report on the actuarial investigation as at 30 june 2015 -...

REPORT ON THE ACTUARIAL INVESTIGATION AS AT 30 JUNE 2015

BHP Bil l i ton Superannuation Fund

3 0 M AR C H 2 0 1 6

Issued by Russell Employee Benefits Pty Ltd ABN 70 099 865 013, AFSL 220705 (REB).This document has been prepared for the trustee for the

BHP Billiton Superannuation Fund and has not been prepared for use as financial product advice to any third party, such as an employer or a

member of the superannuation fund. It is important to note that there has been no consideration of any third party’s objectives, financial situation or

needs taken into account when preparing this document. The information has been compiled from sources considered to be reliable, but is not

guaranteed. Past performance is not a reliable indicator of future performance. REB is paid on a fee for service basis. REB is part of Russell

Investments which provides investment management and consulting services to institutions, superannuation funds, employers and

individuals. REB’s Financial Services Guide is available from www.russellinvestments.com.au or by calling (02) 9229 5111.

http://www.russellinvestments.com.au/

T i t l e P a g e

TABLE OF CONTENTS

1 EXECUTIVE SUMMARY ---------------------------------------------------------------------------------------------------------------------------------------------------------- 1

2 INTRODUCTION -------------------------------------------------------------------------------------------------------------------------------------------------------------------- 5

3 OVERVIEW OF THE FUND ------------------------------------------------------------------------------------------------------------------------------------------------------ 8

4 MEMBERSHIP ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- 9

5 ASSETS AND INVESTMENTS ------------------------------------------------------------------------------------------------------------------------------------------------ 12

6 FUNDING METHOD ------------------------------------------------------------------------------------------------------------------------------------------------------------- 19

7 EXPERIENCE AND ASSUMPTIONS ---------------------------------------------------------------------------------------------------------------------------------------- 21

8 EXPERIENCE AND ASSUMPTIONS - FINANCIAL --------------------------------------------------------------------------------------------------------------------- 22

9 EXPERIENCE AND ASSUMPTIONS - DEMOGRAPHIC -------------------------------------------------------------------------------------------------------------- 27

10 SOLVENCY AND OTHER MEASURES OF FINANCIAL POSITION ----------------------------------------------------------------------------------------------- 32

11 DETERMININATION OF COSTS UNDER THE AGGREGATE FUNDING METHOD -------------------------------------------------------------------------- 37

12 VALUATION RESULTS --------------------------------------------------------------------------------------------------------------------------------------------------------- 41

13 SENSITIVITY OF ASSUMPTIONS ------------------------------------------------------------------------------------------------------------------------------------------- 45

14 CONSIDERATION OF PENSION LIABILITIES --------------------------------------------------------------------------------------------------------------------------- 50

15 INSURANCE ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- 51

16 MATERIAL RISKS ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 56

17 STATEMENTS REQUIRED UNDER REGULATION 23(H) OF SPS 160 ------------------------------------------------------------------------------------------ 59

APPENDIX A - APPENDIX ASUMMARY OF BENEFITS AND CONDITIONS -------------------------------------------------------------------------------------------- 62

APPENDIX B - SUMMARY OF ACTUARIAL ASSUMPTIONS ---------------------------------------------------------------------------------------------------------------- 72

APPENDIX C - STATEMENT OF CHANGES IN NET ASSETS FOR THE FUND FOR THE PERIOD 1 JULY 2013 TO 30 JUNE 2015----------------- 76

1 EXECUTIVE SUMMARY

1.1 I am pleased to present my report to the Trustee of the BHP Billiton Superannuation Fund (the

Trustee), PFS Nominees Pty Ltd, on the actuarial investigation into the BHP Billiton Superannuation

Fund (the Fund) as at 30 June 2015.

1.2 I, Tony Miller, carried out the previous triennial actuarial investigation of the Fund as at 30 June

2013. The results of the investigation were presented in my report dated 25 June 2014. I also

carried out an annual investigation as at 30 June 2014 (in my report dated 30 April 2015) which was

undertaken to meet the legislative requirements for funds providing defined benefit pensions, (i.e. to

provide an opinion in relation to the payment of defined benefit pensions from the Fund).

Investigation of Defined Benefit Liabilities Only

1.3 The Fund provides benefits in respect of both defined benefit and defined contribution liabilities. The

purpose of this valuation is to investigate the financial condition of the Fund with respect to defined

benefit liabilities only.

1.4 I note that as at 30 June 2015, based on asset information from the Fund financial statements at that

date, the amount of Fund assets directly attributable to defined contribution liabilities, exceeded the

corresponding liabilities. It may therefore be seen that the defined contribution liabilities are more

than fully funded. I am therefore satisfied that there is currently no feature of the defined contribution

section of the Fund which would adversely affect the recommendations of this investigation with

respect to the defined benefit liabilities.

Defined Benefit Membership

1.5 As at 30 June 2015, there were 294 members in the Defined Benefit Division (“DB”) of the Fund with

annual salaries totalling . In addition, there were 134 current lifetime pensioners at 30

June 2015, with pensions totalling p.a..

Valuation Results

1.6 We have assessed the financial position of the Fund on an ongoing basis. The following financial

assumptions were used in the valuation:

(i) Rate of Investment Return:

Year DB active

members

Lifetime

pensioners

2015/16 2.85% p.a. 4.0% p.a.

From 30 June 2016 2.7% p.a. 3.9% p.a.

(ii) Rate of Salary Increases 3.6% p.a.

1.7 The corresponding effective gap between the net investment earning rate and the salary inflation

rate is -0.75% p.a. for the year to 30 June 2016 and -0.90% p.a. thereafter. In the previous triennial

investigation as at 30 June 2013, an effective gap of 0% p.a. was assumed (from 1 July 2015).

1.8 As at 30 June 2015, the ratio of the value of assets to vested benefits for DB members including the

lifetime pensioners (the “DB VBI”) was 107.4%.

1.9 Deducting the value of the South32 notional reserve from the assets and the value of the vested

benefits of South32 DB members from the total DB vested benefits as at 30 June 2015, the value of

the DB VBI (excluding South32) was 108.0% as at that date.

1.10 Based on the asset information in the financial statements of the Fund as at 30 June 2015, the VBI

for the entire Fund was 100.9% as at 30 June 2015.

1.11 Under SIS Regulation 9.04, a defined benefit fund is defined to be in an ‘unsatisfactory financial

position’ if the value of the assets of the fund is inadequate to cover the value of the liabilities of the

fund in respect of benefits vested in the members of the Fund. The actuarial investigation of the

Fund at 30 June 2015 revealed that the Fund was not in an unsatisfactory financial position at that

date and the Fund remained technically solvent.

