June 2012 was 5.1% (after fees but before tax), with performance constrained by the negative return from an illiquid debt investment, which was moved out of the asset class in the latter part of the 2011/12 financial year.

Government bondsAssets within this asset class were integrated with those of the public sector Schemes midway during the 2011/12 financial year. Performance over the year to 30 June 2012 was a very strong 12.0% (after fees but before tax), reflecting the benefit to long duration assets of a significant decline in long-term interest rates and highlighting the strong diversification benefits of this asset class relative to listed share markets.

CashAssets within this asset class were integrated with those of the public sector Schemes midway during the 2011/12 financial year. Performance over the year to 30 June 2012 was 4.7% (after fees but before tax), which closely matched the return of the market index for this asset class.

7investments


Table 8: MilitarySuper Scheme assets at 30 June 2012

2011/12

$m

2010/11

$m

Opening value of the Scheme 3 738 3 228

Plus Income

Contributions 707 687

Gross Earning of the Scheme 19 198

Less outgoings

Benefits paid and payable 356 324

Tax expense/(benefit) 93 47

Expenses and charges 3 4

Closing value of the Scheme 4 012 3 738

Investments2011/12

$m

2010/11

$m

Assets under management

Cash and short term deposits 0 616

Debt instruments 0 414

Property 0 200

Australian shares 0 1 045

Pooled superannuation trust 4 005 0

International shares 0 472

Private equity 0 477

Infrastructure 0 285

Uncorrelated alpha 0 170

Currency 0 46

Total investments 4 005 3 725

+/– MilitarySuper net assets/(liabilities)*

7 13

Net assets of the Scheme** 4 012 3 738

* MilitarySuper net assets/ (liabilities) represent benefits payable, tax provisions and cash at bank.

** The net assets of the Scheme shows the amount available to pay members’ benefits at 30 June after allowing for tax, cash at bank and benefits payable to former contributing members.

7 investments


Investment informationFurther information on investment performance is available from:

Web www.csc.gov.au

Postal address CSC GPO Box 1907 Canberra ACT 2601

Phone 02 6263 6999

Fax 02 6263 6900

Email [email protected]

CSC’s approach to investment governanceCSC’s approach to investment governance reflects the framework laid out by the United Nations Principles for Responsible Investment (UNPRI). See below for details on the UNPRI. CSC believes it has a responsibility to ensure that funds are not exposed to undue risk because of poor corporate governance behaviour.

Therefore, CSC actively pursues principles of good governance in its own operations, and seeks them in service providers and in companies in which it invests.

CSC considers corporate governance to be an important element of risk management.

This approach recognises that poor environmental, social and corporate governance (ESG) can indicate poor corporate management and lead to a decline in investment value. CSC undertakes a number of initiatives and practices in relation to managing risk in its investments, including:

> casting proxy votes in Australian and international companies in which it invests

> publicly communicating its ESG policy and practices

> governance research and engagement through Regnan.

Proxy voting In keeping with its belief in the value of good governance, CSC exercises its right to cast proxy votes in companies in which it invests. This activity underscores CSC’s commitment to ensuring long-term shareholder value for members. It also sends a clear signal to companies that as a shareholder, CSC will vote on company resolutions in the best interests of its members.

Regnan – Governance Research and Engagement Pty Limited Regnan was established to protect and enhance shareholder value for members by identifying ESG risks in present and future investments, to actively communicate those risks to relevant stakeholders, and engage directly with companies as required.

7investments


The service was appointed to actively research governance risk in the fund’s Australian equities investments and make recommendations on how constructive engagement might reduce such risks. CSC’s Australian equity investments represent funds under management of around $4.1 billion. Regnan is Australia’s only investment risk management service to focus on engagement to meet the oversight needs of institutional investors such as CSC.

Regnan addresses portfolio exposure to ESG risks by directly engaging with companies and performing specialist research and analysis. Regnan’s research universe includes all companies in the S&P/ASX200. CSC’s ESG and Proxy Voting Policies are published on CSC’s website. Reports on the implementation of these policies, including progress against the UNPRIs, are also available on the website.

United Nations Principles for Responsible Investment One of CSC’s predecessor organisations, Australian Reward Investment Alliance (ARIA), became an asset owner signatory to the UNPRI in December 2006. CSC is now the signatory.

CSC is actively committed to aligning investment activities with the Principles in the best long-term interests of the beneficiaries of Schemes administered by CSC. CSC acts in the belief that application of the Principles is expected to lead to better long-term financial returns and a closer alignment between the objectives of institutional investors and those of society at large.

The six UNPRI are:

> PRI1. We will incorporate ESG issues into investment analysis and decision-making processes.

> PRI2. We will be active owners and incorporate ESG issues into our ownership policies and practices.

> PRI3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.

> PRI4. We will promote acceptance and implementation of the Principles within the investment industry.

> PRI5. We will work together to enhance our effectiveness in implementing the Principles.

> PRI6. We will each report on our activities and progress towards implementing the Principles.

MilitarySuper membership

member communication and services

members and services8

8 members and services


MilitarySuper membershipThere are two main groups of contributors to MilitarySuper: those who transferred from the DFRDB and those who have become members of MilitarySuper upon joining the ADF on or after 1 October 1991. There is also a small group who had been receiving a DFRDB Scheme benefit, rejoined the ADF and elected to join MilitarySuper.

Table 9: MilitarySuper membership summary 2011/12 & 2010/11

Contributors Preservers Pensioners Total

30 June 2012 56 622 87 147 9 086 152 855

30 June 2011 56 892 78 605 8 166 143 663

Note: Figures do not include ancillary members (spouse and associate).

Contributing membersAt 30 June 2012, MilitarySuper had 56 622 contributing members (compared to 56 892 at 30 June 2011) of which 48 442 (86 %) were male and 8 180 (14%) were female.

Table 10: MilitarySuper contributing member composition

Male Female Total

Membership at 30 June 2011 48 630 8 262 56 892

Plus new contributors 4 210 648 4 858

Less members exited the ADF* 4 398 730 5 128

Membership at 30 June 2012 48 442 8 180 56 622

* Exits are to preserved benefit membership or from MilitarySuper.Note: Figures do not include ancillary members (spouse and associate).

Table 11: Male & Female MilitarySuper contributors by years of service at 30 June 2012

Years of service Male Female Total

0–9 34 641 6 055 40 696

10–14 6 067 1 050 7 117

15–19 3 094 519 3 613

>19 4 640 556 5 196

Total 48 442 8 180 56 622

Note: Figures do not include ancillary members (spouse and associate).

8members and services


New members

There were 4 858 new MilitarySuper contributing members in 2011/12.

Exits There were 9 817 exits in 2011/12 (see Table 12). This figure includes 920 contributing and preserved benefit members who became MilitarySuper pensioners during the year (see Chart 2).

Table 12: Exits from MilitarySuper over five years to 30 June 2012

2007/08 2008/09 2009/10 2010/11 2011/12

Age retirement 143 262 303 120 137

Resignation 3 523 1 081 616 694 3 925

Redundancy 6 9 12 15 72

Invalidity retirement 718 633 426 409 752

Death 55 108 113 124 76

Unclaimed* 2 803 4 052 2 444 4 094 4 855

Total 7 248 6 145 3 914# 5 416 9 817

* Unclaimed benefits relate to members who have left the ADF but not submitted a benefit application instruction form regarding their benefits in the Scheme. The benefits are preserved in the Scheme if no claim is made within 90 days. These exits are predominately due to resignation.

# 2009/10 figure is reduced from that published in 2009/10 due to preserved claim, preserved claim hardship TPI, and ancillary claim duplication numbers being removed from the total.



Preserved benefit membersAt 30 June 2012, MilitarySuper had 87 147 preserved benefit members compared to 78 605 at 30 June 2011. Chart 1 shows the growth of preserved benefit members since 30 June 2008.

Chart 1: Preserved benefit members since 30 June 2008

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

100 000

June 2008 June 2009 June 2010 June 2011 June 2012

Nu

mb

er o

f p

rese

rved

ben

efit

m

emb

ers



Preserved benefit membersAt 30 June 2012, MilitarySuper had 87 147 preserved benefit members compared to 78 605 at 30 June 2011. Chart 1 shows the growth of preserved benefit members since 30 June 2008.

Chart 1: Preserved benefit members since 30 June 2008

PensionersAt 30 June 2012, MilitarySuper had 9 086 pensioners (compared to 8 166 at 30 June 2011). Chart 2 shows the growth in MilitarySuper pensioner numbers since 30 June 2008.

Chart 2: MilitarySuper pensioners since 30 June 2008

8 000

9 000

10 000

4 000

5 000

6 000

7 000

0

1 000

2 000

3 000

June 2008 June 2009 June 2010 June 2011 June 2012June 2008 June 2009 June 2010 June 2011 June 2012

Nu

mb

er o

f p

ensi

on

ers



Member communication and servicesCSC gives all members, including preserved benefit members and pensioners, information, education and advice to help them make the right decisions about their superannuation.

CSC provides clear, concise and tailored communications and delivers national education programs. Information and support is also provided to members and employers over the phone and via correspondence from customer information centres.

Website enhancementsIn 2011/12, MilitarySuper’s website and CSC’s corporate website were fully redeveloped, providing increased functionality and accessibility for all users, including early compliance with federal government website content accessibility (WCAG) 2.0 guidelines. These improvements were completed as part of a wider member and employer communication ‘renaming’ project which followed the establishment of CSC on 1 July 2011.

Scheme seminarsScheme information is provided to members in presentations at Department of Defence transition seminars which are held at bases and units around Australia. Medical discharge seminars are also run for members who expect to be discharged on medical grounds.

In 2011/12, 60 seminars were presented to 3 774 members (see Chart 3), compared to 59 seminars attended by 3 411 members in 2010/11. In 2011/12, medical discharge seminars were presented to 471 members (which are included in the total seminar attendance figure).

One-on-one information servicesMilitarySuper members can speak to an information officer one-on-one in Canberra and at some transition seminars held at bases and units around Australia. During 2011/12, 1 616 MilitarySuper members attended a one-on-one information session, which was an increase on the 1 361 members who did so in the 2010/11 financial year.



Chart 3: Seminar & one-on-one information session attendees in 2011/12

200

300

400

500

600

700

Nu

mb

er o

f at

ten

dee

s

0

100

Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun

Seminars One-on-one member information services

Customer Information CentreIn 2011/12, 75% of all calls to the Customer Information Centre (CIC) were answered within 60 seconds which is the service level standard outlined in the Service Level Agreement (SLA). The implementation of technology improvements, including email queuing, and pooling resources, helped to achieve this standard. Most members prefer to contact MilitarySuper’s CIC by telephone. In 2011/12, an average of 1 160 calls were received each week, compared to 1 238 in 2010/11. In 2011/12, a total of 59 116 member calls were received.

Members can also email and write to the CIC. In 2011/12, the CIC responded to 5 952 emails and 2 463 written enquiries, compared to 5 154 and 2 470 respectively in 2010/11.

Chart 4: CIC calls received comparison 2011/12 & 2010/11

4 000

6 000

8 000

10 000

12 000

0

2 000

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

N

2010/11 2011/12

Nu

mb

er o

f ca

lls



Chart 5: CIC emails received comparison 2011/12 & 2010/11

2010/11 2011/12

400

600

800

1 000

1 200

Nu

mb

er o

f em

ails

0

200


Chart 6: CIC written enquiries received comparison 2011/12 & 2010/11

100

150

200

250

300

350

0

50


Nu

mb

er o

f w

ritt

en e

nq

uir

ies

2010/11 2011/12



2011/12 projects

Annual member statementsThe Corporations Act (2001) requires that annual superannuation statements are distributed to members by 31 December each year. Statements must include equity figures and withdrawal benefits at both the beginning and the end of the relevant financial year.

Statements for 2010/11 were issued to 140 482 members. Routine statements were published online on 29 August 2011 and all printed statements were mailed to members by 27 September 2011, which was five weeks ahead of the previous year.

Annual member reportsMember reports for contributing and preserved benefit members are published on the MilitarySuper website to provide a summary of superannuation Scheme activities and MilitarySuper Fund performance during the financial year. Member reports for the 2010/11 financial year were published on the website on 30 September 2011.

Pension Update and Consumer Price IndexRetired MilitarySuper members receive two Pension Update newsletters each year detailing areas of interest and any significant changes impacting their entitlements. It is mailed to members with a letter advising them of the biannual Consumer Price Index (CPI) movement and the impact that movement will have on their MilitarySuper pension.

Issues released in 2011/12 were Issue 18 (July 2011) and Issue 19 (January 2012).

Online switchingMembers were able to switch investment options online from late August 2011. Chart 7 shows the reduction in manual switching and increase in electronic switching.

Chart 7: Manual & online investment switch requests in 2011/12

0

50

100

150

200

250

300

Nu

mb

er o

f sw

itch

req

ues

ts


manual online

Scheme administrator

Service Level Agreement

administrator performance

account maintenance

contributions

benefit payments

pension payments

reversionary benefits

invalidity process, classification and review

family law

dispute resolution

complaints and representations

legal claims

Scheme administration9

9 Scheme administration


This section of the report details the administration of MilitarySuper during the year ended 30 June 2012. This is one of three CSC reports for 2011/12. CSC’s other reports cover CSS, PSS, PSSap, 1922 Scheme, PNG Scheme, DFRB Scheme, DFRDB Scheme and DFSPB.

Scheme administratorComSuper is the provider of scheme administration services for MilitarySuper.

ComSuper’s main responsibilities are to:

> maintain records for contributors, preservers and pensioners

> receive and account for contributions from the Department of Defence

> calculate and pay benefits (including invalidity benefits)

> make decisions on entitlements under delegation from CSC

> provide information and assistance to members.

ComSuper provides information and assistance to members at Scheme seminars, in one-on-one information sessions and through the Customer Information Centre. These services are explained in the Members and services section of this report.

Service Level AgreementA Service Level Agreement (SLA) is in place between CSC (the trustee), the Department of Defence (the employer) and ComSuper (the administrator). This SLA is for the military superannuation Schemes including MilitarySuper. It establishes the services to be provided and service standards in relation to scheme administration and reflects a shared understanding of the commitments each party is to provide under the SLA.

Administrator performanceAs administrator, ComSuper reports monthly to CSC against the performance standards set out in the SLA. As trustee, CSC reviews and monitors ComSuper’s performance, which includes assessing ComSuper’s service delivery against agreed standards.

Account maintenanceTo help ComSuper maintain and manage MilitarySuper member accounts, an online interface is used to receive contributions and information directly from the Department of Defence. This interface enables approximately 99.6% of all MilitarySuper contribution data to be processed directly into ComSuper’s administration system.

9Scheme administration


ContributionsMilitarySuper’s basic contribution rate is 5% of salary, which includes higher duties and the qualification and skills element of certain Environmental Allowances. Members can elect to contribute up to 10% of salary. MilitarySuper can also accept ancillary contributions which include pre- and post-tax contributions such as additional personal contributions, salary sacrifice contributions, spouse contributions and transfer amounts.

These amounts, together with a member’s basic (or own) contributions, form part of the member-financed benefit. This benefit amount also comprises any amounts notionally included from the DFRDB Scheme, Fund earnings on these and any ancillary amounts, and an additional contribution from the Department of Defence.

This contribution is a Super Guarantee top-up amount, which is paid on a quarterly basis and based on Ordinary Time Earnings. It forms part of the ancillary benefit.

Members may also be entitled to super co-contributions from the Australian Government.

The employer-financed benefit is unfunded except for the 3% productivity contribution which is paid into the Fund by the Department of Defence.

Table 13: MilitarySuper contributions comparison 2011/12 & 2010/11

Contributions 2010/11 2011/12

Member (basic and ancillary) $229m $236m

Employer $175m $174m

Co-contributions $13m $11m

Total contributions to MilitarySuper Fund $417m $421m

Net appropriation for benefits $270m $286m

Note: Figures in this table are rounded to the nearest whole number.

Benefit paymentsMembers who exit MilitarySuper are entitled to receive a member-financed benefit regardless of their reason for leaving the Australian Defence Force. Exiting members are also entitled to an employer-financed benefit, the amount of which varies based on the reason for their exit. Chart 8 sets out the average number of days to process benefit payments in 2011/12.



Chart 8: Average number of days to process benefit payments in 2011/12

3

2

4

5

0

1

Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun

Nu

mb

er o

f D

ays

Benefits on dischargeIf a discharging member is not entitled to a MilitarySuper pension, their total employer component must be preserved until they reach their compulsory minimum preservation age. Discharging members can also elect to preserve their total benefit including their member-financed component, or elect to take that part of their member benefit that accrued up to 30 June 1999 if applicable to their situation. Any contributions paid and Fund earnings received after then must be either preserved in the Scheme or rolled over to and preserved in another complying fund until the member reaches their preservation age.

Members can withdraw any part of their member benefit not compulsorily preserved.

From age 55, discharging members can also roll their employer component over to another complying fund of their choice until they reach their preservation age and retire from the workforce. At this age members can also convert a minimum of 50% of their employer-financed benefit to a pension and roll over the balance.

Early release of preserved benefitsIn certain circumstances, a compulsorily preserved benefit may be paid before retirement. In 2011/12, 1 218 preserved benefits paid in full or part during the year were released on total and permanent incapacity (TPI), severe hardship or compassionate grounds.



Table 14: MilitarySuper benefits paid comparison 2011/12 & 2010/11

2010/11 2011/12

Pensions $209m $225m

Lump sums $115.5m $131m

Total $324.5m $356m

Fund share $54m $70m

Consolidated revenue share $270.5m $286m

Total $324.5m $356m

Pension paymentsTable 15: MilitarySuper benefits paid comparison 2011/12 & 2010/11

2010/11 2011/12

Total pension payments $209m $225m

Average annual pension amount $23 082 $24 734

Pensions commenced 482 920

Pensioners at 30 June 8 166 9 086

Consumer Price Index increases in 2011/12 were 2.0% in July 2011 and 1.5% in January 2012.

Pensions are paid for retirement, redundancy, reversionary and invalidity benefits. Reversionary and invalidity benefits are explained below. Table 16 shows the growth in pensioner numbers for each benefit class over five years to 30 June 2012.

Table 16: Pensioners by benefit class over five years to 30 June 2012

Benefit class 30 June 2008 30 June 2009 30 June 2010 30 June 2011 30 June 2012

Retirement 1 106 1 220 1 314 1 492 1 705

Redundancy 1 910 1 914 1 920 1 931 2 008

Invalidity 3 531 3 913 4 130 4 362 4 973

Reversionary benefits* 163 180 320 381 400

Total 6 710 7 227 7 684 8 166 9 086

* Payable on the death of a member, former member or pensioner (including children and orphans)



Reversionary benefitsIn the event of the death of a contributing or preserved benefit member, or a pensioner, their dependants and/or Estate may be entitled to a superannuation benefit. Benefits can be paid to an eligible spouse, child or the Estate. If an eligible spouse is paid their reversionary benefit as a pension, it will be paid for life in most but not all cases.

