The Military Superannuation and Benefits ... - csc.gov.au · Page iii The Hon. Bruce Scott, MP...

T H E

MSBB O A R D

A N N U A L

R E P O R T

1 9 9 8 - 9 9

m i l i t a r y s u p e r a n n u a t i o n a n d b e n e f i t s s c h e m e

MIL

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TThhee MMiilliittaarryy SSuuppeerraannnnuuaattiioonn aannddBBeenneeffiittss BBooaarrdd ooff TTrruusstteeeess NNoo.. 11

Annual Report 1998�99

Page ii

© Commonwealth of Australia 1999

ISSN 1037 7956ISBN 0642 41410 6

This work is copyright. You may download, display, print and reproduce thismaterial in unaltered form only (retaining this notice) for your personal,non-commercial use or use within your organisation. All other rights are reserved.Requests and inquiries concerning reproduction and rights should be directed to theManager, Legislative Services, AusInfo, GPO Box 1920, Canberra ACT 2601 or bye-mail [email protected].

Street address: ComSuperUnit 1, Cameron OfficesChandler StreetBELCONNEN ACT 2617

Postal address: PO Box 22Belconnen ACT 2616

Telephone: (02) 6252 7911

Facsimile: (02) 6253 1116

TTY: (02) 6253 2911

Annual report inquiries: Schemes Publicity SectionComSuper

Telephone: (02) 6252 7685

Note: All contribution, benefit, membership and exit statistics are based on eventsrelated to the annual reporting period reflected in the records of the Commissionerfor Superannuation at the time these statistics were compiled. As such, the statisticsmay vary from the records of these events as recorded elsewhere. Where historicalstatistics are quoted, these may vary from previously published statistics due to theapplication of retrospective adjustments that are now reflected in this report.

Page iii

The Hon. Bruce Scott, MPMinister Assisting the Minister for DefenceParliament HouseCanberra ACT 2600

Dear Minister

In accordance with section 26 of the Military Superannuation and Benefits Act 1991(the MSB Act), the Military Superannuation and Benefits Board of Trustees No. 1 ispleased to submit to you its annual report on the performance of its functions forthe year ended 30 June 1999, together with financial statements in respect of themanagement of the Military Superannuation and Benefits Fund No. 1 during 1998�99, and the Auditor-General�s report in respect of those statements.Subsection 26(3) of the MSB Act requires you to cause a copy of the report to be laidbefore each House of the Parliament within 15 sitting days after you receive it.

Yours sincerely

Charles Kiefel, BCom, FCA, FAICDChairmanMSB Board of Trustees No. 1

27 September 1999

Page v

CCoonntteennttss

CChhaaiirrmmaann��ss oovveerrvviieeww vviiiiii

AAbboouutt tthhee MMSSBBSS 11

Establishment of the Scheme 1Description of the Scheme 1The MSB Board 2

FFuunndd iinnvveessttmmeenntt 44

Investment policy 4Investment management 5Investment performance 7Fund growth 7Asset allocation 8Crediting rate policy 9Exit rate policy 10

GGoovveerrnnaannccee 1122

Business Plan 12Status under the SIS legislation 12Delegations 13Administrative Agreement 13Board Committees 13Year 2000 readiness 15Evaluation 16

CCoonnttrriibbuuttoorrss 1188

Account maintenance 18Surcharge 20Contribution remittances 21Contributor communications 23MSCAG activity 25Counselling services 26Member statements 26Website development 27Benefit payments 27Benefits payable on discharge 29Invalidity benefits 31Accounts, records and funding of benefit payments 34

PPrreesseerrvveedd bbeenneeffiitt mmeemmbbeerrss 3355

Account maintenance 35

Page vi

Preserved benefit member communications 36Preserved benefit payments 36

PPeennssiioonneerrss 3399

Account maintenance 39Pensioner communications 40Counselling and inquiry service 41Benefit payments 43Review of invalidity classifications 45Reversionary benefits 46Pension increase 46

DDiissppuuttee rreessoolluuttiioonn 4488

Avenues of review 48Internal reconsideration 48External review 51Inquiries and complaints 52Freedom of information 54

AAccccoouunnttiinngg sseerrvviicceess 5555

Audit activity and results 56

AAddmmiinniissttrraattiivvee aarrrraannggeemmeennttss 5599

Organisational structure of the MSBS 59Human resources 60Financial resources 60

AAppppeennddiixxeess 6611

1: MSBS in brief 612: Financial statements 633: Fund managers 864: Glossary 875: Publications 886: Service charters 897: Contact officer 938: Legislation 949: Compliance 96

IInnddeexx 9977

Page vii

TTaabblleess

1: Investment performance by sector, 1997�98 and 1998�99 72: Fund size at 30 June 1999 (after tax, charges and benefits) 83: Asset allocation 94: Exit rates declared in 1998�99 115: Contributor composition 196: Male and female contributors by years of service 197: Contributors and contributions at 30 June for past five years 208: Modes of exit since 1994�95 209: Partial and full lump-sum employer benefit payments, 1998�99 30

10: Member benefits paid or preserved, 1998�99 3711: Number of pensioners since 30 June 1995, by type of benefit 4412: New pensions granted during 1998�99 and annual liability 4413: Invalidity entitlements reviewed in past five years 4514: Reconsideration applications for past five years 5115: Responses to complaints or ministerial/Ombudsman inquiries,

1998�99 54

CChhaarrttss

1: Fund size at 30 June for past five years 82: Sectoral allocation as proportion of the Fund 93: Annual earning, crediting and CPI rates since 1994�95 104: Quality Service Index (QSI) scores for military client satisfaction,

1997�98 and 1998�99 175: MSB Fund cash flow (contributions received less benefits paid),

1998�99 226: MSBS benefit processing against standards, 1998�99 297: Average time taken to determine new invalidity cases in past five years 328: Comparison of invalidity classifications in 1998�99, by Service 339: Causes of invalidity retirement during 1998�99 34

10: Growth in MSBS preserved benefit member population, 1998�99 3611: MSBS preserved benefit processing against standards, 1998�99 3712: Growth in MSBS pensioner population in past five years 3913: Military pension variations, ten months to June 1999 4014: Telephone calls received by the Retired Member Advisory Service in

1998�99 4215: Written inquiries received by the Retired Member Advisory Service in

1998�99 4216: Retired member written inquiries processing against standards,

1998�99 43

Page viii

MSB Board of Trustees No. 1 Annual Report 1998�99

CChhaaiirrmmaann��ss oovveerrvviieeww

From an investment perspective 1998�99 was an extremelychallenging year for the Fund and the markets. It was a yearcharacterised by major swings in many of the world�s financialmarkets, and this volatility produced a range of returns for theFund�s assets over the course of the year.

The Board has set the performance objectives of the Fund basedon its judgment about the best achievable balance between riskand return. Fundamentally we see our responsibility ascontributing to the support of members� lifestyles in retirement.We have therefore opted for a growth strategy over the longterm, but with elements of caution so that the level of risk iscontained. With this in mind the investment strategy for the Fundaims to ensure that the risk of negative return in any one year isno greater than one in six, and to exceed the rate of inflation by atleast 5% over rolling five-year periods.

The MSB Fund has been consistent in the application of itsinvestment strategy during a very difficult time for investing.There was considerable volatility in most major markets,including fixed interest markets. In addition, for much of the yearreturns from major share markets were narrowly concentrated ina relatively small number of larger stocks. The valuations of somemarket segments, such as the larger US stocks, reachedunprecedented levels.

The Asian and Russian financial crises and the collapse of majorcommodities markets generated falls in all global equitiesmarkets during the first four months of the year, with thatvolatility reflected in initial Fund returns. For example, inAugust the leading US index, the Dow Jones, declined by over15%. However, as the year progressed there was an improvementin investment conditions. The Fund achieved an overall return oninvestments of 8.3%. This was almost 3.4% ahead of the long-term performance objective, and matched the InTech surveyindustry average (see Table 1 on page 7).

Special efforts were made to minimise the effects of the negativereturns in September and October 1998 by giving members thenabout to leave the Defence Force the opportunity of keeping theirmoney in the Fund until returns again became positive.

Page ix


RReevviieeww ooff iinnvveessttmmeenntt ssttrraatteeggyy

Over recent years the Board has adopted a practice of annualreviews of MSB Fund investment objectives, strategy andimplementation. With the assistance of its Investment Adviser (IPAC Portfolio Management) and its Administrator (ComSuper)the Board again reviewed its investment activities. It reviewedrisk and volatility measures, and considered new markets.

The Board confirmed its commitment to its current investmentstrategy, which has a higher exposure to growth assets (sharesand property) than to defensive assets (cash and fixed interest).The coverage of investment types and markets is designed toenhance the Fund�s ability to achieve its long-term objectives.The Board has provided a comprehensive statement ofinvestment strategy and policy with its 1997�98 annual report tomembers.

TTrraannssiittiioonn ttoo nneeww MMaasstteerr CCuussttooddyy aarrrraannggeemmeennttss

During the course of 1998�99 the Fund�s Master Custodianadvised the Board that it had sold its Australian custodybusiness. The Board was offered the opportunity to transfer itscustody requirements to the new owner or to seek an alternativeservice provider. After a competitive process the Boardappointed State Street Australia as the Fund�s new MasterCustodian. State Street Australia is a wholly owned subsidiary ofthe US-based State Street Corporation. State Street is the world�sleading specialist in serving institutional investors. In 1999 theassets under custody by State Street worldwide were US$5.3trillion. In terms of assets under custody State Street Australia isone of the largest global custodians in the Australian market.

The Fund custodian performs essential functions (described onpage 6) in relation to the Board�s investment activities and,therefore, the Board regarded any change in custodialarrangements to be a significant event�involving as it does thetransfer of the entirety of the Fund�s assets. In the transfer ofassets from one custodian to another the Board was conscious ofthe need to obtain appropriate assurances that the assets of theFund were protected.

With the assistance of its investment adviser, its independentaudit adviser (KPMG) and its administrator, the Boardoversighted the preparation of a detailed transition plancovering the transfer of assets between the two custodians. Thisplan incorporated specific requirements for independent reviews

Page x


and audit sign-offs regarding the completeness and accuracy ofthe transfer process.

I am pleased to report that the transition to State Street Australiaoccurred smoothly with no disruption to the Fund�s investmentactivities and with an unqualified audit report on thecompleteness and accuracy of the transfer.

CCoommmmuunniiccaattiioonnss

The Board is mindful of the importance of communicating fullywith its major stakeholders�the Minister and the members ofthe Scheme�and it took initiatives with both. On behalf of thethe Board I briefed the Minister bimonthly on key developments.The Board set priorities for its Communications Advisory Groupfor communication with members, and commissionedconsultancy assistance in some areas (see page 25).

YYeeaarr 22000000 rreeaaddiinneessss

As the Board relies on the services of a number of externalentities for the management and investment of the Fund and theadministration of the MSB Scheme, the Board has continued toclosely monitor the progress achieved by all of its serviceproviders in achieving Year 2000 readiness. During the year theBoard commissioned its audit adviser to undertake independentreviews of several of its service providers� risk management, Y2Kand contingency planning strategies. The results of those reviewsprovided the Board with added assurance that there wereappropriate strategies in place within those agencies to addressareas of Board interest and responsibility. The Y2K readinessefforts of its service providers were completed just after year end.The Board will of course continue to focus on readiness in thecoming months.

GGoovveerrnnaannccee

Improvements in several aspects of governance were madeduring the year. In March 1999 the Board made some adjustmentsto the performance levels and service standards documented inits Administrative Agreement with ComSuper. As detailed in thisreport those standards were met, and generally exceeded,throughout the year. The Board is also mindful of the principlesand better practice guide recently issued by the AustralianNational Audit Office (ANAO) for Commonwealth authoritiesand companies.

Page xi


TThhaannkkss

I am very appreciative of the hard work and excellentco-operation by all trustees throughout what was a challengingyear.

The Secretary to the Board, Ms Michele Dawson, retired in July1998. I would therefore like to acknowledge the valuablecontribution made by Michele to the work of the Board since itsinception in 1991.

On behalf of the Board as a whole I would also like to thankIPAC, the Board�s investment adviser, ComSuper, the Schemeadministrator, KPMG, the Board�s audit and taxation adviser,and Clayton Utz, its legal adviser, for their excellent serviceduring the year.

Charles KiefelChairman

AAbboouutt tthhee MMSSBBSS

EEssttaabblliisshhmmeenntt ooff tthhee SScchheemmee

The Military Superannuation and Benefits Scheme (MSBS) wasestablished by the Military Superannuation and Benefits Act 1991(the MSB Act). It replaced the Defence Force Retirement andDeath Benefits (DFRDB) Scheme for new entrants to the DefenceForce on 1 October 1991, following government initiatives toimprove Defence Force superannuation arrangements. ExistingDFRDB contributors were given the option of transferring to theMSBS before 1 October 1992.

DDeessccrriippttiioonn ooff tthhee SScchheemmee

The MSBS is a defined contribution/defined benefit scheme withbenefits being derived from two sources:

� a member component, which is paid as a lump sum only ofthe member�s own contributions, including amountsnotionally brought over from the DFRDB Scheme, plusinterest (credited at the crediting rates of the Fund); and

� an employer component, which is a defined benefit relatedto a member�s period of membership and final averagesalary that must be preserved in the Fund until retirementfrom the workforce at age 55 or later. This benefit isunfunded (that is, the cost is met on an emerging cost basis)except for the portion relating to employer productivitycontributions.

Membership of the scheme for new entrants to the Defence Forceis compulsory and the minimum contribution rate is 5% offortnightly salary for superannuation purposes. At three-monthly intervals MSBS members may elect to vary theircontributions to the scheme between 5% and 10%.

Member contributions made each fortnight are paid into aninvestment Fund (the MSB Fund), the management andinvestment of which is the responsibility of a Board of Trustees.

Where the member resigns from the Defence Force the memberbenefit accrued to 30 June 1999 can be immediately paid but thebalance of the member benefit must be preserved, either in the

Page 1



Fund or in a complying superannuation fund until preservationage. The productivity and other employer benefits must bepreserved in the Fund or another complying superannuationfund until preservation age.

TThhee MMSSBB BBooaarrdd

MMeemmbbeerrsshhiipp

The Board consists of five Trustees appointed by the MinisterAssisting the Minister for Defence (the Minister) under section 21of the MSB Act. Two of the Trustees, nominated by the Minister,must have experience in, and knowledge of, the formulation ofgovernment policy and public administration. Two additionalTrustees must be members of the Defence Force�one an Officerand the other a member other than an Officer. They arenominated by the Chief of the Defence Force (CDF).

The fifth Trustee, who is also the Chairperson of the Board, isappointed by the Minister after consultation with the Ministerfor Finance and Administration. The Chairperson and theTrustees nominated by the CDF are appointed for a period notexceeding three years (but are eligible for reappointment),whereas the remaining two Trustees hold office at the Minister�spleasure.

Trustees holding office at 30 June 1999 were:

Chairman:

Mr Charles Kiefel BCom, FCA, FAICDAppointed 11 July 1997. Mr Kiefel is Managing Director,Corporate Finance, of ANZ Investment Bank, and is experiencedin providing advice to a number of multinational corporationsand governments.

Minister�s Nominees:

Mr Patrick Gourley BEc (Hons), MEcAppointed 9 August 1993. Mr Gourley is First AssistantSecretary, Defence Personnel Executive, Department of Defence.

Mr Michael Sharpe AM, Hon DScEcon, BEc, FCAAppointed 29 April 1998. Mr Sharpe is chairman of State SuperFinancial Services Ltd and a director of the Australian Stock


*Alternate to WOFF Swanwick P�present at meeting A�apologies

Aug Oct Dec Jan Feb Apr Jun98 98 98 99 99 99 99

Mr Charles Kiefel P P P P P P P

Mr Michael Sharpe P P P P P P P

Mr Patrick Gourley P P P P P P P

WOFF Rob Swanwick P P P P P A P

AIRCDRE Nick Ford P P P P P P P

WOFF Peter Alomes* P P

Exchange Ltd. He was awarded membership of the Order ofAustralia in 1991 for his services to the accounting profession.

CDF Nominees:

AIRCDRE Nick Ford BEc, BCom, BAAppointed 11 July 1997. AIRCDRE Ford is Director General,Personnel Plans, Defence Personnel Executive.

WOFF Robert SwanwickAppointed 22 September 1997. WOFF Swanwick is a RAAFLoadmaster currently working in the Directorate of WorkforcePlanning (Air Force).

IInnddeemmnniittyy iinnssuurraannccee

The Board is insured with AMP General Insurance Ltd againstlosses, liabilities, actions, claims or demands arising from theperformance of its functions.

SScchheedduullee ooff BBooaarrdd mmeeeettiinnggss


FFuunndd iinnvveessttmmeenntt

IInnvveessttmmeenntt ppoolliiccyy

In January 1999, with the assistance of IPAC PortfolioManagement Ltd (IPAC), the Board�s investment adviser andportfolio manager, the Board conducted a full review of theFund�s investment objectives, strategy and implementation.

Following the review the Board endorsed the current investmentstrategy subject to a revised asset allocation range. This revisedrange constrains each asset class to a movement of not greaterthan 5% without prior approval of the Trustees. Total growthassets will be similarly constrained.

The Board intends to hold a similar review on an annual basis.IPAC, on behalf of the Board, regularly monitors the performanceof the Board�s fund managers and advises the Board accordingly.

GGrroowwtthh aasssseettss aanndd ddeeffeennssiivvee aasssseettss

All investment funds must balance risk against returns. That is,they must determine the mix of growth assets and defensiveassets that best suits their members� needs.

Growth assets are investment vehicles (such as shares andproperty) that are very responsive to market fluctuations. Theytherefore involve a higher degree of risk, but have the potentialto provide a higher return. On the other hand, defensive assets(such as cash and bonds) are less susceptible to marketfluctuations, and are therefore less risky investments. However,with this reduction in risk comes a reduced potential for growth.

MMeeeettiinngg tthhee FFuunndd��ss iinnvveessttmmeenntt oobbjjeeccttiivveess

The Board�s investment policy focuses on two primary objectives;to maximise long term fund returns, and to manage and controlbusiness and investment risks.

