Kate Bromley, Investment Analyst, Policy and Governance
Last month we had the opportunity to catch up with some of our regular blog commenters. Here’s part two of our Q&A post. Here you’ll find more of the questions put to the Investments team and the responses from Chief Investment Officer Brad Holzberger and other members of the team.
Can you explain the investment objectives of the investment options?
The investment return objectives for our multi-asset class or ReadyMade options are expressed as an annualised average return objective shown as a percentage, plus inflation or CPI (consumer price index), targeted over a specified timeframe. In the case of the Balanced option this is 3.5 per cent per annum plus CPI over rolling ten year periods.
These investment objectives are framed over specific, usually longer, timeframes to reflect the changing profile of underlying economic fundamentals, how these manifest over business cycles, and in turn how they play out in terms of market volatility. These objectives also reflect the long term nature of super.
How is the Defined Benefit scheme operated?
A defined benefit scheme for Queensland Government employees has been in existence in one form or another for over a hundred years. The QSuper Defined Benefit scheme closed to new members in 2008 and continues to run to meet the liabilities of its current members.
There are four main entities involved in the operation of the QSuper Defined Benefit scheme. They are the Queensland State Actuary, Queensland Treasury Corporation (QTC), Queensland Investment Corporation (QIC) and QSuper.
The State Actuary makes a recommendation about the level of contribution the Queensland Government is required to make on behalf of its employees to meet the future liabilities of the scheme. Government employers pay the contributions at the rate recommended which is periodically reviewed by the State Actuary. Members must contribute at a rate of between two and five per cent of their salary.
So financing the scheme are the Government employer contributions as well members’ contributions which are combined and used to purchase a portfolio of assets. Over time these assets have built up.
Currently the Defined Benefit scheme has assets worth around $33 billion. $28 billion sits in Government coffers, held by QTC and managed by QIC. The remaining $5 billion is held at QSuper and managed by QSuper’s investments team. Despite the split funding arrangement, all assets are managed under one investment strategy. It is this capital amount which is earmarked to pay the liabilities (or benefits) of Defined Benefit scheme members.
Defined Benefit members can also make additional contributions above the employee contributions they’re required to make. These contributions go into an Accumulation account and sit in QSuper.
Can you explain the changes made to the way the Defined Benefit scheme’s employer contributions are invested?
The State Actuary has determined that at this time there are sufficient funds in the Queensland Government’s Defined Benefit scheme to meet anticipated future liabilities. This was the reason for the decision taken by the State Government earlier this year to use employer Defined Benefit contributions to pay down Government debt for the next five years, rather than investing the money in the Defined Benefit scheme. Over this time the Queensland State Actuary will continue to monitor the scheme and its ability to meet its future obligations.
To be in a position where funds are deemed sufficient to meet future liabilities is not the typical experience of defined benefit schemes around the world and certainly it’s an enviable one to be in. When we speak to our global peers in the US, defined benefit schemes are typically around 40 to 60 per cent funded while European schemes roughly range from 50 to 70 per cent funded.
So this concludes the Q&A post covering the questions directly from you, our members. But of course you can ask us a question any time through this blog.
The views of the author and those who provide the responses to comments posted on this blog are not necessarily the views of the QSuper Board. We’ve put this information together as general information only and you should get professional advice before relying on this information.
Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.
Investment Analyst, Policy and Governance
Kate’s role is to develop QSuper’s environmental, social and governance (ESG) policy. This includes thinking about how to practically apply ESG risk management into the investment process. Kate is also Editor of Investment Views.