ComSuper processed all applications for reversionary benefits in a timely manner and in accordance with the SLA and relevant legislation.

Invalidity process, classification and review

Classification processComSuper assesses invalidity claim applications from MilitarySuper members who have been medically discharged from the Australian Defence Force. The classification process is to first, assess a member’s invalidity benefit eligibility according to legislative criteria. Second, if the member is assessed as eligible for an invalidity benefit, the percentage of incapacity in relation to appropriate civilian employment is determined based on:

> an independent medical assessment

> information about the member’s capacity for civilian employment based on their skills, employment history and injury or illness

> other information provided by the Department of Defence.

Invalidity classifications are Class A, B or C. Class A requires significant incapacity. Class B requires moderate incapacity. Class C reflects comparatively low incapacity and means the member is not entitled to an invalidity pension.

Third, after the invalidity classification has been determined, the member is advised in writing and informed of their right to request a reconsideration of the decision. MilitarySuper’s reconsideration process is outlined on page 63.

Invalidity classificationTable 17: Initial invalidity classifications & invalidity pensions granted

2010/11 2011/12

Initial invalidity classifications 424 676

Invalidity pensions granted 344 (194 Class A and 151 Class B) 521 (288 Class A and 233 Class B)

Class C classifications 77 155

Note: Figures in this table vary slightly to invalidity exits quoted elsewhere due to some cases relating to members discharged in the previous financial year. Furthermore, these figures do not include members who were medically discharged under Rule 32 with no invalidity pension payable having been deemed by a delegate to have been retired on a pre-existing condition within two years of enlistment.



Chart 9: Invalidity classifications by service in 2011/12

6080

100120140160180200

02040

Army Navy Air Force

Nu

mb

er o

f C

lass

ific

atio

ns

Class A Class B Class C

Invalidity classification reviewInvalidity classifications can be reviewed. If a member is initially classified as Class A or B, they are not guaranteed an invalidity benefit for their lifetime and are subject to periodic medical reviews by CSC or its delegates until the member reaches age 55. If a member believes their retiring impairment has deteriorated, they can also initiate a review of their classification level.

Members classified as Class C are not subject to periodic reviews but can request the initial decision to be reconsidered. Requests must be made within 30 days of when the initial classification was determined. MilitarySuper’s reconsideration process is explained on page 62.

During 2011/12, 250 cases were examined, resulting in a change to 97 classifications (see Table 18 for review outcomes over the past five years to 30 June 2012).

Table 18: Invalidity entitlement reviews over five years to 30 June 2012

2007/08 2008/09 2009/10 2010/11 2011/12

Entitlements examined 353 352 296 250 250

Review with medical exam 353 296 296 250 242

Classification raised 44 134 49 55 58

Classification reduced 48 16 45 44 39

Total classification changes 92 150 94 99 97



Family lawAssociate accounts are created for eligible former spouses or same sex partners of MilitarySuper members or pensioners who are subject to a family law splitting court order. Associate preserver and associate pensioner accounts are created. In 2011/12, ComSuper acted on 2 597 family law enquiries, which was a 19% increase on the previous financial year, and implemented 242 family law splits, which was a 24% increase on the previous year.

Table 19: Family law splitting – associate accounts & records

2010/11 2011/12

Family law splits implemented 194 242

Responses to enquiries 813 818

Contributor accounts affected 444 539

Preserver accounts affected 700 813

Associate preserver accounts maintained 1303 1467

Associate pensioner accounts maintained 43 43

Dispute resolutionDecisions of CSC and its delegates are subject to both internal review (the reconsideration process) and external review (review by other bodies). A formal complaints process is also in place which is outlined in ‘Complaints and representations’ on page 64.

Internal review – the reconsideration processA person affected by a decision of CSC or a delegate may apply in writing to have it reconsidered. Reconsideration requests are treated as complaints for the purposes of section 101 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act). If a member is dissatisfied with the decision, they may request the Superannuation Complaints Tribunal (SCT) to review the decision in accordance with the Superannuation (Resolution of Complaints) Act 1993. Read about the SCT on page 63.

Most MilitarySuper reconsideration requests relate to invalidity classifications and the related amount of invalidity benefit which is payable, and to subsequent invalidity classification reviews. Other common reconsideration subjects are late elections to contribute, recovery of overpayments, early access to superannuation on hardship grounds and spouse entitlements.



Following the completion of any internal reconsideration investigations, cases are prepared for review by the Military Superannuation and Benefits Scheme (MilitarySuper) Reconsideration Committee. The role of the Committee during the year was to:

> consider requests for reconsideration of a delegate’s decision made under Scheme rules and to either affirm the decision, vary it or set it aside and substitute another decision for it, and

> make recommendations to CSC on requests for reconsideration of decisions made either by the Committee or CSC under Scheme rules.

At 30 June 2012, the Committee comprised a CSC representative (who was also the Chairman of the Committee), representatives from the scheme administrator, ComSuper, and representatives from service offices and pensioners. During the year, the MilitarySuper Reconsideration Committee met on 10 occasions and considered several cases out of session.

Table 20: Reconsideration applications for three years to 30 June 2012

2009/10 2010/11 2011/12

Requests on hand 33 35 39

Requests received 95 95 90

Requests resolved 93 91 91

Carried forward 35 39 38

External reviewCertain CSC decisions are subject to external review by bodies such as the SCT, the Administrative Appeals Tribunal (AAT), the Federal Court, the Commonwealth Ombudsman and the Australian Human Rights Commission.

Superannuation Complaints TribunalMilitarySuper has been a regulated Scheme for the purpose of the SIS Act since 29 June 1995. As trustee, CSC decisions in relation to this Scheme can be the subject of a complaint to the SCT, established under the Superannuation (Resolution of Complaints) Act 1993.

Table 21: Complaints lodged for MilitarySuper in 2011/12

Carried over Lodged Resolved Set aside Carried forward

2011/12 8 7 6 (5 withdrawn and 1 affirmed) 0 9

2010/11 8 5 5 (1 withdrawn and 4 affirmed) 0 8



Federal CourtDecisions of the SCT are reviewable by the Federal Court under section 46 of the Superannuation (Resolution of Complaints) Act 1993 (the SRC Act). Appeals, on the grounds of an error of law, must be initiated within 28 days of notification of the SCT decision. During 2011/12, CSC did not appeal any SCT decisions to the Federal Court in respect of MilitarySuper. There were also no appeals to the Federal Court by MilitarySuper members in respect of SCT decisions.

Judicial reviewThe Administrative Decisions (Judicial Review) Act 1977 (the AD(JR) Act) provides another review mechanism for a person aggrieved by an administrative decision taken under Commonwealth legislation. Under the AD(JR) Act, the person can seek, on specified grounds, an order for review of the decision in the Federal Court.

During 2011/12, there were no orders for review and no requests for a statement of reasons under the AD(JR) Act in respect of decisions made under the MilitarySuper Act.

Commonwealth OmbudsmanDuring 2011/12, one Ombudsman enquiry was received in relation to MilitarySuper (refer to Table 22 for all complaints and representations).

Complaints and representationsCSC has put in place formal procedures for member complaints. As trustee, CSC manages complaints relating to investment, policy and governance. As scheme administrator, ComSuper manages complaints relating to scheme administration including the maintenance of member accounts, recording of contributions, estimating and paying member benefits, issuing member statements and other service enquiries. Complaints handling processes and procedures comply with the Association of Superannuation Funds of Australia (ASFA) Best Practice Guide and reflect the guiding principles of Standards of Australia AS ISO 10002-2006 (Customer Satisfaction – guidelines for complaints handling in organisations).

During 2011/12, a total of 32 complaints were received in relation to MilitarySuper (see Table 22), which was less than the 47 complaints received in 2010/11.

Representations from members of parliament are also outlined in Table 22.



Table 22: Complaints & representations in 2011/12

Complaint type Policy Service Total

Complaint 12 20 32

Parliamentary 9 0 9

Ombudsman enquiry 1 0 1

Total 22 20 42

Legal claimsTable 23: Complaints & representations in 2011/12

Carried over Received Decided Carried forward

2011/12 4 3

4 (0 accepted;

1 partially accepted; 1 not accepted; and

2 lapsed

3

A total of $1 000 was paid in compensation during the year.

10MilitarySuper financial statements









Military Superannuation and Benefits Fund

Note 2012 2011$'000 $'000

3 737 538 3 228 245

Investment revenueInterest 4 24 814 17 588 Dividends and trust distributions 4 107 107 184 105 Other investment revenue 4 1 117 625 Changes in net market values 4 (102 673) 10 740 Direct investment expenses 5c (11 261) (15 014)Net investment revenue 19 104 198 044

Contribution revenueMember contributions 5a 236 185 228 799 Productivity contributions 5a 174 352 174 975 Government co-contributions 5a 11 106 12 782

5b 285 676 270 517 Total contribution revenue 707 319 687 073

Total revenue 726 423 885 117

General administration expenses 5c (3 050) (4 113)Benefits paid and payable 5b (355 812) (324 499)Total benefits paid and expenses (358 862) (328,612)

367 561 556 505

Income tax expense 6a 92 943 47 212

274 618 509 293

4 012 156 3 737 538

The attached notes form part of these financial statements.

Net assets available to pay benefits at the end of the financial year

Net Appropriations from Consolidated Revenue Fund (CRF)

Net assets available to pay benefits at the start of the financial year

Statement of Changes in Net AssetsFor the Year Ended 30 June 2012

Change in net assets before income tax

Change in net assets after income tax



Military Superannuation and Benefits Fund

Note 2012 2011$'000 $'000

InvestmentsCash and short term deposits - 615 846 Debt instruments - 414 075 Australian equities - 1 044 608 Pooled superannuation trust 4 004 624 -International equities - 471 841 Property trusts - 200 482 Currency contracts - 46 280 Private equity - 477 230 Uncorrelated Alpha - 169 813 Infrastructure - 284 916 Total Investments 4 004 624 3 725 091

Other assetsBank 13 496 27 663 CRF special account 1 435 356 Trade settlements receivable - 53 888 Accrued income 36 11 956 Other assets - 927 Benefits payable to be appropriated from CRF 5b 2 603 2 693 Foreign tax paid - 642 Deferred tax assets 6c - 55 448 Total other assets 17 570 153 573 Total assets 4 022 194 3 878 664

LiabilitiesBenefits payable 5b 3 759 4 251 Trade settlements payable - 114 941 Sundry creditors 7 1 903 13 024 Current tax liability 6b 4 376 8 910 Total Liabilities 10 038 141 126

4 012 156 3 737 538

The attached notes form part of these financial statements.

Statement of Net AssetsAs at 30 June 2012

Net assets available to pay benefits



NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTSFor the year ended 30 June 2012

1. DESCRIPTION OF THE SCHEME AND THE FUND

As a part of the merger of the MSB Board with CSC and in accordance with a resolution of the Directors, on 11 May 2012 the investment assets of the Fund were transferred to ARIA Investments Trust (AIT), a pooled superannuation trust managed by the Trustee. The Fund received units in the AIT in return for the value of investments transferred. The units received comprise of five options which are detailed in Note 13 Financial Instruments.

The governing legislation of the Board merger (the Governance of Australian Government Superannuation Schemes Act 2011 ) allows capital gains tax (CGT) rollover relief on unrealised capital gains and losses on transfer of the assets before 30 June 2012. It is expected that CGT rollover relief for net realised capital losses in the Fund that are transferred to AIT as part of the merger will be granted, with amending legislation being tabled in Parliament after the end of financial year (Note 6).

The Military Superannuation and Benefits Scheme ('Scheme') (ABN 50 925 523 120) is a hybrid accumulation-defined benefits scheme which provides benefits to its members under the Military Superannuation and Benefits Act 1991 . The Trustee at balance date was the Commonwealth Superannuation Corporation (CSC) (ABN 48 880 817 243). Prior to 1 July 2011 the Trustee was the Military Superannuation and Benefits Board of Trustees No. 1 (MSB Board). The MSB Board merged with CSC as at 1 July 2011.

The Scheme is operated for the purpose of providing members of the Australian Defence Force (and their dependants or beneficiaries) with lump sum and pension benefits upon retirement, termination of service, death or disablement. For the purposes of the Scheme, the Military Superannuation and Benefits Fund No. 1 (Fund) accepts 3% employer productivity contributions from the Department of Defence, members’ contributions, transfers from other Superannuation funds, and contributions made by members for the benefit of their spouse.

Administration of member records, contributions receipts and benefit payments is conducted on behalf of the Trustee by ComSuper.

The principal place of business and registered office of the Trustee is Level 8, 121 Marcus Clarke Street, Canberra ACT 2601.




2. BASIS OF PREPARATION

(a) Statement of compliance

The financial statements of the Fund were authorised for issue by the Trustees on the 14th September 2012.

Australian Accounting Standards require disclosure of Australian Accounting Standards that have not been applied for standards that have been issued but are not yet effective. The Trustee expects to adopt the Standards disclosed below upon their application date to the extent that they are not inconsistent with AAS 25 'Financial Reporting by Superannuation Plans' . It is anticipated that adoption of the Standards will not have a material financial impact on the financial report of the Fund. The following Standards expected to be relevant to the Fund were in issue but not yet effective at the date of authorisation of the financial report.

The financial report of the Fund is a general purpose financial report which has been prepared in accordance with Schedule 1 of the Finance Minister's Orders (Financial statements for reporting periods ending on or after 1 July 2011) , Australian Accounting Standards and Interpretations, the Superannuation Industry (Supervision) Act 1993 andprovisions of the Trust Deed. Accounting Standards include Australian Accounting Standards and International Financial Reporting Standards ('IFRS') to the extent that they are not inconsistent with AAS 25 'Financial Reporting by Superannuation Plans' .

The form of these financial statements has been agreed by the Minister for Finance and Deregulation and the Trustee in accordance with sub-section 30(1)(d) of the Governance of Australian Government Superannuation Schemes Act 2011 .

The financial statements have been prepared on the basis required by the Defined Benefit Plan provisions of AAS 25, which provides specific measurement requirements for assets, liabilities and for accrued benefits. A Defined Benefit Plan refers to a superannuation plan where the amounts to be paid to members on retirement are determined at least in part by a formula based on years of membership and salary levels. The Trustee adopted the provisions of AAS 25 whereby the financial statements include a Statement of Net Assets, a Statement of Changes in Net Assets and Notes thereto.




2. BASIS OF PREPARATION (continued)

(a) Statement of compliance (continued)

Standards on issue, not yet effective:Standard / Interpretation Effective for annual

reporting periods beginning on or after

Expected to be initially applied in the financial

year ending

1 January 2013 30 June 2014





Standards adopted this year:Effective for annual reporting periods

beginning on or after

1 January 2011

Standard / Interpretation

AASB 9 'Financial Instruments', AASB 2009-11 'Consequential amendments to other accounting standards' resulting from its issue and AASB 2010-7 'Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)'AASB 1053 'Application of Tiers of Australian Accounting Standards' and AASB 2010-2 'Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements'

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

AASB 124 'Related Party Disclosures (2009)' and AASB 2009-12 'Amendments to Australian Accounting Standards'

AASB 13 'Fair Value Measurement' and AASB 2011-8 'Amendments to Australian Accounting Standards arising from AASB 13'AASB 2012-2 'Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities (AASB 7 & 132)' and AASB 2012-3 'Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities (AASB 132)'

The following new and revised Standards and Interpretations have been adopted in these financial statements. The adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.




2. BASIS OF PREPARATION (continued)

(b) Functional and presentation currency

(c) Use of judgements and estimates

Judgements made by management in the application of Accounting Standards that have significant effects on the financial statements, and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements.

In the application of Accounting Standards, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Amounts in these financial statements have been rounded to the nearest thousand dollars, unless otherwise indicated.

The financial statements are presented in Australian dollars, which is the functional currency of the Fund.




3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

(a) Assets

Net market values have been determined as follows:

(i)

(ii)

(iii)

(iv)

(v) Equities - listed securities, including listed property trusts, are valued based on the last sale price quoted at close of business on the last day of the reporting period by the relevant stock exchange, or last bid where a sale price is unavailable.

The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2012 and the comparative information presented in these financial statements for the year ended 30 June 2011.

Assets are included in the Statement of Net Assets at net market value as at reporting date and changes in the net market value of assets are recognised in the Statement of Changes in Net Assets in the periods in which they occur. Net market value of investments includes a deduction for selling costs which would be expected to be incurred if the investments were sold.

Financial assets are recognised on the date the Fund becomes a party to the contractual provisions of the asset. Financial assets are recognised using trade date accounting. From this date, any gains and losses from changes in net market value are recorded.

Net market value means the amount which could be expected to be received from the disposal of an asset in an orderly market after deducting costs expected to be incurred in realising the proceeds of such a disposal. If the price used is the selling or redemption price a deduction for selling costs has already been included. Otherwise, as selling costs are generally immaterial, net market value approximates fair value unless otherwise stated.

Pooled Superannuation Trusts - units are valued at the redemption price at close of business on the last business day of the reporting period as notified by the manager of the trust, reflecting the net market value of the underlying investments.

Short-term Money Market - these securities are valued by marking to market using yields information supplied by independent valuers.

Fixed-interest - these securities are valued by marking to market using yields information supplied by independent valuers.

Futures Contracts - open futures contracts are revalued to closing price quoted at close of business on the last business day of the reporting period by the futures exchange.




3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)

(a) Assets (continued)

(vi)

(vii)

(viii)

(ix)

(x)

(xi)

(xii)

Exchange Traded Options - options are valued as the premium payable or receivable to close out the contracts at the last buy price quoted at close of business on the last business day of the reporting period by the relevant stock exchange.

International Securities- are valued on the basis of last sale price quoted at close of business on the last business day of the reporting period by the relevant securities exchange.

Currency Contracts - these securities are valued at the relevant exchange rate at close of business on the last business day of the reporting period

Debt – certain investments are valued by marking to market using yields supplied by independent valuers. The remainder of this class of investments is valued by the most recent valuation obtainable from an independent external valuer, a third party arms length transaction or the current and future earnings on corporate debt instruments in the portfolio.

Uncorrelated Alpha – investments via unit trusts are valued at their net realisable value. The remainder of this class of investments is valued by the issuing bank having regard to the net realisable value of the underlying financial instruments.