1.12 For the purposes of projecting the Fund’s financial position after 1 July 2015, we took into account

the successor fund transfer of the South32 employees as at 31 October 2015, known exits post

30 June 2015 and 1 September 2015 salary increases that had been advised to us. On this basis,

our projection of the Fund’s financial position from 1 July 2015 for a period of 10 years shows that,

the DB VBI is expected to continue to be over 100%, assuming that the employer continues to

contribute at the current rate of 31.6% of salaries. This indicates that, on an ongoing basis and on

the basis of the actuarial assumptions, it is expected that the assets of the Fund should be more than

sufficient to continue to cover the benefits of active members and the required pension payments.

1.13 Under Rule A.11.5 of the Trust Deed, I recommend that BHP Billiton contributes the following in

respect of active members of the Fund:

At the rate of 31.6% of superannuation salaries in respect of members of Parts 1, 2 and 9;

Accumulation members

In accordance with Rule 2.2 of Section A and Rule 3 of Section B of Part 10 in respect of Part 10

members;

In accordance with Rule B.17A.2.2 of Section A and Rule B.17B.3 of Section B of Part 17 in

respect of Part 17 members;

In accordance with Rule B.19.3 of Section B of Part 19 in respect of Part 19 members; and

In accordance with Rule A.11.1A in respect of members who are receiving deemed member

contributions.

1.14 I understand that the Company, at its discretion, may wish to make additional top-up contributions by

respective Reporting Entities following the end of each financial year if the salary increases

http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s13.22d.html#asset

http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.03.html#fund

http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.03.html#member

http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.03.html#fund

experienced by members of the Reporting Entity during the year exceed the assumed rate used for

Company accounting reporting purposes. The additional contributions would be the amount advised

by the Fund’s actuary as the increase in Fund liabilities arising in respect of the higher than assumed

rates of salary increase, adjusted for contribution tax.

1.15 I also understand that the Company, at its discretion, may wish to make additional top up

contributions if it is determined that there is a financial strain in respect of the pensioner liabilities.

1.16 I recommend that the Trustee continues to monitor the financial position of the Fund on a quarterly

basis in line with the reporting requirements to APRA. If the Fund’s experience is significantly

different from our assumptions, it may be necessary to review the recommended level of

contributions. The Trustee or Employer can initiate an interim actuarial review and new contribution

recommendation at any time if there is concern that the Fund is approaching a level where the VBI is

less than 100%. Should the VBI fall below 99% (the current shortfall limit) an interim investigation

may be required under the superannuation legislation requirements as set out in Superannuation

Prudential Standard SPS 160.

1.17 I also recommend the Minimum Requisite Benefit (MRB) as coded in the administration system be

reviewed to avoid any risk of the members receiving a benefit payment that is lower than the MRB

and to facilitate required reporting to APRA.

1.18 In respect of the Fund’s insurance arrangements, I advise that having regard to the preference of the

Trustee, the retention of the reserves which have been established within the Fund to cover the

potential benefits payable to those members who are not fully covered by the appointed insurer (but

not topped up in the event of a claim payment against these reserves) is recommended unless

otherwise advised by the Actuary.

1.19 In respect of the investment arrangements, I recommend that the Trustee satisfy itself that the tax

treatment of the investment vehicles used satisfactorily provides for the opportunity for the assets

backing the pensioner liabilities to be tax free.

1.20 The Fund has received from APRA an exemption from the requirement for plans paying pension

benefits to have an annual valuation until 30 June 2016, the then scheduled date for the next

triennial valuation. With this current valuation being conducted with an effective date of 30 June

2015, it is recommended that the Trustee now seek exemption from the 30 June 2016 and 30 June

2017 valuations.

1.21 I note that there are sufficient assets in the DB Operation Reserve (#184) and the Cash Reserve

(attributable to DC) as at 30 June 2015 to repay the loan from DB to DC. I recommend that the

Trustee should ensure that they are satisfied that these assets are available to repay the loan when

required and are not set aside for any other purpose.

1.22 In undertaking the analysis required for the preparation of the recommendations of this review we

have assumed that those members who are eligible to receive a pension on retirement would be

able to select the pension option upon retirement after the early retirement age of 55. However with

the scheduled program of increases in the preservation age from 55 to 60 there is doubt as to

whether a member would be able to select the pension offered by the Fund unless they had attained

the applicable preservation age. We have selected the more conservative financial assumption that a

member would continue to be able to take a pension on retirement at or after age 55 for the purpose

of this actuarial investigation pending final resolution of this matter.

1.23 I am not aware of any other event since 30 June 2015 that warrants review of the recommendations

in this report.

Tony Miller

Fellow of the Institute of Actuaries of Australia

30 March 2016

I confirm that this actuarial investigation report satisfies Russell Investment Group’s Quality Assurance

standards and meets the requirements of Professional Standard 400 of The Institute of Actuaries of

Australia.

Gabrielle Baron


30 March 2016

Russell Investments Level 13 8 Exhibition Street MELBOURNE VIC 3000

2 INTRODUCTION

Background

2.1 The Trust Deed of the BHP Billiton Superannuation Fund (the Fund) requires the Trustee to request

that the actuary undertakes an actuarial investigation of the Fund at least every three years, or more

frequently if required by Superannuation Law. The actuary is required to report on the results of the

investigation within such periods and in such manner as required by Superannuation Law having

regard to the state and sufficiency of the Fund with respect to the present and future liabilities and to

make any recommendations as the actuary sees fit. The report of the actuary is provided to the

Trustee who in turn is required to provide a copy to the Company.

2.2 The most recent triennial investigation of the Fund was undertaken as at 30 June 2013 and,

accordingly, the next triennial investigation was due as at 30 June 2016. This triennial investigation

has been undertaken as at the earlier date of 30 June 2015 at the request of BHP Billiton, the

Principal Employer of the Fund, with the approval of the Trustee following the successor fund

transfer of South32 members.

2.3 As part of this investigation, BHP Billiton has requested that we consider the impact of the South32

demerger, the large number of recent exits of DB members (including the post 30 June 2015 exits)

and post 30 June 2015 salary increases.

Purpose of the Investigation

2.4 This investigation is made as at 30 June 2015 and is presented to PFS Nominees Pty Ltd, the

Trustee of the Fund, by the Actuary to the Fund, Tony Miller, FIAA.

2.5 Under the provisions of the Superannuation Industry (Supervision) Act 1993 (“SIS”):

an actuarial investigation and report are due every three years; and

the investigation must consider the solvency and financial position of the Fund both as at the

investigation date and during the ensuing three years.

