A generation of retiring public servants is set to push up the cost of the ACT's government employee superannuation scheme to more than $670 million over the next 30 years, an audit shows.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The cost of the scheme was expected to rise from $230 million in 2017 to $481 million in 2029, before the territory's superannuation investment portfolio is meant to be able to cover the full cost of scheme in 2030.
While Treasury is building the investment portfolio in preparation for the change, the pensions of hundreds of retired ACT public servants are still underwritten by multi-million dollar injections from the ACT budget.
The ACT Auditor-General's annual audit of government financial statements shows the total cost of those pensions will continue to rise to a peak of $672 million in 2043, before falling to $535 million in 2055.
Dr Cooper wrote that the rising cost of superannuation payments reflected the "age profile" of ACT employees, most of whom were expected to retire over "the next two decades".
"The Territory will be required to pay the superannuation benefit accrued over these employee's years of service," she wrote.
"For many members, the retirement benefits provided under the defined benefit schemes will be taken as indexed pensions and will continue throughout these employees' lives and that of their surviving spouses."
A senior ACT Treasury official has told The Canberra Times that "if all goes according to plan", the superannuation provision account, which current sits at about $3.5 billion in value, should be able to meet the entire cost of the pension scheme by the planned target date of June 30, 2030.
He said that since the scheme was set up 1997, despite having some good and bad years, the investments had performed at their target return rate of five per cent, plus inflation, each year and he expected that to continue.
"The idea being that all going well by 2030, we've built up a nice big investment pool, that we'll be able to stop using ACT government revenue to pay out existing superannuation obligations," he said.
"I can't say it's definitely going to happen, there's too many variables over such a long time, but that's the plan and we are going according to plan."
But former Treasury official and University of Canberra academic Khalid Ahmed said he was concerned that given the investments were not already covering the full cost of existing pension payments, there were question marks around how it would pay the increasing cost of the legislated entitlements.
"The issues the Auditor-General is raising is right, because this is established under law, the government has to pay it," he said.
"But the big question is that if they can't cover it in the future, government injections will have to increase and that will pull cash away from other priorities or projects."
The audit also showed the superannuation provision account's unfunded liability rose from $2.4 billion in the 2016 budget to $7.2 billion in the actual results, reflecting a 24.9 per cent rise in the growth rate of the liability each year for the past three years.
Dr Cooper wrote that was mainly due to the use of a lower rate to estimate the liability in end of financial year statements, compared to the rate used in the budget.
Those continued increases in the unfunded liability reflected a seeming disconnect between the long-term six per cent bond yield rate used to calculate the liability in successive budgets and the actual figure of between two and three per cent in the past few years.
Dr Cooper wrote the territory currently had the assets to meet its liabilities, but that the government's ability to cover those liabilities would depend on "a large decrease in the unfunded superannuation liability".
But the senior Treasury official said the difference between the budget figures and financial statements was down to an accounting standard.
He said while budgets used a long-term, 25-year average of six per cent, the financial statements used a "point in time" figure from the spot market price of bond yields, and such figures did not have a material effect on the actual budget.
But Dr Cooper noted that it would take "a significant increase in the Commonwealth government bond (discount) rate to bring the superannuation liability down from $10.7 billion to the budget estimate of $6.1 billion".