Private Equity, Infrastructure and Unlisted Property funds – these asset classes are valued according to the most recent valuation obtainable from an independent external valuer, a third party arms length transaction, the current and future earnings of companies or the assets in the portfolio, or cost (less any diminution in value) in cases where investments have been held for a short time and the Trustee was satisfied that significant diminution in value had not occurred.

Sundry debtors and receivables are recognised at the amounts receivable. All amounts are unsecured and are subject to normal trade credit terms.





(b) Cash and Short Term Deposits

(c) Foreign Currency Translation

(d) Financial liabilities

Benefits payable

Trade settlements payable

Sundry creditors

Cash and short term deposits under the heading of Investments include deposits held at call with a bank or financial institution and highly liquid investments with short periods to maturity which are readily convertible to cash-on-hand at the discretion of managers and are subject to insignificant risk of changes in value. Cash is included in the Statement of Net Assets at net market value. Cash held under the heading of Other Assets includes cash at bank and the CRF special account which are used to transact contributions, transfers from other funds, benefit payments and tax liabilities.

The Fund does not directly undertake transactions denominated in foreign currencies from 11 May 2012.

All foreign currency transactions during the financial year were brought to account using the exchange rate in effect at the date of the transaction. In prior reporting periods, foreign currency monetary items at reporting dates were translated at the exchange rate existing at each reporting date. Exchange rate differences were recognised in the Statement of Changes in Net Assets in the period in which they arose.

The Fund recognises financial liabilities (being benefits payable, trade settlements payable and sundry creditors) at their nominal value which is equivalent to net market value. As disposal costs are generally immaterial, net market value approximates fair value unless otherwise stated. The Fund recognises financial liabilities on the date it becomes a party to the contractual provisions of the liability.

Benefits payable include benefits in respect of members who ceased employment with the employer sponsor prior to financial year end who have requested to receive a benefit but had not been paid by that date.

Trade settlements payable represent liabilities for investments purchased during the financial period and which are unpaid at reporting date. All amounts are secured against the relevant investments, except for futures and forward contracts. All transactions are subject to normal credit terms within the relevant securities markets.

Sundry creditors represent liabilities for goods and services provided during the financial period and which are unpaid at reporting date. All amounts are unsecured. Creditors are subject to normal trade credit terms.





(e) Derivatives

(f) Revenue

Investment revenue

The Fund does not directly enter into derivative financial instruments from 11 May 2012.

Prior to this, the Trustee used a variety of derivative financial instruments to manage the Fund’s exposure to interest rate and foreign exchange rate risks, including exchange traded futures and options, over the counter options, foreign exchange forward contracts, interest rate swaps and cross currency swaps. Derivatives could also be used to manage the risk of the portfolio, manage transaction cost (including market impact), to implement investment positions in the portfolio, obtain market exposure to an asset class, hedge market risk and provide portfolio insurance. Derivatives were not used for speculation in any market or for gearing the portfolio.

Derivatives were initially recognised at fair value at the date a derivative contract was entered into and were subsequently re-measured to their fair value at each reporting date. The resulting gain or loss was recognised in the Statement of Changes in Net Assets. The Fund’s investment managers could use derivative instruments, subject to strictly controlled limits. Derivatives could be used to obtain an equivalent exposure to that which would have been obtained had the manager purchased or sold the underlying physical security. They may also have been used to hedge risk exposure. These hedges should have had the effect of reducing the Fund’s exposure to market fluctuations and must not have increased exposure. Hedges could only be used where there was an offsetting position in the Fund.

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following recognition criteria relate to the different revenues of the Fund:

Interest revenue is recognised using the effective interest method and, if not received at reporting date, is reflected in the Statement of Net Assets as a receivable.

Revenue from dividends and distributions is recognised on the date that the dividends and distributions become ex-dividend or ex-distribution and, if not received at reporting date, is reflected in the Statement of Net Assets as a receivable.

Changes in the net market value of investments are recognised as income (or expense) and are determined as the difference between the net market value (measured at fair value) at year end (or consideration received if sold during the year) and the net market value (measured at fair value) as at the prior year end (or cost if the investment was acquired during the period).





(f) Revenue (continued)

Contribution revenue

(g) Expenses

(h) Income Tax

Current tax

Deferred tax

Employer and member contributions and transfers from other funds are recognised on a cash basis.

Superannuation co-contributions from the Commonwealth Government are recognised when the contribution is received and is allocated to individual members. This involves matching the data file received from the Autralian Taxation Office with the appropriate members.

Expenses are recognised on an accruals basis and, if not paid at reporting date, are reflected in the Statement of Net Assets as an accrual or payable depending upon whether or not the expense has been billed.

Income tax on change in net assets for the year comprises current and deferred tax. Income tax is recognised in the Statement of Changes in Net Assets except to the extent that it relates to items recognised directly in members' funds.

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for the current period is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit.





(h) Income Tax (continued)

Deferred tax (continued)

Current and deferred tax for the period

(i) Superannuation Contributions (Surcharge) Tax

The superannuation surcharge was abolished with effect from 1 July 2005 by the passing of the Superannuation Laws Amendment (Abolition of Surcharge) Act 2005 .

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Fund expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Fund intends to settle its current tax assets on a net basis.

Current and deferred tax is recognised as an expense or benefit in the Statement of Changes in Net Assets.

Surcharge liabilities are calculated by the Australian Taxation Office (ATO) and recorded against Fund member accounts. The liability for surcharge is not payable until the member receives a lump sum, transfers their contributions or receives a death benefit. The amount assessed by the ATO is fully recoverable from the member from their benefit or by voluntary member payment, therefore no surcharge expense is recognised in the Fund (Note 9).

No estimate has been made for the balance of any tax payable in respect of surchargeable contributions received by the Fund during the year on transfer of member entitlements from other superannuation funds as the Trustee is unable to determine the amount until receipt of applicable assessments in the following period.





(j) Scheme liability for accrued benefits

(k) Goods and Services Tax ('GST')

(l) Controlled entities

The entities are:

Herschel Concentrated Australian Equity Fund Agora Absolute Return Fund

Presently Australian Accounting Standards require consolidation where control exists. The Trustee decided not to consolidated the financial statements of these investments into the Fund's financial statements, on the grounds that the Trustee did not in any practical sense have the power to govern the financial and operating policies of any of the above mentioned entities. The Directors remain of the the view that the decision does not impact on the true and fair view of the financial statements nor on the usefulness of the financial statements to the users of the statements.

The liability for accrued benefits is the value of the Scheme's present obligation to pay benefits to members and other beneficiaries at the date of measurement. The liability is determined as the present value of expected future payments which arise from membership of the Scheme up to date of measurement. The present value is determined by reference to expected future salary levels and by application of a current, market-determined, risk-adjusted discount rate and appropriate actuarial assumptions.

The liability for accrued benefits is not included in the Statement of Net Assets, but is reported at Note 11.

The liability for accrued benefits is measured by an independent actuary on at least a triennial basis.

Revenues, expenses and assets are recognised net of the amount of goods and services tax ('GST') recoverable from the Australian Taxation Office ('ATO') as a reduced input tax credit. Where the amount of GST incurred is not recoverable from the ATO, it is recognised as part of the cost of acquisition of an asset or as an expense item.

Receivables and payables are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as an asset or liability in the Statement of Net Assets.

Prior to 11 May 2012, the Fund had ownership in a number of investment vehicles that may have constituted control.




4. INCOME AND CHANGES IN NET MARKET VALUES

Interest

Dividends and Trust

Distributions Other

Realised Capital

Gain (Loss)

Unrealised Capital

Gain (Loss)

Total Investment

Income$'000 $'000 $'000 $'000 $'000 $'000

Cash and Short Term Deposits 17 652 131 807 4 360 - 22 950 Government Bonds and Global Credit 5 288 4 385 - 12 850 - 22 523 Australian Equities 323 36 807 14 (90 178) - (53 034)

- - - 5 (1 807) (1 802)International Equities 170 10 220 6 (13 247) - (2 851)Real Assets 1 382 8 582 38 2 442 - 12 444 Currency Contracts 6 - - (17 331) - (17 325)Private Capital (Private Equity) 3 37 583 18 (9 121) - 28 483

(11) 9 399 234 9 354 - 18 976 Total 24 814 107 107 1 117 (100 866) (1 807) 30 365

2012

Pooled Superannuation Trust - ARIA Investments Trust

During the year the investment classes of the Fund were re-aligned as part of transitional arrangements prior to the investment in the AIT. Assets in the Debt Instruments class were re-assigned to the Private Capital class. Depending on the nature of the investment, Infrastructure assets from the prior year were transferred to Real Assets or Private Capital. Some assets in the Property Trusts class were transferred to the Private Capital or Real Assets classes. The Fund also invested in Government Bonds and Global Credit.

Diversified Investments (Uncorrelated Alpha)




4. INCOME AND CHANGES IN NET MARKET VALUES (continued)

Interest

Dividends and Trust

Distributions Other

Realised Capital Gain

(Loss)

Unrealised Capital

Gain (Loss)

Total Investment

Income$'000 $'000 $'000 $'000 $'000 $'000

Cash and Short Term Deposits 13 741 (44) 111 11 546 (12 054) 13 300 Debt Instruments 798 20 935 174 (10 429) (43 471) (31 993)Australian Equities 1 292 58 137 14 19 858 13 975 93 276

- - - - - -International Equities 8 8 388 81 (12 527) 10 653 6 603 Property Trusts 1 737 6 318 25 2 994 1 237 12 311 Currency Contracts 8 - - 88 897 46 272 135 177 Private Equity 3 78 786 - (103) (105 911) (27 225)Uncorrelated Alpha 1 5 065 220 (3 058) (4 316) (2 088)Infrastructure - 6 520 - (700) 7 877 13 697 Total 17 588 184 105 625 96 478 (85 738) 213 058

2011

The net loss on foreign currency contracts for the year was $17.2 milion, (2011: net gain of $135.2 million).

Pooled Superannuation Trust - ARIA Investments Trust




5. FUNDING ARRANGEMENTS

(a) Contributions

Member Contributions

Productivity Contributions

Transferring superannuation benefits from other funds

Government Co-Contributions

(b) Benefits

Members contribute to the Fund each fortnight at optional rates ranging from a minimum of 5% of salary, to a maximum of 10% of salary. The contribution rates were the same in the prior year.

In general, when a benefit becomes payable to a member, the accumulated member and employer contributions held in the Fund in respect of the member are transferred to the Consolidated Revenue Fund (CRF) which pays out the total benefit (both funded and unfunded components).

Appropriation refers to the total amount paid from the CRF. The appropriation from CRF shown in the Statement of Changes in Net Assets is the net amount after taking into account transfers from the Fund to the CRF.

The benefits payable from the Scheme comprise a lump sum of accumulated member contributions and a defined benefit financed by the employer and calculated on the basis of the member’s final average salary and length of service. The defined benefit may be taken as a lump sum or as a pension or as a combination of lump sum and pension. The defined benefit consists of a funded component (the accumulated value of the 3% of salary contributions made to the Fund by the Department of Defence) and an unfunded component (the balance of the defined benefit).

The Department of Defence contributes to the Fund each fortnight in respect of each member at the rate of 3% of the member’s salary. The contribution rates were the same in the prior year.

For the financial year ended 30 June 2012, the Commonwealth Government contributes $1.00 for every $1.00 of eligible personal after-tax member contributions paid to the Scheme up to a maximum of $1 000 per member for each financial year. The co-contribution rate was the same for the 2011 financial year.

Money invested in other superannuation funds can be rolled over to the Fund.

These contributions, accumulated with investment earnings, equate to the net assets available from the Fund to pay benefits as shown in the Statement of Net Assets.




5. FUNDING ARRANGEMENTS (continued)

(b) Benefits (continued)

2012 2011$'000 $'000

Gross Appropriation from Consolidated Revenue Fund 338 839 313 545 (53 163) (43 028)

Net Appropriation 285 676 270 517

Consolidated Revenue FundLump-sum benefits 114 107 104 577 Pensions 224 732 208 968

338 839 313 545

Military Superannuation & Benefits FundLump-sum benefits 16 972 10 954 Total benefits paid 355 811 324 499

(c) Costs of administration, managing and investing the Fund

Of the $3.759 million (2011: $4.251 million) benefits payable as at 30 June 2012, the Fund’s share amounted to $1.156 million (2011: $1.558 million) with the Consolidated Revenue Fund’s share being $2.603 million at 30 June 2012 (2011: $2.693 million).

Benefits paid and payable by the Fund and the Consolidated Revenue Fund during the year are as follows:

Until 10 May 2012, costs of and incidental to the management and investment of the Fund were paid by the Fund and were shown in the Statement of Changes in Net Assets. On 11 May 2012, the investment assets of the Fund were transferred into ARIA Investments Trust (AIT) in exchange for units in the Trust. From this date, the costs of and incidental to the management and investment of the Fund's investments are charged to the assets of AIT that are referable to the Fund. Transactions in respect of these costs have been brought to account in the financial statements of AIT.

less: Transfers from Fund to Consolidated Revenue Fund

Under Clause 9(3) of the Trust Deed set up under section 4 of the Military Superannuation and Benefits Act 1991 , the Fund shall be used to pay costs and expenses of the management and investment of the Fund. Costs of the administration of the Fund are met from monies appropriated for the purpose.





(c) Costs of administration, managing and investing the Fund (continued)

2012 2011$'000 $'000

Investment advisors 155 -Investment managers 1 262 -Custodian 236 -Other 85 -Total direct investment expenses 1 738 -

General administration 866 - 866 -

Total costs 2 604 -

2012 2011$'000 $'000

General Administration ExpensesAccounting services 22 140 Professional advisers 663 424 Share of trustee fees, travel and incidental costs 1 217 1 495 Taxation services 276 483 Communications 11 107 APRA lodgement fees and industry levy 317 661 Insurance 55 110 External audit 107 64 Internal audit 381 199 Other expenses 2 38 Non recoverable GST (1) 392 Total General Administration Expenses 3 050 4 113

Direct Investment ExpensesInvestment management fees 7 207 7 504 Asset consultancy and portfolio management (2 459) 1 023 Custodian 2 282 2 465 Other Investment expenses 4 180 3 909 Non recoverable GST 52 113 Total Direct Investment Expenses 11 262 15 014

Expenses met by the AIT and referable to the Fund are as follows:

Fund Management and Investment Expenses met directly by the Fund:





(c) Costs of administration (continued)

Scheme administration costs met by the Department of Defence are as follows:

2012 2011$'000 $'000

Trustee costs 1 425 990 ComSuper costs 25 233 24 781 Total 26 658 25 771

ComSuper provides administrative services to the Trustee in relation to the Scheme. The expenses of ComSuper are met by government appropriation and a share of the administrative fees paid to ComSuper by the Department of Defence. The remaining share of administrative fees is paid to the Trustee to meet costs other than those incurred in managing and investing the assets of the Military and Superannuation Benefits Scheme. Transactions in respect of the receipt of these fees and the costs of administration have been brought to account in the financial statements of the Trustee and ComSuper.




6. INCOME TAX

(a) Income tax recognised in the Statement of Changes in Net Assets

2012 2011$'000 $'000

Tax expense comprises:Current tax expense 38 775 42 052 Deferred tax expense 55 448 9 599 Under/(over) provided in prior years (1 280) (4 439)Total tax expense 92 943 47 212

Income tax expense is attributable to:Profit from continuing operations 25 013 47 212 Transfer of deferred tax asset1 67 930 -Aggregate income tax expense 92 943 47 212

Increase in net assets for the year before income tax 367 561 556 505

Income tax expense calculated at 15% 55 134 83 476

Member contributions and government co-contributions (37 094) (36 230)Appropriation from Consolidated Revenue Fund (42 851) (40 578)Benefits paid and payable 53 372 48 675 Difference between accounting and tax gains - 7 010 Imputation and foreign tax credits (9 500) (10 702)Non-deductible expenses 1 608 -Under/(over) provision of income tax in previous year (1 280) (4 439)Other 5 624 -

67 930 -Total tax expense/(credit) 92 943 47 212

The prima facie income tax expense on changes in net assets before income tax reconciles to the income tax expense in the Statement of Changes in Net Assets as

Tax effect of amounts which are not deductible (taxable) in

Transfer of DTA (realised and unrealised losses) to AIT at 11 May 20121

(1) On 11 May 2012 the investment assets of the Fund were transferred to ARIA Investments Trust (AIT) in exchange for units in the AIT. The Board merger legislation allows for capital gains tax (CGT) rollover relief on unrealised capital gains and losses on investments transferred as a result of the merger. Further CGT rollover relief for realised net capital losses transferred is expected to be enacted in legislation during the 2013 financial year. The amount of $67 930m shown above is the unrealised and realised net capital losses transferred to the AIT with the investment assets comprising of $34 661m net realised losses and $33 296m in unrealised net capital losses. The Fund receives value for these losses via increases in the unit prices of the Fund's investments in the AIT.




6. INCOME TAX (continued)

2012 2011$'000 $'000

(b) Current tax liabilities

Current tax payables:Income tax payable (4 376) (8 910)

(4 376) (8 910)

(c) Deferred tax balances

Deferred tax assets comprise:Temporary differences - (55 448)

- (55 448)

Taxable and deductible temporary differences arise from the following:

Amounts received in profit or loss:Unrealised capital gains/ (losses) - (60,466)Accrued income - 5,130Accrued expenses - (112)Net deferred tax (assets)/liabilities - (55 448)

Movements:Opening Balance as at 1 July (55 448) (65 047)Charged/(credited) to the statement of changes in net assets 55 448 9 599 Net deferred tax (assets)/liabilities - (55 448)




7. SUNDRY CREDITORS2012 2011

$'000 $'000

Investment expenses payable - 6 147 Unallocated contributions 1 612 1 694 Accrued expenses - 4 984 Tax payable to the ATO 291 199

1 903 13 024

8. AUDITOR'S REMUNERATION

The value of financial statements audit services provided by Australian National Audit Office (ANAO) (including GST) is $123 530 (2011: $125 026). The amount paid and payable in respect of these audit services is $123 530 (2011: $0). The fees for this service were provided free of charge in 2011.

Other services provided by the ANAO included an audit of the combined Risk Management Strategy and Plan (RMSP). The audit fees of $8 580 will be charged against assets of ARIA Investments Trust that are referable to the Fund. In 2011, other ANAO services included an audit of the RSE and AFSL licensee requirements. This service was provided for a fee of $16 538 and was charged directly to the Fund.

No other services were provided by the Australian National Audit Office or Deloitte Touche Tohmatsu to the Fund during the period.