2.6 The main aims of the investigation are:

to examine the current financial position of the Fund;

to provide advice to the Trustee on the contribution rate at which the employer should

contribute under Rule A11.5 and comment on the appropriateness of the Funding Plan

adopted by the Trustee;

to meet the requirements of the Trust Deed and the relevant superannuation legislation with

respect to the conduct of actuarial investigations;

to meet the reporting requirements of Superannuation Industry Supervision Regulation 9.31

and SPS160; and

to provide advice on any other matters the actuary considers relevant.

2.7 This report also satisfies the requirements of the Professional Standard 400 and Guidance Note 465

of the Actuaries Institute regarding the investigation of the financial condition of defined benefit

superannuation funds.

2.8 The Fund provides benefits in respect of both defined benefit and defined contribution liabilities. The

purpose of this valuation is to investigate the financial condition of the Fund with respect to defined

benefit liabilities only.

2.9 It is noted that APRA Prudential Standard applicable to the management of defined benefit funds,

SPS 160, requires annual actuarial valuations of superannuation funds which pay defined benefit

pensions, such as the Fund. The Trustee has received an exemption from this requirement from

APRA for an annual valuation as at 30 June 2015 with the next valuation being due as at 30 June

2016. I recommend that the Trustee now consider seeking an exemption for the 30 June 2016 and

30 June 2017 annual valuations.

Previous Actuarial Investigation

2.10 I carried out the previous triennial actuarial investigation of the Fund on behalf of Russell Employee

Benefits as at 30 June 2013 (“the 2013 report”) and the results were presented in a report dated

25 June 2014.

2.11 The 2013 report recommended that the Employer contributes the following to the Fund:

At the rate of 31.6% of superannuation salaries in respect of members of Parts 1, 2 and 9 until

30 June 2017;

Accumulation members

In accordance with Rule 2.2 of Section A and Rule 3 of Section B of Part 10 in respect of Part 10

members;

In accordance with Rule B.17A2.2 of Section A and Rule B.17B.3 of Section B of Part 17 in


In accordance with Rule B.19.3 of Section B of Part 19 in respect of Part 19 members; and

In accordance with Rule A.11.1A in respect of members who are receiving deemed member

contributions.

2.12 I understand that the Company, at its discretion, may wish to make additional top-up contributions by






2.13 I confirmed these funding recommendations in my actuarial investigation of the Fund as at 30 June

2014 which was primarily undertaken to meet the legislative requirements for funds providing defined

benefit pensions, (i.e. to provide an opinion in relation to the payment of defined benefit pensions

from the Fund).

2.14 I understand that the Company has been making contributions on this basis.

South32 Demerger

2.15 As at 25 May 2015, as a result of the demerger of South32 from BHP Billiton, several employing

entities which were legal entities of South32 became Temporary Participating Employers (TPEs) of

the Fund. There were 53 DB members of the Fund employed by the TPEs at that date.

2.16 In accordance with the Deeds of Temporary Adherence (DTAs) which set out the terms of the

temporary participation of the TPEs, a DB Transfer Amount was determined as at 25 May 2015

reflecting “the amount of DB Assets calculated as at the Effective Date, for the purposes of this

deed, by the Trustee on the advice of the Actuary, which would be applicable to the DB TPE

Members if the TPE had ceased participation in the Fund on the Effective Date”.

2.17 From that date, the Trustee recorded the DB Transfer Amount as a notional reserve of the Fund for

tracking purposes only.

2.18 As at 1 November 2015, the DB members employed by the TPEs transferred to the Plum

Superannuation Fund by means of a successor fund transfer. This transaction involved the transfer

of the member liabilities and the DB Transfer Amount (and other assets in accordance with the

DTAs) as at that date to the new arrangement.

Other Key events since 30 June 2015

2.19 The investment return on the Fund assets since 30 June 2015 has been 0.2% to 29 February 2016.

This rate may be compared with the assumed investment return of 1.9% for the same period.

2.20 We note that there have been 78 exits (and notified exits) of DB members since 30 June 2015

(including the South32 employees), and one of these members elected to become a lifetime

pensioner. We have considered these exits as part of this investigation.

3 OVERVIEW OF THE FUND

3.1 The operations of the BHP Billiton Superannuation Fund (“the Fund”) are governed by a Trust Deed

dated 1 July 1926, as amended.

3.2 The Fund is a “regulated” fund under the Superannuation Industry (Supervision) Act and therefore

qualifies for concessional tax treatment.

3.3 There are seven categories of active membership of the Fund. Parts 1, 2 and 9 provide lump sum

and pension defined benefits i.e. benefits related to members’ period of membership and salary over

the last few years of membership. Parts 1, 2 and 9 are known as the Defined Benefit Division

(“DB”). In addition the Fund provides lump sum defined contribution benefits for Parts 10, 17, 18 and

19 (i.e. lump sum benefits related to net contributions and investment earnings thereon). Parts 10,

17, 18 and 19 are known as the Defined Contribution Division (“DCD”).

3.4 Parts 1, 2, 9, 10 and 18 are closed to new members. A detailed description of the benefits valued in

this investigation is included in Appendix A to this report.

Investment Arrangements

3.5 The Trustee has determined the strategic asset allocation for the DB assets in accordance with the

Dynamic Investment Strategy (DIS) reflecting BHP Billiton’s Global De-Risking Strategy. As at

30 June 2015, 20% of the DB assets were invested in “growth” assets (such as shares and property)

and the 80% balance was invested in “defensive” assets (such as fixed interest and cash).

3.6 The Fund’s assets in respect of Accumulation members and the additional accumulation accounts of

DB members are invested in accordance with the investment choices made by members with

accumulation balances.

Insurance Arrangements

3.7 The Fund currently provides death and disablement benefits for both DB and Accumulation

members of the Fund. The death and TPD benefits of each DB member are insured by TAL with the

amount of insured cover based on the estimated benefit less the member’s vested benefit.

3.8 The Fund retains a small amount of self-insured risk which is discussed further in Section 15 of this

report.

4 MEMBERSHIP

Membership Data

4.1 The Fund administrator (Plum) is responsible for maintaining member records, payment of benefits

and other administrative tasks as at 30 June 2015. Membership data was provided by Plum in

respect of members of the Fund as at 30 June 2015.

4.2 I have done reasonableness checks on the membership data to ensure that all dates, salaries and

other amounts were reasonable. Overall I am satisfied that the data provided is sufficiently accurate

for the purposes of this investigation. Although I have no reason to doubt the quality of the data, the

results of this investigation are dependent on the quality of the data provided.

4.3 I note that while the salary data supplied by Plum was the most up-to-date as provided to them by

the Company when conducting this investigation, some salary data remains to be reviewed which

may affect the results presented in this report.

Membership Summary

4.4 Since the previous triennial actuarial investigation, the number of DB members has decreased from

434 as at 30 June 2013 to 294 as at 30 June 2015 (including 53 members employed by South32).