The Board�s specific objectives are to achieve annual returns thatexceed inflation over rolling five year periods by at least 5% perannum; and to ensure that the chance of a negative return in anyone year is no greater than one in six.


IInnvveessttmmeenntt ssttrraatteeggyy

The main points of the Board�s investment strategy aresummarised below.

� The MSBS does not have a reserve account. A reserveaccount is used to smooth out the rates of return membersreceive. Members of the MSBS benefit by having all Fundearnings distributed to their accounts (after tax, fees andexpenses are deducted). That is, they generally receive ahigher crediting rate than would be the case if some of thefunds were diverted to a reserve. It also follows that anylosses are also passed on to members as they occur, whichmeans that remaining members are not subsidising thosewho leave.

� The focus of risk control is the total Fund, not individualsectors. The overall Fund risk is kept within a specifiedrange, so the Fund can be neither too aggressive (creatingan excessive possibility of losses), nor too defensive(reducing growth potential).

� Derivatives may be used to manage the risk profile of theportfolio, manage transaction costs (including marketimpact) and implement investment positions in theportfolio. However, they may not be used for speculativepurposes.

� No single asset can exceed 7.5% of the Fund�s total value.For example, the fund cannot hold more than 7.5% of itstotal assets in shares of a particular company.

� The exposure to a single economic entity, as an investmentissuer or a counterparty, must not exceed 10.0% of the totalFund value. (Australian Government debt is excluded fromthis restriction). For example, if the Fund had 7.5% of itsfunds in Company �A� shares, then it could not own morethan 2.5% in Company �A� debentures.

IInnvveessttmmeenntt mmaannaaggeemmeenntt

The Board has directed its fund managers to implement its long-term investment strategy. The fund managers have to managetheir portfolios in accordance with specific guidelines set downby the Board. Those guidelines include directions as to the typesof investments to be pursued, the maximum and minimum


holdings for each type of investment, and the expected rates ofreturn.

The Board reviews its long-term investment strategy and plan onan annual basis and monitors the performance of its fundsmanagers against that plan progressively throughout the year.Assessments of the long-term performance of each fundsmanager are made at six-monthly intervals (or as needed havingregard to emerging market conditions). For this purpose eachfunds manager meets regularly with the Board to discussstrategies, portfolio activity and investment performance.

The Board employs professional consultancy advice to assist itwith the review of its investment policy, and to examine theperformance of funds managers and the adequacy of the returnsachieved by the Board.

CCuussttooddiiaall sseerrvviicceess

The Board�s Master Custodian, Morgan Stanley AustraliaLimited, was sold to Chase Manhattan Bank on 1 October 1998.Chase Manhattan Bank performed custodian functions until theBoard�s appointment of a new Master Custodian, State StreetAustralia Limited, on 15 June 1999.

The Master Custodian safeguards and maintains the assets of theScheme on behalf of the Board, performing various functionssuch as settlement of trades, physical custody and safekeeping ofsecurities, collection of dividends and preparation of accounts.

FFuunndd mmaannaaggeerrss

The Board�s fund managers at 30 June 1999 were:

Australian equities Active Tower Portfolio Management AustraliaActive Portfolio Partners Limited

International equities Core Barclays Global Investors N.A.Active Wellington Management Company

Property securities Active Morgan Grenfell (Australia) LimitedDirect property Active Commonwealth Funds Management LimitedAustralian fixed-interest Core Westpac Investment Management LimitedInternational fixed-interest Active Credit Suisse Investment Management (Australia) LimitedCash State Street Australia Limited

The fund managers� addresses are given in Appendix 3 onpage 86.


IInnvveessttmmeenntt ppeerrffoorrmmaannccee

As was the case last year, the Fund has produced a good resultduring a time of very turbulent financial markets around theworld. International markets moved up only a little over the yearand most gains were again concentrated in a small number oflarge technology companies. By contrast, the Australian sharemarket was the best sector during the year. As the Fund hasapproximately one third of its investments in Australian shares,this result underpinned the year�s result.

Table 1 shows the percentage return on investments achieved ineach sector, compared with the benchmark for that sector. Thedifference between actual and effective asset exposure isaccounted for by the impact on liquids/cash holdings ofderivatives position held in international shares.

TTaabbllee 11:: IInnvveessttmmeenntt ppeerrffoorrmmaannccee bbyy sseeccttoorr,, 11999977��9988 aanndd 11999988��9999**

SSeeccttoorr EEffffeeccttiivvee eexxppoossuurree EEffffeeccttiivvee eexxppoossuurree PPeerrffoorrmmaanncceeaatt 3300//66//9988 aatt 3300//66//9999 11999988��9999$$mm %% $$mm %% FFuunndd BBeenncchhmmaarrkk

%% %%

Australian shares 242.5 33.9 307.6 37.1 17.9 15.4International shares 149.6 20.9 152.3 18.4 12.5 8.2Property trusts 73.0 10.2 98.3 11.9 3.0 4.3Direct property 6.2 0.9 5.6 0.7 9.4 8.1Australian fixed interest 100.6 14.1 115.1 13.9 3.2 3.3International fixed interest 36.0 5.0 38.3 4.6 5.9 5.5Liquids/cash 107.3 15.0 111.0 13.4 4.8 5.0

TToottaall ffuunndd 771155..22 110000..00 882288..22 110000..00 88..33 88..33**

*InTech Performance Survey of Market Linked Pooled Funds, June 1999

FFuunndd ggrroowwtthh

Fund assets (including non-invested assets) at 30 June 1999totalled $841.6 million, an increase of 15.8% on the funds undermanagement at 30 June 1998 (due as much to strong growth incontributions as it was to investment performance).

After provision for all taxes, charges and benefits (as shown inTable 2), the Fund totalled $806.1m, a 15.7% increase from1997�98. This figure differs from that quoted above because it


AAsssseett aallllooccaattiioonn

The asset allocation ranges and actual asset allocation (measuredin terms of effective exposure) for each investment sector as at30 June 1999 are shown in Table 3 and Chart 2. The assetallocation ranges are designed to ensure that the appropriatefund risk is maintained while allowing managers the flexibilityto maximise returns.

0

200

400

600

800

1000

1998�991997�981996�971995�961994�95

$mill

ion

$mFFuunndd ssiizzee aatt 11 JJuullyy 11999988 669966..99

InflowContributions 127.8Investment earnings 70.3

OutflowBenefits paid (72.4)Investment and other expenses (4.3)Taxation (12.2)

VVaalluuee ooff FFuunndd aatt 11 JJuullyy 11999999 880066..11

CChhaarrtt 11:: FFuunndd ssiizzee aatt 3300 JJuunnee ffoorr ppaasstt ffiivvee yyeeaarrss

takes account of all fund transactions and tax provisions notprovided for by the portfolio manager. Chart 1 shows how theFund has grown since 1994�95.

TTaabbllee 22:: FFuunndd ssiizzee aatt 3300 JJuunnee 11999999 ((aafftteerr ttaaxx,, cchhaarrggeess aanndd bbeenneeffiittss))


Note: This chart is a sectoral presentation of investment holdings. Its figures differ from themethod of presentation in the financial statements, which include provision for outstandingsettlements and separates cash holdings within each sector.

Liquids/cash (13.4%)

Direct property (0.7%)

Property trusts (11.9%)

International fixed interest (4.6%)

Australian fixed interest (13.9%)

International shares (18.4%)

Australian shares (37.1%)

AAsssseett ccllaassss EEffffeeccttiivvee RRaannggee BBeenncchhmmaarrkkeexxppoossuurree

Australian shares 37.1% 25%�45% ASX All-Ordinaries Accumulation IndexInternational shares 18.4% 12%�35% Morgan Stanley Capital International

(MSCI) World Index (excluding Australia)Property trusts 11.9% 5%�18% ASX Property Trust Accumulation IndexDirect property 0.7% 0%�18% MSCI Property Trust Accumulation IndexAustralian fixed interest 13.9% 2.5%�16.5% SBC WDR Composite Bond IndexInternational fixed interest 4.6% 1%�15% J.P. Morgan Hedged Global Bond IndexLiquids/cash 13.4% 0.5%�20% SBC WDR Bank Bill Accumulation Index

CChhaarrtt 22:: SSeeccttoorraall aallllooccaattiioonn aass pprrooppoorrttiioonn ooff tthhee FFuunndd

TTaabbllee 33:: AAsssseett aallllooccaattiioonn

CCrreeddiittiinngg rraattee ppoolliiccyy

The annual crediting rate is the rate at which fund earnings areattributed to members� accounts. It is determined at the end ofthe financial year and is based on the Fund�s investmentperformance after allowance for fees, charges and administrativecosts. Because of this allowance, the crediting rate can differ fromthe return on the Fund�s investment performance.

Chart 3 shows a comparison of the crediting rates declared since1994�95 against the Fund�s earnings rate and the objective ofexceeding CPI by 5% over rolling five-year periods.


0%

5%

10%

15%

20%

25%CPI + 5% Crediting rate Net earnings rate

5-year average1998�991997�981996�971995�961994�95

CChhaarrtt 33:: AAnnnnuuaall eeaarrnniinngg,, ccrreeddiittiinngg aanndd CCPPII rraatteess ssiinnccee 11999944��9955

EExxiitt rraattee ppoolliiccyy

During each year the Board sets a rate of interest to apply to theaccounts of members who exit the Scheme. This rate of interest isused to calculate total interest from the previous 1 July to thedate of exit.This is called the exit rate.

With effect from 1 July 1998 the exit rate has been calculated eachmonth based on monthly Fund performance, rather than everythree to four months as was previously the case.

The new policy ensures the exit rate more accurately reflects theexiting member�s share of actual investment performanceearnings for the period from the previous 1 July to the date ofexit.

Setting of exit rates based on (calendar) monthly Fundperformance means that fluctuations, both positive and negative,in the exit rate will be greater than those experienced under theprevious policy. This is because the use of quarterly performanceresults acted to smooth the investment return whereas the moveto monthly performance results provides a more accurate pictureof the year to date position of the Fund without any smoothingeffect.

The Board�s current policy is to ensure that the monthly exit ratereflects an exiting member�s proper share of actual investmentperformance for the year to date. This means that in periods oflow or negative investment performance there is a greater chancethat at the beginning of the year a negative rate of interest couldbe set. However, the Board�s investment policy is structured tominimise this risk.


21 August 1998 4.7%31 August 1998 7.3%28 September 1998 -19.4%27 October 1998 -4.4%30 November 1998 0.9%21 December 1998 7.8%

1 February 1999 10.2%1 March 1999 10.9%

24 March 1999 7.3%3 May 1999 9.8%

31 May 1999 10.6%21 June 1999 6.7%

Members who are about to leave the ADF and who areconcerned about the exit rate in force at the time can avoidhaving that rate apply to their benefit. They can do this byelecting to leave their money in the Fund for a period rather thantake it on leaving the ADF.

The twelve rates determined by the Board during 1998�99 areshown in Table 4. Each new exit rate replaces the previous one.

TTaabbllee 44:: EExxiitt rraatteess ddeeccllaarreedd iinn 11999988��9999


GGoovveerrnnaannccee

BBuussiinneessss PPllaann

In January 1999 a revised Business Plan was released. It set outthe main objectives of the MSBS. For each of the significantspheres of investment, administration, communications andcorporate governance, the plan identifies the desired outcomes,performance indicators and monitoring arrangements.

The Business Plan identifies areas of Board responsibility andaccountability and articulates the framework of internal andexternal governance measures employed by the Board to ensurethat those responsibilities and accountabilities are properlydischarged. The Plan has also been developed as a means ofclarifying the roles and functions of the MSB Board and itsservice providers. It identifies environmental and other factorswhich will impact on the Board�s responsibility for theadministration of the Scheme and the management andinvestment of members� contributions. The Board�s approach tocontrol of the main business risks is also covered.

From an investment perspective the Plan has regard to thecurrent membership and liabilities of the Scheme and makessome assumptions regarding the future growth of the schemegiven the ever changing superannuation environment. As such itprovides the basis for monitoring long-term Fund performancehaving regard to market influences and the changingdemographics and needs of Scheme members.

SSttaattuuss uunnddeerr tthhee SSIISS lleeggiissllaattiioonn

The MSBS is a regulated superannuation fund under theSuperannuation Industry (Supervision) Act 1993 (the SIS Act). Alloperational and legislative changes are independently reviewedwithin ComSuper to assess their impact against SIS requirementsand to ensure that ComSuper�s practices remain in concert withthe SIS legislation. In their 1998�99 audit the Board�s externalauditor did not identify any contravention of the SIS Act orRegulations.


DDeelleeggaattiioonnss

Prior to March 1998 the Board formally delegated certain of itspowers to specific staff within ComSuper. This meant that freshdelegations were required whenever structural or personnelchanges occurred within ComSuper.

At its meeting of 6 March 1998 the Board determined thatrelevant powers would be delegated to the Commissioner forSuperannuation, who in turn was empowered to authoriseComSuper staff to exercise Board powers for and on her behalf.This approach streamlines the delegation process and allowsfaster updating of authorisations when changes are required. Aregister of Instruments is made available to the Trustees. Powersretained by the Trustees include:

� application of the legislation which produces a result not inkeeping with the spirit of the legislation; and

� reconsideration of decisions.

Due diligence continues to be exercised by the Board in relationto the review of proper exercise of Board powers, and theadministrator is required to bring important matters to theBoard�s attention for information or formal approval as the casemay be.

AAddmmiinniissttrraattiivvee AAggrreeeemmeenntt

ComSuper, in consultation with the Board, developed a newAdministrative Agreement setting out the level of service to beprovided to the Board. This agreement was signed on 22 March1999 by the Chairman of the Board and the CEO of ComSuper.A companion agreement was developed setting out the level ofservice to be provided between the Department of Defence andthe MSB Board. This agreement was signed by the Chairman ofthe Board and the Secretary of the Department of Defence on18 May 1999.

BBooaarrdd CCoommmmiitttteeeess

AAuuddiitt CCoommmmiitttteeee

The Audit Committee is a sub-committee of the full Board.During 1998�99 the Committee comprised Mr Michael Sharpe


AM (chairman), Air Commodore Nick Ford and Warrant OfficerRobert Swanwick.

The Audit Committee was established to advise the Board onaccountability and audit-related matters. It operates as a check onthe Board�s own accountability arrangements as well as on themanagement practices of the Scheme Administrator, FundInvestment adviser and managers, the Master Custodian andother service providers.

Primary responsibilities of the Committee are to assure the Boardthat:

� its financial statements are based on appropriate accountingconcepts, systems and techniques;

� the audit arrangements within service-providing agenciesare operating effectively; and

� appropriate audit and fraud control strategies are in place toprotect Board and member interests.

The Committee has appointed the accounting firm KPMG to actin the role of independent audit adviser. KPMG is also theBoard�s taxation consultant.

In assisting the Board in meeting its prudential and fiduciaryresponsibilities, KPMG:

� provides advice on matters of significance and importanceto the Board;

� assists in the annual review of the prudential and regulatoryrequirements of the Fund and the Trustees; and

� reviews annual financial statements and advises the Boardon significant industry wide developments.

At the request of the Board, KPMG also undertakes specific auditreviews of activities performed by the Board�s various serviceproviders.

TThhee MMiilliittaarryy SSuuppeerraannnnuuaattiioonn CCoommmmuunniiccaattiioonn AAddvviissoorryy GGrroouupp

The Military Superannuation Communication Advisory Group(MSCAG) was established in 1996 to ensure the effective and


timely provision of quality information and education onsuperannuation matters to ADF members. The Chairman isWOFF Robert Swanwick and members include representativesfrom the Department of Defence, the Defence Force andComSuper.

The MSCAG�s role is to:

� ensure smooth liaison between each of the Scheme�sstakeholders;

� provide advice on communication matters to the Board;

� monitor the quality and effectiveness of the Board�scommunication products;

� review existing communication products and methods; and

� monitor, review and make recommendations on theimplementation of a superannuation communicationstrategy for the ADF.

YYeeaarr 22000000 rreeaaddiinneessss

The MSB Board aims to be Year 2000 ready. Such readinessrequires:

� checking that computer systems used to deliver serviceswill continue to function properly before, during and after2000; and

� having appropriate contingency plans in place to maintaincritical services if problems do occur and quickly repairingsuch problems.

Throughout the year the Board closely scrutinised the progressand adequacy of its administrator�s year 2000 readiness project,and the action in train by its investment adviser, fund managersand custodian to avoid any Year 2000 problems. External reviewof the project and the related business continuity plan were alsoundertaken (see page 56).

By the end of the year, the Board was satisfied with progress inall its service providers, and shifted its focus to businesscontinuity and contingency planning.


This statement is a disclosure statement for the purposes of theYear 2000 Information Disclosure Act 1999. A person may beprotected by that Act from liability in certain circumstances.Authorised by the MSB Board of Trustees.

EEvvaalluuaattiioonn

AAnnnnuuaall EEffffeeccttiivveenneessss RReevviieewwss

The Board�s review of investment is covered on page 4 underFund investment.

In December 1998 the Board considered a report from ComSuperon the efficiency and effectiveness of the systems and proceduresused in the administration of the MSB Scheme. As a result of thatreview the Authority entered into an administrative agreementwith ComSuper in March 1999 (see page 13).

The performance standards referred to in this report are thosedefined in the administrative agreement. Performance against thestandards, and the standards themselves, are the subject ofongoing annual effectiveness reviews.

CClliieenntt ffeeeeddbbaacckk

During 1998�99 ComSuper again undertook a comprehensiveseries of client satisfaction surveys with the assistance ofCanberra-based firm Orima Research. Military clients who hadrecent contact with one of ComSuper�s services were surveyed atthree separate times throughout the year. ComSuper�s clientshave again rated the quality of ComSuper�s service favourablyon a range of customer service dimensions.

The Quality Service Index (QSI) for military clients, introduced tomeasure the survey results and to enable comparison betweensurvey periods, continues to rank in the region of 85 with anaverage score for the seven periods of 85.80. Chart 4 showsComSuper�s QSI scores for the military schemes in each of thefour survey periods in 1997�98 and the three survey periods in1998�99.


