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 Note 2: People and relationships

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This section describes a range of employment and post employment benefits provided to our people and our relationships with other key people

2.1 Employee benefits expense1

2.1A: Employee benefits

  2018
$'000
2017
$'000
Wages and salaries 157,467 166,970
Superannuation
Defined benefit plans 14,904 17,661
Defined contribution plans 10,938 10,557
Leave and other entitlements 18,574 16,158
Separation & redundancies 480 1,667
Other employee benefit expenses
Recruitment and security vetting expenses 1,411 1,671
Health & wellbeing payments to staff 742 750
Study assistance 397 571
Other employee expenses 834 1,345
Total employee benefits 205,747 217,350
     

2.1B: Administered − employee benefits

Wages, salaries, leave and other entitlements Superannuation 14,802 41,619
Defined benefit plans 19
Defined contribution plans 1,653 4,098
Other employee benefits 119 753
Total employee benefits 16,574 46,489

Employee provisions1

2.2A: Employee provisions

   
2018 2017
  $'000 $'000
Leave 49,331 64,326
Superannuation – Australian Government Solicitor 4,240 3,749
53,571 68,075
     

2.2B: Administered − employee provisions

Leave 2,619

1In accordance with the Administrative Arrangements Orders of 20 December 2017 and 10 May 2018, national security, commonwealth emergency management, natural disaster relief and Australian Government Disaster Recovery Payment programs and functions were transferred to the Department of Home Affairs.

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2.3: Superannuation provision − former Solicitor−Generals' pensions

  2018 2017
  $'000 $'000
Present value of defined benefit obligations at end of the year 5,912 5,671
 

Personal benefits provisions expected to be settled

No more than 12 months 446 442
More than 12 months 5,466 5,229
Total personal benefits 5,912 5,671
 

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

  30 June 30 June
  2018 2017
As at $'000 $'000
Defined benefit obligation 5,912 5,671
Net superannuation liability 5,912 5,671
 

Cumulative amount of actuarial gains and losses recognised in administered equity

  30 June 30 June
  2018 2017
For the period ended $'000 $'000
Actuarial gains/(losses) (501) (81)
 

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

  30 June 30 June
  2018 2017
For the period ended $'000 $'000
Interest cost 191 153
Net superannuation expense 191 153

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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 Solicitor−Generals are made under the Judges' Pensions Scheme. The Judges' Pensions 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' Pensions 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 (5,671) (5,869)
Interest cost (191) (153)
Actuarial gains/(losses)    
experience (171) (315)
changes in financial assumptions (330) 234
Benefits paid 451 432
Net liability at 30 June (5,912) (5,671)
     

Reconciliation of the fair value of scheme assets

Opening fair value of scheme assets
Employer contributions (451) (432)
Benefits paid 451 432
Closing fair value of scheme assets

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Scheme assets:

The scheme is an unfunded arrangement with no assets.

Expected rate of return on scheme assets:

As the fund has no assets, the expected rate of return on the scheme's assets is zero.

Principal actuarial assumptions at the balance sheet date:

For the period ended 30 June
2018
$'000
30 June
2017
$'000
Discount rate 3.10% 2.70%
Expected salary increase rate 4.00% 4.00%
Expected pension increase rate 4.00% 4.00%
Historical information:
For the period ended 30 June
2018
$'000
30 June
2017
$'000
30 June
2016
$'000
Present value of defined benefit obligation 5,912 5,671 5,869
Surplus/(deficit) in scheme 5,912 5,671 5,869
Experience adjustments gain/(loss) − scheme liabilities (501) (81) (488)

The expected employer contributions in respect of 2018−19 are $446,000.

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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 2018 were:

Expected rate of return on assets (discount rate) 3.1% + a promotional salary increase scale
Expected salary increase rate 4.0%
Expected pension increase 4.0%
Sensitivity analysis

A sensitivity analysis was undertaken whereby the sensitivity for salary related items was +/− 0.5 percentage points and the interest sensitivity was +/− 0.5 percentage points. Pensions are linked to the movements in the salaries paid to Judges. The results are not sensitive to changes in assumed CPI increases. The sensitivity analysis results are set out below:

Defined benefit obligation
Reported          $5.9m
Interest rate (−0.5%)   $6.2m
Interest rate (+0.5%)  $5.6m
Pension increases (+0.5%)      $6.2m
Pension increases (−0.5%)                                                                    $5.6m

The interest rate and probability weighted mean term of the liabilities is 10.0 years.

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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 scheme does not impose a legal liability on the department to cover any deficit that exists.

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.

Accounting Policy

Employee benefits

Liabilities for 'short−term employee benefits' (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve 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 department's staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) or the PSS accumulation plan (PSSap) or other superannuation funds held outside the Australian Government.

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.

Accounting judgements and estimates

The department recognises the present value of the superannuation provision associated with the former Solicitor−Generals' Pension Scheme.  At 30 June each year the Australian Government Actuary will normally undertake an actuarial assessment of the scheme.

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Key management personnel remuneration1

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the department, directly or indirectly, including any director (whether executive or otherwise) of the department. The department has determined the key management personnel to be the Secretary, Deputy Secretaries, and Chief Financial Officer. Key management personnel remuneration is reported in the table below:

  2018
$'000
2017
$'000
     
Short−term employee benefits
Salary 2,178 2,410
Performance bonuses 35
Other2 47 35
Total short−term employee benefits 2,225 2,480
     
Post−employment benefits
Superannuation 316 396
Total post−employment benefits 316 396
     
Other long−term employee benefits
Annual leave accrued 156 179
Long service leave 69 66
Total other long−term employee benefits 225 245
     
Total key management personnel remuneration expenses3 2,766 3,121

1The above key management personnel remuneration excludes the remuneration and other benefits of the Attorney−General. The Attorney−General's remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the department. The role of the Minister for Justice ceased to exist as a result of the Administrative Arrangements Order of 20 December 2017. Note 2.4 was prepared on an accrual basis.

2Other includes motor vehicle, other allowances and reportable fringe benefits.

3 The key management personnel remuneration included all substantive key management personnel and extended acting arrangements for the full year.

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2.5: Related party disclosures

Related party relationships:

The department is an Australian Government controlled entity. Related parties to this department are key management personnel including the Portfolio Minister and the Secretary, Deputy Secretaries, the Chief Operating Officer and the Chief Financial Officer, and other Australian Government entities.

Transactions with related parties:

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include the payment or refund of taxes, receipt of a Medicare rebate or higher education loans. These transactions have not been separately disclosed in this note.

Transactions with related parties of the department have occurred within normal customer or supplier relationship on terms and conditions no more favourable than those which it is reasonable to expect the department would have entered into on an arm's−length basis. These transactions have not been separately disclosed.

Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the department, it has been determined that there are no related party transactions to be separately disclosed.

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