Deloitte Touche Tohmatsu are contracted by the ANAO to provide audit services on its behalf. Fees for those services are included above.




9. SUPERANNUATION CONTRIBUTIONS (SURCHARGE) TAX

Transactions recorded during the reporting period were as follows:

2012 2011$'000 $'000

Total surcharge liability outstanding at start of year 20 032 20 073 Changes in unpaid assessments 1 11 Interest on outstanding surcharge liabilities at year end 573 979

20 606 21 063

Less: Amount paid by members (96) (45)Less: Amounts deducted from members' benefit payments (1 192) (986)

19 318 20 032

Total surcharge liability outstanding at end of year 19 318 20 032

Under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 , the holder of surchargeable contributions for the financial year is liable to pay the superannuation contributions surcharge. The surcharge is levied on surchargeable contributions depending on the individual member’s adjusted taxable income. The Fund has recognised the surcharge liability when the assessment (including advance instalment) is received from the Australian Taxation Office.

The surcharge tax ceased on 1 July 2005. Assessments relating to periods prior to this date continue to be received by the Fund.

No liability is recognised in the financial statements for the estimated value of the surcharge liability because the liability will be either met by the members during their period of membership or will be recovered from member benefits paid when they are paid.




10. VESTED BENEFITS

2012 2011$billion $billion

The vested benefits amount is made up of:

Funded component 4.0 3.7Unfunded component 19.0 17.1

23.1 20.8

The net assets of the Fund compared to the vested benefits are:

Funded component 4.0 3.7Net assets plus funded benefits payable 4.0 3.7Surplus/(deficiency) - -

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

The actuarial estimate of vested benefits at 30 June 2012 is $23.1 billion (2011: $20.8 billion). The value of vested benefits represents the liability that would have fallen on the Scheme if all members had ceased service on 30 June 2012 and elected the option which maximised their benefit entitlement. The likelihood of such an occurrence is extremely remote. The estimated vested benefits was provided by the Australian Government Actuary.




11. LIABILITY FOR ACCRUED BENEFITS

2011 2008$billion $billion

Accrued benefits as at 30 June were:

Funded component 3.7 2.9Unfunded component 19.3 13.1

23.0 16.0

The net assets of the fund compared to the liability for accrued benefits are as follows:

Funded component 3.7 2.9Net assets plus funded benefits payable 3.7 2.9Surplus/(deficiency) - -

12. GUARANTEED BENEFITS

No guarantees have been made in respect of any part of accrued benefits.

Comparative figures from the previous period comprehensive review (and the addendum thereto) using data as at 30 June 2008 are provided below.

The liability for accrued benefits is the present value of expected future payments that arise from membership of the Scheme up to the measurement date. The figure reported has been determined by reference to expected future salary levels and by application of a market-based, risk-adjusted discount rate and relevant actuarial assumptions. The accrued benefits are comprised of a funded component, which will be met from the Fund (i.e. accumulated member contributions and, where applicable, productivity and salary sacrifice contributions, less contribution tax, plus investment earnings) and an unfunded component to be financed by the Commonwealth from the CRF at the time the superannuation benefits become payable.

The Australian Government Actuary undertook a comprehensive review of the Scheme using data as at 30 June 2011 which was completed in May 2012. An extract of the Australian Government Actuary's long term cost report is attached.




13. FINANCIAL INSTRUMENTS

(a) Financial instruments management

(b) Significant accounting policies

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset and financial liability are disclosed in Note 3 to the financial statements.

Prior to 11 May 2012 the investments of the Fund (other than cash held for meeting daily administrative and benefit expenses) were managed by specialist sector fund managers who were required to invest the assets allocated for management in accordance with the terms of a written investment mandate. The Trustee determined that the appointment of these managers was appropriate for the Fund and was in accordance with the Trustee’s investment strategy.

Additionally, on 11 May 2012, the Fund moved its investments to the ARIA Investments Trust (AIT), a pooled superannuation trust governed by CSC as Trustee. The Fund transferred its investments to the AIT in return for the equivalent value of units in the AIT.

From 11 May 2012, the investments of the Fund (other than cash held for managing contribution receipts, benefit payments and tax payments) comprise units in AIT. The Fund is therefore no longer exposed to investment risk directly, but is exposed to investment risk through its investment in the AIT. This type of investment has been determined by the Trustee to be appropriate for the Fund and is in accordance with the Fund's published investment strategy. The Trustee applies strategies to manage risk relating to the investment activities of the AIT. The investments of AIT are managed on behalf of the Trustee by specialist sector fund managers who are required to invest the assets in accordance with a contractual investment mandate.

In accordance with the Governance of Australian Government Superannuation Schemes Act 2011 , the Fund's Trustee, the MSB Board, merged with the Trustee of the Commonwealth public sector superannuation schemes on 1 July 2011. The new trustee is the Commonwealth Superannuation Corporation (CSC). Accordingly, certain aspects of investment and risk management have changed since 30 June 2011.




13. FINANCIAL INSTRUMENTS (continued)

(c) Capital risk management

(d) Categories of financial instruments

(e) Financial risk management objectives

The Trustee's internal investment team monitors and manages the financial risks relating to the Fund's investments. Derivative Risk Statements set out the strict parameters for the Trustee's investment managers authorised to use derivatives. In essence, derivatives cannot be used to raise the level of risk above the level it would otherwise have been, and derivatives cannot be used to leverage the investments.

The RSE license of the Trustee of the Fund requires the Trustee to maintain a balance of at least $100 000 at all times in an administration reserve account in AIT. This is required to be maintained in cash or cash equivalents. The Trustee of the Fund was in compliance with this requirement throughout the year.

The financial assets and liabilities of the Fund are recognised at net market value as at the reporting date. Net market value approximates fair value less costs of realisation of investments. The cost of realisation of investments is minimal and therefore net market value that is carrying value approximates fair value. Changes in net market value are recognised in the Statement of Changes in Net Assets.

The Fund is exposed to a variety of financial risks as a result of its activities. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Fund's risk management and investment policies, approved by the Trustee, seek to minimise the potential adverse effects of these risks on the Fund’s financial performance. These policies may include the use of certain financial derivative instruments, either directly until 10 May 2012, or indirectly from 11 May 2012 through the Fund's pooled investment in AIT.

The Trustee is responsible for ensuring that there is an effective risk management control framework in place for the Scheme. Consistent with regulatory requirements, the Trustee has developed, implemented and maintains a combined Risk Management Framework to identify the policies, procedures, processes and controls that comprise its risk management and control systems for the Fund and for the Fund's investments through the AIT. The overall investment strategy of the Fund is set out in the Trustee's approved investment policies and the Derivatives Securities Policy which address the investment strategy and objectives and risk mitigation strategies including risk mitigation relating to the use of derivatives.





(e) Financial risk management objectives (continued)

(f) Credit risk

The Fund's investments are managed on behalf of the Trustee by specialist external investment managers who invest their respective fund allocation in accordance with the terms of a written investment mandate or disclosure document. The Trustee has determined that the appointment of these managers is appropriate for the Fund and is in accordance with its investment strategy.

In its capacity as trustee of AIT, the Trustee has adopted a policy of spreading the aggregate value of transactions across approved creditworthy counterparties as a means of mitigating the risk of financial loss. The Fund's exposure to its counterparties are continuously monitored by the Trustee.

At 30 June 2012 the largest exposure to a single counterparty is to cash held by the investment master custodian Northern Trust (prior to 11 May 2012 the custodian was National Asset Servicing). Credit risk relating to the master custodian is mitigated through contract indemnity provisions. Other than the master custodian, no individual exposure within AIT exceeded 5% of net assets of that trust at 30 June 2012.

The credit risk on the Fund's directly held cash and cash equivalents and interest receivable is limited because the counterparty is Reserve Bank of Australia. Credit risk associated with contributions receivable and other receivables is considered minimal.

At 30 June 2011, the Fund did not have significant exposure to any individual counterparty or any group of counterparties having similar characteristics. There were no significant concentrations of credit risk to counterparties, however the following investments exceeded 5.0% of net assets as at 30 June 2011; BlackRock Australia (7.25%), State Street Global Advisors (5.48%) Goldman Sachs (7.08%) and Aberdeen Investment Management Australia (7.93%).

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Fund.





(f) Credit risk (continued)

2012 2011$'000 $'000

InvestmentsCash and short term deposits - 615 846 Debt instruments - 414 075 Australian equities - 1 044 608 Pooled Superannuation Trust - ARIA Investments Trust 4 004 624 -International equities - 471 841 Property trusts - 200 482 Currency contracts - 46 280 Private equity - 477 230 Uncorrelated Alpha (Hedge) Fund - 169 813 Infrastructure - 284 916

Other financial assetsBank 13 496 27 663 Trade settlements receivable - 53 888 Accrued income 36 11 956 Other assets - 418

4 018 155 3 819 016

The only changes to the Fund's exposure to credit risk or the manner in which it manages and measures that risk during the reporting period relate to the change in Trustee and to investment in the AIT.

The table below shows the maximum exposure of financial assets to credit risk at the reporting date:





(g) Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in either realising assets or otherwise raising sufficient funds to meet its liabilities and/or member benefit payments or tax liabilities.

The Trustee undertakes forecasting and scenario testing of the cashflow requirements of the Fund to ensure timely access to sufficient cash and actively-traded, highly-liquid investments to meet anticipated funding requirements. As a further risk mitigation strategy it is the Trustee's policy that the target asset allocation to illiquid assets is limited to around 25% of the investments of the AIT (with a plus or minus 10 percentage point rebalancing range around that target). Regular scenario testing is performed to confirm the validity of the strategy. Prior to 11 May 2012, the Fund had a targeted exposure of less than 50% of assets invested in illiquid assets.

The Trustee's approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities as they fall due. On resignation the member benefit accrued before 30 June 1999 can be paid as a lump sum but the balance must be preserved until the member’s preservation age, either in the Fund or another complying superannuation fund. The employer benefit, including productivity component, must be preserved in the Fund. The unfunded component of benefit payments is financed by the Commonwealth, from the CRF. As such there is minimal liquidity risk.

The Fund’s exposure to liquidity risk is therefore limited to those circumstances in which the Scheme Rules allow members to withdraw benefits.

The following tables summarise the maturity profile of the Fund’s financial liabilities. Vested benefits have been included in the less than three months column, as this is the amount that members could call upon as at reporting date. This is the earliest date on which the Fund can be required to pay members’ vested benefits. However, members may not necessarily call upon amounts vested to them during this time. The tables have been drawn up based on the contractual undiscounted cash flows of financial liabilities based on the earliest date on which the Fund can be required to pay. The tables include both interest and principal cash flows.





(g) Liquidity risk (continued)

Financial Liabilities maturity profile:

Less than 3 months

3 months to 1 year 1-5 years

Over 5 years Total

$'000 $'000 $'000 $'000 $'000 30 June 2012Trade settlements payable - - - - -Sundry creditors 1 903 - - - 1 903 Benefits payable 3 759 - - - 3 759 Current tax liability - 4 376 - - 4 376 Vested benefits 4 025 000 - - - 4 025 000 Total financial liabilities 4 030 662 4 376 - - 4 035 038 30 June 2011Trade settlements payable 114 941 - - - 114 941 Sundry creditors 13 024 - - - 13 024 Benefits payable 4 251 - - - 4 251 Current tax liability - 8 910 - - 8 910 Vested benefits 3 739 000 - - - 3 739 000 Total financial liabilities 3 871 216 8 910 - - 3 880 126

(h) Market risk

Interest rate risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: foreign exchange risk, interest rate risk and other market price risk. The policies and procedures put in place to mitigate the exposure to market risk are detailed in the Trustee's investment policies and the Risk Management Framework.

Apart from the changes noted within, there has been no other changes to the Fund's exposure to market risk or the manner in which it manages and measures that risk since the 2011 reporting period.

At the reporting date, the Fund is only directly exposed to interest rate risk on cash and cash equivalents held with the Reserve Bank of Australia to meet benefits and taxation payments. The following table shows the expected maturities of the financial assets exposed to interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

There has been no change to the Fund's exposure to liquidity risk or the manner of management of the risk during the reporting period besides the changes noted above.





(h) Market risk (continued)

Interest rate risk (continued)

30 June 2012 Floating interest

rate

1 year or less

1-5 years Over 5 years

Non-interest bearing Total

$'000 $'000 $'000 $'000 $'000 $'000Financial assets

- - - - - -

- - - - - - Australian Equities - - - - - -

- - - - 4 004 624 4 004 624 International Equities - - - - - - Real Assets - - - - - - Currency Contracts - - - - - - Private Equity - - - - - -

- - - - - - Infrastructure - - - - - - Other assets 13 496 - - - 4 074 17 570 Total 13 496 - - - 4 008 698 4 022 194

30 June 2011 Floating interest

rate

1 year or less

1-5 years Over 5 years

Non-interest bearing Total

$'000 $'000 $'000 $'000 $'000 $'000Financial assets

108 248 59 050 - - 448 548 615 846 Debt Instruments 156 248 9 073 77 344 93 967 77 443 414 075 Australian Equities 20 509 (583) - - 1 024 682 1 044 608

- - - - - - International Equities 6 695 1 400 - - 463 746 471 841 Property Trusts - - 28 748 16 390 155 344 200 482 Currency Contracts 8 - - - 46 272 46 280 Private Equity - - - - 477 230 477 230

- 16 197 4 836 16 028 132 752 169 813 Infrastructure - - - - 284 916 284 916 Other assets 27 663 - - - 125 910 153 573 Total 319 371 85 137 110 928 126 385 3 236 843 3 878 664

Cash and Short Term Deposits

Pooled Superannuation Trust

Uncorrelated Alpha

Fixed interest rate

Fixed interest rate

Cash and Short Term Deposits

Pooled Superannuation Trust


Government Bonds and Global Credit






Interest rate risk (continued)

2012

13 496 (189) (189) 189 189

2011

319 371 (5 589) (5 589) 5 589 5 589

-1.4% +1.4%

Since 11 May 2012 the Fund is indirectly exposed to interest rate risk through its investments in the AIT. The Trustee manages interest rate risk through its investment strategy including diversification of asset allocation and the use of a diversity of specialist investment sector managers.

The following table illustrates the Fund's sensitivity to a 1.4% p.a. (2011: 1.75%) increase or decrease in interest rates, based on cash and investment balances directly held at reporting date. The sensitivity for 2011 is based on the assets subject to floating rates only. This represents an assessment of a reasonably possible change in interest rates. Had interest rates been lower or higher by 1.4% (2011: 1.75%) at reporting date, and all other variables were held constant, the financial result would have improved/(deteriorated) as demonstrated:

Carrying amount

$'000

Interest rate risk $' 000Changes

in net assets

Net assets available

to pay benefits

Changes in net assets

Net assets available

to pay benefits

Assets subject to floating rates of interest

-1.75% +1.75%Assets subject to floating rates of interest

In the Trustee's opinion, the sensitivity analysis at reporting date approximates the direct interest rate exposures of the Fund.






Foreign currency riskForeign currency risk is the risk that the net market value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

From 11 May 2012, the Fund did not undertake any transactions in foreign currency and is therefore not directly exposed to foreign currency risk. The AIT enters into forward foreign exchange contracts to hedge into Australian dollars some of the currency exposure arising from the its investments denominated in developed markets foreign currencies. These contracts neutralise some of the gains and losses from currency fluctuation. A small part of the investments of the AIT, relating to emerging markets, remain unhedged due to lack of suitable currency instruments for hedging.

Prior to 1 July 2011, transactions in foreign currency were made in line with the MSB Board Investment Policy and Derivative Risk Statement. The Fund’s exposure to currency risk was hedged through an actively managed currency strategy in which the currency manager managed the strategy within a hedge ratio range of 0-100% around the selected hedged benchmark. During the 2011 year the MSB Board also adopted a passive approach to currency hedging by allowing the passive manager within the international equities sector to passively manage their net asset value exposure against a hedged benchmark ratio of 25%.

During the period to 10 May 2012, the Fund's policy on currency risk and investment was transitioned to match the new Trustee's policies.






Foreign currency risk (continued)

AUD USA JPY GBP EUR Other TotalA$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000

389 723 130 022 19 888 21 170 28 601 26 442 615 846 207 414 174 550 - 5 130 25 323 1 659 414 075

- - - - - - -1 030 015 - - 14 593 - - 1 044 608

10 527 241 029 39 059 40 140 64 292 76 794 471 841 161 750 32 762 - - 5 970 - 200 482 380 246 (257 807) (9 014) (18 787) (48 358) - 46 280 146 645 269 504 - - 49 601 11 480 477 230 127 639 42 174 - - - - 169 813 233 811 51 105 - - - - 284 916

2 687 770 683 339 49 933 62 246 125 429 116 375 3 725 091

27 532 131 - - - - 27 663 2 523 - - - - - 2 523 6 467 1 657 14 22 413 860 9 433 2 715 38 553 - 2 906 7 059 2 655 53 888

1 028 12 - - - 243 1 283

2 693 - - - - - 2 693

642 - - - - - 642 55 448 - - - - - 55 448 99 048 40 353 14 2 928 7 472 3 758 153 573

2 786 818 723 692 49 947 65 174 132 901 120 133 3 878 664

4 251 - - - - - 4 251 11 153 50 320 195 12 971 31 431 8 871 114 941 13 024 - - - - - 13 024 8 910 - - - - - 8 910

37 338 50 320 195 12 971 31 431 8 871 141 126

2 749 480 673 372 49 752 52 203 101 470 111 262 3 737 538

Less liabilitiesBenefits payableTrade settlements payableSundry creditorsCurrent tax liabilityTotal liabilitiesNet assets available to pay benefits

Interest receivableDividends receivableTrade settlements receivable

Cash at bank

Total assetsTotal other assets

Benefits payable to be funded by appropriationForeign tax paidDeferred tax asset

Other assets and CRF special account

The Fund’s exposure to fluctuations in foreign currency exchange at 30 June 2011 was as follows:

Cash and short term depositsDebt instruments

Australian equities

Other assets

Private equity

International equities

Total investments

International fixed interest

Property trustsCurrency contracts

Uncorrelated AlphaInfrastructure






Foreign currency sensitivity

In it's capacity as trustee of AIT, the Trustee manages the market price risk arising from these investments by diversifying the portfolio in accordance with its investment strategy.

Other price riskOther price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or factors affecting all similar financial instruments traded in the market.

At the reporting date, the Fund's investment in AIT is exposed to market price risk in respect of the latter's holdings of equity securities, unit trusts and pooled superannuation trusts. As the investment in AIT is carried at net market value with changes in net market value recognised in the Statement of Changes in Net Assets, all changes in market conditions will directly affect the Fund's net investment income.