CChhaarrtt 44:: QQuuaalliittyy SSeerrvviiccee IInnddeexx ((QQSSII)) ssccoorreess ffoorr mmiilliittaarryy cclliieenntt ssaattiissffaaccttiioonn,,11999977��9988 aanndd 11999988��9999

80

85

90

95

100

T3 98�99T2 98�99T1 98�99Q4 97�98Q3 97�98Q2 97�98Q1 97�98

The survey results feed into ComSuper�s continuousimprovement process. Action plans are derived and reportedagainst, and changes made to procedures as a result of thesurvey feedback, with the objective of improving client service.


CCoonnttrriibbuuttoorrss

There are two main groups of contributors to the MSBS, thosewho transferred from the DFRDB and those who have becomemembers of the MSBS upon joining the ADF. There is also asmall group of members who had been receiving a DFRDBbenefit, rejoined the ADF and elected to join the MSBS.

AAccccoouunntt mmaaiinntteennaannccee

The maintenance of MSBS contributor accounts is a majorfunction provided by the Board�s administrator (ComSuper) inconjunction with the Department of Defence. The principal aimsof this function are defined by the Administrative Agreementbetween the MSB Board and ComSuper, as summarised below.

SSTTAANNDDAARRDD

Receipt of assurance (in a format agreed bythe Board) in the annual managementrepresentation letter in respect of thesystems used to maintain member records.

Management representation letterscontaining the assurances referred to werepresented in September 1998. These letterswere subject to internal and external auditscrutiny.

OOUUTTCCOOMMEESS

ComSuper (the Board�s administrator) will:� maintain records of scheme contributors to allow, among other things, the accurate

and timely publication of member statements, the accurate and timely payment ofbenefits to members, and to facilitate reconciliation against Fund accounts;

� ensure that adequate systems, procedures and controls are in place to meet theadministration and reporting requirements of the Act and associated legislation; and

� at the direction of the Audit Sub-committee of the Board, arrange for an independentaudit of those systems and controls to be undertaken from time to time.

SSEERRVVIICCEE

At 30 June 1999, there were 36 290 contributors to the MSBS,30 373 (83.7%) of whom were male and 5 917 (16.3%) female.Table 5 shows the number of new entrants and exits and the totalcontributor membership at 30 June 1999. Table 6 shows thenumber of contributors by years of service and by sex.


TTaabbllee 55:: CCoonnttrriibbuuttoorr ccoommppoossiittiioonn

Members who Members whotransferred from DFRDB first joined MSB Total

Membership at 30 June 1998 16 568 20 788 37 356Plus new contributors 0 3 674 3 674Less exits (2 304) (2 436) (4 740)

MMeemmbbeerrsshhiipp aatt 3300 JJuunnee 11999999 1144 226644 2222 002266 3366 229900

Note: The membership figures given in this table for 30 June 1998 differ from those in the1997�98 report and in the summary table on page 61 due to retrospective adjustments notreported last year.

TTaabbllee 66:: MMaallee aanndd ffeemmaallee ccoonnttrriibbuuttoorrss bbyy yyeeaarrss ooff sseerrvviiccee

Years of service Male Female All

0�9 22 023 4 629 26 65210�14 5 016 1 040 6 05615�19 1 918 209 2 12720+ 1 416 39 1 455

TToottaall 3300 337733 55 991177 3366 229900

The largest number of contributors in 1998�99 was aged between25 and 29 years, 31.2% of members being in that age group. Thenext largest group (20�24 years) comprised 29.7% of the Scheme�scontributor population.

CCoonnttrriibbuuttiioonnss

The basic rate of member contribution to the MSBS is 5% ofsalary, including higher duties and Service Allowance, althoughmembers can elect to contribute up to 10% of salary. Theemployer benefit is, for the most part, unfunded except for the3% productivity contribution which is paid into the Fund by theDepartment of Defence.

Total contributions during 1998�99 were $127 802 000, of whichmember contributions comprised $84 191 000. Table 7 comparesthe total member and employer contributions that have beenreceived each year since 1994�95.


Member Employer TotalYear Contributors contributions contributions contributions

1994�95 36 908 $73 583 761 $34 621 940 $108 205 7011995�96 38 331 $77 526 715 $37 763 099 $115 289 8141996�97 38 244 $80 714 424 $40 823 723 $121 538 1471997�98 37 861 $82 383 000 $42 185 882 $124 568 7151998�99 36 290 $84 191 000 $43 611 000 $127 802 000

EExxiittss

There were 4 740 exits from the MSBS during the year. The typesof exit are shown in Table 8.

TTaabbllee 88:: MMooddeess ooff eexxiitt ssiinnccee 11999944��9955

Mode of exit 1994�95 1995�96 1996�97 1997�98 1998�99

Age retirement 78 84 80 94 81Resignation 4 617 4 808 4 065 3 209 3 654Redundancy 2 1 4 64 90Invalidity retirement 505 435 366 473 653Death 22 17 19 18 19Other* 309 251 267 213 243

TToottaall 55 553333 55 559966 44 880011 44 007711 44 774400

*Includes members who had exited but whose applications had not been submittedor were awaiting processing.

SSuurrcchhaarrggee

The Surcharge Contributions Tax (Assessment and Collection) Act1997, more commonly referred to as �the surcharge�, requiressuperannuation providers to report surchargeable contributionsfor all MSBS members to the Australian Taxation Office (ATO) onan annual basis. The intention of the legislation is to apply a taxon employer financed contributions, specifically targeted at highincome earners, and imposes a surcharge of up to 15 per cent on amember�s surchargeable contributions, provided the member�sadjusted taxable income is greater than the surcharge threshold.

The MSBS is classed as an unfunded defined benefit scheme forthe purposes of the legislation. In order to have a basis on which

TTaabbllee 77:: CCoonnttrriibbuuttoorrss aanndd ccoonnttrriibbuuttiioonnss aatt 3300 JJuunnee ffoorr ppaasstt ffiivvee yyeeaarrss


ComSuper will:� maintain appropriate banking arrangements for the payment of contribution

remittances into the Fund;

� lodge moneys with the Board�s investment custodian for investment by investmentmanagers to the extent that moneys held in the Board�s bank account are not requiredfor the purpose of the payment of benefits and other expenses;

� maintain appropriate accounting systems for the recording of contribution remittancesreceived; and

� monitor the collection of contribution remittances and pursue any late remittance ofcontributions with the Department of Defence and collect penalty interest whereappropriate.

SSEERRVVIICCEE

to calculate surchargeable contributions, the services of theAustralian Government Actuary were employed to developNotional Surchargeable Contributions Factors.

On receipt of surchargeable contributions information, the ATOmatches the data with taxable income. If the taxpayer�s taxableincome exceeds the threshold, the ATO determines the amount ofsurcharge debt applicable to the member and reports this toComSuper and the member.

Late in 1998�99, the ATO reported surcharge debts for someMSBS members to ComSuper. The total of these debts is shownon page 83. The debts ranged in value from $12.55 to $2 917.45.ComSuper sent letters to all affected members, setting outoptions for payment of the debt. Some of these members haveelected to pay the debt. The total amount paid is again shown onpage 83. Debts for the remaining members who will be affectedby the surcharge are expected to be reported by the ATO inAugust 1999.

The Board intends to lodge an objection against the assessmentson behalf of members.

CCoonnttrriibbuuttiioonn rreemmiittttaanncceess

Member and employer productivity contributions for MSBSmembers are remitted fortnightly and paid by direct credit to theBoard�s bank account.

Page 21


SSTTAANNDDAARRDDContribution remittances to be depositedinto the Board�s bank account on the sameday as received.

Balance of funds held in the Board�s bankaccount to be monitored daily and anyfunds not required for the purpose ofpaying benefits and other expenses paid tothe Board�s investment custodian.

Contribution remittances to be recorded inthe MSBS accounting systems within oneweek of receipt.

All known contribution remittances notreceived within 14 days of the due date willbe pursued with the Department ofDefence and penalty interest will be leviedwhere appropriate.

Daily reconciliations will be undertaken toensure that all moneys received are banked.

The Department of Defence directly creditsall contributions into the MSB bank accounton the due date.

The balance of the MSB bank account wasmonitored on a daily basis and excessfunds were transferred to the Board�scustodian.

Contribution remittances were recorded inthe MSBS accounting systems generallywithin one week of receipt.

All contribution remittances were receivedfrom the Department of Defence by the duedate.

Bank reconciliations were performed on adaily basis.

OOUUTTCCOOMMEESS

Note: The net contributions flow for the MSB Fund was negative for the month of June 1999due to a one-off payment of $10.4 million to adjust for previous under-reimbursements of theConsolidated Fund in respect of the productivity contributions component of MSBS benefits.

CChhaarrtt 55:: MMSSBB FFuunndd ccaasshh ffllooww ((ccoonnttrriibbuuttiioonnss rreecceeiivveedd lleessss bbeenneeffiittss ppaaiidd)),, 11999988��9999

-10

-5

0

5

10

15

Trend (seven-month moving average)

Contributions received less benefits paid

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul98

$mill

ion


ComSuper will, at the direction of the Board, undertake a communication program aimedat improving members� knowledge and understanding of the Scheme so that they are in aposition to make informed decisions at times when these need to be made. This willinclude the range of communications required by SIS and a recognition of the particularneeds of members.

ComSuper will also provide a range of communications to members on benefit entitlementsand inquiries relating to the general administration of the Scheme in writing, over thephone and by electronic means. ComSuper will continuously seek ways to improve thesecommunications.

SSEERRVVIICCEE

CCoonnttrriibbuuttoorr ccoommmmuunniiccaattiioonnss

Communication with MSB Scheme members is achieved througha variety of means including:

� regular newsletters issued by ComSuper;

� articles in Service newspapers;

� e-mail and the Internet;

� annual member statements;

� the Board�s Annual Report to Members;

� written correspondence;

� telephone inquiry services; and

� wide distribution of various scheme publications.

Performance standards, as described below, are set for theseactivities.


Where applicable, ComSuper will providerelevant information within the time framesimposed by SIS and generally speaking willsignificantly better those times.

Personal counselling will be provided inCanberra immediately if urgent, otherwisewithin 5 working days.

SSTTAANNDDAARRDD

Written inquiries/ Proportion ofrequests for requestsbenefit estimatesrespond within 10working days 75%respond within 15working days 100%

Member statements deliver toDepartment ofDefence nolater than6 weeks afterthe Boarddetermines theannualcrediting rate

Manually generated issue bystatements 31 DecemberReplacement member issue withinstatements 30 days of the

request

This standard was met for 1998�99.


OOUUTTCCOOMMEESS

Written inquiries/ Proportion ofrequests for requestsbenefit estimatesrespond within 10working days 98.7%respond within 15working days 100%

Member statements delivered toDepartment ofDefence in8�10 weeks(delays withprinting)

Manually generated last issue bystatements 24 DecemberReplacement member 100% issuedstatements within 28 days

(average 14 days)


MMSSCCAAGG aaccttiivviittyy

The MSCAG met monthly during the year. A significant amountof its time was spent on monitoring and refining ongoingcommunications products such as member informationstatements and associated material, the annual report tomembers, and Military Super News. In conjunction with theabove, the MSCAG monitored the Board�s communication withmembers to ensure it continued to meet SIS (the SuperannuationIndustry (Supervision) Act 1993) requirements.

During the year the Board commissioned an independent publicrelations consultant to work with the MSCAG on reviewing andimproving communications strategies.

In addition, the MSCAG was active in the development of theMSB Board Investment Policy document. This document was

Members approaching either their lumpsum or pension maximum benefit limit willbe advised no later than 20 working daysbefore the limit is to be reached.

Members will be provided with advicewithin 6 months of a rule change that hasan adverse affect and within 12 months of achange that has no adverse affect.

SSTTAANNDDAARRDD

Telephone inquiries Proportion ofcalls

answer at time ofcall 90%answer within2 days 100%dropout rate* less than 5%average wait time* less than

90 secondsresponse rate 60% answered

within60 seconds

This standard was met.

This standard was met through provisionof advice in the annual report to members.

OOUUTTCCOOMMEESS

*Averaged over a year for those monthswhen the number of calls is 4 000 or less.

Telephone inquiries Proportion ofcalls

answer at time ofcall 99%answer within2 days 100%dropout rate* 4.6%average wait time* 48 seconds

response rate 62% answeredwithin30 seconds

*Averaged over a year for those monthswhen the number of calls is 4 000 or less.


distributed with the 1998 member statements. Another prioritywas the communication of information on the superannuationsurcharge and its implementation. An ongoing strategy fordissemination of relevant information was established. As part ofthis, the Group pursued the key communications issues throughregular articles in Defence publications. Information on theschemes that was available on ComSuper�s website was alsoreleased on the Defence Intranet.

CCoouunnsseelllliinngg sseerrvviicceess

Advice to members is provided through telephone advice,written responses to inquiries, e-mail advice, addressingmembers at resettlement seminars and talking to members andadministrative staff at various bases and units throughoutAustralia.

Overall, the workload remained very similar to last yearalthough there has been a slight increase in all services provided. With the advent of the ComSuper Internet site there has been asignificant increase in the general information available to thosewith Internet access. Also, greater computer awareness amongthe members has seen an increasing number of e-mail inquiriesreceived.

However, the most popular means of contact remains thetelephone, with an average of some 1 035 telephone calls perweek.

During the year, ComSuper staff provided personal counsellingto 66 members and gave presentations at 29 resettlementseminars, which were attended by a total of 5 370 people (bothMSBS and DFRDB members). Four combined MSBS�DFRDBsessions was attended by 109 members. Thirty-seven MSBSmember sessions and six information sessions foradministrative/discharge staff were also conducted and wereattended by 1 868 members and 143 staff respectively. Themember sessions were primarily conducted in conjunction withthe resettlement seminars. A total of 1 279 retirement adviceletters were issued during the year.

MMeemmbbeerr ssttaatteemmeennttss

SIS legislation requires the Board to distribute annual memberstatements by 31 December each year. During the 1998�99


BBeenneeffiitt ppaayymmeennttss

All exiting members are entitled to a member-financed benefitregardless of their reason for leaving the ADF. Members are alsoentitled to an employer-financed benefit, which varies accordingto the reason for exit. Full details of entitlements are given in thepublications available from Pay Offices and ComSuper (seepage 88).

WWeebbssiittee ddeevveellooppmmeenntt

Usage of the Internet site increased in 1998�99 and is carefullymonitored.

In 1998�99 further work was undertaken to improve theaccessibility of electronic information by:

� including comprehensive searching facilities;

� placing copies of the website material on Defence computingnetworks; and

� distributing the regular monthly newsletters in electronic formthrough e-mail.

financial year these were distributed in October. The statementsprovide members with equity figures and withdrawal benefits atthe beginning and end of the financial year. Members are alsosent a copy of the MSB Fund �Annual Report to Members� and an�About Your Statement� leaflet in their statement kit.

SIS legislation also requires that the Board issue replacementmember statements within one month of being advised that amember�s statement is missing or incorrect. In 1998�99 theaverage processing time for replacement statements was 14 days.


OOUUTTCCOOMMEESSSSTTAANNDDAARRDD

Note: The time for processing commencesfrom the receipt of all prescribedinformation (e.g. confirmation of discharge,medical classification or correctly completedapplication forms).

*The total of MSB and DFRDB applications.**A report will be provided on the numberof applications processed outside 15 daysand the amount of late payment interestpaid.

600 or less combined* ProportionMilitary Schemesbenefit applicationsper month

within 5 workingdays 85%within 15 workingdays** 95%

There were four months in which therewere less than 600 benefit applicationsprocessed.

Combined schemes benefit processingexceeded 600 per month on eight occasionsduring the year.

600 or less combined ProportionMilitary Schemesbenefit applicationsper month

within 5 working standard met indays all months�

monthlyaverage was89.4%



More than 600 Proportioncombined* MilitarySchemes benefitapplications per month

within 5 workingdays 75%within 15 workingdays** 85%

ComSuper will process all applications for benefits in a timely manner and in accordancewith the Act. For applications processed outside 15 days, late payment interest will be paid.

SSEERRVVIICCEE

More than 600 Proportioncombined MilitarySchemes benefitapplications per month






BBeenneeffiittss ppaayyaabbllee oonn ddiisscchhaarrggee

MMeemmbbeerr bbeenneeffiittss

The member benefit is a lump sum of the member�scontributions, including any amounts notionally brought overfrom the DFRDB Scheme, plus the interest earned on thosecontributions in the Fund. The member benefit is payable as alump sum, and cannot be converted to a pension.

From 1 July 1999 discharging members will be able to take onlythat portion of their member benefit that accrued to 30 June 1999.Any contributions paid and any interest earned after that datemust either be preserved in the Scheme or rolled over andpreserved in another complying fund until preservation age.

Of the 4 740 members who left the Scheme during the year, 4 116elected to claim their member benefit and received paymentstotalling $109 519 938.

EEmmppllooyyeerr--ffiinnaanncceedd bbeenneeffiittss

Employer benefits provided under the MSBS are defined benefitsguaranteed by the Commonwealth. Part of the benefit, theproductivity benefit, is a funded component and the balance,which is unfunded, is calculated to make up the difference forthe total defined benefit. In this way the total employer benefitpayable is not affected by market fluctuations.

CChhaarrtt 66:: MMSSBBSS bbeenneeffiitt pprroocceessssiinngg aaggaaiinnsstt ssttaannddaarrddss,, 11999988��9999

80%

85%

90%

95%

100%

% paid in < 15 working days% paid in < 5 working days

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul98

15 workingday standard



Prior to 30 June 1998, if a member resigned from the ADF beforecompleting seven years of service, access to the unfundedcomponent of the employer benefit was phased in according tolength of service. The funded component, the 3% productivitybenefit, was not subject to the phase-in provision. However,following legislative changes, the MSBS Rules have been alteredto permit the full accrual of the employer benefit for membersleaving during the first seven years of service.

Changes from 1 July 1999 affect access to employer benefitsfollowing discharge from the ADF. The minimum age fromwhich members can access superannuation benefits has beenincreased for those born after 1 July 1960. Members who leave onor after age 55 and have not reached their preservation age willbe able to take their employer benefit in the form of a fullpension or a part pension with the remaining portion of theemployer benefit being preserved in a complying fund of theirchoice until they reach their preservation age.