This represents a decrease of 32% in the number of DB members. Details of the change in

membership are summarised below:

Number of DB Members

4.5 Key membership statistics of the members in DB as at 30 June 2015 are shown below:

Part 1 Part 2 & 9 Total

*Including membership of the (previous) fund and any additional years purchased.

4.6 As at 30 June 2015, there were Queensland-based DB members (including employed by

South32) and NSW-based DB members (who are all employed by South32) for whom their

employers also make contributions into AUSCOAL (which was formed by a merger of the

Queensland Coal Superannuation Fund and the New South Wales Coal Superannuation Fund). The

benefits ultimately payable out of the Fund to these members will be reduced to reflect the

accumulated value of those contributions. The AUSCOAL offsets applicable as at 30 June 2015

were estimated to be $

4.7 There were also current lifetime pensioners at 30 June 2015, with pensions totalling p.a.

and an average age of years. Details of the change in the number of pensioners, including

pension types, are summarised below:

Retirement TPD Spouse Child Total

Number of Pensioners as

at 30 June 2013

Plus: New Pensioners

Less: Terminated

Pensioners

Number of Pensioners as

at 30 June 2015

4.8 In addition, the Fund contained other membership groups (and account balances) as shown in the

following table:

Fund Part Number of

members

Total Account

Balances ($m)

Defined Contribution Division (Parts 10, 17, 18 & 19)

Spouse Account (Part 15)

Retained Benefits Division (Part 14)

Allocated Pensioners (Part 16)

Voluntary Account Balances (Parts 1, 2 & 9)

Totals for non DB liabilities

4.9 The value of these accounts were provided by Plum. They are consistent with the value of the

accounts shown in the Financial Statements as at 30 June 2015 of $3,411,282,000.

5 ASSETS AND INVESTMENTS

5.1 Financial information was obtained in the first instance from the audited financial statements of the

Fund as at 30 June 2015 and further information from Plum. The Fund’s Financial Statements as at

30 June 2015 were audited and signed on 23 October 2015 by Graeme McKenzie of Ernst & Young.

5.2 The statement of changes in net assets for the period 1 July 2013 to 30 June 2015 is shown in

Appendix C of the report.

Value of Assets

5.3 As at 30 June 2015, the total net market value of assets of the Fund available to pay benefits and

reserves, as stated in the audited financial statements was $3,751,504,000. This value includes the

Operational Risk Reserve (ORR) of $2,272,000 and the Litigation Reserve of $608,281 as at that

date. The value of total fund assets as at that date (excluding those reserves) is $3,748,624,000.

5.4 The value of the invested assets (excluding the assets directly attributable to defined contribution

accounts which includes additional voluntary accounts for defined benefit members) can be

summarised below:

Reserve Amount at

30 June 2015

Where the Reserve is held as at

30 June 2015

DB Reserve $268,099,476 DB Reserve Account #182

Self-Insurance Reserve $1,029,258 DB Reserve Account #183

DB Operation Reserve $7,961,633 DB Reserve Account #184

Free Insurance Reserve $11,881,853 DB Reserve Account #185

BHP litigation DB reserve $608,281 DB Reserve Account #186

Operation Risk Reserve $2,271,965 DB Reserve Account #275

South32 DB Reserve $44,882,881 DB Reserve Account #293

Cash Reserve $4,592,479

Value of the DB assets to be used for the DB VBI and DB ABI as at 30 June 2015

5.5 The composition of the value of the assets attributable to DB is as shown on the following page.

Value at 30 June 2015 ($)

DB Reserve Account Balance (#182) $268,099,476

South32 DB Reserve (#293)* $44,865,422

Plus DB to DC loan $11,319,307

Plus Free Insurance Reserve (#185) $11,881,853

Plus Cash Reserve (attributable to DB) $536,702

Plus Self-insurance reserve (#183)** $826,750

Less DB contribution tax payable ($747,476)

Net Value of assets supporting DB liabilities

*The ORR funding for 2014/2015 in respect of South32 members has been deducted from the South32 Reserve

for the purpose of these calculations.**We have taken into account the value of the self-insurance reserve as at

31 October 2015 as discussed in 5.7 below.

5.6 One of the DB assets is a loan of originally $8.0 million from DB to DC to establish an operating

reserve in 2011. The value of this loan has accrued at the rate of the investment return on Account

#182 to $11,319,307 at 30 June 2015 (which takes into account the DB share (excluding South32) of

the funding of the ORR in June 2015). On the basis of advice received from the administrator, I

understand that the DB Operation Reserve (#184) and the Cash Reserve (attributable to DC) are

designated to provide the funding to cover this loan. I note that as at 30 June 2015, the total value of

these reserves exceed the value of the loan. I believe that the Trustee should ensure that they are

satisfied that these assets are available to repay the loan when required and are not set aside for

any other purpose.

5.7 If the Fund was to be wound up and the vested benefits paid out to all members immediately, the

Free Insurance Reserve would remain part of the DB assets but would no longer be a liability of the

Fund. We have also considered the Self-Insurance Reserve a DB asset for VBI purposes as

recommended in my 30 June 2013 report. However, in determining the amount of the Self

Insurance reserve which may be counted as an asset, I have deducted any known liabilities

(excluding the South32 share of this reserve).

5.8 Note that these amounts of the Free Insurance Reserve and the Self Insurance Reserve are

included in both the DB assets and the DB liabilities for the purpose of calculating the DB ABI as

they represent an ongoing liability of the Fund.

5.9 Further details on the Free Insurance Reserve and the Self Insurance Reserves are provided in

section 12 of this report.

Value of the DB assets to be used for funding purposes as at 30 June 2015

5.10 For the purpose of determining assets for funding purposes (for the Aggregate funding method and

the projections of DB VBI and DB ABI), I have excluded the amount of the Free Insurance Reserve

and the Self Insurance Reserve from the DB assets as while they represent an ongoing, self-funded

liability of the Fund they are not included explicitly in the funding program determinations. We have

also adjusted the value of assets to take into account the expected ORR funding of 0.05% of DB

assets as at 30 June 2016 for funding purposes. The net value of assets supporting DB liabilities for

this purpose is set out below:



South32 DB Reserve (#293)* $44,865,422




Less estimated ORR funding as at 30 June 2016 ($157,218)

Net Value of assets supporting DB liabilities for funding

purposes


for the purpose of these calculations.

5.11 I have used these adjusted net market values of the DB assets for the purpose of assessing the

financial position of the DB. It should be noted that these values do not include the voluntary account

balances of DB members.

5.12 The results of this investigation are dependent on the quality of the asset information. Any changes

to the asset values above will have an impact on the outcome of the investigation and any resulting

recommendations.