At the reporting date, the Fund had no direct assets subject to foreign currency movements. In 2011 a movement of 15% in all currencies against the Australian Dollar was considered prudent in assessing sensitivity to foreign exchange movements.

At 30 June 2011, had the Australian dollar weakened by the above currency movements against other currencies to which the Fund is exposed, with all other variables held constant, the increase in net assets attributable to members would have amounted to approximately $174.0 million. Had the Australian dollar strengthened by the above currency movements against other currencies to which the Fund is exposed, with all other variables held constant, the decrease in net assets attributable to members would have amounted to approximately $128.6 million.






2012

Balanced Option -/+4% 21 924 (877) (877) 877 877 Cash Option -/+1.4% 47 787 (669) (669) 669 669 Conservative Option -/+3% 13 891 (417) (417) 417 417 Growth Option -/+7% 3 709 601 (259 672) (259 672) 259 672 259 672 High Growth Option -/+11% 211 421 (23 256) (23 256) 23 256 23 256

4 004 624 (284 891) (284 891) 284 891 284 891

At 30 June 2011, if equity prices had increased by 10% with all other variables held constant, this would have increased net assets attributable to members by approximately $282 million. Conversely, if equity prices had decreased by 10% with all other variables held constant, this would have decreased net assets attributable to members by approximately $282 million.

Net assets

available to pay

benefits

Financial AssetsARIA Investments Trust :

Total Increase / (decrease)

Price risk sensitivityThe following table illustrates the Fund's sensitivity to a reasonably possible change in the value of its investment in AIT, based on risk exposures at reporting date. The volatility factors shown represent the average annual volatility of comparable option prices expected for the Fund's investment in the ARIA Investments Trust. For the Cash Option a factor of 1.4% has been applied representing a reasonably possible change in interest rates as a proxy for price risk of the option. Had the unit price been higher or lower throughout the reporting period by the volatility factor, and based on period end balances with all other variables held constant, the financial result would have improved/(deteriorated) as follows:

Change in price

Carrying amount

$'000

Price risk $' 000Changes

in net assets

Net assets

available to pay

benefits

Changes in net assets





(i) Fair value measurement

Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000

2012Financial AssetsCash and short term deposits - - - -Government Bonds and Global Credit - - - -Australian Equities - - - -

- 4 004 624 - 4 004 624 International Equities - - - -Real Assets - - - -Currency Contracts - - - -Private Capital (Private Equity) - - - -

- - - -Infrastructure - - - -Total - 4 004 624 - 4 004 624

Pooled superannuation trusts - ARIA Investments Trust

Level 3: net market value measurements are those derived from valuation techniques that include inputs that are are not based on observable market data.


The Fund's financial instruments are included in the Statement of Net Assets at net market value that approximates fair value. The net market value is determined per accounting policies disclosed in Note 3(a).

Net market value measurements recognised in the Statement of Net AssetsThe following table provides an analysis of the Fund's financial instruments whereby the assets and liabilities are each grouped into one of three categories based on the degree to which their method of valuation is observable.

Level 1: net market value measurements are those derived from quoted prices in active markets.

Level 2: net market value measurements are those derived from inputs (other than quoted prices included within Level 1) that are observable such as prices or derived from prices.





(i) Fair value measurement (continued)

Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000

2011Financial AssetsCash and short term deposits 615 846 - - 615 846 Debt Instruments 265 694 - 148 381 414 075 Australian Equities 755 405 289 203 - 1 044 608

- - - -International Equities 470 252 1 589 - 471 841 Property Trusts - - 200 482 200 482 Currency Contracts - 46 280 - 46 280 Private Equity 11 480 - 465 750 477 230 Uncorrelated Alpha 122 803 - 47 010 169 813 Infrastructure - - 284 916 284 916 Total 2 241 480 337 072 1 146 539 3 725 091

Pooled superannuation trusts - ARIA Investments Trust

In the current year, all investments were transferred to the AIT, and the Fund received units in the AIT to the same value in return. This effectively transferred all investments to Level 2. There were no transfers between levels in 2011.

Units in the ARIA Investments Trust are valued daily based on the latest listed and unlisted market prices and values of the underlying investments, less any tax and expenses.






Reconciliation of Level 3 net market value measurements

Infrastructure

Diversified Investments

(Uncorrelated Alpha)

PrivateCapital (Private

Equity) Property Trusts)Debt

Instruments Real Assets Total $'000 $'000 $'000 $'000 $'000 $'000 $'000

Opening balance 2011 284 916 47 010 465 750 200 482 148 381 - 1 146 539

(284 916) - 356 476 (200 482) (148 381) 277 303 - Total gains or losses:

- 1 595 44 830 - - 12 620 59 044 Purchases - - 49 253 - - 15 101 64 354 Redemptions - (29 340) (67 131) - - (9 122) (105 593)Transfers to ARIA Investments Trust - (19 265) (849 177) - - (295 902) (1164 344)

Closing balance 2012 - - - - - - -

During the reporting period, the asset classes of the Fund were changed to align with the new Trustee investments policy as described in Note 4.

There were no Level 3 financial assets or liabilities at the end of the reporting period.

Transfers between asset classes

- in statement of changes in net assets






Reconciliation of Level 3 net market value measurements (continued)

InfrastructureUncorrelated

Alpha PrivateEquity Property Trusts

Debt Instruments Total

$'000 $'000 $'000 $'000 $'000 $'000Opening balance 2010 258 750 55 852 504 474 136 794 198 957 1 154 827

Total gains or losses: 222 2 691 (100 500) 1 488 (51 840) (147 939)

Purchases 25 947 1 568 61 776 63 291 11 461 164 043 Redemptions (3) (13 101) (1 091) (10 197) (24 392)Transfers out of level 3 - - - - - -

Closing balance 2011 284 916 47 010 465 750 200 482 148 381 1 146 539

- in statement of changes in net assets




14. RELATED PARTIES

(a) Trustee

(b)

The Directors throughout the year ended 30 June 2012 and to the date of this report were:

Helen AyresPeter Carrigy-Ryan

Leonie McCrackenBronwyn McNaughtonAlison TarditiKevin ThompsonChristine Pearce

Kim Kirsten

Chief Investment OfficerSenior Executive, Finance & TechnologySenior Executive, Member & Employer ServicesSenior Executive, Human Resources and Business Services (from 10 April 2012)

Nadine Flood (appointed 1 July 2011) Gabriel Szondy (appointed 1 July 2011)Michael Vertigan (appointed 1 July 2011)Lyn Gearing (appointed 13 September

2011)Peggy Haines (appointed 1 July 2011)

In addition to the Directors listed above, the following executives of the Trustee had authority and responsibility for planning, directing and controlling the activities of the Fund throughout the year ended 30 June 2012:

Corporate Secretary Acting Chief Executive Officer until 13 September 2011, appointed Chief Executive Officer 14 September 2011Senior Executive, OperationsSenior Executive, Legal & Risk

Commonwealth Superannuation Corporation (CSC) was the Trustee throughout the reporting period. The Trustee's name was changed from Australian Reward Investment Alliance (ARIA) on 1 July 2011. No fees were charged by CSC for acting as Trustee of the Scheme during the reporting period.

Key Management Personnel

Tony Cole (appointed 1 July 2011)Peter Cosgrove (appointed 1 July 2011)

Peter Feltham (appointed 1 July 2011

Winsome Hall (appointed 1 July 2011)Tony Hyams (Chairman) (appointed 1 July 2011)John McCullagh (appointed 1 July 2011)




14. RELATED PARTIES (continued)

(c) Key Management Personnel Compensation

2012 2011$ $

Short-term employee benefits 277 601 714 014 Post-employment benefits 29 856 3 521 Other long-term benefits 11 121 -Termination benefits 9 992 -Share-based payment - -

328 570 717 535

(d) Investing entities

The other investors in AIT throughout the year were the Commonwealth Superannuation Scheme, the Public Sector Superannuation Scheme and the Public Sector Superannuation Accumulation Plan. All investing transactions are conducted under normal industry terms and conditions.

The Trustee of the Fund, Commonwealth Superannuation Corporation, is the trustee of the following regulated superannuation schemes: Commonwealth Superannuation Scheme, the Public Sector Superannuation Scheme, the Public Sector Superannuation Accumulation Plan and the Military Superannuation and Benefits Scheme.

From 11 May 2012 to 30 June 2012, the Fund's only investment consisted of units in AIT, which was established to provide a cost-effective means of gaining exposure to a broad range of listed and unlisted securities across various asset classes. Prior to this, the Fund invested in unrelated entities.

The aggregate compensation of the key management personnel is set out below:

Since 11 May 2012, the compensation of key management personnel (including Directors) related to investment management is charged as part of general administration expenses against assets of the AIT that are referable to the Scheme. These compensation expenses were charged directly to the Fund prior to 11 May 2012.

The Fund has not made, guaranteed or secured, directly or indirectly, any loans to key management personnel or their personally-related entities at any time during the year.

Aggregate compensation in relation to the Scheme is a pro-rata apportionment of the overall compensation paid by the Trustee, based on the net assets of the entities under its trusteeship or actual control.



CSC Annual Report to Parliament 2011-12 MilitarySuper114


14. RELATED PARTIES (continued)

(d) Investing entities

The Fund held the following investments in related parties at 30 June:

Net Market Value of

Investment

Net Market Value of

Investment

Share of Net Income/ (Loss)

after tax

Share of Net Income/ (Loss)

after tax

2012 2011 2012 2011$'000 $'000 $'000 $'000

ARIA Investments Trust 4 004 624 - (1 802) -4 004 624 - (1 802) -

15. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

16. SUBSEQUENT EVENTS

No matters have arisen since 30 June 2012 that have materially affected, or may materially affect, the operations of the Scheme, the results of those operations, or the financial position of the Scheme in future financial years.

Since 11 May 2012, the Trustee pays costs of and incidental to the management of the Fund and the investment of its money from the assets of the AIT that are referable to the Fund (see Note 5(c)). These costs were charged to the Fund directly prior to 11 May 2012. No fees were charged for acting as Trustee during the year ended 30 June 2012 (2011: $nil).

The Fund had no capital or other expenditure commitments at 30 June 2012. At 30 June 2011 the Fund had outstanding investment capital commitments of $258m. These commitments related to investments in private equity, infrastructure and property funds.

In the normal course of business, requests are made by members and former members for the review of decisions relating to benefit entitlements of the Fund which could result in additional benefits becoming payable in the future. Each request is considered on its merits prior to any benefit becoming payable. In the opinion of the Trustee, these requests do not represent a material liability on the Fund.

There were no other contingent liabilities or contingent assets for the Fund at 30 June 2012 (2011: $nil).



12 September, 2012

MILITARY SUPERANNUATION AND BENEFITS SCHEME

SUMMARY OF THE 2011 LONG TERM COST REPORT

1. A report on the long term cost of the Military Superannuation and Benefits Scheme (MSBS), the Defence Force Retirement and Death Benefits Scheme (DFRDB) and the Defence Forces Retirement Benefits Scheme (DFRB) was carried out using data as at 30 June 2011 by the Australian Government Actuary.

2. The MSBS is partially funded and has an underlying Government guarantee. Member contributions and the employer 3% Productivity Benefit contributions are paid into the MSBS Fund. Any MSBS benefit payment amounts not paid from Fund assets are paid from Consolidated Revenue. From 1 July 2008, following changes in the Superannuation Guarantee regime, additional employer superannuation contributions have been paid into the Ancillary Section of the MSBS in respect of allowances that are regarded as being part of Ordinary Time Earnings but are not included in the existing definition of superannuation salary. These additional contributions are payable in respect of serving ADF members in both MSBS and DFRDB. The Ancillary Section also includes salary sacrifice contributions, amounts transferred into the scheme and spouse contributions.

3. Projections of the actual annual employer costs of the MSBS, DFRDB and DFRBcombined as a percentage of Gross Domestic Product (GDP) were made over a period of 40 years. These projections showed a progressive fall in the combined cost of the three schemes as a percentage of GDP. Given the underlying Government guarantee, I was therefore of the opinion that the financial position of the schemes as at 30 June 2011 was satisfactory.

4. The value of net assets of the MSBS available to pay benefits as at 30 June 2011reported in the audited financial statements of the Fund was $3,738 million.

5. The value of accrued benefits for the MSBS using the actuarial Projected Unit Credit (PUC) methodology as at 30 June 2011 was $23.1 billion. This comprised $19.3 billion in unfunded accrued benefits and $3.7 billion in funded accrued benefits1. The value of accrued Benefits is the present value of the portion of projected benefit payments that had accrued in respect of membership of the MSBS to 30 June 2011. The employer component of the benefits for contributors was apportioned on the basis used to calculate accrued benefits for purposes of Australian Accounting Standard AASB 119.

6. As would be expected in a substantially unfunded arrangement, the value of total Accrued Benefits is more than the audited value of scheme assets at the same date.

7. A summary of the MSBS data used for the valuation is set out below:

• 55,769 contributors with total superannuation salaries of $3,952m

• 84,186 preserved beneficiaries with total nominal preserved benefits of $6,001m

• 8,177 pensioners with total annual pensions of $201m.

1 Due to rounding, the unfunded and funded components do not sum to the total.



CSC Annual Report to Parliament 2011-12 MilitarySuper 117

11CSC financial statements

11 CSC financial statements






STATEMENT BY THE CHAIRMAN AND CHIEF EXECUTIVE

In our opinion, the attached financial statements for the year ended 30 June 2012 are based on properly maintained financial records and give a true and fair view of the matters required by the Finance Minister's Orders made under the Commonwealth Authorities and Companies Act 1997, as amended.

In our opinion, at the date of this statement, there are reasonable grounds to believe that the Authority will be able to pay its debts as and when they become due and payable.

This statement is made in accordance with a resolution of the directors.

Signed………. Signed……….

Tony Hyams Peter Carrigy-Ryan Chairman Chief Executive Officer

14 September 2012 14 September 2012

1



STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2012

2012 2011Notes $'000 $'000

EXPENSESEmployee benefits 3A 12,366 9,862 Supplier 3B 8,403 5,597 Depreciation and amortisation 3C 879 563 Write-down and impairment of assets 3D - 39 Total expenses 21,648 16,061

LESS: OWN-SOURCE INCOMEOwn-source revenueSale of goods and rendering of services 4A 21,757 16,163 Interest 4B 118 -Other 4C 3 31 Total own-source revenue 21,878 16,194

Net contribution by services 230 133

Surplus attributable to the Australian Government 230 133

Total comprehensive income attributable to the Australian Government 230 133

The above statement should be read in conjunction with the accompanying notes.

2



2012 2011Notes $’000 $’000

ASSETSFinancial AssetsCash and cash equivalents 5A 4,772 1,992 Trade and other receivables 5B 1,150 1,396 Total financial assets 5,922 3,388

Non-Financial AssetsProperty, plant and equipment 6A 3,758 3,509 Intangibles 6C 393 304 Total non-financial assets 4,151 3,813

Total assets 10,073 7,201

LIABILITIESPayablesSuppliers 7A (71) (69)Other 7B (2,827) (2,146)Total payables (2,898) (2,215)

ProvisionsEmployee provisions 8A (1,887) (1,149)Other 8B (240) -Total provisions (2,127) (1,149)

Total liabilities (5,025) (3,364)Net assets 5,048 3,837

EQUITYContributed equity 2,324 1,343 Reserves 511 511 Retained surplus 2,213 1,983 Total entity 5,048 3,837

Total equity 5,048 3,837


BALANCE SHEET as at 30 June 2012

3



STATEMENT OF CHANGES IN EQUITY

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

Opening balanceBalance carried forward from previous period 1,983 1,850 511 511 1,343 1,343 3,837 3,704 Adjusted opening balance 1,983 1,850 511 511 1,343 1,343 3,837 3,704

Comprehensive incomeOther comprehensive income - - - - - - - -Surplus for the period 230 133 - - - - 230 133 Total comprehensive income 230 133 - - - - 230 133

Transactions with ownersDistributions to ownersReturns of capital:

Restructuring - - - - - - - -Other - - - - - - - -

Contributions by ownersEquity injection - - - - - - - -Restructuring - - - - 981 - 981 -Other - - - - - - - -Sub-total transactions with owners - - - - 981 - 981 -Closing balance as at 30 June 2,213 1,983 511 511 2,324 1,343 5,048 3,837


for the year ended 30 June 2012

reserveAsset revaluation

Total equityContributed

equity/capitalRetained earnings

4



2012 2011Notes $’000 $’000

OPERATING ACTIVITIESCash receivedGoods and services 21,867 15,572 Interest 118 -Other 2 -Total cash received 21,987 15,572

Cash usedEmployees (11,874) (9,644)Suppliers (7,250) (5,397)Total cash used (19,124) (15,041)Net cash from operating activities 10 2,863 531

INVESTING ACTIVITIESCash usedPurchase of property, plant and equipment (782) (2,173)Purchase of intangibles (218) (198)Total cash used (1,000) (2,371)Net cash used by investing activities (1,000) (2,371)

FINANCING ACTIVITIESCash receivedContributed equity from restructuring 917 -Total cash received 917 -

Net increase (decrease) in cash held 2,780 (1,840)Cash and cash equivalents at the beginning of the reporting period 1,992 3,832 Cash and cash equivalents at the end of the reporting period 5A 4,772 1,992


CASH FLOW STATEMENT for Not-For-Profit Reporting Entitiesfor the year ended 30 June 2012

5



SCHEDULE OF COMMITMENTS

2012 2011BY TYPE $’000 $’000Commitments receivableSublease rental income 1,023 -Net GST recoverable on commitments 823 783 Total commitments receivable 1,846 783

Commitments payableOther commitmentsOperating leases (9,049) (8,611)Net GST payable on commitments (93) -Total other commitments (9,142) (8,611)Net commitments by type (7,296) (7,828)

BY MATURITYCommitments receivableOperating lease incomeOne year or less 312 93 From one to five years 1,363 490 Over five years 171 200 Total operating lease income 1,846 783

Commitments payableOperating lease commitmentsOne year or less (1,754) (1,019)From one to five years (5,512) (5,390)Over five years (1,876) (2,202)Total operating lease commitments (9,142) (8,611)

Net commitments by maturity (7,296) (7,828)

Note: Operating lease commitment will be met by the ARIA Investments Trust from 1st July 2012.

as at 30 June 2012

6



In addition, CSC's activities are funded through charges to the ARIA Investments Trust to recover the cost of administering and managing the investment of the schemes.