EEmmppllooyyeerr--ffiinnaanncceedd bbeenneeffiittss ppaaiidd aass lluummpp ssuumm

Between 1 July 1998 and 30 June 1999, 650 members receivedlump-sum employer benefit payments under MSBS legislation, asdetailed in Table 9. These lump-sum benefits from the Schemeamounted to $27 502 487.

TTaabbllee 99:: PPaarrttiiaall aanndd ffuullll lluummpp--ssuumm eemmppllooyyeerr bbeenneeffiitt ppaayymmeennttss,, 11999988��9999

Total lump-sum Average lump-sumReason for exit Number payments payment

$ $Retirement 53 10 856 253 204 834Redundancy 0 0 0Preserved > age 55 27 5 018 588 185 873Reversionary benefits

spouses 9 2 346 965 260 773orphans 0 0 0estates 9 2 201 656 244 628

Early paymentISC approved 502 3 906 868 7 782Board approved 50 3 172 157 63 443

TToottaall 665500 2277 550022 448877 4422 331111


In 95% of cases ComSuper is meeting thisstandard. ComSuper in conjunction withDefence has implemented new medicalassessment arrangements wherebyComSuper contracts Health ServicesAustralia doctors to assess the member�sincapacity, in lieu of Service doctors. Underthe new arrangements it is hoped in timethat 75% of members will be classified andknow their invalidity entitlement prior totheir discharge from the Defence Force. Thenew procedures, which commenced inSeptember 1998, have already had aconsiderable effect on reducing delays afterthe member�s discharge from the DefenceForce (see Chart 7).

ComSuper meets this standard in 99% ofcases.


Members will be advised of decisions takenwithin 3 working days.

Submit cases to delegate or ICC within14 working days of receipt ofsupporting documentation and anyadditional information that may berequired (supporting documentationincludes medical documentation, themember�s employment experience,advice of conditions causing retirement,confirmation of date and mode of exit,and the member�s application).

Decisions are taken either by the Board�s Incapacity Classification Committee (ICC) or, instraightforward cases, under delegation held by ComSuper. In determining invaliditybenefits ComSuper will ensure that due process is followed, that claims are processedexpeditiously, that legislative requirements are met and that guidelines issued by the Boardare followed.

SSEERRVVIICCEE

IInnvvaalliiddiittyy bbeenneeffiittss

The Defence Force retires members on the grounds of invalidity ifthey do not meet the required standard of fitness, even thoughthey may be capable of employment of a similar nature in thecivilian workforce.


CCllaassssiiffiiccaattiioonn pprroocceessss

IInnccaappaacciittyy CCllaassssiiffiiccaattiioonn CCoommmmiitttteeee ((IICCCC))

Members of the MSBS retired on invalidity grounds receive an A,B or C classification, reflecting the member�s loss of capacity toobtain appropriate civilian employment. If there is a conflict inthe medical information, or reasonable doubt as to theclassification, the case is passed from the ComSuper delegate tothe Incapacity Classification Committee (ICC) for decision. TheICC is established under the provisions of MSB Rule 17 and isrequired to determine the classification of members retired oninvalidity grounds and to review the existing classification ofinvalidity pension recipients. The ICC made 261 initialclassification decisions during 1998�99.

The rate of invalidity pension payable to a recipient member maybe altered if the pensioner�s degree of incapacity to undertakecivilian employment deteriorates or improves. If specialistevidence indicates that a member�s classification is no longerappropriate, the review of that case is passed from the ComSuperdelegate to the ICC. The ICC made 107 reclassification decisionsduring the year.

After a classification decision has been made, the member isadvised in writing and informed of the right to requestreconsideration of the decision. Members who receive advice ofdecisions of the Board and the ICC also receive a copy of theminute recording the decision. Members who receive advice ofdecisions made by other delegates receive a copy of the decisionitself.

CChhaarrtt 77:: AAvveerraaggee ttiimmee ttaakkeenn ttoo ddeetteerrmmiinnee nneeww iinnvvaalliiddiittyy ccaasseess iinn ppaasstt ffiivvee yyeeaarrss

Num

ber

of d

ays

0

10

20

30

40

50

60

70

1998�991997�981996�971995�961994�95


IInnvvaalliiddiittyy rreettiirreemmeennttss bbyy ccllaassssiiffiiccaattiioonn

From 1 July 1998 to 30 June 1999, 697 members received initialinvalidity classifications. The total number of invalidity casesprocessed was 729, although in 32 of these cases Rule 32 (relatingto pre-existing conditions) was applied. This is an increase of 236invalidity cases on the previous year (total 493) because of theimplementation of new medical and deployment standards. Ofthose who received an invalidity classification, 302 (59 Class Aand 243 Class B) became entitled to an invalidity pension. Theremaining 395 were classified as Class C incapacity. (Note: Thesefigures vary slightly from the number of invalidity exits quotedelsewhere because some of the cases relate to members who weredischarged in a previous financial year.) The proportion ofinvalidity classifications for each Service is shown in Chart 8.

CChhaarrtt 88:: CCoommppaarriissoonn ooff iinnvvaalliiddiittyy ccllaassssiiffiiccaattiioonnss iinn 11999988��9999,, bbyy SSeerrvviiccee

0

40

80

120

160

200

240

280

320Air Force

Army

Navy

Rule 32Class CClass BClass A

Num

ber

of c

lass

ifica

tions

CCaauusseess ooff iinnvvaalliiddiittyy rreettiirreemmeenntt

During 1998�99, the most common causes of invalidity retirementwere musculoskeletal disorders, particularly of the joints and thespine. Of the 729 members who retired on invalidity grounds,65% were in this category. A comparison of the causes ofinvalidity retirement is shown in Chart 9.


AAccccoouunnttss,, rreeccoorrddss aanndd ffuunnddiinngg ooff bbeenneeffiitt ppaayymmeennttss

SSTTAANNDDAARRDD

Immediate availability of funds fromTrustees� bank account to meet benefitpayments.

See Chart 5 on page 22 which indicates thatthe MSB cash flow was positive for allmonths except June 1999 when a one-offpayment was made to adjust for previousunder-reimbursements of the ConsolidatedFund in respect of the productivitycontributions components of MSBS benefits.

OOUUTTCCOOMMEESS

ComSuper will:� liaise with the Board�s investment custodian to ensure that funds are available to meet

benefits and other payments from the Fund as they fall due; and

� maintain proper accounts and records in respect of benefits paid.

SSEERRVVIICCEE

0

50

100

150

200

Not entitled to pension Entitled to pension

OtherInjury/poisoning

Nervoussystem

Mentaldiseases

Othermusculo-skeletal

SpineJoints

CChhaarrtt 99:: CCaauusseess ooff iinnvvaalliiddiittyy rreettiirreemmeenntt dduurriinngg 11999988��9999


PPrreesseerrvveedd bbeenneeffiitt mmeemmbbeerrss

Members who leave the MSBS without a pension entitlementmust preserve their total employer component until they reachtheir compulsory preservation age or they can roll it over toanother complying fund of their choice until their preservationage is reached.

Members may preserve their total member benefit, if they wish.From 1 July 1999 discharging members will be able to take onlythat part of their member benefit that accrued up to 30 June 1999.Any contributions paid and interest earned after that date musteither be preserved in the Scheme or rolled over and preserved inanother complying fund of their choice until preservation age.Members may withdraw part of a preserved benefit that is notrequired to be preserved; however, it must be withdrawn in$10 000 multiples and at intervals of no less than six months.


SSTTAANNDDAARRDDReceipt of assurance (in a format agreed bythe Board) in the annual managementrepresentation letter in respect of thesystems used to maintain preserved benefitmember accounts.


OOUUTTCCOOMMEESS

ComSuper will maintain appropriate records and documentation of all members with apreserved benefit entitlement to allow, among other things, the accurate and timelydistribution of member statements, the accurate and timely payment of benefits, and tofacilitate reconciliation against Fund accounts.

SSEERRVVIICCEE


Page 36

PPrreesseerrvveedd bbeenneeffiitt mmeemmbbeerr ccoommmmuunniiccaattiioonnss

SSTTAANNDDAARRDDThe commitments given on pages 24�25also apply to this activity.

OOUUTTCCOOMMEESS

The services outlined on pages 24�25 also apply to this activity.

SSEERRVVIICCEE

PPrreesseerrvveedd bbeenneeffiitt ppaayymmeennttss

ComSuper will process all applications for payment of preserved benefits in a timelymanner and in accordance with relevant legislation. For applications processed outside 15days, late payment interest will be paid.

ComSuper will also process requests for release on hardship, compassionate or permanentinvalidity grounds expeditiously and in accordance with relevant legislative requirements.

SSEERRVVIICCEE

CChhaarrtt 1100:: GGrroowwtthh iinn MMSSBBSS pprreesseerrvveedd bbeenneeffiitt mmeemmbbeerr ppooppuullaattiioonn,, 11999988��9999

27000

28000

29000

30000

31000

32000

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul98


At 30 June 1999, there were 2 050 preserved member benefitstotalling $30 484 868, as shown in Table 10.

TTaabbllee 1100:: MMeemmbbeerr bbeenneeffiittss ppaaiidd oorr pprreesseerrvveedd,, 11999988��9999

CChhaarrtt 1111:: MMSSBBSS pprreesseerrvveedd bbeenneeffiitt pprroocceessssiinngg aaggaaiinnsstt ssttaannddaarrddss,, 11999988��9999

Number Lump sums Average amount

Benefits paid on exit, 1998�99 4 116 $109 519 938 $26 608Benefits preserved at 30 June 1999 2 050 $30 484 868 $14 870Withdrawal of preservedbenefits, 1998�99 238 $7 360 024 $30 924

Note: Members who received a partial withdrawal of their member benefit are countedunder both benefits paid and benefits preserved.

80%

85%

90%

95%

100%

% paid in < 15 working days% paid in < 5 working days

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul98



SSTTAANNDDAARRDD

Note: When the total number of combinedMilitary Scheme benefit applications in amonth exceeds 600 a lower standard willapply (see page 28).

The standards were met in all months offinancial year 1998�99.

OOUUTTCCOOMMEESS

Processing time Proportionprocessed

within 5 working days 85%within 15 working days 95%


PPrreesseerrvveedd eemmppllooyyeerr--ffiinnaanncceedd bbeenneeffiittss

In most exit categories, the employer-financed benefit must bepreserved until compulsory preservation age or upon genuineretirement from the workforce, whichever is the later. At 30 June1999, there were 31 501 preserved employer-financed benefits.

EEaarrllyy rreelleeaassee ooff eemmppllooyyeerr--ffiinnaanncceedd bbeenneeffiittss

Under certain circumstances, a preserved employer-financedbenefit may be paid before a person reaches their compulsorypreservation age.

An MSBS preserved benefit member, but not a contributor, cannow apply to the Trustees for access to part of his or herpreserved employer benefits on financial hardship grounds,provided that:

� the member has been in receipt of prescribed incomesupport payments for a continuous period of over sixmonths; and

� the member is unable to meet reasonable and immediatefamily living expenses; and

� the amounts being released do not exceed $10 000 in anytwelve-month period.

Separate conditions apply to release of superannuation benefitson compassionate grounds, generally in situations wheresubstantial medical expenses are involved.

In some circumstances early release of a limited amount ofpreserved benefits may also be granted on compassionategrounds to allow a member to make a payment on a loan toprevent loss of his or her principal place of residence.

Early release on these grounds is administered by the AustralianPrudential Regulation Authority, to which application must bemade.

During 1998�99, the Board approved the early release of552 benefits, totalling $7 079 025, on the grounds of permanentphysical or mental incapacity; permanent departure overseas;severe financial hardship; or on compassionate grounds.


PPeennssiioonneerrss


SSTTAANNDDAARRDDChanges to pension payment arrangementswill be made within the first availablefortnightly pay cycle following receipt of arequest.

Receipt of assurance (in a format agreed bythe Board) in the annual managementrepresentation letter in respect of thesystems used to maintain pensionerrecords.

Detailed supporting statistics are notavailable for 1998�99 but indications arethat the standard was met in the majority ofcases.


OOUUTTCCOOMMEESS

ComSuper will maintain appropriate records and documentation of all persons eligible toreceive a pension under the Rules. This includes the setting up of a new record when apensioner commences, processing amendments to personal details, processing alteredpayment arrangements, processing cessations on death, where applicable commencingreversionary benefits following death, processing variations to child/student pensions,processing variations to invalidity pensions following reclassification and initiatingrecovery of overpaid pension when advice of death is delayed.

SSEERRVVIICCEE

CChhaarrtt 1122:: GGrroowwtthh iinn MMSSBBSS ppeennssiioonneerr ppooppuullaattiioonn iinn ppaasstt ffiivvee yyeeaarrss

2000

2400

2800

3200

3600

June 1999June 1998June 1997June 1996June 1995


PPeennssiioonneerr ccoommmmuunniiccaattiioonnss

ComSuper will, at the direction of the Board, provide a range of communications topensioners to assist their understanding of the Scheme, to facilitate inquiries and tofacilitate changes to personal or payment details. This includes any communications thatmay be required by SIS.

In response to guidance from Trustees, ComSuper will also seek to improve the quality andeffectiveness of its communications with pensioners in part through regular reviews and inpart through surveys.

SSEERRVVIICCEE

CChhaarrtt 1133:: MMiilliittaarryy ppeennssiioonn vvaarriiaattiioonnss,, tteenn mmoonntthhss ttoo JJuunnee 11999999**

1500

1750

2000

2250

2500

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

*Data not available before September 1998


All variations to method of payment andother changes were acknowledged whenthe changes had been effected.

All telephone inquiries were dealt withwithin the agreed standards (see the tablebelow).

A total of 27 058 written inquiries wereprocessed in 1998�99 (see Chart 15). Allwere answered within the agreed standards(see Chart 16).

Members who request a variation to theirmethod of payment or who advise otherchanges will be sent an acknowledgementwhen the change has been effected.

Telephone inquiries will generally be dealtwith at the time of the call.

Written inquiries will be responded towithin 5 working days (however, if theinquiry is complex and a response withinthat time is not possible, the member willbe told of that within 5 days).

SSTTAANNDDAARRDD OOUUTTCCOOMMEESS

Annual pension to be sent out advices and group before the first certificates pension payday

in July each year

Average telephone less than 1 minute wait time*Dropout rate less than 5%Average response 80% of calls to betime* answered in

30 seconds

*averaged over a year

Annual pension all sent out before advices and group the first pensioncertificates payday in July

1999

Average telephone 27 seconds wait time*Dropout rate 4%**Average response 81% of callstime answered in

30 seconds

*averaged over the year**Since February 1999, when newprocedures were introduced, the dropoutrate has dropped to 2%.

CCoouunnsseelllliinngg aanndd iinnqquuiirryy sseerrvviiccee

Staff of the Retired Member Advisory Service assist pensioners tounderstand their superannuation entitlements and maintain theirpension accounts in accordance with the service standardsagreed between ComSuper and the Board.

Advisory officers can be contacted by telephone (through adedicated call centre), letter, facsimile or e-mail. Pensioners withhearing impairments can use a special teletypewriter (TTY)facility. Advisory officers are available for personal counselling atComSuper�s office.


CChhaarrtt 1144:: TTeelleepphhoonnee ccaallllss rreecceeiivveedd bbyy tthhee RReettiirreedd MMeemmbbeerr AAddvviissoorryy SSeerrvviiccee iinn11999988��9999

CChhaarrtt 1155:: WWrriitttteenn iinnqquuiirriieess rreecceeiivveedd bbyy tthhee RReettiirreedd MMeemmbbeerr AAddvviissoorryy SSeerrvviiccee iinn11999988��9999

4000

5000

6000

7000

8000

9000

10000

11000

12000

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul 98

1000

1500

2000

2500

3000

3500

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul 98

A section of ComSuper�s website has been designed to allowpensioners who use the Internet to get information about issuesrelating to the payment of their benefit.


CChhaarrtt 1166:: RReettiirreedd mmeemmbbeerr wwrriitttteenn iinnqquuiirriieess pprroocceessssiinngg aaggaaiinnsstt ssttaannddaarrddss,, 11999988��9999

70%

75%

80%

85%

90%

95%

100%

% processed in < 15 working days% processed in < 5 working days

Jun99

May99

Apr99

Mar99

Feb99

Jan99

Dec98

Nov98

Oct98

Sep98

Aug98

Jul98



BBeenneeffiitt ppaayymmeennttss

EEmmppllooyyeerr--ffiinnaanncceedd bbeenneeffiittss ppaaiidd aass ppeennssiioonn

At 30 June 1999, 3 625 members were receiving MSBS pensions.Pensions paid during 1998�99 totalled $41 853 000. The totalnumber of pensioners for each class of benefit is detailed inTable 11 for the end of each financial year since 30 June 1995.

During the year, 506 new pensions were granted, while147 pensions ceased. A breakdown of new pensions by class ofbenefit is contained in Table 12. Table 12 also shows theestimated liability for 1999�2000 of the pensions granted in1998�99 and the average pension estimated to be received byeach person.


TTaabbllee 1122:: NNeeww ppeennssiioonnss ggrraanntteedd dduurriinngg 11999988��9999 aanndd aannnnuuaall lliiaabbiilliittyy

AnnualClass of benefit Number Annual liability average pension

$ $Retirement 45 955 562 21 235Redundancy 93 948 746 10 202Invalidity 332 4 635 844 13 963Preserved > age 55 25 613 180 24 527Reversionary benefits*

spouses 11 236 061 21 460orphans 0 0 0

TToottaall 550066 77 338899 339933 1144 660044

*Payable on the death of a member, former member or pensioner.

Number of pensioners

Class of pension benefit 30 June 30 June 30 June 30 June 30 June1995 1996 1997 1998 1999

Retirement 250 306 349 412 459Redundancy 1 621 1 619 1 609 1 674 1 763Preserved > age 55 20 32 54 88 114Invalidity 522 683 830 1 029 1 256Reversionary benefits*

spouses 19 21 26 29 33orphans 0 0 0 0 0

TToottaall 22 119988 22 443322 22 666611 33 223322 33 662255

*Payable on the death of a member, former member or pensioner.