P753459

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P753459

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Operational Risk Financial Requirement

5.13 Under APRA’s Prudential Standard 114 “Operational Risk Financial Requirement”, superannuation

plans are required to establish and maintain financial resources to address losses arising from

operational risks. This is referred to as the Operational Risk Financial Requirement (ORFR). These

requirements apply with effect from 1 July 2013. Under transitional arrangements, the Fund may

build the resources to meet the ORFR target amount immediately, or over a period of no more than

three years.

5.14 A plan must also have a documented strategy to determining, implementing, managing and

maintaining an ORFR target amount and suitable policies to manage the financial resources held to

meet the ORFR target, including a tolerance limit below which the ORFR requires replenishment.

5.15 We note that the Trustee has decided to adopt an ORFR of 0.11% for this fund. For the year ending

30 June 2014, a transfer of 0.02% of Fund assets was made from the Operation DB Reserve (#184)

to the ORR and for the year ending 30 June 2015, a transfer of 0.04% of Fund assets was made

from the Operation DB Reserve (#184) to the ORR. Adjustments were made to the loan amount

between DB and DC and from the South32 DB Reserve to reflect the appropriate share of this

funding. It is expected that the final tranche of funding (of 0.05% of assets) will occur in the year to

30 June 2016 (which has been reflected in the funding calculations in this investigation).

Investment Objectives

5.16 The Trustee has set investment objectives for each of the Fund’s five investment options available to

members and for the defined benefit assets of the Fund.

5.17 The DB investment objective is to maximise the return on investment, subject to reducing the

investment risk of the defined benefit portfolio over time and as the funding level improves. The

funding level used for this purpose is the financial position under International Accounting Standard

19 (IAS 19).

Investment Strategy

5.18 The Trustee has determined the DB strategic asset allocation, including the assets representing the

Free Insurance Cover Reserve, after consultation with the Fund’s investment consultant. The

Dynamic Investment Strategy (DIS) for the DB assets reflects BHP Billiton’s Global Risk

Management Framework and involves the progressive reduction in growth assets and consequent

increase in defensive assets to reduce investment risk as the Fund approaches a 100% funding level

on the IAS 19 basis. The asset allocation will change either when the Accrued Benefit Index (ABI) of

the defined benefits reaches specified threshold levels or on specific set dates, whichever comes

first. Specifically, when the ABI level reaches a “trigger point” or the target date is reached, the

proportion of defensive/growth assets will increase/decrease by 5%. The maximum level of

defensive assets under the DIS is 85% of the total assets which is expected to be met by 31 January

2016 (in accordance with the strategy).

5.19 The Fund’s assets in respect of DC liabilities are invested in accordance with the investment choices

made by members. Therefore, there is no mismatch between the actual returns earned by the

Fund’s DC assets and the returns credited to members’ DC accounts.

5.20 The target and actual allocations of the Fund’s DB investments to the various investment classes at

30 June 2015 are shown in the following table. The table shows the asset allocation at

30 June 2015 which is in line with the Dynamic Investment Strategy and the Company’s Global Risk

Management Framework:

Investment Sector Target allocation (%) Actual allocation (%)

Australian Shares 11.0% 10.9%

Global Shares Unhedged 4.0% 3.9%

Global Shares Hedged 4.0% 3.7%

Private Markets 0.0% 0.1%

Australian Property 0.0% 0.0%

Global Property Securities 1.0% 0.9%

Australian Fixed interest 0.0% 0.0%

Inflation Linked Securities 80.0% 80.4%

Cash 0.0% 0.0%

Total 100.0% 100.0%

*Note: Actual Asset Allocation may not equal 100% due to rounding

5.21 As at 30 June 2015, 20% of the DB assets were invested in “growth” assets (such as shares and

property) and the 80% balance was invested in “defensive” assets (such as index-linked bonds and

cash). It is expected that the DB assets will be invested in 15% “growth” assets and 85% “defensive

assets by 31 January 2016 in accordance with the DIS strategy.

5.22 It should be noted that these assets are currently held predominantly in the MLC Life No.2 Statutory

Fund. Investment income in respect of assets supporting pension liabilities are not subject to

taxation, provided appropriate certification is undertaken. This valuation has been conducted on the

basis that investment income in respect of pensioner assets is tax free. We are currently working

with the administrator to confirm that the tax treatment of the investment vehicles used for pensioner

assets are able to access this tax free status.

5.23 The Fund only has a small proportion of assets invested in illiquid assets and the likelihood of having

to sell the illiquid assets in the Fund on a forced sale basis is immaterial.

5.24 Subject to being satisfied with respect to the tax free status of the pensioner assets as noted above, I

believe that the investment objectives and strategy adopted by the Trustee continues to be

appropriate for a fund of this size and with the benefit design of the Fund, having regard to the risk

objectives of the sponsoring employer.

Crediting Rate Policy

5.25 The crediting rate policy relates to the crediting of investment earnings to accumulation accounts for

defined benefit members and defined contribution members.

Crediting Rates for Accumulation accounts – DC members and DB voluntary accounts

5.26 The Fund uses the movement in daily unit prices to credit investment earnings to members’

accounts. We consider this crediting rate policy adopted by the Trustee to be appropriate as it

minimises cross subsidies between different sections of the Fund and between different members.

We have not conducted an analysis of the application of this policy.

Crediting Rates for DB Members Only

5.27 The Trustee’s standard approach to determining Crediting Rates applied in respect of DB members

for MAC Accounts, Late Payment Interest or for Surcharge Accounts is as follows:

set Crediting Rates in arrears after the end of each month, determined by the actuary to

the Fund;

the Crediting Rate will be based on the actual “money weighted” investment return of

the assets supporting the particular liabilities, after investment fees and taxes; and

Crediting Rate information provided by the actuary will include the monthly rate and an

annualised rate on a simple basis (using days).

For the purpose of applying Late Payment Interest the rate is subject to a minimum of

zero.

Interim Crediting Rates

5.28 An ‘interim earning rate’ is required to allocate investment earnings to exiting members’ accounts for

the period from when the last Crediting Rate was effective to the date of exit. It is also used to

provide quote information to current members. As a principle, the Interim Rate should be a

reasonable proxy for the expected Crediting Rate over the next period and a simple measure to

calculate.

5.29 The standard Trustee Interim Rate:

is the 90 day bank bill rate (on the last working day of the prior month) adjusted for 15%

tax;

will be retrospectively overridden by the Crediting Rate;

is determined by the actuary to the sub-plan or fund; and

is an annualised rate.