CSC is structured to meet the following outcome:Outcome 1: Retirement benefits for past, present and future Australian Government employees and members of the Australian Defence Force through investment and administration of their superannuation funds and schemes.

The continued existence of the entity in its present form and with its present programs is dependent on Government policy and on continuing funding by Parliament for the entity's administration and programs.

Note 1: Summary of Significant Accounting Policies

1.1 Objective of the entityThe objective of Commonwealth Superannuation Corporation ('CSC') (ABN 48 882 817 243) is to provide retirement benefits for past, present and future Australian Government employees and members of the Australian Defence Force, as trustee of their superannuation funds and schemes.

On 1 July 2011 the name of CSC was changed from Australian Reward Investment Alliance (ARIA) and CSC became responsible for the administration of Military Superannuation and Benefits Scheme ('MSBS'), the Defence Force Retirement and Death Benefits Scheme ('DFRDB'), the Defence Force Retirement Benefits Scheme ('DFRB'), the Defence Force (Superannuation) (Productivity Benefit) Scheme ('DFSPB'), the Papua New Guinea Scheme ('PNG') and the 1922 Scheme in addition to the Public Sector Superannuation Scheme ('PSS'), the Commonwealth Superannuation Scheme ('CSS') and the Public Sector Superannuation Accumulation Plan ('PSSap') for which ARIA was trustee (collectively, the Schemes).

The Schemes invest solely through the ARIA Investments Trust - a pooled superannuation trust under CSC's trusteeship - which facilitates access to a broad range of underlying securities across various asset classes on an efficient and cost-effective basis.

CSC's sole source of income is from external sources, and therefore no appropriations are included.

CSC's activities are funded in part through a share of the scheme administration charges collected by ComSuper from employers participating in PSS, CSS and PSSap, and in part through negotiated administration charges collected by ComSuper from the Department of Defence. Additional funding may be provided by government to meet specific administration requirements.

Asset class Fair value measured at:Land Market selling priceBuildings exc. Leasehold improvements Market selling priceLeasehold improvements Depreciated replacement costPlant & equipment Market Selling PriceHeritage and cultural assets Market Selling Price

7



Adoption of New Australian Accounting Standard Requirements

No accounting standard has been adopted earlier than the application date as stated in the standard.

Unless alternative treatment is specifically required by an accounting standard, income and expenses are recognised in the Statement of Comprehensive Income when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured.

1.3 Significant Accounting Judgements and EstimatesIn the process of applying the accounting policies listed in this note, the entity has made the following judgement that has the most significant impact on the amounts recorded in the financial statements: the fair value of Property, Plant and Equipment has been taken to be the market value of similar assets as determined by an independent valuer.

No accounting assumptions and estimates have been identified that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting period.

1.4 New Australian Accounting Standards

The financial statements are general purpose financial statements and are required by clause 1(b) of Schedule 1 to the Commonwealth Authorities and Companies Act 1997.

a) Finance Minister’s Orders (FMOs) for reporting periods ending on or after 1 July 2011; and b) Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accruals basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified.

Unless an alternative treatment is specifically required by an accounting standard or the FMOs, assets and liabilities are recognised in the balance sheet when and only when it is probable that future economic benefits will flow to the entity or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under executor contracts are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the schedule of commitments.

The financial statements have been prepared in accordance with:

1.2 Basis of Preparation of the Financial Statements

Note 1: Summary of Significant Accounting Policies (continued)

8



Effective Application DateAASB 124 'Related Party Disclosures (2009)', AASB 2009-12 'Amendments to Australian Accounting Standards'


Effective Application DateAASB 9 'Financial Instruments' and AASB 2009-11 consequential amendments to other accounting standards resulting from its issue and AASB 2010-7 'Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)'


AASB 2011-3 Amendments to Australian Accounting Standards - Orderly Adoption of Changes to the ABS GFS Manual and Related Amendments (AASB 1049)

1 July 2012 30 June 2013

AASB 13 'Fair Value Measurement' and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13


AASB 2011-9 Amendments to Australian Accounting Standards - Presentation of Items of Other Comprehensive Income

1 July 2012 30 June 2013

AASB 119 Employee Benefits: AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (2011) & AASB 2011-11 Amendments to AASB 119 (September 2011) arising from Reduced Disclosure Requirements


AASB 2011-13 Amendments to Australian Accounting Standards - Improvements to AASB 1049

1 July 2012 30 June 2013

AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities (AASB 7)


AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities ( AASB 132)


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


Other new, amending or revised standards and interpretations that were issued prior to the sign-off date and are applicable to the future reporting period are not expected to have a future financial impact on the entity.

The following amending standards that were issued prior to the sign-off date, are applicable to the current reporting period and do not have a future financial impact on the entity.

Future Australian Accounting Standard Requirements

The following new standards, revised standards, interpretations or amending standards were issued by the Australian Accounting Standards Board prior to the sign-off date, which are expected to have a financial impact on the entity for future reporting periods:


9



Sale of Assets

Gains from disposal of assets are recognised when control of the asset has passed to the buyer.

1.7 Transactions with the Government as OwnerEquity Injections

Amounts that are designated as equity injections for a year are recognised directly in contributed equity in that year.

Restructuring of Administrative Arrangments

Net assets received from or relinquished to another Government entity under a restructuring of administative arrangements are adjusted at their book value directly against contributed equity.

1.6 GainsResources Received Free of Charge

Resources received free of charge are recognised as gains when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.

Resources received free of charge are recorded as either revenue or gains depending on their nature.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another Government entity as a consequence of a restructuring of administrative arrangements (Refer to Note 1.7).

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Where revenue is received but not earned, it shall be shown as the liability 'unearned revenue'.

Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.

Revenue from rendering of services

CSC receives a share of administration fees collected by ComSuper from participating employer contributors to the Schemes. Any revenue not received by balance date is reflected in the balance sheet as a receivable.

Revenue from interest

1.5 Revenue

CSC may receive supplementary funding from government from time to time to meet specific administration needs.

Revenue from Government


10



The CSS and PSS are defined benefit schemes for Australian Government employees.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported by the Department of Finance and Deregulation as an administered item. CSC makes employer contributions to the defined benefit schemes at rates determined by an actuary to be sufficient to meet the current cost to the Government and accounts for the contributions as if they were contributions to defined contribution plans.

The PSSap is a defined contribution scheme for Australian Government employees.

Any liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the entity is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the entity’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

The liability for long service leave has been determined by reference to the work of an actuary as at 30 June 2012. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.Superannuation

CSC's staff are members of various superannuation schemes including CSS, PSS and PSSap.

1.8 Employee BenefitsLiabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits ) and termination benefits due within twelve months of the end of reporting period are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.

Leave


11



Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.

Impairment of Financial Assets

Financial assets are assessed for impairment at the end of each reporting period.

Financial assets held at amortised cost - if there is objective evidence that an impairment loss has been incurred for loans and receivables or held to maturity investments held at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.

CSC classifies its financial assets as loans and receivables.

Effective Interest Method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through profit or loss.

Loans and Receivables

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.

Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

1.10 Cash

a) cash on hand; andb) demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

1.11 Financial Assets

Cash is recognised at its nominal amount. Cash and cash equivalents includes:

1.9 Leases


12



The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

1.13 Acquisition of AssetsAssets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor’s accounts immediately prior to the restructuring.

1.12 Financial LiabilitiesFinancial liabilities are classified as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.Other Financial Liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.


1.14 Property, Plant and Equipment Asset Recognition Threshold

Purchases of property, plant and equipment are recognised initially at cost in the balance sheet, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make good’ provisions in property lease taken up by the entity where there exists an obligation to restore the property to its original condition. These costs are included in the value of the entity's leasehold improvement with a corresponding provision for the ‘make good’ recognised.

13



Fair values for each class of asset are determined as shown below: Asset class Leasehold improvements Infrastructure, plant and equipment

2012 2011Leasehold improvements Lease term Lease termInfrastructure, plant and equipment 3 to 10 years 3 to 10 years

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

Fair value measurementDepreciated replacement costMarket selling price

Following initial recognition at cost, property, plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets. Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reverse a previous revaluation increment for that class.

Revaluations

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to CSC using, in all cases, the straight-line method of depreciation.


14



CSC is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

Revenues, expenses and assets are recognised net of GST except: a) where the amount of GST incurred is not recoverable from the Australian Taxation Office; and b) for receivables and payables.

1.15 IntangiblesCSC's intangibles comprise of purchased software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Software is amortised on a straight-line basis over its anticipated useful life. The useful life of the entity's software assets is 4 years (2010-11: 4 years).

All software assets were assessed for indications of impairment as at 30 June 2012.

1.16 Taxation

Impairment

All assets were assessed for impairment at 30 June 2012. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the entity were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.


15



Note 2: Events After the Reporting Period

No matters have occurred since 30 June 2012 that have materially affected, or may materially affect, the operations of CSC, the results of those operations, or the financial position of CSC in the future financial years.

16



Note 3: Expenses

2012 2011 $’000 $’000

Note 3A: Employee BenefitsWages and salaries (10,567) (8,717)Superannuation:

Defined contribution plans (822) (618)Defined benefit plans (455) (466)

Leave and other entitlements (522) (61)Total employee benefits (12,366) (9,862)

Note 3B: SuppliersGoods and servicesConsultants (1,279) (610)Contractor (4,894) (3,601)Other (559) (332)Total goods and services (6,732) (4,543)

Goods and services are made up of:Provision of goods – external parties (378) (226)Rendering of services – related entities (583) (388)Rendering of services – external parties (5,771) (3,929)Total goods and services (6,732) (4,543)

Other supplier expensesOperating lease rentals – external parties:

Minimum lease payments (1,601) (1,029)Workers compensation expenses (70) (25)Total other supplier expenses (1,671) (1,054)Total supplier expenses (8,403) (5,597)

Note 3C: Depreciation and AmortisationDepreciation:

Leasehold Improvement (483) (328)Infrastructure, plant & equipment (267) (190)

Total depreciation (750) (518)

Amortisation:Intangibles (129) (45)

Total amortisation (129) (45)Total depreciation and amortisation (879) (563)

Note 3D: Write-Down and Impairment of AssetsAsset write-downs and impairments from:

Other -carrying value of assets disposed - (39)Total write-down and impairment of assets - (39)

17



Note 4: Income

2012 2011 OWN-SOURCE REVENUE $’000 $’000

Note 4A: Sale of Goods and Rendering of ServicesRendering of services - related entities 6,839 4,301 Rendering of services - external parties 14,918 11,862 Total sale of goods and rendering of services 21,757 16,163

Note 4B: InterestDeposits 118 -Total interest 118 -

Note 4C: Other RevenueGain on Sale of Assets 3 31 Total other revenue 3 31

18



Note 5: Financial Assets

2012 2011 $’000 $’000

Note 5A: Cash and Cash EquivalentsSpecial Accounts - 1,992 Cash on hand or on deposit 4,772 -Total cash and cash equivalents 4,772 1,992

Note 5B: Trade and Other ReceivablesGoods and Services:

Goods and services - related entities 1,150 1,303 Total receivables for goods and services 1,150 1,303

Other receivables:GST receivable from the Australian Taxation Office - 31 Accrued revenue - 62

Total other receivables - 93 Total trade and other receivables (net) 1,150 1,396

Receivables are expected to be recovered in:No more than 12 months 1,150 1,396

Total trade and other receivables (net) 1,150 1,396

Receivables are aged as follows:Not overdue 1,150 1,396

Total receivables (net) 1,150 1,396

19



Note 6: Non-Financial Assets

2012 2011 $’000 $’000

Note 6A: Property, Plant and Equipment

Gross carrying value (at fair value) 4,874 3,875 Accumulated depreciation (1,116) (366)

Total property, plant and equipment 3,758 3,509

Property, plant & equipment Total

$’000 $’000As at 1 July 2011Gross book value 3,875 3,875 Accumulated depreciation and impairment (366) (366)Net book value 1 July 2011 3,509 3,509 Additions

By purchase 782 782From acquisition of entities or operations (including restructuring)* 217 217

Depreciation expense (750) (750)Net book value 30 June 2012 3,758 3,758

Net book value as of 30 June 2012 represented by:Gross book value 4,874 4,874 Accumulated depreciation and impairment (1,116) (1,116)Net book value 30 June 2012 3,758 3,758

Note 6B: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment (2011-12)

* Property, plant and equipment with a net book value of $0.217m were acquired as a result of a merger (see Note 1.1) during the year.

20



Property, plant & equipment Total

$’000 $’000As at 1 July 2010Gross book value 3,054 3,054 Accumulated depreciation and impairment (1,161) (1,161)Net book value 1 July 2010 1,893 1,893 Additions

By purchase 2,173 2,173 Revaluations recognised in the operating result (asset) (1,161) (1,161)Revaluations recognised in the operating result (depreciation) 1,161 1,161 Depreciation expense (518) (518)Disposals:

Gross book value (191) (191)Depreciation expense 152 152

Net book value 30 June 2011 3,509 3,509

Net book value as of 30 June 2011 represented by:Gross book value 3,875 3,875 Accumulated depreciation and impairment (366) (366)Net book value 30 June 2011 3,509 3,509

2012 2011 $’000 $’000

Note 6C: IntangiblesComputer software:

Purchased 567 349 Accumulated amortisation (174) (45)

Total computer software 393 304

Note 6B (Cont'd): Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment (2010-11)

No intangibles are expected to be sold or disposed of within the next 12 months.

21



Computer software

purchased Total$’000 $’000

As at 1 July 2011Gross book value 349 349Accumulated amortisation and impairment (45) (45)Net book value 1 July 2011 304 304Additions

By purchase 218 218Amortisation (129) (129)Net book value 30 June 2012 393 393

Net book value as of 30 June 2012 represented by:Gross book value 567 567Accumulated amortisation and impairment (174) (174)Net book value 30 June 2012 393 393

Computer software

purchased Total$’000 $’000

As at 1 July 2010Gross book value 181 181 Accumulated amortisation and impairment (30) (30)Net book value 1 July 2010 151 151 Additions

By purchase 198 198 Revaluations recognised in the operating result (asset) (30) (30)Revaluations recognised in the operating result (amortisation) 30 30 Amortisation (45) (45)Net book value 30 June 2011 304 304

Net book value as of 30 June 2011 represented by:Gross book value 349 349 Accumulated amortisation and impairment (45) (45)Net book value 30 June 2011 304 304

Note 6D (Cont'd): Reconciliation of the Opening and Closing Balances of Intangibles (2010-11)

Note 6D: Reconciliation of the Opening and Closing Balances of Intangibles (2011-12)

22



Note 7: Payables

2012 2011 $’000 $’000

Note 7A: SuppliersTrade creditors and accruals (71) (69)Total supplier payables (71) (69)

Supplier payables expected to be settled within 12 months:Related entities (71) (69)

Total Supplier payables expected to be settled within 12 months (71) (69)

Note 7B: Other PayablesWages and salaries (310) (328)Prepayments received/unearned income - (1,044)GST payable to ATO (609) -Other - accrued expense (996) (305)Lease incentive liability (912) (469)Total other payables (2,827) (2,146)

Total other payables are expected to be settled in:No more than 12 months (2,827) (2,146)More than 12 months - -

Total other payables (2,827) (2,146)

23



Note 8: Provisions

2012 2011 $’000 $’000

Note 8A: Employee ProvisionsLeave (1,882) (1,147)Other (5) (2)Total employee provisions (1,887) (1,149)

Employee provisions are expected to be settled in:No more than 12 months (805) (626)More than 12 months (1,082) (523)

Total employee provisions (1,887) (1,149)

Note 8B: Other ProvisionsProvision for make good (140) -Provision for surplus lease (100) -Total other provisions (240) -

Other provisions are expected to be settled in:No more than 12 months (100) -More than 12 months (140) -

Total other provisions (240) -

24



Note 9: Restructuring

2012 2011

$’000 $’000FUNCTIONS ASSUMED 1

Assets recognised 2Cash on hand or on deposit 917 -Goods and services receivable - external parties 406 -GST receivable from the Australian Taxation Office 99 -Prepayment 28 -Property, Plant and Equipment 217 -

Total assets recognised 1,667 -

Liabilities recognisedTrade creditors and accruals (1) -Wages and salaries (47) -Unearned income (25) -GST payable to ATO (78) -Other - accrued expense (325) -Employee Provisions (182) -Other Provisions (28) -

Total liabilities recognised (686) -Net assets/(liabilities) assumed for no consideration 3 981 -

2. The restructure is assumed at 1July 2012.3. In respect of functions assumed, the net book values of assets and liabilities were transferred to the entity for no consideration.

1. Functions assumed as a result of a change in responsibilities of CSC on 1 July 2011 (Note 1.1).

25



Note 10: Cash Flow Reconciliation

2012 2011 $’000 $’000

Reconciliation of cash and cash equivalents as per Balance Sheet to Cash Flow Statement

Cash and cash equivalents as per:Cash flow statement 4,772 1,992 Balance sheet 4,772 1,992 Difference - -

Reconciliation of net cost of services to net cash from operating activities:Net contribution by services 230 133

Adjustments for non-cash itemsDepreciation / amortisation 879 563 Gain on disposal of assets - 39

Changes in assets / liabilities(Increase) / decrease in receivables for goods and services 559 (378)Increase / (decrease) in prepayments received/unearned income (1,041) 48 (Increase) / decrease in GST receivable 130 (179)Decrease in accrued revenue 62 67 Increase / (decrease) in employee provisions 556 42 Increase / (decrease) in supplier payables 1 (98)Increase in accrued expense 366 168 Increase / (decrease) in accrued wages and salaries (65) 175 Increase in GST payable 531 8 Increase / (decrease) in lease incentive liability 443 (57)Increase / (decrease) in other provisions 212 -Net cash from operating activities 2,863 531

26



Note 11: Directors Remuneration

2012 2011 No. No.

The number of non-executive directors of the entity included in these numbers are shown below in the relevant remuneration bands:

$0 to $29,999 - 2 $30,000 to $59,999 1 3 $60,000 to $89,999 8 2 $90,000 to $119,999 1 1 $150,000 to $179,999 1 -

Total 11 8

$ $

Total remuneration received or due and receivable by directorsof the entity 930,353 452,707

27



2012 2011 $ $

Short-term employee benefits:

Salary (2,053,195) (2,054,891)Annual leave accrued (62,870) 13,127 Performance bonuses (480,480) (649,667)Motor vehicle and other allowance (368) (1,795)

Total short-term employee benefits (2,596,913) (2,693,226)

Post-employment benefits:Superannuation (260,759) (236,605)

Total post-employment benefits (260,759) (236,605)

Other long-term benefits:Long service leave (137,022) (32,805)

Total other long-term benefits (137,022) (32,805)

Termination benefits (123,103) -

Total employee benefits (3,117,797) (2,962,636)

Notes:

Note 12: Senior Executive Remuneration

Note 12A: Senior Executive Remuneration

1. Note 12A was prepared on an accrual basis (so the performance bonus expenses disclosed above differ from the cash 'Bonus paid' in Note 12B).