TTaabbllee 1111:: NNuummbbeerr ooff ppeennssiioonneerrss ssiinnccee 3300 JJuunnee 11999955,, bbyy ttyyppee ooff bbeenneeffiitt


TTaabbllee 1133:: IInnvvaalliiddiittyy eennttiittlleemmeennttss rreevviieewweedd iinn ppaasstt ffiivvee yyeeaarrss

1994�95 1995�96 1996�97 1997�98 1998�99

Entitlements examined 110 184 257 300 289Review with medical exam 55 63 105 148 159Classification raised 7 5 13 10 17Classification reduced 13 24 57 67 90

TToottaall ccllaassssiiffiiccaattiioonn cchhaannggeess 2200 2299 7700 7777 110077

SSTTAANNDDAARRDD

Reviews will be completed within20 working days of receipt of all relevantinformation.

Members will be advised of decisions takenwithin 3 working days.

In 95% of cases ComSuper was able tocomplete the review within 20 workingdays of receipt of all the relevantinformation.

99% of members were advised of thedecision taken within 3 working days.

OOUUTTCCOOMMEESS

ComSuper may from time to time review the classification of invalidity pensioners either ofits own volition or at the request of pensioners.

SSEERRVVIICCEE

Decisions by the Board to classify members as Class A or B arereviewable at intervals determined by the Board. A member whobelieves that his or her classification has altered since it was lastconsidered may request that the classification be reviewed.During 1998�99, 31 members requested a review of theirinvalidity classification. During 1998�99, 289 such cases wereexamined, of which 159 received full medical reviews. As a resultof these reviews 107 classifications were changed, as shown inTable 13.

RReevviieeww ooff iinnvvaalliiddiittyy ccllaassssiiffiiccaattiioonnss


RReevveerrssiioonnaarryy bbeenneeffiittss

SSTTAANNDDAARRDDCommence all reversionary pensions on thenext available payday following receipt ofapplication subject to eligibility criteriabeing clearly met and subject to there beingno counter claims.

Detailed statistics for this activity were notavailable for 1998�99 but indications arethat the standard was met.

OOUUTTCCOOMMEESS

ComSuper will process all applications for reversionary benefits following the death of apensioner, that is, eligible spouses, children and orphan pensions, in a timely manner andin accordance with relevant legislation.

SSEERRVVIICCEE

PPeennssiioonn iinnccrreeaassee

SSTTAANNDDAARRDD

Process the annual pension increase on thefirst payday on or after 1 July each year.


In accordance with the agreed servicestandards, pension advice letters were sentto pensioners before the first pensionpayday in July.

OOUUTTCCOOMMEESS

ComSuper undertakes to process the annual pension increase in accordance with the Rules.

SSEERRVVIICCEE

Page 46

Each year, pensions that are subject to adjustment are increasedin line with upwards movements in the Consumer Price Index(CPI). The MSBS legislation provides for an increase if the CPInumber for the preceding 31 March exceeds the previous highestMarch CPI number. The increase is paid on the first pensionpayday in July.

In 1998�99, the Australian Bureau of Statistics announced a CPIchange of 1.2% for the March to March year. However, because oflast year�s negative CPI figure (-0.2%), the calculation method inthe MSBS rules resulted in pensions being increased by 1.1%instead of by the announced CPI increase.


AAnnnnuuaall nnoottiiccee ttoo ppeennssiioonneerrss

Pensioners were advised of the adjustment to their pensions inthe annual pension advice letter that is sent to them each year,together with their income tax group certificate and otherrelevant information.


DDiissppuuttee rreessoolluuttiioonn

AAvveennuueess ooff rreevviieeww

Decisions by the Board and its delegates, including theIncapacity Classification Committee and authorised officers, aresubject to internal reconsideration and external review. Theseprocesses are managed by ComSuper. Members may also takecomplaints to the Superannuation Complaints Tribunal.

IInntteerrnnaall rreeccoonnssiiddeerraattiioonn

A person affected by a decision of the Board or a delegate mayapply in writing to have the decision reconsidered. If the Boardtook the decision, the application must be supported by evidencenot previously known to the Board. Applications for thereconsideration of a delegate�s decision need not be supported bynew evidence.

Under Part 9 of the MSB Rules, the Board is required to establish a ReconsiderationAdvisory Committee (RAC). The RAC�s role is to provide a recommendation to the Boardon reconsideration of decisions made by the Board, its delegates, the ICC or authorisedofficers. ComSuper undertakes to investigate requests for reconsideration in a thorough,objective, and effective manner in accordance with any guidelines issued by the Board.

SSEERRVVIICCEE


RReeccoonnssiiddeerraattiioonn AAddvviissoorryy CCoommmmiitttteeee

The Board is advised on reconsideration matters by aReconsideration Advisory Committee (RAC). The RACcomprises:

� the Deputy Commissioner for Superannuation, who isChairperson of the RAC;

� a representative of the Department of Defence, who is also analternate of a Trustee;

� a Service Officer of the rank of Colonel or equivalent; and

� an MSBS pensioner representative.


100 or less combined Proportionmilitary Schemes completedbenefit applicationsreceived in the financialyear

within 6 months 50%within 9 months 75%within 12 months 90%

There were 73 MSB and 56 DFRDB requestsfor reconsideration received in 1998�99. Theproportions of cases completed against therelevant agreed standards were as follows:

The timeliness standard to be applied isdependent on the number of requests forreconsideration received. As evidenced inthe table above, of the 61 cases processed,the standards were achieved in twocategories, with only those cases completedin 9 months slightly below target. Towardsthe end of the year, ComSuper arranged orplanned for additional staffing andcontracted resources to assist in managingthe increase in unresolved cases.The Board regularly monitored outstandingcases, particularly those remainingunresolved for more than 12 months afterhaving been received.

More than 100 Proportioncombined military completedSchemes benefit applications receivedin the financial year


More than 100 Proportioncombined military completedSchemes benefit applications receivedin the financial year



The RAC can operate with a quorum of three members.

RReeccoonnssiiddeerraattiioonn ooff ddeecciissiioonnss

Decisions are reconsidered on the basis of new evidenceprovided by the applicant or obtained by ComSuper and arereferred to the RAC for investigation. The RAC�srecommendation is taken into account by the Board in decidingwhether to affirm or vary the primary decision, or set it asideand substitute another decision. The Board can also refer adecision to the RAC on its own motion. Each applicant receives acomprehensive written statement of reasons for the Board�sdecision on reconsideration. Where appropriate, applicants areadvised of further appeal rights.

Requests for reconsideration are treated as complaints for thepurposes of section 101 of the Superannuation Industry(Supervision) Act 1993.

During 1998�99, 73 requests for reconsideration of decisionstaken by or on behalf of delegates of the Board were received, anincrease from the 63 requests received the previous year. Whilethere was an influx of cases in late 1998 and early 1999, reflectingthe rise in the number of invalidity discharges from the Armyand the Air Force resulting from the introduction of revisedfitness standards, towards the end of the financial year the peakappeared to have passed. Three requests for reconsideration ofBoard decisions were also received during 1998�99 comparedwith one during 1997�98.

The majority of requests for reconsideration concerned invalidityretirement benefit classification or reclassification decisions. Theamount of benefit varies depending on the former member'sassessed level of physical or mental incapacity to undertakesuitable civilian employment.

Sixty-one cases were finalised during the year, compared with45 cases last year. The Board affirmed 25 cases, varied 7 cases infavour of the applicant and set aside 13 cases. Another 16 lapsedbecause the applicant failed to pursue the matter. Sixty-five casesremained under investigation at 30 June 1999.


TTaabbllee 1144:: RReeccoonnssiiddeerraattiioonn aapppplliiccaattiioonnss ffoorr ppaasstt ffiivvee yyeeaarrss

Year 1994�95 1995�96 1996�97 1997�98 1998�99

Requests on hand 24 29 34 35 53Requests received 25 32 38 63 73Requests resolved 20 27 37 45 61Carried forward 29 34 35 53 65

EExxtteerrnnaall rreevviieeww

The MSBS became a regulated superannuation fund for purposesof the Superannuation Industry (Supervision) Act 1993, followingthe MSB Board�s election on 30 June 1995 to come under that Act.As a regulated fund any decision taken by the Board can be thesubject of a complaint before the Superannuation ComplaintsTribunal (SCT), which was established under the Superannuation(Resolution of Complaints) Act 1993 (the SRC Act).

Other than lodging a complaint with the SCT, an alternativeexternal review mechanism available to aggrieved schememembers is judicial review in the Federal Court under theAdministrative Decisions (Judicial Review) Act 1977 (the AD(JR)Act). The AD(JR) Act entitles a person aggrieved by anadministrative decision taken under Commonwealth legislationto seek an order for review of the decision in the Federal Courton grounds specified in that Act.

SSiiggnniiffiiccaanntt ccaasseess

In early 1998 the Full Federal Court handed down severaldecisions which brought into question the power of the SCT toreview decisions of superannuation trustees under the SRC Act.

In July 1998, special leave was granted to the CommonwealthAttorney-General to appeal the case of Breckler v Lesham 57 FCA12 Feb 1998 to the High Court. While the appeal was pending,the SCT ceased to review decisions of superannuation trustees. Inthe meantime, the Superannuation Legislation Amendment(Resolution of Complaints) Act 1998 was passed in December 1998to enable the SCT to arbitrate complaints with the consent of theparties. This amending legislation was the Government�s interimsolution for resolving disputes on superannuation complaints.

On 17 June 1999, the High Court handed down its decision whichunanimously upheld the power of the SCT to review decisions of


EExxtteerrnnaall aappppeeaallss

SSTTAANNDDAARRDD

Process all external cases both objectivelyand expeditiously.

ComSuper�s extensive discussions with theSCT on how the MSB Scheme works and itsthorough participation in SCT conferenceshave hastened the conciliation process.

OOUUTTCCOOMMEESS

ComSuper undertakes to do all things necessary to facilitate the expeditious processing ofmatters that go to the Superannuation Complaints Tribunal, the Federal Court and otherjurisdictions such as the Human Rights and Equal Opportunity Commission.

ComSuper also undertakes to do all things necessary to facilitate the expeditious processingof negligence claims against the Board.

SSEERRVVIICCEE

trustees of regulated superannuation funds. Given the High Courtdecision, the SCT may proceed to determine complaints againsttrustees as it did prior to the Federal Court decisions in early 1998.

Four complaints by MSBS members were lodged with the SCTduring the year and four SCT cases were carried over from1997�98. Two complaints were resolved during the year�onewas withdrawn by the complainant, and the other was treated bythe SCT as having been withdrawn on the ground that thecomplaint was lacking in substance. There were six casesoutstanding as at the end of June 1999.

In 1998�99 there were no applications for review lodged with theFederal Court in respect of decisions of the MSB Board or itsdelegates.

IInnqquuiirriieess aanndd ccoommppllaaiinnttss

The Board has established formal procedures for dealing withmembers� complaints received in accordance with Section 101 ofthe Superannuation Industry (Supervision) Act 1993.


SSTTAANNDDAARRDDProvide a substantive response to SISregistered complaints (excluding requestsfor internal review):

Parliamentarian and Ombudsmanrepresentations and Freedom ofInformation requests will be dealt withwithin 30 calendar days.

The standard achieved for processingcomplaints was as follows:

The standard achieved for processingParliamentarian and Ombudsman responsewas 75% within 30 calendar days.

All Freedom of Information requests wereprocessed within 30 calendar days.

OOUUTTCCOOMMEESS

ComSuper will maintain systems for dealing with SIS registered complaints andrepresentations made by Parliamentarians and the Ombudsman.

ComSuper will also maintain systems for dealing with requests under the Freedom ofInformation Act 1982.

SSEERRVVIICCEE

Processing time Proportionof cases


Processing time Proportionof cases


CCoommppllaaiinnttss,, mmiinniisstteerriiaallss aanndd OOmmbbuuddssmmaann iinnqquuiirriieess

ComSuper has established procedures for dealing with SISregistered complaints and Parliamentarian and Ombudsmanrepresentations.

Thirty-two complaints and four ministerials were receivedduring the year.

These and Ombudsman inquiries covered a large range of issues,the most significant being transferring the preserved benefit toanother fund (5 cases), claims for compensation (5 cases), interestrates (4 cases), release of the preserved benefit (4 cases), and levelof service (3 cases), with the remainder (9 cases) all being oneswhich had less than two occurrences.

Table 15 shows the timetable of responding to complaints orministerial/Ombudsman inquiries in 1998�99.


In addition ministerials are received and responded to within theDepartment of Defence without referral to ComSuper. In 1998�99these totalled 91.

FFrreeeeddoomm ooff iinnffoorrmmaattiioonn

Matters associated with the administration of the Freedom ofInformation Act 1982 are dealt with by ComSuper�s Freedom ofInformation Unit.

MSBS members made 66 requests for access to documents during1998�99. Sixty of these requests were granted in full, two wererefused, three were withdrawn, and one was outstanding. Therequests took an average of 7.4 days to process.

Inquiries relating to the documentary disclosure of informationabout the personal affairs of clients of the agency under theprovisions of the Freedom of Information Act should be directedto:

The Freedom of Information UnitComSuperPO Box 22Belconnen ACT 2616

Facsimile: (02) 6252 6509Telephone: (02) 6252 7514TTY: (02) 6253 2911

Less than 15 days 15�30 days 30�90 days More than 90 days

No. % No. % No. % No. %Complaints 19 64 5 17 4 13 2 6Ministerials 2 50 1 25 1 25 � �

TTaabbllee 1155:: RReessppoonnsseess ttoo ccoommppllaaiinnttss oorr mmiinniisstteerriiaall//OOmmbbuuddssmmaann iinnqquuiirriieess,, 11999988��9999


AAccccoouunnttiinngg sseerrvviicceess

ComSuper will:� maintain the Fund�s �general ledger� summarising monthly contributions, benefits and

investment transactions as reported by the Fund Custodian;

� prepare the annual financial statements of the Scheme in a form agreed by the Boardand the Minister;

� prepare quarterly (unaudited) financial statements in a form agreed with the Board;

� prepare annual APRA returns and the annual report to the Minister in accordance withrelevant guidelines for reporting by Government agencies and the directions of theBoard;

� prepare annual taxation returns and pay quarterly tax instalments by the due date;

� calculate annual crediting rates and monthly exit rates of interest to apply to memberaccounts;

� provide annual letters of comfort to the Board and to the Board�s external auditorregarding information provided for annual financial statements;

� arrange payment of the Board�s administrative expenses;

� liaise with the Board�s specialist advisers on accounting, taxation and investmentissues;

� provide the Board with the opportunity to participate in the development ofComSuper�s annual internal audit program to identify areas of mutual interest and toexamine reports of specific internal audits where there is a coincidence of interest;

� provide reasonable access to internal audit staff to attend Board Audit Committeemeetings and to advise on audits completed or in progress;

� provide a quality assurance role on accounting information provided by the Custodianor other sources;

� prepare the Board�s annual Budget and record expenditure;

� maintain comprehensive and up to date delegations.

SSEERRVVIICCEE


SSTTAANNDDAARRDD

ComSuper undertakes to deliver:� unqualified financial statements in

respect of services provided byComSuper under this agreement; and

� the Board�s annual report within thestatutory time limits;

� accurate and timely calculations ofcrediting and exit rates based on bestavailable (but unaudited) accountinginformation;

� payment of the Board�s administrativeexpenses (including income tax) bydue dates;

� report on expenditure against theBoard�s Budget.

Note: ComSuper�s role relates specificallyto accounting matters. As the administrator,ComSuper relies on investmentperformance data provided by theCustodian or IPAC to deliver some of theservices listed above.

� ComSuper produced unqualifiedfinancial statements to the Board in anaccurate and timely manner.

� ComSuper delivered the Board�s1997�98 Annual Report within thestatutory time limits and expects thesame for the 1998�99 Annual Report.

� Exit rate calculations were given to theBoard each month for the declarationof interest rates.

� The Board�s administrative expenseswere paid as and when they becamedue.

� ComSuper reported on the Board�sexpenditure on a quarterly basis formonitoring and comparison againstthe Board�s Budget.

OOUUTTCCOOMMEESS

AAuuddiitt aaccttiivviittyy aanndd rreessuullttss

AAuuddiitt CCoommmmiitttteeee

With the assistance of KPMG the Audit Committee develops atthe commencement of each financial year a detailed work plancovering areas of committee interest and activity. The Committeemet on six occasions during the year.

Although the review of internal audit activities of serviceproviders and the finalisation of the preparation and audit ofannual financial statements are traditionally areas of primaryfocus for the Committee each year, during 1998�99 issues relatedto Year 2000 preparedness and custodial arrangements were areasof major focus.

YYeeaarr 22000000

The MSB Board utilises the services of a number of entities forthe management and investment of the Fund and the


administration of the MSB Scheme. In order for the Trustees tofulfil their responsibilities under the Superannuation IndustrySupervision (SIS) Act and the MSBS Act, they must ensure thatappropriate controls and systems are in place for themanagement and custody of members� funds, for themaintenance of member records and for the payment of memberentitlements. Year 2000 issues present an area of added risk inwhich the Committee believed that particular attention needed tobe applied during the year.

Although the Board receives letters of representation fromservice providers as to the adequacy of their controls, systemsand risk management statements in relation to derivatives andmanagement operations generally, the Committee determinedthat it would commission additional work so that the Boardcould obtain a greater degree of independent assuranceregarding the appropriateness of these representations. For thispurpose the Committee commissioned KPMG to undertake anindependent review of each service provider�s internal audit,fraud control and risk management philosophies and procedure.Major areas of focus on risk management concentrated on Year2000 action to date and contingency planning.

During the year KPMG conducted reviews of the SchemeAdministrator (ComSuper) and the Fund investment adviser(IPAC). The planned review of the Master Custodian wasdelayed until 1999�2000 given the imminent transfer of Custodyresponsibility to a new Master Custodian (see comment below).

The results of those reviews provided assurance to the Board thatthere are appropriate strategies in place in relation to internalaudit and fraud control and that there was a general frameworkof risk management within both organisations. More importantlyKPMG was able to review the Year 2000 project and contingencyplans for both organisations and to provide an independent (i.e.third party) opinion on their scope and appropriateness. TheAudit Committee continued to monitor the performance of bothservice providers against these project plans throughout the year.

