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Note 6.1: Employee provisions

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6.1 Employee provisions1, 2

    2016 2015
  Notes $'000 $'000

6.1A: Employee provisions

     
Leave   60,343 43,743
       
Employee provisions expected to be settled      
No more than 12 months   22,246 17,080
More than 12 months   38,097 26,663
Total employee provisions   60,343 43,743
       

6.1B: Administered - employee provisions

     
Leave   2,049 1,349
       
Employee provisions expected to be settled      
No more than 12 months   1,004 700
More than 12 months   1,045 649
Total employee provisions   2,049 1,349

Accounting policy

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of balance date are measured at their nominal amounts.

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

Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period.

Leave

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

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

The methodology for calculating the liability for long service leave was confirmed by reference to the work of an actuary who is periodically retained by the Department. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Separation and redundancy

Provision is made for separation and redundancy benefit payments. The Department recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

Superannuation

The majority of the staff of the Department are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap).

The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported by the Department of Finance’s administered schedule and notes.

The Department makes employer contributions to the CSS and PSS employee superannuation scheme at rates determined by an actuary to be sufficient to meet the cost to the Government for the superannuation entitlements of the Department’s employees. The Department accounts for the contributions as if they were contributions to defined contribution plans.

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

Accounting judgments and estimates

The Department recognises the present value of the superannuation provision associated with the pension scheme for former Solicitors-General. At 30 June each year, the Australian Government Actuary will normally undertake an actuarial assessment of the scheme.

Notes

1 On 15 December 2014, the Government announced that it would consolidate the Australian Government Solicitor (AGS) within the Attorney-General’s Department with effect from 1 July 2015. Assets and liabilities for AGS have been consolidated into the Department’s financial statements for the first time in the 2015–16 financial year. As a consequence, both assets and liabilities may be materially different to the comparative shown in the 2014–15 financial year.

2 In accordance with the Administrative Arrangements Order of 21 September 2015, the Classification, Copyright and Arts and Cultural Development programs and functions were transferred to the Department of Communications and the Arts with effect from 1 November 2015. Accordingly, both assets and liabilities may be materially different to the comparative shown in the 2014–15 financial year.

    2016 2015
  $'000 $'000

6.1C: Superannuation provision – former Solicitors-General pension

     
Present value of defined benefit obligations at end of the year   5,869 5,600
       
Personal benefits provisions expected to be settled      
No more than 12 months   422 400
More than 12 months   5,447 5,200
Total employee provisions   5,869 5,600

Accounting policy

Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur.

Scheme information

Pension payments to former Solicitors-General are made under the Judges’ Pension Scheme. The Judges’ Pension Scheme is a defined benefit scheme. It provides 60% of the appropriate current judicial salary for eligible retired judges. The scheme is unfunded. Members do not contribute towards the cost of benefits.

Benefits payable (including payments of surcharge debt) under the Judges’ Pension Act 1968 and the Superannuation (Productivity Benefit) Act 1988 are paid from consolidated revenue on an emerging (or pay-as-you-go) basis.

Reconciliation of the present value of the defined benefit obligation      
Net liability at 1 July   (5,600) (5,800)
Interest cost   (199) (200)
Actuarial gains/(losses)      
Experience   (96) 86
Changes in financial assumptions   (392) (100)
Benefits paid   418 414
Net liability at 30 June   (5,689) (5,600)
       
Reconciliation of the fair value of scheme assets      
Opening fair value of scheme assets   - -
Employer contributions1   (418) (414)
Benefits paid   418 414
Closing fair value of scheme assets   - -

Reconciliation of the net surplus/(deficit) to recognised assets and liabilities in the schedule of assets and liabilities administered on behalf of Government

Cumulative amount of actuarial gains and losses recognised in administered equity

For the period ended  30 June 30 June
  2016 2015
$'000 $'000
Cumulative amount of actuarial gains (488) (14)

Total expense recognised in the schedule of comprehensive income administered on behalf of Government

For the period ended  30 June 30 June
  2016 2015
$'000 $'000
Interest cost 199 200
Net superannuation expense 199 200

Scheme assets

The scheme is an unfunded arrangement with no assets.

Expected rate of return on scheme assets

The expected return on assets assumption is not relevant as the scheme is an unfunded arrangement with no assets.

Principal actuarial assumptions at the balance sheet date

For the period ended  30 June 30 June
  2016 2015
$'000 $'000
Discount rate 3.70% 3.70%
Expected salary increase rate 4.00% 4.00%
Expected pension increase rate 4.00% 4.00%

Other material assumptions

The demographic assumptions used as at 30 June 2014 are those used for the preparation of the long-term cost report for the Judges’ Pension Scheme as at 30 June 2011. The demographic assumptions used as at 30 June 2015 are those used for the preparation of the long-term cost report for the Judges’ Pension Scheme as at 30 June 2014.

Historical information

For the period ended  30 June 30 June 30 June
  2016 2015 2014
$'000 $'000 $'000
Present value of defined benefit obligation 5,869 5,600 5,800
Surplus/(deficit) in scheme 5,869 5,600 5,800
Experience adjustments gain/(loss) – scheme liabilities (488) (14) (310)

Notes

1 The expected employer contributions in respect of 2016–17 are $422,000.

Funding arrangements for employer contributions

Contribution recommendations

The scheme is unfunded. The defined benefits are not funded in advance.

Funding method

Where a benefit in the scheme becomes payable, the Australian Government assumes responsibility for the payment from the Consolidated Revenue Fund.

Economic assumptions

The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2014 were:

Expected rate of return on assets (discount rate) 3.7%
Expected salary increase rate 4.0% + a promotional salary increase scale
Expected pension increase 4.0%

Nature of asset/liability

The Department has recognised a liability in the schedule of administered assets and liabilities in respect of its defined benefit superannuation arrangements administered on behalf of the Government. The pension scheme for former Solicitors-General does not impose a legal liability on the Department to cover any deficit that exists in the scheme.

The liability instead rests with the Australian Government. The Government has established the Future Fund for the purpose of accumulating assets to help meet this liability. The Future Fund is also intended to cover other superannuation unfunded liabilities, including in relation to military schemes, Commonwealth public servants and Governors-General.

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