2. Note 12A excludes acting arrangements and part-year service where remuneration expensed was less than $150,000.

28



Average annual reportable remuneration¹

Senior Executives

Reportable salary²

Contributed superannuation³

Reportable allowances⁴

Bonus paid⁵ Total

No. $ $ $ $Total remuneration (including part-time arrangements):

$210,000 to $239,999 4 147,658 36,487 - 26,046 210,191 $240,000 to $269,999 2 194,447 34,247 368 33,322 262,384 $540,000 to $569,999 1 379,421 108,899 - 58,262 546,582 $840,000 to $869,999 1 550,647 25,000 - 277,437 853,084

Total 8

Average annual reportable remuneration¹

Senior Executives

Reportable salary²



Bonus paid⁵ Total

No. $ $ $ $Total remuneration (including part-time arrangements):

$150,000 to $179,999 1 130,358 29,512 - 11,929 171,800 $210,000 to $239,999 2 152,256 43,667 - 29,723 225,648 $240,000 to $269,999 1 174,947 39,058 - 35,097 249,103 $510,000 to $539,999 1 344,086 108,294 441 82,166 534,988 $630,000 to $659,999 1 467,032 9,227 1,354 165,000 642,614 $840,000 to $869,999 1 532,859 25,012 - 296,029 853,901

Total 7Notes:

6. Various salary sacrifice arrangements were available to senior executives including superannuation, motor vehicle and expense payment fringe benefits. Salary sacrifice benefits are reported in the 'reportable salary' column, excluding salary sacrificed superannuation, which is reported in the 'contributed superannuation' column.

1. This table reports substantive senior executives who received remuneration during the reporting period. Each row is an averaged figure based on headcount for individuals in the band.2. 'Reportable salary' includes the following: a) gross payments (less any bonuses paid, which are separated out and disclosed in the 'bonus paid' column); and b) reportable fringe benefits (at the net amount prior to 'grossing up' to account for tax benefits).3. The 'contributed superannuation' amount is the average actual superannuation contributions paid to senior executives in that reportable remuneration band during the reporting period, including any salary sacrificed amounts, as per the individuals' payslips.4. 'Reportable allowances' are the average actual allowances paid as per the 'total allowances' line on individuals' payment summaries.5. 'Bonus paid' represents average actual bonuses paid during the reporting period in that reportable remuneration band. The 'bonus paid' within a particular band may vary between financial years due to various factors such as individuals commencing with or leaving the entity during the financial year.

2012

2011

Note 12B: Average Annual Remuneration Packages and Bonus Paid for Substantive Senior Executives as at the end of the Reporting Period

29



Average annual reportable remuneration¹ Staff

Reportable salary²



Bonus paid⁵ Total

No. $ $ $ $ $Total remuneration (including part-time arrangements):

$180,000 to $209,999 3 161,588 28,957 - 18,777 209,322 $210,000 to $239,999 2 189,468 20,705 210 20,142 230,525 $300,000 to $329,999 2 240,511 46,601 - 35,983 323,095 $330,000 to $359,999 1 262,379 46,759 - 44,945 354,083 $390,000 to $419,999 1 319,762 42,332 - 49,271 411,365 $480,000 to $509,999 1 295,308 41,257 - 163,108 499,673

Total 10

Average annual reportable remuneration¹ Staff

Reportable salary²



Bonus paid⁵ Total

No. $ $ $ $ $Total remuneration (including part-time arrangements):

$180,000 to $209,999 1 147,235 31,182 - 31,266 209,683 $300,000 to $329,999 2 209,390 61,575 - 41,684 312,649 $390,000 to $419,999 1 230,313 99,920 - 64,720 394,953 $450,000 to $479,999 2 222,810 103,784 - 134,525 461,119 $510,000 to $539,999 1 196,123 68,209 - 265,928 530,260

Total 7Notes:

Note 12C: Other Highly Paid Staff

6. Various salary sacrifice arrangements were available to other highly paid staff including superannuation, motor vehicle and expense payment fringe benefits. Salary sacrifice benefits are reported in the 'reportable salary' column, excluding salary sacrificed superannuation, which is reported in the 'contributed superannuation' column.

2012

2011

1. This table reports staff: a) who were employed by the entity during the reporting period; b) whose reportable remuneration was $150,000 or more for the financial period; and c) were not required to be disclosed in Tables A, B or director disclosures.Each row is an averaged figure based on headcount for individuals in the band.2. 'Reportable salary' includes the following: a) gross payments (less any bonuses paid, which are separated out and disclosed in the 'bonus paid' column); and b) reportable fringe benefits (at the net amount prior to 'grossing up' to account for tax benefits).

3. The 'contributed superannuation' amount is the average actual superannuation contributions paid to senior executives in that reportable remuneration band during the reporting period, including any salary sacrificed amounts, as per the individuals' payslips.4. 'Reportable allowances' are the average actual allowances paid as per the 'total allowances' line on individuals' payment summaries.5. 'Bonus paid' represents average actual bonuses paid during the reporting period in that reportable remuneration band. The 'bonus paid' within a particular band may vary between financial years due to various factors such as individuals commencing with or leaving the entity during the financial year.

30



Note 13: Remuneration of Auditors

2012 2011 $’000 $’000

The fair value of the services provided: Financial statement audit services - free of charge - 31 Financial statement audit services 30 -

30 31

Additional audit services were provided by ANAO through Deloitte relating to the Australian Financial Services Licence to the value of $7,700 (2011: $7,095).

No other services were provided to CSC by the ANAO or Deloitte.

Financial statement audit services were provided to the entity by the Australian National Audit Office (ANAO) through its contracted service provider Deloitte Touche Tohmatsu (Deloitte). Fees for the service are as follows:

31



2012 2011 $'000 $'000

Note 14A: Categories of Financial InstrumentsFinancial AssetsLoans and receivables:

Cash and cash equivalents 4,772 1,992 Trade receivables 1,150 1,303 GST receivable from the Australian Taxation Office - 31

Carrying amount of financial assets 5,922 3,326

Financial LiabilitiesAt amortised cost:

Supplier payables (71) (69)Lease incentive liability (912) (469)GST payable to the Australian Taxation Office (609) -Accrued expenses (996) (305)Wages and salaries (310) (328)

Carrying amount of financial liabilities (2,898) (1,171)

The carrying amount of the financial assets and financial liabilities is equivalent to their fair value.

Note 14B: Net Income and Expense from Financial AssetsLoans and receivablesInterest revenue 118 -Net gain from loans and receivables 118 -

Note 14C: Credit Risk

Note 14: Financial Instruments

CSC is exposed to minimal credit risk as financial assets comprise cash at bank and trade receivables. CSC has exposure to an Australian bank of $4,771,844 at 30 June 2012 (2011: $1,991,621). The maximum exposure to credit risk is the risk that arises from potential default of a debtor. This amount is equal to the total amount of trade receivables (2012: $1,150,463 and 2011: $1,303,000). Trade receivables are usually limited to the ARIA Investment Trust and Australian Government agencies. CSC has assessed the risk of the default on payment and has determined there is no credit risk to CSC. CSC holds no collateral to mitigate against credit risk. No receivables are past due or impaired at the balance date (2011: Nil).

32



Note 14D: Liquidity Risk

The entity has no derivative financial liabilities in both the current and prior year.

Maturities for financial liabilities 2012On 1 to 2 2 to 5 > 5

demand years years years Total$'000 $'000 $'000 $'000 $'000

Supplier payables - (71) - - - (71)Lease incentive liability - (156) (213) (543) - (912)GST payable to the Australian Taxation Office - (609) - - - (609)Accrued expenses - (996) - - - (996)Wages and salaries - (310) - - - (310)

Total - (2,142) (213) (543) - (2,898)

Maturities for financial liabilities 2011On 1 to 2 2 to 5 > 5

demand years years years Total$'000 $'000 $'000 $'000 $'000

Supplier payables - (69) - - - (69)Lease incentive liability - (282) (72) (115) - (469)GST payable to the Australian Taxation Office - - - - - -Accrued expenses - (305) - - - (305)Wages and salaries - (328) - - - (328)

Total - (984) (72) (115) - (1,171)

Note 14E: Market Risk

CSC is not exposed to market risk.

within 1

$'000year

year$'000

CSC's financial liabilities are payables. The exposure to liquidity risk is based on the notion that CSC will encounter difficulty in meeting its obligations associated with financial liabilities. This is highly unlikely as CSC's cash receipts are primarily received from Australian Government agencies and the ARIA Investment Trust. CSC manages its budgeted funds to ensure it has adequate funds to meet payments as they fall due. In addition, CSC has policies in place to ensure timely payments are made when due and has no past experience of default.

within 1

33



Note 15: Assets Held in Trust

Monetary assets

2012 2011 $'000 $'000

CSSOpening balance 4 619 878 4 789 427Closing balance 4 227 634 4 619 878

PSSOpening balance 12 534 422 11 443 051Closing balance 13 021 478 12 534 422

PSSapOpening balance 2 884 013 2 049 103Closing balance 3 672 761 2 884 013

MSBSOpening balance 3 878 664 -Closing balance 4 022 194 -

Shown below are the values of gross assets held in trust by CSC in its capacity as trustee of the CSS, PSS, PSSap and MSBS.

34

2012 2011 $’000 $’000

DepartmentalExpenses 21,648 16,061 Own-source income 21,878 16,194 Net cost of/(contribution by) outcome delivery (230) (133)

2012 2011 $’000 $’000

Expenses:Employees (12,366) (9,862)Suppliers (8,403) (5,597)Depreciation and Amortisation (879) (563)Write-down and impairment of assets - (39)

Total (21,648) (16,061)

Income:Sale of goods and rendering of services 21,757 16,163 Other gains 3 31 Interest 118 -

Total 21,878 16,194

AssetsCash and cash equivalents 4,772 1,992 Trade and other receivables 1,150 1,396 Property, plant and equipment 3,758 3,509 Intangibles 393 304

Total 10,073 7,201

LiabilitiesSuppliers (71) (69)Other payables (2,827) (2,146)Employee provisions (1,887) (1,149)Other provisions (240) -

Total (5,025) (3,364)

Note 16: Reporting of Outcomes

Outcome 1

Note 16B: Major Classes of departmental Expenses, Income, Assets and Liabilities by Outcomes

CSC receives departmental funding which is to be used solely for the Outcome specified in Note 1.1.

Note 16A: Net Cost of Outcome Delivery

Outcome 1

35




Appendices

appendix a changes to legislation

appendix b CSC organisational chart at 30 June 2012

appendix c CSC functional chart

appendix d access to information

appendix e publications

appendix f CSC contact officer

appendix g list of requirements

appendix h new consultancies

appendix i advertising/research

appendix j national disability strategy

appendix k summary resource table by outcomes

appendix l glossary

12

12 appendices


Appendix A – Changes to legislation

CSC merger legislationA legislative package comprising the Governance of Australian Government Superannuation Schemes Act 2011, ComSuper Act 2011 and the Superannuation Legislation (Consequential and Transitional Provisions) Act 2011 was passed by Parliament on 21 June 2011, which, amongst other things, consolidated the trusteeship of the main Australian government public sector and military superannuation Schemes. As a result ARIA, the Military Superannuation and Benefits Board and the Defence Force Retirement and Death Benefits Authority were merged to form a consolidated trustee body, Commonwealth Superannuation Corporation, with effect from 1 July 2011. Various consequential amendments to the Scheme legislation have been made as a result of the trustee consolidation. Scheme rules did not change.

Governance of Australian Government Superannuation Schemes Act 2011 The Acts Interpretation Amendment Act 2011 updated cross-references to the Acts Interpretation Act 1901 in the Governance of Australian Government Superannuation Schemes Act 2011. This was due to numbering changes of certain sections of the Acts Interpretation Act 1901. This amendment had effect from 27 December 2011.

Military Superannuation and Benefits Act 1991 (the MilitarySuper Act) The Financial Framework Legislation Amendment Act (No. 2) 2012 amended the MSBS Act to deal with certain issues in relation to the payment and recovery of benefits, where those benefits may have been overpaid on the basis of inaccurate information. The amendments also provide that the CEO of ComSuper can recover those payments made from the CRF in circumstances where the obligations to recover those payments under the Financial Management and Accountability Act 1997 allow. These amendments had effect from 29 June 2012.

From 1 July, the Military Superannuation and Benefits Trust Deed Amendment 2011 (No. 1) made changes to the MSBS Trust Deed consequential to the merger legislation (see above).

12appendices


Appendix B – CSC organisational chart at 30 June 2012

CSC’s Executive TeamAt 30 June 2012, CSC’s Executive Team comprised the CEO and seven direct reports:

Peter Carrigy-Ryan – Chief Executive Officer Responsible for management of CSC and implementing the strategy and policies of the CSC Board

Alison Tarditi – Chief Investment Officer Responsible for management of investments, investment risk, Fund performance and ensuring the CSC Board is provided with impartial investment advice

Helen Ayres – Corporate Secretary Responsible for the Corporate Secretary function and CSC Board services

Bronwyn McNaughton – Senior Executive Legal & Risk Responsible for management of legal advice, organisational risk measurement, and audit and compliance programs

Leonie McCracken – Senior Executive Operations Responsible for oversight of investment operations, and treasury and tax functions including management of custody arrangements

Kevin Thompson – Senior Executive Finance & Technology Responsible for financial management, corporate finance and information technology

Christine Pearce – Senior Executive Member & Employer Services Responsible for oversight of strategies, policies and practices for member and employer services, communications and related functions

Kim Kirsten – Senior Executive HR & Business Services Responsible for human resources and business services covering office management

12 appendices


Appendix C – CSC functional chartIllustration1: CSC functional chart

CSC

Funds*

Member payments

Benefitpayments

AdministrationInvestment

CustodianInvestmentmanagers

Employer productivity

contributions

Safekeeping of assets

Transaction processing

Fund accounting

Unit pricing

Member records

Benefit information

*Benefit payments for CSS, MilitarySuper, PSS, and the 1922 Scheme, DFRB Scheme, DFRDB Scheme, PNG Scheme and DFSPB are paid from the Australian Government’s Consolidated Revenue Fund.

12appendices


Appendix D – Access to information

Organisation, functions and decision making powersCSC’s functions and powers are set out in section 8 of the Governance of Australian Government Superannuation Schemes Act 2011.

The general functions and responsibilities of ComSuper, the administrator of MilitarySuper, are set out in sections 6 and 8 of the ComSuper Act 2011, and are described in the main body of this report and detailed in the ComSuper Annual Report to Parliament 2011/12.

The authority for CSC to delegate its powers and functions is contained in section 36 of the Governance of Australian Government Superannuation Schemes Act 2011.

Categories of documentsCSC does not maintain any categories of documents that are open to public access as part of a public register or otherwise. Fact sheets that describe various aspects of the Schemes, and annual reports, are made available to the public free of charge upon request. These are also available free of charge via CSC’s website. ComSuper keeps and maintains member records.

Facilities for accessFacilities for viewing member records and other documents are provided at the offices of ComSuper, the scheme administrator, in Canberra. Copies of publications may be obtained by writing to ComSuper. Publications may be inspected.

Information about facilities for access by people with a disability can be obtained by contacting the FOI Unit at the address and telephone numbers shown under ‘Freedom of information procedures’ on the next page.

12 appendices


Freedom of information proceduresMatters associated with the administration of the Freedom of Information Act 1982 (FOI Act) relating to members and their personal information are dealt with by ComSuper’s Information and Complaints Services Team. Enquiries relating to the disclosure of information about members of MilitarySuper under provisions of the FOI Act should be made in writing to:

Postal address: Information and Complaints Services ComSuper GPO Box 2252 Canberra ACT 2601

Phone: 02 6272 9080

Fax: 02 6272 9804

TTY: 02 6272 9827

Email: [email protected]

Matters relating to the management and investment of the Schemes and to investment governance are dealt with by CSC. Enquiries should be addressed to CSC:

Postal address: GPO Box 1907 Canberra ACT 2601

Phone: (02) 6263 6999


12appendices


Table A1: Freedom of information requests in 2011/12

MilitarySuper

Total number of requests 26

Number fully granted 23

Number partially granted 2

Number refused 1

Number transferred to other agencies 0

Number of requests for internal review under section 15B 0

Number of requests for review by the Information Commissioner (part VII of the FOI Act) 0

FOI requests not finalised – consultation in progress 0

Number withdrawn 0

Agencies subject to the FOI Act are required to publish information to the public as part of the Information Publication Scheme (IPS). This requirement is in Part II of the FOI Act and has replaced the former requirement to publish a section 8 statement in an annual report. Each agency must display on its website a plan showing what information it publishes in accordance with the IPS requirements. CSC’s IPS is available at http://csc.gov.au/reports-and-information/information-publication-scheme/

12 appendices


Appendix E – PublicationsCSC publishes the following communications, publications and fact sheets for the benefit of superannuation Scheme members. We also provide calculators and a wide range of other tools and information for members online on Scheme websites and secure member services areas.

CSC annual reportCSC Annual Report to Parliament – CSS, PSS, PSSap, 1922 Scheme & PNG Scheme CSC Annual Report to Parliament – MilitarySuper CSC Annual Report to Parliament – DFRB Scheme, DFRDB Scheme & DFSPB

MilitarySuper

PublicationsMilitarySuper Product Disclosure Statement MilitarySuper Book Member Investment Choice Guide Financial Services Guide Family law and super splitting booklet Death benefits summary guide Preserved benefits summary guide Retirement benefits summary guide Retirement, resignation and redundancy benefits summary guide

NewslettersPension Update – issued twice each year

Fact sheetsAbout to leave ADF factsheet Additional personal contributions factsheet Appeal rights factsheet Death and dependant benefits factsheet Early access to your superannuation benefits factsheet Family law and super overview factsheet Foreign service factsheet Government (super) co-contributions factsheet Invalidity benefits factsheet Invalidity benefits-classification process factsheet Leave without pay provisions factsheet Lump sum maximum benefit limits factsheet

12appendices


Pension maximum benefit limits factsheet Productivity Benefit Factsheet Rejoining the ADF factsheet Relationship definitions factsheet Salary sacrifice contributions factsheet Spouse contributions factsheet Summary of scheme factsheet Superannuation contributions surcharge factsheet Superannuation Guarantee contributions factsheet Taxation of contributions (contribution caps) factsheet Tax and lump sums factsheet Tax concessions for pensions factsheet Transfer amounts factsheet Unitisation of benefits factsheet

12 appendices


Appendix F – CSC contact officerInformation relating to CSC and the Schemes it manages is made available on request to members of parliament and members of the public. This report has been designed to provide basic information. Requests for more detailed information should be directed to:

Web: www.csc.gov.au

Postal address: GPO Box 1907 Canberra ACT 2601

Phone: 02 6263 6999

Fax: 02 6263 6900

TTY: 02 6272 9827


12appendices


Appendix G – List of requirementsCSC has endeavoured where appropriate to comply with the ‘Requirements for Annual Reports’, although this is not a departmental report. Details of the scheme administrator’s (ComSuper) operations are provided separately in the ComSuper Annual Report to Parliament 2011/12.