TTrraannssiittiioonn ttoo nneeww MMaasstteerr CCuussttooddyy aarrrraannggeemmeennttss ffoorr tthhee MMSSBB FFuunndd

The Fund�s Master Custodian performs important functions inrelation to investment management; including settlement oftrades, physical custody and safekeeping of securities, collectionof dividends, and preparation of accounts. It allocates allavailable moneys to the investment managers in accordance with


the mandates set down by the Board. It also holds (but does notown) the assets which comprise the Fund.

A change in custody arrangements therefore represents asignificant event for any Board of Trustees, involving as it doesthe transfer of the entirety of the Fund�s assets. In thesecircumstances the Board must ensure that it does all that ispossible to ensure that the assets of the Fund are protected.

During the course of 1998�99 the Fund�s Master Custodian,Morgan Stanley Australia Limited, informed the Board that ithad sold its Australian custody business. The MSB Board wasoffered the opportunity to transfer its custody requirements tothe new owner or to seek an alternative service provider. Withthe assistance of its investment adviser (IPAC PortfolioManagement) the Board determined that it would test the marketand after an exhaustive competitive process appointed StateStreet Australia Limited as the MSB Fund�s new MasterCustodian.

A detailed transition plan covering the transfer of the MSBSassets to the new custodial service provider was developed inconsultation between ComSuper, IPAC and the two Custodialfirms concerned. The Board also commissioned the accountingfirm of KPMG to review the transition plan to ensure that theBoard�s and the Fund�s interests were protected and that the Planwas capable of delivering the required levels of assuranceregarding the completeness and accuracy of the transfer process.

The transfer of some $800 million in Fund assets occurred on15 June 1999 with all settlements (domestic and international)effected by 21 June 1999.

AAuuddiitt ooff ffiinnaanncciiaall ssttaatteemmeennttss

The Auditor-General has again been able to provide anunqualified audit opinion on the financial statements of the MSBScheme.


AAddmmiinniissttrraattiivvee aarrrraannggeemmeennttss

OOrrggaanniissaattiioonnaall ssttrruuccttuurree ooff tthhee MMSSBBSS

Minister Assisting theMinister for Defence

ComSuper (SchemeAdministrator)

MSB Board ofTrustees

Contributors andBeneficiaries

State Street AustraliaLimited

(Master Custodian)

Fund Managers

Department of Defence

IPAC (InvestmentAdviser)

MSB Fund


HHuummaann rreessoouurrcceess

ComSuper provides secretariat services to the Board in line withthe standards outlined in the Administrative Agreement.

FFiinnaanncciiaall rreessoouurrcceess

The administrative costs of the MSB Board of Trustees for 1998-99totalled $385 000. These costs include fees paid to trustees,trustee travel costs and the cost of ComSuper secretariat andaccounting staff.

In accordance with the provisions of the Military Superannuationand Benefits Act 1991 only those expenses of the Board in respectof its responsibilities for the management of the MSB Fund andinvestment of its moneys are paid from the MSB Fund. All otherexpenses are met from moneys appropriated by Parliament to theDepartment of Defence.

The breakdown of administrative expenses met by the MSB Fundand the Department of Defence in respect of 1998�99 is asfollows:

MSB Fund $258 000Department of Defence $127 000

Total $385 000


AAppppeennddiixx 11:: MMSSBBSS iinn bbrriieeff

IInnvveessttmmeenntt

11999977��9988 11999988��9999Annual crediting rate5 8.7% 8.3%Annual inflation rate 0.7% 1.1%

EEFFFFEECCTTIIVVEE AASSSSEETT AALLLLOOCCAATTIIOONN 11999977��9988 11999988��9999SSeeccttoorr $$mm %% $$mm %%

Australian shares 242.5 33.9 307.6 37.1International shares 149.6 20.9 152.3 18.4Property securities 73.0 10.2 98.3 11.9Direct property 6.2 0.9 5.6 0.7Australian fixed interest 100.6 14.1 115.1 13.9International fixed interest 36.0 5.0 38.3 4.6Liquids/cash 107.3 15.0 111.0 13.4TToottaall uunnddeerr mmaannaaggeemmeenntt11 771155..22 110000..00 882288..22 110000..00

INNVVEESSTTMMEENNTT PPEERRFFOORRMMAANNCCEE22 11999977��9988 11999988��9999FFuunndd BBeenncchhmmaarrkk FFuunndd BBeenncchhmmaarrkk

SSeeccttoorr %% %% %% %%

Australian shares -1.9 1.6 17.9 15.4International shares 40.0 42.1 12.5 8.2Property securities 9.2 10.0 3.0 4.3Direct property 9.0 10.2 9.4 8.1Australian fixed interest3 10.4 10.9 3.2 3.3International fixed interest 10.9 11.2 5.9 5.5Liquids/cash 3.8 5.1 4.8 5.0TToottaall 77..77 88..9944 88..33 88..33

200

400

600

800

1000

June 99June 98June 97June 96June 95 0%

5%

10%

15%

20%

1998�991997�981996�971995�961994�95

Target

Crediting rate

CPI

Notes: 1 Includes all Australian bonds.2 Asset allocation figures are as reported by the portfolio manager.3 Performance figures are after tax and fees related to investment activity.4 The figure shown is the industry average, using the InTech Performance Survey of Market-

Linked Pooled Funds.5 The crediting rate is derived after allowance for all non-investment related fees and expenses

and therefore differs from the investment return.6 The target rate is inflation plus 5%.

FFuunndd ggrroowwtthh ssiinnccee 11999944��9955 CCrreeddiittiinngg aanndd ttaarrggeett rraatteess66 ssiinnccee 11999944��9955


MMeemmbbeerrsshhiipp

PPrreesseerrvveedd bbeenneeffiittss aatt 3300 JJuunnee 11999999 NNuummbbeerr VVaalluueeMember benefit 2 050 30.5mEmployer benefit 31 501 $1 052.4m

IInnccrreeaassee CCoonnttrriibbuuttoorrss aatt 3300 JJuunnee 11999977��9988 11999988��9999 ((ddeeccrreeaassee))

Males 31 425 30 373 (3.3%)Females 6 436 5 917 (8.1%)

TToottaall 3377 886611 3366 229900 ((44..11%%))TToottaall mmeemmbbeerr ccoonnttrriibbuuttiioonnss $$8822 338833 000000 $$8844 119911 000000 22..22%%

CCoonnttrriibbuuttoorr eexxiittss

Age retirement 94 81 (13.8%)Resignation 3 209 3 654 13.9%Redundancy 64 90 40.6%Invalidity 473 653 38.1%Death 18 19 5.6%Other 213 243 14.1%

TToottaall 44 007711 44 774400 1166..44%%

PPeennssiioonnss iinn ffoorrccee

Age retirement 412 459 11.4%Redundancy 1 674 1 763 5.3%Invalidity 1 029 1 256 22.1%Preserved > age 55 88 114 29.5%Spouses & orphans 29 33 13.8%

TToottaall 33 223322 33 662255 1122..22%%PPeennssiioonnss ppaaiidd $$3366..33mm $$4411..99mm 1155..44%%AAvveerraaggee ppeennssiioonn $$1122 339966 $$1111 553311 ((77..00%%))


AAppppeennddiixx 22:: FFiinnaanncciiaall ssttaatteemmeennttss

Auditor-General�s report 64Statement by the Trustee 67Financial statements for the MSB Fund 68Actuarial report 84


MILITARY SUPERANNUATION AND BENEFITS SCHEME

SSTTAATTEEMMEENNTT OOFF CCHHAANNGGEESS IINN NNEETT AASSSSEETTSSFFOORR TTHHEE YYEEAARR EENNDDEEDD 3300 JJUUNNEE 11999999

NNoottee 11999999 1998$$��000000 $�000

NNeett AAsssseettss AAvvaaiillaabbllee ttoo PPaayy BBeenneeffiittss aatt 11 JJuullyy 669966,,887799 576,873

MMSSBB FFUUNNDD

IInnvveessttmmeenntt RReevveennuuee

Interest 1133,,223344 11,560Dividends 1177,,773388 15,813Other Investment Income 112299 329Changes in Net Market Values 2 3399,,116611 29,223Direct Investment Expenses ((33,,990022)) (3,491)

NNeett IInnvveessttmmeenntt RReevveennuuee BBeeffoorree TTaaxx 6666,,336600 53,434

General Administration Expenses 1j ((338855)) (236)6655,,997755 53,198

CCoonnttrriibbuuttiioonnss RReevveennuuee

Employee Contributions 3a 8844,,119911 82,383Employer Contributions 3a 4433,,661111 42,186

112277,,880022 124,569Benefits Paid 3b ((7722,,338833)) (46,748)

NNeett CCoonnttrriibbuuttiioonnss RReevveennuuee BBeeffoorree TTaaxx 5555,,441199 77,821

NNeett IInnvveessttmmeenntt RReevveennuuee aanndd NNeett CCoonnttrriibbuuttiioonnssRReevveennuuee 112211,,339944 131,019

Income Tax Expense 4 ((1122,,116600)) (11,013)

NNeett IInnvveessttmmeenntt RReevveennuuee aanndd NNeett CCoonnttrriibbuuttiioonnssRReevveennuuee AAfftteerr TTaaxx 110099,,223344 120,006

CCOONNSSOOLLIIDDAATTEEDD RREEVVEENNUUEE FFUUNNDD

Moneys Appropriated by Parliament 3 117799,,552244 185,440Scheme Administration Costs Recovered

from the Department of Defence 33,,662299 �Less: Benefits Paid 3b ((117799,,552244)) (181,269)

Costs of Administering the MSBS Actand Rules 3c ((33,,662299)) (4,171)

NNeett AAsssseettss AAvvaaiillaabbllee ttoo PPaayy BBeenneeffiittss aatt 3300 JJuunnee 880066,,111133 696,879

The attached notes form part of these financial statements.



SSTTAATTEEMMEENNTT OOFF NNEETT AASSSSEETTSSAASS AATT 3300 JJUUNNEE 11999999

NNoottee 11999999 1998$$��000000 $�000

MMSSBB FFUUNNDD

IInnvveessttmmeennttss 1c

Cash and Short Term Deposits 4433,,992200 42,724Australian Fixed Interest 111122,,114433 99,410Overseas Fixed Interest 3344,,555555 35,382Australian Equities 228899,,336688 234,505Overseas Equities 220099,,114444 211,973Property Trusts 110022,,227711 76,918Other Investments 3344,,220055 9,928

TToottaall IInnvveessttmmeennttss 882255,,660066 710,840

OOtthheerr AAsssseettss 5 1155,,996677 14,980

TToottaall MMSSBB FFuunndd AAsssseettss 884411,,557733 725,820

LLeessss:: LLiiaabbiilliittiieess

Trade Settlements Payable 1111,,332288 8,726Accrued Expenses 6 337799 355Sundry Creditors 111122 189Benefits Payable 22,,445522 1,404Provision for Income Tax 66,,336644 5,502Provision for Deferred Income Tax 1144,,882255 12,765

TToottaall MMSSBB FFuunndd LLiiaabbiilliittiieess 3355,,446600 28,941

CCOONNSSOOLLIIDDAATTEEDD RREEVVEENNUUEE FFUUNNDD

OOtthheerr AAsssseettss

Sundry Debtors 3b 66,,226633 4,832

TToottaall CCoonnssoolliiddaatteedd RReevveennuuee FFuunndd AAsssseettss 66,,226633 4,832

LLeessss:: LLiiaabbiilliittiieess

Benefits Payable 3b 66,,226633 4,832

TToottaall CCoonnssoolliiddaatteedd RReevveennuuee FFuunndd LLiiaabbiilliittiieess 66,,226633 4,832

NNeett AAsssseettss AAvvaaiillaabbllee ttoo PPaayy BBeenneeffiittss 880066,,111133 696,879

The attached notes form part of these financial statements.



NNOOTTEESS TTOO AANNDD FFOORRMMIINNGG PPAARRTT OOFF TTHHEE FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSSFor the year ended 30 June 1999

11.. SSUUMMMMAARRYY OOFF PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS

((aa)) BBaassiiss ooff PPrreeppaarraattiioonn

These financial statements have been prepared in accordance with the Defined Benefit Planprovisions of AAS 25 �Financial Reporting by Superannuation Plans�, other applicable AustralianAccounting Standards (AAS) and Urgent Issues Group Consensus Views. A Defined Benefit Planrefers to a superannuation plan where the amounts to be paid to members on retirement aredetermined at least in part by a formula based on years of membership and salary levels.

The Scheme has adopted the provisions of AAS 25 whereby the financial statements include aStatement of Net Assets, a Statement of Changes in Net Assets and Notes thereto.

The form of these financial statements has been agreed by the Minister Assisting the Minister forDefence and the Military Superannuation and Benefits Board of Trustees No. 1 in accordancewith sub-section 26(1) of the Military Superannuation and Benefits Act 1991.

Unless otherwise stated, these accounting policies were also adopted in the correspondingpreceding reporting period.

((bb)) RReevveennuuee

Investment revenue and contributions are brought to account on an accruals basis. Dividends onquoted shares are deemed to accrue on the date the dividend is declared. Changes in the netmarket value of assets are recognised in the statement of changes in net assets in the periods inwhich they occur. Transfers from other funds are brought to account when received.

((cc)) VVaalluuaattiioonn ooff IInnvveessttmmeennttss

Assets of the MSB Fund are recorded at net market value as at the reporting date and changesin the net market value of assets are recognised in the Statement of Changes in Net Assets in theperiods in which they occur. Net market values of investments includes an amount for selling costswhich would be expected to be incurred if the investments were sold. The bases of marketvaluations are summarised below.

(i) Short-term Money Market�these securities are valued by marking to market usingyields supplied by independent valuers.

(ii) Fixed-interest�these securities are valued by marking to market using yields suppliedby independent valuers.

(iii) Futures Contracts�open futures contracts are revalued to closing price quoted at closeof business on 30 June by the futures exchange.

(iv) Equities�listed securities, including listed property trusts, are valued based on the lastsale price quoted at close of business on 30 June by the relevant stock exchange, or lastbid where a sale price is unavailable.

(v) Exchange Traded Options�options are valued as the premium payable or receivableto close out the contracts at the last buy price quoted at close of business on 30 Juneby the relevant stock exchange.




11.. SSUUMMMMAARRYY OOFF PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((CCoonntt..))

((cc)) VVaalluuaattiioonn ooff IInnvveessttmmeennttss ((CCoonntt..))

(vi) Overseas Investments�overseas securities are valued on the basis of last sale pricequoted at close of business on 30 June by the relevant securities exchange. In the caseof UK securities, the basis of valuation is the average of the bid and offer prices.

(vii) Units in Property Trusts�units are valued at their net realisable value.

(viii) Currency hedges�these securities are valued at the relevant exchange rate at close ofbusiness on 30 June.

((dd)) FFoorreeiiggnn CCuurrrreennccyy TTrraannssllaattiioonn

Foreign currency transactions are converted to Australian currency using the currency exchangerate in effect at the point of recognition of each transaction. Foreign currency balances areconverted to Australian currency using the exchange rate as at balance date.

((ee)) UUssee ooff DDeerriivvaattiivveess

The investment fund managers use a number of financial instruments such as futures, optionsand forward exchange contracts which are known as �derivatives�. The objective of their use is toreduce the risks in the equity, bond and currency markets and to increase or decrease the Fund�sexposure to a particular market.

The use of �derivatives� for this purpose is called hedging in the various markets. The likely effectof their use is reduction of risk to the Fund. Derivatives are not used for speculation in any of thesemarkets or for gearing the portfolios.

((ff)) TTaaxxaattiioonn

Income tax has been brought to account using the liability method of tax effect accounting. Aprovision for deferred income tax has been brought to account in order to recognise the timingeffect of income earned during the period that is not assessable for taxation purposes in thecurrent period but is expected to reverse in future periods.

((gg)) BBeenneeffiittss PPaayyaabbllee

Benefits payable include benefits in respect of members who ceased employment with theemployer sponsor prior to year end who are entitled to receive a benefit but had not been paidby that date.




11.. SSUUMMMMAARRYY OOFF PPRRIINNCCIIPPAALL AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS ((CCoonntt..))

((hh)) LLiiaabbiilliittyy ffoorr AAccccrruueedd BBeenneeffiittss

The liability for accrued benefits is not included in the statement of net assets, but the liability atthe latest measurement date is reported by way of note. Where accrued benefits are measuredduring the reporting period, the benefits which have accrued since the latest measurement dateare also reported by way of note.

The liability for accrued benefits is actuarially measured on at least a triennial basis, andrepresents the value of the Fund�s present obligation to pay benefits to members and otherbeneficiaries at the date of measurement. The liability is determined as the present value ofexpected future payments which arise from membership of the Fund up to the date ofmeasurement.

The present value reported in the notes is determined by reference to expected future salary levelsand by application of a current, market-determined, risk-adjusted discount rate and appropriateactuarial assumptions.

((ii)) SSuuppeerraannnnuuaattiioonn CCoonnttrriibbuuttiioonnss SSuurrcchhaarrggee

The surcharge is accounted for as and when the amount becomes payable to the AustralianTaxation Office.

((jj)) FFuunndd MMaannaaggeemmeenntt EExxppeennsseess

Costs of the Military Superannuation and Benefits Board of Trustees No. 1 which are related toits responsibilities for the management of the MSB Fund and the investment of its moneys are acharge against the Fund. All other costs incurred by the Board of Trustees are paid from moneysappropriated to the Department of Defence by Parliament.

((kk)) CCoommppaarraattiivvee IInnffoorrmmaattiioonn

The presentation of comparative information has changed from that shown in the previousfinancial statements so as to conform with the current year�s format.