5.30 I consider that the crediting rate policy currently adopted by the Trustee is appropriate.

DCD Assets

5.31 As part of undertaking this actuarial investigation, we compared the vested benefits of Accumulation

members with the estimated value of the assets deemed to be attributable to Accumulation

members. For the purpose of this determination, asset values were taken from the Fund financial

statements at 30 June 2015 and our calculations are as follows:

Value at 30 June 2015($ million)

Total net market value of assets of the Fund 3,751.5

Less: Estimated Defined Benefit Assets (excluding Self Insurance

Reserve and Free Insurance Reserve) (314.4)

Less: Operation Risk Reserve (2.3)

Less: Litigation Reserve (0.6)

Less: Free Insurance Reserve (11.9)

Less: Self Insurance Reserve (1.0)

Estimated value of assets available for Accumulation members* 3,421.3

Vested benefits for Accumulation members* 3,411.3

*It should be noted that the vested benefits and assets for Accumulation members includes the voluntary account balances

for DB members.

5.32 As can be seen from the table, the amount of assets attributable to Accumulation members exceeds

the comparable vested benefits by $10.0 m or 0.3% of assets available for Accumulation members.

Having regard to the operation of this Fund we would expect the surplus assets in respect of

Accumulation members to be of this magnitude.

6 FUNDING METHOD

General

6.1 Over the life of the Fund, the total income (mainly contributions and investment income) must be

sufficient to meet the total expenditure (mainly benefits and expenses). The funding method is the

method by which the actuary considers the long-term financial position of the Fund with a view to

ensuring the Fund’s assets will be sufficient over the long term to meet its liabilities as they arise.

6.2 In a defined benefit fund such as this, a pool of assets is built up over time that is available to meet

benefit and expense payments as they arise. The pool of assets is built up by member and

employer contributions and positive investment income on assets already accumulated. The pool is

reduced by benefit payments, tax, expenses and negative investment income.

6.3 The amount of benefits which the Fund will be liable to pay from the pool in future cannot be known

in advance since benefits depend on members’ salaries near their date of leaving, their completed

membership at that date, and their reason for leaving. The amount of future tax and expenses also

cannot be known in advance. It is therefore necessary to estimate these future liabilities and hence

the amount that will be required in the pool of assets. The estimate is based on a set of assumptions

about future experience. More details on the individual assumptions used are included in Sections 7,

8 and 9 of this report.

6.4 The amount in the pool of assets at any time is determined primarily by the level of contributions,

benefit outflows and investment income. The rate at which the employer contributes to the Fund is

usually the only variable inflow over which the employer can exercise significant control and is the

main determinant of the speed with which benefits are funded, i.e. the pace of funding of benefits.

The actuarial funding method is the basis for determining this contribution rate.

Funding Objective

6.5 The Superannuation Industry (Supervision) Act 1993 (SIS) and associated Regulations contain a

number of funding and solvency requirements.

6.6 SIS solvency standards consider the funding of Minimum Requisite Benefits, as well as the funding

of vested benefits. A failure to cover Minimum Requisite Benefits with the net realisable value of

assets results in “technical insolvency” and a requirement for a rigorous five year plan to restore

solvency.

6.7 In addition, Superannuation Prudential Standard (SPS 160), focuses strongly on having plans aim to

have assets in excess of vested benefits. This implies having a vested benefit index for defined

benefits (DB VBI) that is in excess of 100%. The DB VBI is the ratio of the market value of assets to

the corresponding total of vested benefits of members.

6.8 On this basis, the Fund has a funding objective which focuses on building assets to a level which

covers the vested benefits by a margin considered sufficient to provide security of member benefits

and stability of employer contribution.

6.9 For this valuation, we have adopted the actuarial financing objective of achieving and maintaining a

DB VBI of at least 105% over the period to the next actuarial investigation.

Funding Method

6.10 The Projected Benefit Funding Method will be used to assess the capability of the recommended

employer contributions to achieve the funding objective on the basis of the selected assumptions by:

Projecting members’ expected future Vested Benefits;

Projecting the expected future values of assets, and then

Assessing the ability of the Employer Contributions to achieve the funding objective, and if

necessary;

Determining alternative Employer Contributions considered necessary to achieve the funding

objective.

6.11 I would suggest that as the Fund is closed to new members and with consideration given to the

regulatory requirements, it is appropriate to use the Projected Benefit Funding method for this

valuation.

6.12 I have also determined the long term contribution rate under the “Aggregate Funding Method” as a

guide to the underlying contribution rate based on the selected assumptions.

6.13 The effect of the Aggregate Funding method is to spread the expected future cost of the Fund’s

defined benefits over the average future working lifetime of the current members to produce a level

of contribution as a percentage of these members’ salaries. This method makes no specific

allowance for new members to replace current members who leave, which is appropriate for the

Fund as the defined benefit division is closed to new entrants.

6.14 The results of these analyses are discussed in more detail in sections 10, 11 and 12.

7 EXPERIENCE AND ASSUMPTIONS

7.1 The valuation of the Fund’s projected future liabilities is an essential part of determining the

employer’s contribution rate, as described in Section 5. In order to value the projected liabilities, it is

necessary to make assumptions regarding the timing and amount of future benefit payments,

expenses and contributions since these cannot be known in advance. These assumptions are

divided into two categories:

financial assumptions relating to the rates of salary growth and investment income; and

demographic assumptions relating to the rates of retirement, resignation, death and

disablement.

7.2 While each of the assumptions used is normally the actuary’s best estimate of future experience, in

practice, the Fund’s actual experience in any period can be expected to differ from the assumptions

to some extent. However, it is intended that over longer periods, and when all of the assumptions

are combined, they will provide a reasonable estimate of the likely future experience and financial

position of the Fund.

7.3 In setting the assumptions to be used in this investigation, I have taken into account assumptions

adopted for the last actuarial investigations of the Fund, my general experience of superannuation

plans similar to this one and the particular views of the Employer regarding future superannuation

salary growth.

7.4 A summary of the assumptions used in this investigation is included in Appendix B.

8 EXPERIENCE AND ASSUMPTIONS - FINANCIAL

Investment Returns

8.1 While short term differences between actual investment return experience and the actuarial

assumption can affect the long-term financial position of the Fund as measured by the actuarial

investigation, the assumption used in the investigation must be based on long-term expectations

since the investigation potentially involves valuing payments for many years into the future.

8.2 The actual net investment return earned on the Fund’s DB assets were 9.3% in 2013/14 and 5.5% in

2014/15 (an average rate of 7.4% p.a. over the two years). These rates were higher than the short

term rates of 4.4% p.a. and 4.2% p.a. for 2013/14 and 2014/15 respectively assumed in the 2013

actuarial investigation. These returns have therefore had a positive impact on the financial position of

the Fund.