Description Requirement Page

Letter of transmittal Mandatory iv

Table of contents Mandatory vi

Index Mandatory 175

Glossary Mandatory 173

Contact officer Mandatory 164

Internet home page address and internet address for report Mandatory ii

Review by Secretary

Review by departmental secretary Mandatory 5-9

Summary of significant issues and developments Suggested 2, 5-9, 36-40

Overview of department’s performance and financial results Suggested 2, 5-9, 36-41

Outlook for following year Suggested 3, 9

Significant issues and developments – portfolio If applicable, suggested

Not applicable

Departmental Overview

Role and functions Mandatory 6-7, 11-25, 158

Organisational structure Mandatory 157

Outcome and program structure Mandatory 25

Where outcome and program structures differ from PB Statements/PAES or other additional appropriation bills (other portfolio statements), details of variation and reasons for change

Mandatory Not applicable

Portfolio structure If applicable, mandatory

Not applicable

Report on performance

Review of performance during the year in relation to programs and contribution to outcomes

Mandatory 2-3, 5-9, 27-29, 31-43, 45-53, 55-65

Actual performance in relation to deliverables and KPIs set out in PB Statements/PAES or other portfolio statements

Mandatory 2-3, 5-9, 27-29, 31-43, 45-53, 55-65

Where performance targets differ from the PBS/PAES, details of both former and new targets, and reasons for the change


Narrative discussion and analysis of performance Mandatory 2-3, 5-9, 27-29, 31-43, 45-53, 55-65

Trend information Mandatory 46-53, 57-65

Significant changes in nature of principal functions/services Suggested 62-65

12 appendices



Performance of purchaser/provider arrangements If applicable, mandatory

55-65

Factors, events or trends influencing departmental performance Suggested 6-7, 12, 36-40

Contribution of risk management in achieving objectives Suggested 23-24

Social inclusion outcomes If applicable, mandatory

Not applicable

Performance against service charter customer service standards, complaints data, and the department’s response to complaints

If applicable, mandatory

Not applicable

Discussion and analysis of the department’s financial performance Mandatory 22

Discussion of any significant changes from the prior year, from budget or anticipated to have a significant impact on future operations

Mandatory 3, 9, 36-40

Agency resource statement and summary resource tables by outcomes Mandatory 172

Management and Accountability

Corporate Governance

Agency heads are required to certify that their agency comply with the Commonwealth Fraud Control Guidelines


Statement of the main corporate governance practices in place Mandatory 8, 23-24

Names of the senior executive and their responsibilities Suggested 157

Senior management committees and their roles Suggested –

Corporate and operational planning and associated performance reporting and review

Suggested 19

Approach adopted to identifying areas of significant financial or operational risk

Suggested 24

Policy and practices on the establishment and maintenance of appropriate ethical standards

Suggested 23

How nature and amount of remuneration for SES officers is determined Suggested 20-21

External Scrutiny

Significant developments in external scrutiny Mandatory 63-65

Judicial decisions and decisions of administrative tribunals Mandatory 62-64

Reports by the Auditor-General, a Parliamentary Committee or the Commonwealth Ombudsman

Mandatory 64

Management of Human Resources

Assessment of effectiveness in managing and developing human resources to achieve departmental objectives

Mandatory 20-21

Workforce planning, staff turnover and retention Suggested 20

Impact and features of enterprise or collective agreements, individual flexibility arrangements (IFAs), determinations, common law contracts and AWAs

Suggested Not applicable

Training and development undertaken and its impact Suggested 19, 21

Work health and safety performance Suggested 21

12appendices



Productivity gains Suggested Not applicable

Statistics on staffing Mandatory 20

Enterprise or collective agreements, IFAs, determinations, common law contracts and AWAs


Performance pay Mandatory 20

Assessment of effectiveness of assets management If applicable, mandatory

Not applicable

Assessment of purchasing against core policies and principles Mandatory Not applicable

New consultancy services contracts during the year Mandatory 22, 168

Absence of provisions in contracts allowing access by the Auditor-General


Contracts exempt from the AusTender Mandatory Not applicable

Financial Statements Mandatory 67-154

Other Mandatory Information

Work health and safety (Schedule 2, Part 4 of the Work Health and Safety Act 2011)

Mandatory 21

Advertising and market research (Section 311A of the Commonwealth Electoral Act 1918) and statement on advertising campaigns

Mandatory 170

Ecologically sustainable development and environmental performance (Section 516A of the Environment Protection and Biodiversity Conservation Act 1999)

Mandatory 23

Compliance with the agency’s obligations under the Carer Recognition Act 2010

If applicable, mandatory

Not applicable

Grant programs Mandatory –

Disability reporting – explicit and transparent reference to agency-level information available through other reporting mechanisms


Information Publication Scheme statement Mandatory 161

Correction of material errors in previous annual report If applicable, mandatory

Not applicable

List of requirements Mandatory 165

12 appendices


Appendix H – New consultanciesCSC engages consultants where specialist skill or expertise is required or where internal resources are unavailable. Consultants are typically engaged to:

> investigate or diagnose a defined issue

> carry out defined reviews or evaluations

> provide independent advice, information or solutions to assist CSC in its decision making.

These consultancies are distinguished from other service provider contracts by the nature of the work performed, which typically involves the application of expert professional skills and the exercising of expert judgement.

CSC administration consultanciesTable A2 provides details of consultancies engaged by CSC during 2011/12 with a contract value, GST inclusive, of $10 000 or more.

Table A2: New consultancies in 2011/12

Consultant name

Description

value $

Selection method

Principle justification

Australian Government Actuary Actuarial Services 13 895 Direct B

Exceptional People Succession Planning and Development Program Advice

19 650 Direct B

Governance Matters Pty Ltd Board Performance Evaluations

31 953 Direct B

GPS Personnel Services Superannuation Product Advice

34 730 Direct B

Strategic Renewal Consulting CSC Audit & Risk Committee Advice

15 091 Direct B

M H Carnegie & Co Pty Ltd Analysis Advice on Investment Fund

71 500 Direct B

Total new consultancies 186 819

Selection method categories

Selection methods used for consultancies are categorised as follows:

Open tender Public tenders are sought from the marketplace using national and major metropolitan newspaper advertising.

Select tender Tenders are invited from a short list of competent suppliers.

Direct sourcing Single supplier invited to bid reflecting unique qualifications or circumstances.

12appendices


Justification categories

A Need for access to the latest technology.

B Need for specialised skills.

C Need for an independent view.

12 appendices


Appendix I – Advertising/researchDuring 2011/12, expenditure for advertising and market research on contracts individually more than $11 200 (inclusive of GST) amounted to $194 860 (inclusive of GST).

The following list contains details of payments, as required under section 311A of the Commonwealth Electoral Act 1918. All amounts include GST.

Table A3: Advertising & market research expenditure in 2011/12

Organisation Purpose Expenditure $

Ipsos Member related research 41 520

GFK Blue Moon Research & Planning

Member related research and market research

153 340

Total 194 860

12appendices


Appendix J – National Disability StrategySince 1994, Commonwealth departments and agencies have reported on their performance as policy adviser, purchaser, employer, regulator and provider under the Commonwealth Disability Strategy. In 2007/08, reporting on the employer role was transferred to the Australian Public Service Commission’s State of the Service Report and the APS Statistical Bulletin. These reports are available at www.apsc.gov.au. From 2010/11, departments and agencies are no longer required to report on these functions.

The Commonwealth Disability Strategy has been overtaken by a new National Disability Strategy which sets out a ten year national policy framework for improving life for Australians with disability, their families and carers. A high level report to track progress for people with disability at a national level will be produced by the Standing Council on Community, Housing and Disability Services to the Council of Australian Governments and will be available at www.fahcsia.gov.au

The Social Inclusion Measurement and Reporting Strategy agreed by the Government in December 2009 will also include some reporting on disability matters in its regular How Australia is Faring report and, if appropriate, in strategic change indicators in agency Annual Reports. More detail on social inclusion matters can be found at www.socialinclusion.gov.au

12 appendices


Appendix K – Summary resource table by outcomesOutcome 1: Retirement benefits for past, present and future Australian Government employees and members of the Australian Defence Force through investment and administration of their superannuation Funds and Schemes.

Table A4: Summary resource table by outcome

Budget 2011/12

$’000

Actual expenses 2011/12

$’000

variation

$’000

Price of departmental outputs

Output Group 1.1 – Superannuation Scheme governance

Revenue from other sources 24 506 21 648 2 858

Total price of Outputs 24 506 21 648 2 858

Total for Outcome 1 24 506 21 648 2 858

12appendices


Appendix L – GlossaryAAT Administrative Appeals Tribunal

ADF Australian Defence Force

AD(JR) Act Administrative Decisions (Judicial Review) Act 1977

ACTU Australian Council of Trade Unions

AFS licence Australian Financial Services licence

AGEST Australian Government Employees Superannuation Trust

APRA Australian Prudential Regulation Authority

APS Australian public service

ASFA Association of Superannuation Funds of Australia

ASIC Australian Securities and Investments Commission

ASX Australian Stock Exchange

ARIA Australian Reward Investment Alliance

CAC Act Commonwealth Authorities and Companies Act 1997

CPI Consumer Price Index

CPSU Community and Public Sector Union

CRF Australian Government Consolidated Revenue Fund

CSC Commonwealth Superannuation Corporation

CSS Commonwealth Superannuation Scheme

DFRB Scheme Defence Forces Retirement Benefits Scheme

DFRDB Scheme Defence Force Retirement and Death Benefits Scheme

DFRDB Authority Defence Force Retirement and Death Benefits Authority

DFSPB Defence Force (Superannuation) (Productivity Benefits) Scheme

ESG environmental social and corporate governance

FBT fringe benefits tax

FOI freedom of information

FOI Act Freedom of Information Act 1982

IPS Information Publication Scheme

MilitarySuper Military Superannuation and Benefits Scheme

MSB Board Military Superannuation and Benefits Board

12 appendices


PNG Scheme Papua New Guinea Scheme

PSS Public Sector Superannuation Scheme

PSSap Public Sector Superannuation accumulation plan

RBA Reserve Bank of Australia

RSE licence Registrable Superannuation Entity licence

SCT Superannuation Complaints Tribunal

SIS Act Superannuation Industry (Supervision) Act 1993

SRC Act Superannuation (Resolution of Complaints) Act 1993

UNPRI United Nations Principles for Responsible Investment

WCAG Web Content Accessibility Guidelines

WWF World Wildlife Fund


Index

AAdministrative Appeals Tribunal 63, 173AGEST Superannuation Fund 173Association of Superannuation Funds of

Australia (ASFA) 64Australian Council of Trade Unions 173

President of the Australian Council of Trade Unions 13

Australian Government Employees Superannuation Trust 14

Australian Human Rights Commission 63Australian Institute of Company Directors 15Australian Maritime Safety Authority 14Australian Office of Financial Management 14Australian Prudential Regulation Authority 24,

173Australian Reward Investment Alliance (ARIA)

43Australian Securities and Investments

Commission (ASIC) 24, 173AustralianSuper 16Ayres, Helen 157

BBenefits 57

employer 57Invalidity 60Members vii, 28, 46, 51, 53, 56-58, 61paid 58Pension 59Retirement 58, 172

CCarbon Disclosure Project 23CARE Super 16Carrigy-Ryan, Peter 2, 7, 157Centre for Investor Education 16Cole AO, Anthony (Tony) 14, 18-19Colonial First State Infrastructure and Private

Equity 16Comcare 21Commonwealth Fraud Control Guidelines 24,

166Commonwealth Ombudsman 63-64, 166

Commonwealth Superannuation Corporation (CSC) ii, iv, 12

Advertising vii-viii, 167, 170Board vi, 2, 8, 13, 19-20, 32, 34, 157Breach and Compliance Policy 24Chairman iv, vi, 2-3, 6-7, 13-14, 16-19, 63Chief Executive Officer 2, 7, 13, 157contact officer 164directors 2, 6-8, 13, 19, 23employees 20ESG and Proxy Voting Policies 43financial management 22financial statements iv, vii, 6, 12, 22, 28, 67,

114, 116-117, 154Information Publication Scheme (IPS) 161internal governance 23investment team 32, 36Operating Policy 8Outcomes and program structure Professional development and

performance review 19Renewal Policy 8Research 14-15, 42, 170resources vi, 20-22, 51, 157, 166, 168Scheme overview 28

Community and Public Sector Union 15, 173Complaints viii, 16, 62-65, 160, 174ComSuper ii, 2, 18, 25, 56, 59-60, 62-64, 156,

159-160, 165Consolidated revenue 58

Australian Government’s Consolidated Revenue Fund (CRF) 28

consumer price index (CPI) 33Credit Suisse Group 14custodian 2, 8, 22, 31, 36

DDefence

Australian Defence Force 2, 25, 28, 57, 60, 172-173

Chief of the Defence Force 7, 13-14, 16, 18Department of Defence 22, 28, 50, 56-57, 60

Defence Force Retirement and Death Benefits Authority (DFRDB Authority) 6

Department of the Prime Minister and Cabinet 16

DFRB Scheme iv, 6, 12, 28, 56, 158, 162, 173DFRDB Scheme iv, 6, 12, 28, 56-57, 158, 162,

173

FFederal Budget vi, 9Feltham, Peter 15, 18-19Financial Industry Complaints Scheme 16Financial Services Council 173Flood, Nadine 15, 18-19Freedom of information viii, 159-161Frontier Investment Consulting Pty Ltd 16

GGarvan Research Foundation 15Gearing, Lyn 15, 19GFK Blue Moon Researcj amd Planning 170Global Mining Investments Limited 15Glossary 173Governance Matters Pty Ltd 168

HHaines, Peggy 15, 18-19Hall, Winsome 16, 18-19Hyams AM, Tony iv, 3, 14, 18

IIMB Limited 15Invesment/s

managers vi, viii, 2, 6-7, 31, 34-36, 38-39, 158objectives 32Performance 6, 19- 20, 22, 38-40, 165-168Strategic asset allocation vi, viii, 34

Investment/sArrangements 32asset class 35-36, 39-40Derivatives vi, 36

Investor Group on Climate Change Australia/New Zealand 23

Ipsos 170

KKirsten, Kim 157

LLander & Rogers 15Law Council of Australia Superannuation

Committee 15Legislation

Acts Interpretation Act 1901 156Acts Interpretation Amendment Act 2011 156Administrative Decisions (Judicial Review) Act

1977 64, 173Commonwealth Authorities and Companies

Act 1997 12, 22, 173ComSuper Act 2011 156, 159Corporations Act 2001 12, 21, 25Financial Framework Legislation Amendment

Act (No. 2) 2012 156Financial Management and Accountability Act

1997 156Freedom of Information Act 1982 160, 173Governance of Australian Government

Superannuation Schemes Act 2011 iv, 12, 21-22, 156, 159

Military Superannuation and Benefits Act 1991 12, 25, 28, 156

Occupational Health and Safety (Commonwealth Employment) (OH&S) Act 1991 21

Papua New Guinea (Staffing Assistance) Act 1973 174

Safety, Rehabilitation and Compensation Act 1988 21

Superannuation Act 1922 174Superannuation Act 1976 25, 173Superannuation Act 1990 25, 174Superannuation Act 2005 25, 174Superannuation Industry (Supervision) Act

1993 12, 25, 29, 62, 174Superannuation Legislation (Consequential and

Transitional Provisions) Act 2011 156Superannuation (Resolution of Complaints)

Act 1993 62-64, 174Work Health and Safety Act 2011 21, 167

letter of transmittal ivLife Investment and Superannuation

Association of Australia 14List of requirements vii, 165, 167

MMcCracken, Leonie 157McCullagh, John 16, 18-19McNaughton, Bronwyn 157Melbourne Institute of Applied Economic and

Social Research 14Members

Associate 62contributors viii, 6, 28, 46, 56Preserved benefit 48

Mercer 14MilitarySuper

administration iv, vii, 2, 6, 8, 12-13, 22-23, 25, 28, 36, 55-56, 64, 160, 168, 172

Components 57default option 7, 32-33financial statements 67Fund 12Investment performance 6, 19-20, 22, 38-40,

165-168Overview vi, 28Publications 162

Military Superannuation and Benefits Board 174Minister for Finance and Deregulation 7, 13MSCI World ex Australia Accumulation Index 37MySuper 2, 9

NNational Disability Strategy 171Northern Territory Treasury Corporation 14Northern Trust Company 6

OOther

1922 Scheme iv, 6, 12, 28, 56, 158, 162CSC Board Committees

Audit and Risk Management Committee 15Defence Force Case Assessment Panel 14,

16, 18Human Resources Committee 2, 14-15, 18-19Military Superannuation and Benefits

Scheme Reconsideration Committee 18CSC licences

Australian Financial Services 24Registrable Superannuation Entity 24-25, 174

PPearce, Christine 157PNG Scheme iv, 6, 12, 28, 56, 158, 162, 174Publications 162

QQueensland Investment Corporation 15

RRegnan 23, 42-43Reserve Bank of Australia 36, 174Richmond Football Club 15

SS&P/ASX 300 Accumulation Index 37State Super Financial Services 16Strategic Renewal Consulting 168Superannuated Commonwealth Officers’

Association 174Superannuation Complaints Tribunal (SCT) 62Super System Review 9Szondy, Gabriel 16, 18-19

TTarditi, Alison 157Thompson, Kevin 157

UUniversity of Melbourne 14UN Principles for Responsible Investment 23

VVertigan AC, Dr Michael John 17-19

WWWF Australia 14

ZZurich Australian Superannuation Pty Limited 16

Documents

MilitarySuper Annual Report to Parliament 2011-12 · iv CSC Annual Report to Parliament 2011-12 MilitarySuper CSC Annual Report to Parliament 2011-12 MilitarySuper v 1 letter of transmittal