22.. CCHHAANNGGEESS IINN NNEETT MMAARRKKEETT VVAALLUUEESS 11999999 1998$$��000000 $�000

Changes in Net Market Values of Investments:

((aa)) IInnvveessttmmeennttss HHeelldd aatt 3300 JJuunnee

Australian Fixed Interest ((55,,771188)) (1,424)Overseas Fixed Interest ((66,,449944)) 3,493Australian Equities 2299,,661166 (6,008)Overseas Equities 1188,,777733 46,751Property Trusts ((33,,003300)) (63)Other Investments 88,,775555 (6,876)

4411,,990022 35,873

((bb)) IInnvveessttmmeennttss RReeaalliisseedd DDuurriinngg tthhee PPeerriioodd

11999999 1998$$��000000 $�000

Australian Fixed Interest 117799 3,233Overseas Fixed Interest 33,,884466 2,772Australian Equities 88,,113300 (6,207)Overseas Equities 33,,882277 11,164Listed Property Trusts ((660011)) 1,146Other Investments ((1188,,112222)) (18,758)

((22,,774411)) (6,650)3399,,116611 29,223

33.. FFUUNNDDIINNGG AARRRRAANNGGEEMMEENNTTSS

((aa)) CCoonnttrriibbuuttiioonnss

Members contribute to the Scheme at optional rates ranging from a minimum of 5 per cent to amaximum of 10 per cent of salary paid to the member and the Department of Defencecontributes employer superannuation contributions to the MSB Fund at the rate of 3 per cent ofsalary paid to the member.

The net assets available to pay benefits, as shown in the Statement of Net Assets at 30 June 1999,is the accumulated employee and employer contributions held in the MSB Fund as at 30 June1999.




33.. FFUUNNDDIINNGG AARRRRAANNGGEEMMEENNTTSS ((CCoonntt..))

((bb)) BBeenneeffiittss

Where a benefit that becomes payable under the Scheme can be fully met from moneys held inthe MSB Fund, the benefit is paid to the beneficiary from the MSB Fund.

Where a benefit that becomes payable under the Scheme cannot be fully met from moneys heldin the MSB Fund, all moneys held in the MSB Fund in respect of the member are paid to theCommonwealth and the Commonwealth is responsible for the payment of the benefit to thebeneficiary from the Consolidated Revenue Fund. Under the provisions of the MilitarySuperannuation and Benefits Act 1991, the Commonwealth is required to fund its share of allbenefits as they become due and payable.

Although benefits paid to members were correct, during 1998�99 a computer programmingerror was detected that identified a shortfall of $8,292,000 in payments from the MSB Fund tothe Consolidated Revenue Fund during the period from October 1991 to 30 June 1998. Thisshortfall was paid to the Consolidated Revenue Fund in June 1999.

Benefits payable by the Commonwealth as at 30 June 1999 total $6.263m (1998 $4.832m). TheCommonwealth is the corresponding debtor for this amount in accordance with the fundingarrangements described above.

The following provides a breakdown of benefits paid by both the MSB Fund and theCommonwealth:

11999999 1998$$��000000 $�000

MMSSBB FFuunnddPayments to Commonwealth�current financial year 4499,,665522 39,521Payments to Commonwealth�understatement of prior year 88,,229922 �Lump-sum Benefits 1144,,443399 7,227

7722,,338833 46,748

CCoonnssoolliiddaatteedd RReevveennuuee FFuunnddLump-sum Benefits 113377,,667711 144,983Pensions 4411,,885533 36,286

117799,,552244 181,269




33.. FFUUNNDDIINNGG AARRRRAANNGGEEMMEENNTTSS ((CCoonntt..))

((cc)) CCoossttss ooff AAddmmiinniissttrraattiioonn

The Military Superannuation and Benefits Act 1991 requires the Commissioner forSuperannuation to provide administrative support to the Military Superannuation and BenefitsBoard of Trustees No. 1 to enable the Board to perform its functions under the Act. Under theprovisions of the Act, only those expenses of the Board in respect of its responsibilities for themanagement of the MSB Fund and investment of its moneys are paid from the MSB Fund.Accordingly, all other expenses of the Board, the Commissioner for Superannuation and the staffof ComSuper who assist the Commissioner for Superannuation in the administration of theMilitary Superannuation and Benefits Act 1991 and Rules, are met from moneys collected byComSuper. These moneys are collected from the Department of Defence and paid into theComSuper Commercial Activity Account which forms part of the Commonwealth�s CommercialActivities Fund.

44.. IINNCCOOMMEE TTAAXX EEXXPPEENNSSEE

The taxation liability at 30 June 1999 has been calculated on the basis that the Scheme complieswith the standards contained in the Superannuation Industry (Supervision) Act 1993 andRegulations and that tax will be payable on the income received by the MSB Fund at a rate of15 per cent.

The aggregate amount of income tax attributable to the period is less than 15 per cent of the NetInvestment Revenue and Net Contributions Revenue Before Tax as shown in the Statement ofChanges in Net Assets. The difference is reconciled as follows:

11999999 1998$$��000000 $�000

Prima facie income tax expense onNet Investment Revenue and NetContributions Revenue Before Tax 1188,,220099 19,653

Add/(Less) Permanent DifferencesEmployee contributions ((1122,,662299)) (12,357)Benefits Paid 1100,,885588 7,012Foreign Tax Credits ((333333)) (216)Imputation Credits from Franked

Dividends Received ((33,,007744)) (2,939)Difference between accounting and tax gains ((224411)) 188Tax Free/Tax Deferred Distributions ((331100)) (174)Over/(Under) Provision in Prior Year ((332200)) (154)

Income Tax Expense 1122,,116600 11,013

Income tax paid during the period amounted to $10,039,106 (1998: $9,440,809).




55.. OOTTHHEERR AASSSSEETTSS11999999 1998

$$��000000 $�000

Bank 11,,886600 3,771Trade Settlements Receivable 77,,559977 5,358Accrued Income 66,,223322 5,746Future Income Tax Benefit 880022 �Sundry Debtors ((552244)) 105

1155,,996677 14,980

66.. AACCCCRRUUEEDD EEXXPPEENNSSEESS11999999 1998

$$��000000 $�000

Investment Consultant Fees 6677 60Fund Management & Custodial Fees 227799 262Audit Fees 2255 27Other 88 6

337799 355

77.. FFIINNAANNCCIIAALL IINNSSTTRRUUMMEENNTT DDIISSCCLLOOSSUURREESS

The investments of the Fund (other than cash held for meeting daily administrative and benefitexpenses), are managed on behalf of the Trustee by specialist sector fund managers who arerequired to invest the assets allocated for management in accordance with the terms of a writteninvestment mandate. The Trustee has determined that the appointment of these managers isappropriate for the Fund and is in accordance with the Trustee�s investment strategy.

State Street Australia Limited acts as master custodian on behalf of the Trustee and as suchprovides services including physical custody and safekeeping of assets, settlement of trades,collection of dividends and accounting of investment transactions.

The Trustee also employs IPAC Portfolio Management Limited (IPAC) to oversee the generalmanagement of the portfolio on a day-to-day basis, within the overall investment strategy andasset allocation limits sets. IPAC subsequently provides the Trustee with regular reports on thenature of the investments made on their behalf and the associated risks. Such reports includereceipt of formal Risk Management Statements as required by the Australian PrudentialRegulation Authority (formerly the Insurance and Superannuation Commission).




77.. FFIINNAANNCCIIAALL IINNSSTTRRUUMMEENNTT DDIISSCCLLOOSSUURREESS ((CCoonntt..))

((aa)) UUssee ooff DDeerriivvaattiivvee FFiinnaanncciiaall IInnssttrruummeennttss

The Fund�s investment managers use a number of financial instruments such as futures, optionsand forward exchange contracts to both facilitate increases or decreases in exposures in theequity, bond and currency markets and to reduce risk consistent with the investment policy of theFund. Derivatives are not used for speculation in any of these markets or for �gearing� theportfolio.

At 30 June, the notional principal amounts and net fair value of derivatives held by the Fund wereas follows:

NNoottiioonnaall PPrriinncciippaall AAmmoouunnttss NNeett MMaarrkkeett VVaalluuee

11999999 1998 11999999 1998$$��000000 $�000 $$��000000 $�000

Exchange Traded Options ((6644,,773344)) (40,448) ((11,,661155)) (1,284)Exchange Traded Warrants 11,,442288 1,330 11,,110055 1,091Futures 55,,998833 2,355 6622 (567)Currency Contracts ((110044,,995555)) 121,895 ((11,,669911)) (5,619)Total ((116622,,227788)) 85,132 ((22,,113399)) (6,379)

((bb)) CCrreeddiitt RRiisskk

The net market value of financial assets, with the exception of derivative positions, included in thestatement of net assets represent the Fund�s exposure to credit risk in relation to those assets. Forderivative positions, the credit risk is equal to the net market value of positive (asset) derivativepositions which amount to $6.2m.

The Fund does not have significant exposures to any individual counterparty or industry.


FFiixxeedd IInntteerreesstt RRaatteeFFllooaattiinngg NNoonn--IInntteerreesstt 11 YYeeaarr 11��55 OOvveerr 55 IInntteerreesstt

RRaattee oorr LLeessss YYeeaarrss YYeeaarrss BBeeaarriinngg TToottaall3300 JJuunnee 11999999 $$��000000 $$��000000 $$��000000 $$��000000 $$��000000 $$��000000

AAsssseettssCash & Short Term Deposits 43,920 43,920Australian Fixed Interest 15,085 46,534 50,524 112,143Int�l Fixed Interest 10,521 24,034 34,555Australian Equities 130 289,238 289,368Overseas Equities 209,143 209,144Property Trusts 102,271 102,271Other Investments 37,119 (2,914) (34,205)Other Assets 1,860 14,107 15,967

LLiiaabbiilliittiieessTrade Settlements Payable (11,328) (11,328)Accrued Expenses (379) (379)Sundry Creditors (112) (112)Benefits Payable (2,452) (2,452)Provision for Income Tax (6,364) (6,364)Provision for Deferred Income Tax (14,825) (14,825)TToottaall 8822,,889999 1155,,221155 5577,,005555 7744,,555588 557766,,338866 880066,,111133

Weighted Average Interest Rate 2.67% 4.81% 5.38% 6.01%




((cc)) IInntteerreesstt RRaattee RRiisskk

The Fund invests in financial investments for the primary purpose of obtaining a return oninvestments on behalf of its members. As such, the Fund�s investments are subject to interest raterisks and the return on the investments will fluctuate in accordance with movements in marketinterest rates. The Fund�s exposure to interest rate movements on investments at 30 June 1999was as follows:


FFiixxeedd IInntteerreesstt RRaatteeFFllooaattiinngg NNoonn--IInntteerreesstt 11 YYeeaarr 11��55 OOvveerr 55 IInntteerreesstt

RRaattee oorr LLeessss YYeeaarrss YYeeaarrss BBeeaarriinngg TToottaall3300 JJuunnee 11999988 $$��000000 $$��000000 $$��000000 $$��000000 $$��000000 $$��000000

AAsssseettssCash & Short Term Deposits 8,999 33,725 42,724Australian Fixed Interest 2,896 44,977 51,537 99,410O�seas Fixed Interest 4,390 30,992 35,382Australian Equities 234,505 234,505Overseas Equities 211,973 211,973Property Trusts 76,918 76,918Other Investments 16,308 (6,380) 9,928Other Assets 3,771 11,209 14,980

LLiiaabbiilliittiieessTrade Settlements Payable (8,726) (8,726)Accrued Expenses (355) (355)Sundry Creditors (189) (189)Benefits Payable (1,404) (1,404)Provision for Income Tax (5,502) (5,502)Provision for Deferred Income Tax (12,765) (12,765)TToottaall 2299,,007788 3366,,662211 4499,,336677 8822,,552299 449999,,228844 669966,,887799

Weighted Average Interest Rate 2.90% 5.06% 8.62% 6.36%




((cc)) IInntteerreesstt RRaattee RRiisskk ((CCoonntt..))





((dd)) CCuurrrreennccyy RRiisskk EExxppoossuurreess

The Fund�s exposure at 30 June to foreign exchange rate movements on its internationalinvestments was as follows:

UUSSAA JJPPYY GGBBPP EEUURR OOtthheerr TToottaall3300 JJuunnee 11999999 AA$$��000000 AA$$��000000 AA$$��000000 AA$$��000000 AA$$��000000 AA$$��000000Gross investment amountsdenominated in foreign currency 154,561 24,218 17,750 36,758 18,442 251,729Amount effectively hedged (55,199) (12,248) (8,869) (25,572) (3,057) (104,955)

Net Exposure 9999,,336622 1111,,997700 88,,888811 1111,,118866 1155,,337755 114466,,777744

UUSSAA JJPPYY GGBBPP DDEEMM OOtthheerr TToottaall3300 JJuunnee 11999988 AA$$��000000 AA$$��000000 AA$$��000000 AA$$��000000 AA$$��000000 AA$$��000000Gross investment amountsdenominated in foreign currency 143,940 26,179 18,358 21,252 37,625 247,354Amount effectively hedged (75,089) (13,334) (10,157) (17,669) (11,088) (127,337)

Net Exposure 6688,,885511 1122,,884455 88,,220011 33,,558833 2266,,553377 112200,,001177

((ee)) NNeett FFaaiirr VVaalluueess ooff FFiinnaanncciiaall AAsssseettss aanndd LLiiaabbiilliittiieess

The Fund�s financial assets, liabilities and derivative instruments are included in the Statement ofNet Assets at amounts that approximate net fair value.

88.. VVEESSTTEEDD BBEENNEEFFIITTSS

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 memberswere entitled to receive had they terminated their plan membership as at the reporting date.

The Australian Government Actuary has advised that the estimated amount of vested benefits isas follows:

11999999 1998$$mm $m

Unfunded 44,,007733 3,698Funded 880077 708Total Vested Benefits 44,,888800 4,406

The value of vested benefits represents the liability that would have fallen on the Scheme in theunlikely event that all members ceased service on 30 June 1999 and elected the option which ismost costly to the Scheme.




99.. LLIIAABBIILLIITTYY FFOORR AACCCCRRUUEEDD BBEENNEEFFIITTSS

The amount of accrued benefits has been determined on the basis of the present value ofexpected future payments which arise from membership of the Scheme up to the membershipdate. The accrued benefits are comprised of a funded component, which will be met from theFund, (ie. accumulated member contributions and, where applicable, productivity contributions,plus interest) and an unfunded component to be financed, by the Commonwealth, from theConsolidated Revenue Fund, at the time the superannuation benefits become payable. Thevaluation of the accrued benefits was undertaken by the Australian Government Actuary as partof a comprehensive review during 1996�97. (A copy of the Australian Government Actuary�sreport is attached.)

Accrued Benefits as at 30 June 1996 were:

$$mm

Funded component 402Unfunded component 3,217

33,,661199

The liability for accrued benefits will be updated following the next comprehensive actuarialreview which is scheduled for 1999�2000 using data as at 30 June 1999.

1100.. RREELLAATTEEDD PPAARRTTIIEESS

((aa)) MMeemmbbeerrss ooff tthhee BBooaarrdd

The Military Superannuation and Benefits Board of Trustees No. 1 had the following membersduring the financial year:

Mr C.P.H. Kiefel (Chairman)Air Commodore N.J. FordMr M.J. Sharpe AMMr P.D. GourleyWarrant Officer R.C. SwanwickColonel M.J. Hannan (alternate for N.J. Ford)Warrant Officer P.D. Alomes (alternate for R.C. Swanwick)Mr C. Neumann (alternate for P.D. Gourley) [resigned 28 June 1999]Ms D. Clarke (replaces C. Neumann) [appointed 28 June 1999]




1100.. RREELLAATTEEDD PPAARRTTIIEESS ((CCoonntt..))

((bb)) TTrruusstteeee RReellaatteedd TTrraannssaaccttiioonnss

Some members of the Board may, as a result of their current employment, be members of theMSB scheme and as such would be required to have made contributions to the scheme duringthe 1998�99 financial year on the same terms and conditions applicable to all scheme members.

Fees and associated superannuation contributions paid to, or in respect of, the members of theBoard during the financial year totalled $105,351 (1997�98: $77,900).

1111.. AAUUDDIITTOORR��SS RREEMMUUNNEERRAATTIIOONN

The amount paid and payable in respect of external audit services is $25,000 (1997�98:$27,000).

1122.. FFOORREEIIGGNN CCUURRRREENNCCYY GGAAIINNSS

The foreign currency gain on overseas investments for the year was $1.251m(1997�98:10.098m). This amount is included in the �Changes in Net Market Values ofInvestments� disclosed in Note 2.

1133.. SSEEGGMMEENNTT RREEPPOORRTTIINNGG

The MSB Scheme operates in the superannuation fund investment industry in Australia and aspart of its investment activities it also maintains significant overseas investments.

1144.. CCOONNTTIINNGGEENNTT LLIIAABBIILLIITTIIEESS

In the normal course of business, requests are made by members and former members for thereview of decisions relating to benefit entitlements of the Scheme which could result in additionalbenefits becoming payable in the future. Each request is considered on its merits prior to anybenefit becoming payable. In the opinion of the Trustee, these requests do not represent amaterial liability on the Scheme.

The Trustee is not aware of any other potential contingent liabilities.




1155.. SSUUPPEERRAANNNNUUAATTIIOONN CCOONNTTRRIIBBUUTTIIOONNSS SSUURRCCHHAARRGGEE

The Superannuation Contributions Surcharge was introduced in the 1996 Federal budget toapply from 20 August 1996, to the surchargeable superannuation contributions of higherearners, whose adjusted taxable income exceeds the surcharge threshold.

MSBS members with adjusted taxable income above the surcharge threshold will incur asurcharge liability which is to be calculated by the Australian Taxation Office (ATO).

The Trustees have received, from the ATO, surcharge assessments in respect of surchargeablesuperannuation contributions for the period 20 August 1996 to 30 June 1998.

A summary of transactions follows:

11999999$$��000000

Surcharge assessments received from ATO during 1998�99which have been recorded on member records 9944Less: Amounts paid by members ((2222))

7722Plus: Interest applied to outstanding surcharge liability at 30 June 1999 55

7777Surcharge assessments received from ATO during 1999�2000which have been recorded on member records 11,,772200

Total surcharge liability outstanding 11,,779977

The MSBS Board has lodged an objection against the assessments received during 1998�99 andwill be lodging an objection against the assessments received during 1999�2000 under theSuperannuation Contributions Tax (Assessment and Collection) Act 1997. However, until theoutcome of the objections has been determined, the Board has instructed the Scheme continueto be administered in accordance with the superannuation contribution surcharge legislation asit currently stands.

The surcharge liability in respect of surchargeable superannuation contributions for the period1 July 1998 to 30 June 1999 has not been disclosed because the assessments have not, as yet,been calculated by the ATO and there is no reliable basis on which an assessment of the likelysurcharge liability can be made.