8.3 In February 2006, the Trustee of the Fund and BHP Billiton agreed to adopt a Dynamic Investment

Strategy (DIS) which sets the DB asset allocation according to the level of Accrued Benefits Reserve

Index (ABI). The asset allocation changes either when the ABI of the defined benefits reaches

specified threshold levels or on specific set dates, whichever comes first. Specifically, when the ABI

level reaches a “trigger point” or the target date is reached, the proportion of defensive/growth assets

will increase/decrease by 5%. The maximum level of defensive assets under the DIS is 85% of the

total DB assets which is expected to be implemented as at 31 January 2016. As at 30 June 2015,

20% of the DB assets were invested in growth assets and the 80% balance was invested in

defensive assets.

8.4 This investment strategy aims to reduce the investment risk as the funding level improves, thus

reducing the risk of future deterioration of the funding position.

8.5 Due to the Dynamic Investment Strategy of the Fund, estimated earning rates are expected to

decrease over time as the asset allocation progressively changes to a more defensive allocation.

The earning rates I have used in this valuation are based on the DIS investment strategy and our

current expectations of investment returns (net of taxation and investment management expenses)

taking into account the expected duration of 5 years for DB active members and 10 years for lifetime

pensioners. The assumed rates are set out below:

Year DB active

members

Lifetime

pensioners

2015/16 2.85% p.a. 4.00% p.a.

From 30 June 2016 2.70% p.a. 3.90% p.a.

8.6 The investment returns for lifetime pensions also take into account the fact that no tax applies to the

investment income on assets covering superannuation pensions. As noted in 5.22, we are currently

working with the administrator to confirm that the tax treatment of these vehicles takes into account

the tax-free nature of the assets backing the pensioner liabilities.

Salary Increases

8.7 For the purpose of an actuarial investigation, salary increases are generally split into two

components, namely inflationary increases and promotional increases. Inflationary increases are

generally assumed to be in line with increases in Average Weekly Earnings over time while

promotional increases are often related to age and to the industry in which members are employed.

8.8 The salary increases (inflationary increases and promotional increases) of DB members averaged

around 2.6% p.a. over the two years to 30 June 2015, which was lower than the expected combined

rate of 4.0% p.a. assumed in the 2013 actuarial investigation. This had a positive impact on the

financial position of the Fund.

8.9 From our discussions with the Company, and taking into account current long-term expectations for

wage inflation and expectations for Fund members based on their type of employment, I consider an

inflationary salary increase assumption of 3.6% p.a. to be appropriate for this actuarial investigation

of the Fund. This compares with an assumption of 4.0% p.a. adopted for the actuarial investigation

of the Fund as at 30 June 2013.

8.10 This assumption, which has been developed having regard to advice from the Company, assumes

inflationary salary increases will be 1.5% per annum in excess of expected general price inflation of

2.1% per annum (based on bond yields as at 30 June 2015).

8.11 In the triennial investigation as at 30 June 2013, we assumed that promotional salary increases

applied to age 41 in line with an age-based scale. As the youngest member was aged 39 as at 30

June 2015, we have removed the promotional salary scale assumption in this investigation.

'Gap' Between Investment Returns and Salary Growth

8.12 The assumption of major significance in the valuation of the Fund's future defined benefit liabilities

and contributions is the difference (or ‘gap’) between the assumed future rate of investment earnings

and the assumed rate of future growth in salaries, i.e. the real rate of return on invested assets.

These factors are offset against each other in their financial effect - hence the difference between the

rates is more important than the absolute values ascribed to them. The higher the real rate of return

assumed, the lower the value placed on the liabilities and the lower the estimated contribution rate

required and vice versa.

Year

Investment

earnings

(p.a.)

Salary growth

(p.a.)

Effective “gap”

(p.a.)

2015/16 2.85% 3.60% - 0.75%

From 30 June 2016 2.70% 3.60% - 0.90%

8.13 In the previous triennial investigation of the Fund as at 30 June 2013, an initial effective gap of 0.4%

p.a., decreasing gradually to a long term effective gap of 0% p.a. was assumed. The actual effective

gap over the two years to 30 June 2015 was 4.8% p.a. (investment returns of 7.4% p.a. minus salary

growth of 2.6% p.a.).

8.14 As can be seen from the table above, for this investigation, I have adopted an initial effective gap of

minus 0.75% for one year, decreasing to a long term effective gap of minus 0.90% p.a.. The reasons

for the reduction in the gap is the lower expected returns on the Fund assets overall and the increase

in the proportion of assets invested in defensive asset classes such as inflation-linked bonds. The

reduction in the gap typically increases the long-term Employer contribution rate unless offset by

other compensating factors.

Expenses

8.15 Under the structure of the underlying fee basis of the Fund, unless the Company approves

otherwise, there is effectively no cross subsidisation of costs and fees between the DB and other

divisions.

8.16 The administration expenses payable from the Fund in respect of non-active members (those in the

RBD, Spouse Account and Allocated Pension Division) are precisely equal to the fees deducted from

these members’ accounts.

8.17 The fees deducted from DC members’ accounts are considered to adequately cover the

administration costs payable from the Fund in respect of DC members.

8.18 As the actual deductions from all divisions of the Fund, other than the DB, fully cover the

corresponding administration costs, the contributions made by BHP Billiton in respect of DB

members only need to cover the administration costs in respect of DB members.

8.19 I have analysed the fees paid in the two years to 30 June 2015. The total administration expenses in

respect of DB members were approximately 0.11% and 0.13% of the average DB assets in

2013/2014 and 2014/2015 respectively.

8.20 I have also analysed the structure of administration costs (those under the current agreement

between the Trustee and Plum (including APRA fees), and between Russell and the Trustee)

expected to be paid in the future. These costs also amount to 0.12% of current DB assets.

8.21 Taking into account the known benefits payable subsequent to 30 June 2015 (including South32

transfers), the expected known expenses are 0.14% of adjusted DB assets (bearing in mind that

some of the fees are fixed costs).

8.22 In the previous actuarial investigation, I assumed that the expenses in respect of DB members were

0.2% of the DB assets.

8.23 For the purposes of this investigation I have assumed that future annual DB expenses payable are

likely to total 0.15% p.a. of DB assets (which incorporates a small margin for unexpected expenses).

Insurance

8.24 The Trustee has appointed TAL to underwrite most of the death and disablement benefits in respect

of DB and DC members. Based on premium rates in the current insurance policy, I have estimated

the cost of insurance in respect of DB members to be approximately 0.7% of the DB members’

salaries (which is the same as the cost assumed in the last triennial investigation). Details of the

Fund’s group insurance arrangements in respect of death and disablement benefits are included in

Section 15.

8.25 The insurance premiums for the 2 free units of cover provided to DC members are paid from the

Free Insurance Reserve (FIR).

Taxation

8.26 Future changes in the taxation regime applying to superannuation plans in Australia may have an

impact on the financial status of the Fund. Ongoing discussions at Federal Government level have

considered changing aspects of the superannuation tax structure without reaching any conclusions.