No liability is recognised in the �Statement of Net Assets� for the estimated value of the surchargeliability because the liability will be either met by the members during their period of membershipor will be recovered from member benefits when they are paid.


AAppppeennddiixx 33:: FFuunndd mmaannaaggeerrss

Barclays Global Investors N.A.45 Fremont StreetSan Francisco CA 94105USA

Commonwealth Funds Management LtdLevel 912 Moore StreetCanberra ACT 260

Credit Suisse Investment Management (Australia)Level 321 Macquarie PlaceSydney NSW 2000

Morgan Grenfell Australia(formerly Axiom Funds Management)Level 2083 Clarence StreetSydney NSW 2000

State Street Australia LimitedLevel 64MLC Centre19 Martin PlaceSydney NSW 2000

Portfolio Partners LtdLevel 39385 Bourke StreetMelbourne VIC 3000

Tower Portfolio Management AustraliaLevel 1080 Alfred StreetMilsons PointNSW 2061

Wellington Management Company75 State StreetBoston MA 12109USA

Westpac Investment Management LtdLevel 3660 Margaret StreetSydney NSW 2000


AAppppeennddiixx 44:: GGlloossssaarryy

active management an approach to investment where the manager varies itsstrategy depending on current market conditions. Activemanagers regularly review their investments with a viewto benefiting from changes in the market or from growthin specific assets.

ADF Australian Defence ForceAD(JR) Act Administrative Decisions (Judicial Review) Act 1977APRA Australian Prudential Regulation AuthorityCDF Chief of the Defence ForceCFM Commonwealth Funds Management LimitedComSuper Commonwealth Superannuation Administrationcore management a manager whose portfolio is constructed so as to provide

a high probability of capturing the market return for aparticular asset class. Core managers are used to controlliabilities

CPI Consumer Price indexdefensive assets assets (such as cash and bonds) that are not very

susceptible to market fluctuationsderivatives investment products (such as an option on a share) that are

derived from other securities or assets. Their value islinked to the value of the underlying security

direct property property that is purchased by an investorto be held by that investor (see also indirect property)

DFRDB Defence Force Retirement and Death Benefitsgrowth assets assets (such as shares and property) that are very

responsive to market fluctuations.ICC Incapacity Classification Committeeindirect property an investment in property made by purchasing units in a

property trust, or shares in a property companyIVR Interactive Voice Response telephone systemLWOP leave without payMSB Military Superannuation and BenefitsMSBS Military Superannuation and Benefits SchemeMSCAG The Military Superannuation Communication Advisory

Grouppassive an approach where the manager does not actively change

the proportions held in the various investment sectorsaccording to market conditions, but fixes them for anextended period

RAC Reconsideration Advisory CommitteeSCT Superannuation Complaints TribunalSIS Superannuation Industry (Supervision) Act 1993SRC Act Superannuation (Resolution of Complaints) Act 1993surcharge the Superannuation Contributions Tax (Assessment and

Collection) Act 1997, a tax on employer financedsuperannuation contributions


AAppppeennddiixx 55:: PPuubblliiccaattiioonnss

The Board publishes two booklets and a series of leaflets for thebenefit of members.

The MSBS Book is a general information book that intended as areference book for members and pay officers. A revised editionwas published in September 1997. A �Summary of the Scheme�leaflet is also available.

The Investment Policy Statement is an overview of the generalobjectives that underpin the Board�s investment policy and thespecific strategy through which these objectives will be realised.

The Board also publishes a series of leaflets that deal in moredepth with a specific topic. The leaflets are entitled:

Dependants Benefits

Invalidity Benefits

Maximum Benefit Limit

Preservation of Benefits

Provisions for LWOP

Rejoining the ADF

Resignation and Retirement Benefits and

Taxation of Benefits

Copies of the MSB Business Plan are also available.

All of these publications can be obtained from members� PayOffices or from ComSuper, or from ComSuper�s Internet site:www.comsuper.com.au


AAppppeennddiixx 66:: SSeerrvviiccee cchhaarrtteerrss

In the latter part of 1998, service charters for MSBS contributorsand preserved benefit members were developed by ComSuperand copies issued to members of the schemes, in accordance withGovernment policy.

The Board has endorsed these charters. The following extracts listthe principal standards contained within them.

TThhee sseerrvviiccee MMSSBBSS ccoonnttrriibbuuttoorrss ccaann eexxppeecctt

� If you phone our advisory service between 9.00 am and 5.00pm, Eastern Time, normally your call will be answered within90 seconds (see page 25).

� If you visit our office between the hours of 9.00 am to 5.00 pm,Eastern Time, where no appointment has been made, we willsee you as soon as possible. However, if you ring to make anappointment beforehand, we will be ready to meet you at theagreed time (see page 26).

� If you write to us about any matter we will answer your letter,usually within 10 working days of receiving it even if this isonly an acknowledgement that we have received your letterand are attending to it (see page 24).

� Your annual member statement, setting out your equity in theScheme as at 30 June, will be sent to you before 31 Octobereach year. If there is a problem with your record, yourstatement may have to be produced manually in which casewe will send it to you before 31 December (see page 24).

� When you leave the Australian Defence Force we willnormally process your lump sum benefit within 5 workingdays of the date of receipt of your application or your date ofexit, whichever is the later, subject to all necessary informationbeing received (see page 28).

� Pension benefits will be paid on the next available pensionpayday once all necessary information is received (seepage 28).


� When you retire on the ground of invalidity, normally anassessment of the degree of your incapacity will be madewithin 10 working days of receipt of all necessary paperwork(including medical assessments that may subsequently bearranged by this Office) (see page 31).

� If you die and are survived by an eligible spouse and/oreligible children we will send a benefit application form withexplanatory notes, an information leaflet and a covering letterto your spouse and/or to the guardian of your child/childrenimmediately we are advised of your death (see page 28).

� If you die and are not survived by any dependants we willpay your benefit to your estate within 10 working days of allnecessary documentation being received (see page 28).

TThhee sseerrvviiccee MMSSBBSS pprreesseerrvveedd bbeenneeffiitt mmeemmbbeerrss ccaann eexxppeecctt

� If you ring us between 9.00 am and 5.00 pm, Eastern StandardTime and Eastern Summer Time, seeking a current estimate ofyour benefit we will, where possible, provide you with anestimate at the time of your call (see page 25).

� If you ring us during the same hours on any other matter,generally we will attend to your enquiry on the spot (seepage 25).

� If you write to us with a general inquiry or seeking a writtenestimate of your benefit we will answer your letter as soon aspossible, usually within 15 working days of receiving it (seepage 24).

� If you visit our office between 9.00 am and 5.00 pm, EasternStandard Time and Eastern Summer Time, where you havemade an appointment beforehand, we will see you at theagreed time (see page 26).

� If you advise us of a change in your personal details we willadjust your record within two days of receiving your request(see page 36).

� Your annual member statement, showing your current equity,will be sent to you each year before 31 December (seepages 24 and 26).


� When you claim your benefit either on retiring permanentlyfrom the workforce after reaching age 55 or on attainingage 65, we will pay your lump sum as soon as possible,usually within 10 working days of receiving all the necessaryinformation (see page 28).

� Your pension will be paid on the next available pensionpayday once all necessary information is received (seepage 28).

� When you seek �early release� of your preserved benefit onhardship or compassionate grounds before reaching minimumretiring age (i.e. before reaching age 55) and beforepermanently exiting the workforce, we will pay your benefitas soon as possible, usually within 10 working days of allnecessary information including, where appropriate, approvalfrom the Australian Prudential Regulation Authority (APRA)being received (see page 28).

� If you lodge a claim for early release on the grounds of totaland permanent incapacity (i.e. invalidity) we will pay yourlump-sum benefit as soon as possible but in any event within10 working days of a determination being made that you aretotally and permanently incapacitated. In the case of a pensionbenefit it will be paid on the next available pension paydayafter a determination is made (see page 28).

� If we are informed of your death we will send an applicationform to your spouse within 24 hours. If there is no spouse butthere is an eligible child or children, we will send anapplication to the guardian of the child or children. If needed,we will provide help in completing the form. When wereceive a correctly completed application form, andentitlement to a benefit is automatic, we will arrange for thebenefit to be paid, in the case of a lump sum, within 10working days, and in the case of a pension, by the nextavailable pension payday (see page 28).

TThhee sseerrvviiccee MMSSBBSS ppeennssiioonneerrss ccaann eexxppeecctt

� If you ask for a variation to be made to the way yourfortnightly benefit is paid we will make the change as soon aspossible, but usually by the next available pension payday. Ifyou make your request by telephone, we will tell you thepayday the change will be made (see page 41).


� If you tell us of a change to your address we will make thechange as soon as possible, but usually by the next availablepension payday (see page 41).

� If you write to us about any other matter and your letterrequires a written reply, we will answer it as soon as possible,usually within 10 working days of receiving it (see page 41).

� If we are informed of your death we will send an applicationform to your spouse within 24 hours. If there is no spouse butthere is an eligible child or children, we will send anapplication form to the guardian of that child or thosechildren. If needed, we will provide help in completing theform. When we receive a correctly completed applicationform, and eligibility is automatic, we will arrange for thebenefit to be paid by the next available pension payday. Ifyour spouse�s eligibility to receive a benefit is not automatic,we will write and advise what needs to be done within sevendays of receiving an application form (see page 46).

� If you phone our advisory service between 9.00 am and5.00 pm, Eastern Standard Time or Eastern Summer Time,normally your call will be answered within 60 seconds (seepage 41).

� If you visit our office between the hours of 9.00 am to5.00 pm, Eastern Standard Time or Eastern Summer Time, wewill see you within five minutes of your arrival. However, ifyou ring to make an appointment beforehand, we should beable to resolve the matter you wish to discuss with us morequickly (see page 41).

� Your annual pension advice letter, advising you whether yourpension has been adjusted because of an upwards movementin the Consumer Price Index (CPI), will be sent to you usuallybefore the first pension payday in July each year (see page 41).

� Your income tax group certificate will be sent to you togetherwith your annual pension advice letter, usually before the firstpension payday in July each year (see page 41).

� We will send you tax concession information that will helpyou determine whether you are eligible for a superannuationtax concession. The information will be sent with your annualpension advice letter in July each year (see page 41).


AAppppeennddiixx 77:: CCoonnttaacctt ooffffiicceerr

Information available to Members of Parliament, Senators andmembers of the public on request

In the interests of timeliness and conciseness, this report has beendesigned to provide fundamental information. Requests for moredetailed information should be directed to:

Ministerial Liaison Officer

Postal address: ComSuperPO Box 22Belconnen ACT 2616

Street address: Unit 1, Cameron OfficesChandler StreetBelconnen ACT

Telephone: (02) 6252 5893

Facsimile: (02) 6253 1116

TTY: (02) 6253 2911


AAppppeennddiixx 88:: LLeeggiissllaattiioonn

CChhaannggeess ttoo tthhee MMSSBB AAcctt

During 1998�99 the MSB Act was amended by the Financial SectorReform (Amendments and Transitional Provisions) Act (No. 1) 1999.This Act made minor amendments to the MSB Act relating to thedefinitions of �bank� and �financial institution�.

AAmmeennddiinngg DDeeeeddss

During 1998�99 the MSB Rules were amended by the MilitarySuperannuation and Benefits Amendment Trust Deed 1999 (No. 1).

The Deed changed the Rules to allow members greater flexibilityin discharging their Superannuation Contributions Tax debt (thesurcharge debt) by allowing the member to elect which componentof their benefit is to be adjusted.

Previously the member�s employer benefit was reduced by thesurcharge debt before it was paid as a lump sum or converted to apension. Members are now be able to elect to have their surchargedebt discharged in one of the following ways:

� by deduction from the member�s employer benefit before it ispaid to the member as a lump sum, or before it is convertedinto a pension;

� by deduction from the member�s member benefit before it ispaid to the member as a lump sum;

� by deduction from the pension payable to the member afterconversion of the member�s employer benefit.

If a member does not make an election the debt will be dischargedaccording to the type of benefit claimed as follows:

� by deduction from the member�s employer benefit after it isconverted into a pension;

� if the member elects to receive part of his or her employerbenefit either as a lump sum payment or converted into apension�by deduction from the member�s employer benefitafter it is converted to a pension;


� in any other case�by deduction from the member�s employerbenefit before it is paid as a lump sum.

CChhaannggeess ttoo tthhee SSIISS AAcctt

Statutory Rule No. 175/1998 of 30 June 1998 made variouschanges to the SIS regulations. The most significant of thesechanges for MSBS members are the restriction from 1 July 1999on the lump sum that can be accessed in cash on ceasingmembership before preservation age, and the gradual increase inthe preservation age from 55 to 60 for those born on or after1 July 1960.

These changes have been reflected in the scheme rules by theMilitary Superannuation and Benefits Amendment Trust Deed 1999(No. 2) effective from 1 July 1999.

DDeetteerrmmiinnaattiioonnss

Twelve determinations were made during the year setting thecrediting interest rate for the 1998�99 financial year and theprevailing exit interest rate applicable during the period of schememembership.

Five determinations were made setting the interest rate andpreconditions to the payment of interest in the period after abenefit becomes payable.


AAppppeennddiixx 99:: CCoommpplliiaannccee

While this report is not a Departmental annual report, theAuthority has endeavoured to comply with the �Requirements forDepartmental Annual Reports�, where applicable. Details ofComSuper�s operations are provided in the Commissioner forSuperannuation Annual Report 1996�97. Annual reportingrequirements that are met in the Commissioner forSuperannuation�s report are indicated below by an asterisk.

RReeqquuiirreemmeenntt PPaaggee

Letter of transmittal iiiAids to access

Table of contents v�viAlphabetical index 97Compliance index 96Glossary 87

Corporate overview *Organisation chart 59Social justice and equity *Internal and external scrutiny *Industrial democracy *Occupational health and safety *Freedom of information 54

Program performance reporting 7Staffing overview *Financial statements 63


IInnddeexx

AAaccount maintenance 18, 35, 39

contributor 18pensioner 39preserved benefit member 35

accounting services 55Administrative Agreement 13, 60administrative arrangements 59administrator. See ComSuperAnnual Effectiveness Reviews 16asset allocation 8audit activity and results 56audit adviser. See KPMGAudit Committee 13, 56Auditor-General 58Australian Bureau of Statistics 46Australian Defence Force 1, 2, 15, 27, 31Australian Government Actuary 21Australian Prudential Regulation Authority

38Australian Taxation Office (ATO) 20, 21

BBBarclays Global Investors N.A. 86beneficiaries 59benefits 27, 29

accounts, records and funding ofpayments 34

employer-financed 29, 30, 38, 43early release of 38

invalidity 31payable on discharge 29payments 27, 36, 43preserved 35productivity 29reversionary 46

Board Committees 13Board of Trustees 2, 13, 59, 60

CCChairman�s overview viiiChairperson xi, 2, 13Chief of the Defence Force (CDF) 2Clayton Utz xiclient feedback 16, 17Commissioner for Superannuation 13Commonwealth Funds Management Ltd

86

communications xcontributor 23pensioner 40preserved benefit member 36

compliance 96ComSuper ix, 12, 13, 16, 57, 58, 59, 60Consumer Price Index (CPI) 46contact officer 93contribution remittances 21contributions 19, 20contributor composition 18, 19contributors 18, 20, 59counselling and inquiry services 26, 41Credit Suisse Investment Management

(Australia) 86crediting rate 9custodial services 6, 57, 58

DDDefence Force Retirement and Death

Benefits (DFRDB) Scheme 1, 18, 26, 29defensive assets 4delegations 13Department of Defence 13, 59, 60dispute resolution 48

avenues of review 48external review 51inquiries and complaints 52internal reconsideration 48

EEevaluation 16exit rate 10, 11exits 20

FFfinancial resources 60Financial Sector Reform (Amendments and

Transitional Provisions) Act (No. 1) 199994

financial statements 63audit of 58

freedom of information 54Freedom of Information Act 1982 54Freedom of Information Unit 54Fund cash flow 22Fund growth 7fund managers 6, 14, 59, 86


GGglossary 87governance x, 12growth assets 4

HHhuman resources 60

IIIncapacity Classification Committee (ICC)

31, 32invalidity 32

classification process 32classifications 33, 45retirement causes 33, 34retirements by classification 33

investment ix, 4management 5objectives ix, 4policy 4strategy 5

investment adviser. See IPAC PortfolioManagement Ltd

IPAC Portfolio Management Ltd ix, 4, 57,59

KKKPMG ix, 56, 57, 58

LLlegal adviser. See Clayton Utzlegislation 94lump sum 30

MMmaster custodian. See State Street Australia

Ltdmember statements 26, 27Military Super News 25Military Superannuation and Benefits Act

1991 (the MSB Act) iii, 1, 57, 60, 94Military Superannuation and Benefits

Amendment Trust Deed 1999 (No. 1) 94Military Superannuation and Benefits Fund

No. 1 iii, 1, 59, 60Military Superannuation and Benefits

Scheme (MSBS) 1, 18in brief 61organisational structure 59

Military Superannuation CommunicationAdvisory Group (MSCAG) 14, 25

Minister Assisting the Minister for Defence2, 59

Minister for Finance and Administration 2Morgan Grenfell Australia 86Morgan Stanley Australia Ltd 6, 58MSB Fund �Annual Report to Members� 27MSB Rule 17 32

PPpension increase 46pensioners 39

annual notice to 47Portfolio Partners Ltd 86preserved benefit members 35publications 88

QQQuality Service Index (QSI) 16

RRReconsideration Advisory Committee (RAC)

48, 49reconsideration of decisions 50Retired Member Advisory Service 41review of invalidity classifications 45

SSservice charters 89

contributors 89pensioners 91preserved benefit members 90

State Street Australia Ltd ix, 6, 58, 59, 86Superannuation Industry (Supervision) Act

1993 (the SIS Act) 12, 27, 57, 95surcharge 20Surcharge Contributions Tax (Assessment

and Collection) Act 1997 20

TTTower Portfolio Management Australia 86

WWwebsite development 27Wellington Management Company 86Westpac Investment Management Ltd 86


YYYear 2000 Information Disclosure Act 1999

16Year 2000 readiness x, 15, 56

The Military Superannuation and Benefits ... - csc.gov.au · Page iii The Hon. Bruce Scott, MP...

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