Some increases in taxation may arise in future. I have however assumed that the current regime will

continue and that the tax rate presently applying to the Fund will be maintained in future, i.e. that the

Fund will remain a regulated and complying fund under SIS and the Tax Act respectively and that a

concessional tax rate of 15% will apply to net deductible contributions and investment earnings. If

additional taxes are levied on superannuation plans in Australia, it would be appropriate to review the

contribution recommendations.

8.27 As the liability for any excess contributions tax and the Division 293 tax will rest with Fund members,

I have not allowed for any of these taxes in this investigation.

8.28 As any outstanding superannuation surcharge amounts are deducted from members’ benefits, they

do not represent a cost to the Employer and I have not allowed for these in this investigation

Member Contributions

8.29 DB member contributions, of 4% of salary, are currently capped at per annum (the

contribution for a DB member with a salary of or more). This maximum contribution is set

by BHP Billiton and can be varied. For the purpose of this investigation it has been assumed that the

maximum member contribution will not be varied. Over time, as salaries increase, this means that

the proportion of the cost of funding benefits which is met by the Employer will increase.

9 EXPERIENCE AND ASSUMPTIONS - DEMOGRAPHIC

9.1 I have compared the Fund’s experience over the past six years against the assumptions that were

adopted in the previous triennial actuarial investigation.

Retirement

9.2 During the six year investigation period, a total of 227 defined benefit members retired (including

retrenchments over age 55) from the Fund compared to 322 expected retirements based on the

assumptions used in the previous investigation. A comparison between actual and expected

retirements over the 6 year period is shown in the chart below.

9.3 We note that the experience for ages 60 to 65 in the graph above is different to the assumptions as

shown in the table below.

Age Actual Expected Actual vs Expected (%)

60 30 38.9 77%

61 22 39.5 56%

62 18 39.0 46%

63 15 32.7 46%

64 14 26.9 52%

65 6 24.9 24%

-

5

10

15

20

25

30

35

40

45

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

Retirement

Actual

Expected

9.4 Accordingly, we have reduced the retirement rates over this period to be more consistent with

experience (and taking into account increasing preservation ages in the future) as set out below:

Age X Number out of 10,000 members aged X at the beginning of the year assumed to retire during

the year

30 June 2013 30 June 2015

55 1,000 1,000

56 1,000 1,000

57 1,500 1,500

58 2,000 2,000

59 2,500 2,500

60 3,500 3,000

61 4,500 3,500

62 5,500 4,000

63 6,500 4,500

64 7,500 5,000

65 10,000 10,000

9.5 In the actuarial investigation as at 30 June 2013, we assumed that future eligible retirees did not

elect a benefit in pension form. To determine if this assumption is still appropriate, we have analysed

the pension elections as set out below:

Two years to 30 June 2015 Six years to 30 June 2015

No. retirees eligible for a pension 90 224

No. retirees electing a pension 16 18

% of retirees electing a pension 17.8% 8.0%

9.6 It is noted that in the last two years, there has been a material increase in the number of eligible

retirees electing a pension benefit. Plum has advised that anecdotally the possible reasons for these

increases are:

Plum has included a paragraph on benefit statements and exit statements quantifying

the pension benefit;

Financial planners being more aware of this option and of the value of the benefit in a

low interest rate environment; and

DB members being more cautious with their benefits due to investment market volatility

in recent times.

9.7 On this basis, I suggest that it is reasonable to assume that there will be a pension take-up of the

order of 15% of eligible retirees going forward.

9.8 A related issue to consider is the proportion of benefits that are taken as a pension when the pension

option is chosen. I note that the average proportion of the lump sum benefit taken as a pension over

that period was 77% (with the majority taking 100% of their lump sum in pension form). I suggest

that a reasonable assumption for the proportion of the benefit taken as a pension is 75% (for those

members that elect the pension option.

9.9 On the basis of the above I have therefore assumed for the purpose of this valuation, that 15% of

eligible retirees will take a pension and will take 75% of their benefit in pension form.

9.10 Historically, those members eligible to elect to have all or a portion of their benefit taken as a pension

were able to do so on retiring after age 55. However the legislative process by which the

preservation age is being progressively increased from 55 to 60 has implications which may mean

that a pension is unable to be taken unless the member had attained at least their preservation age

at retirement. Until this matter is resolved by the Trustee we have adopted the more conservative

financial assumption that a member would continue to be able to take a pension on retirement at or

after age 55.

Resignation and retrenchment

9.11 The number of resignations and retrenchments (under age 55) totalled 169 during the six year

investigation period, which was about 83% of the number expected on the assumptions adopted at

the 30 June 2013 investigation. This shows that the observed number of resignations was broadly

consistent with that expected on the basis of the assumptions adopted in the 30 June 2013

investigation.

9.12 The chart below compares the actual number of resignations (including retrenchments and transfers)

and the expected number of resignations based on the rates used in the previous actuarial

investigation over the 6 year period to 30 June 2015.

9.13 The experience over the last six years has generally been consistent with that expected. I have

therefore retained the assumed resignation rates used in the previous investigation. The resignation

rates are set out in Appendix B.

Deaths and Disablements

9.14 The bulk of the future service portion of the death and disablement benefits is insured. However,

there are circumstances where some or all of the benefit in excess of the vested benefit may not be

covered by the TAL insurance policy. In these situations, the Fund may still be liable for the benefit.

9.15 During the six year investigation period, there were no disablements, and one death resulting in 1

new Spouse pensioner and 3 new child pensioners. As there is insufficient data in respect of the

Fund’s deaths and disablements to produce statistically reliable demographic assumptions, I have

adopted the same death and disability assumptions adopted for the previous actuarial investigation.

Sample death and disability rates are set out in Appendix B/

-

10

20

30

40

50

60

70

80

90

100

25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

Withdrawal

Actual

Expected

9.16 Based on the more recent experience of the Fund, which indicates no members taking a pension on

disability, I have retained the assumption that no members will elect to take a pension on disability.

Other Assumptions

9.17 I have assumed that pensioner mortality (the rates at which pensioners die) will be in accordance

with ALT 2010-2012 with a 1% p.a. mortality improvement for all pensioners from 1 July 2011. In the

previous triennial investigation, I assumed that the mortality rates set out in the table a(90) produced

by the British Institute of Actuaries in 1977, rated down three years, would apply. The new mortality

assumptions will result in an increase in the value of pensioner liabilities as this mortality table

reflects the lighter mortality experienced in the community compared to the past.

9.18 Based on the underlying experience I have continued to assume that the disability pensioner

mortality will continue to be based the mortality rates set out in the table a(90) produced by the

British Institute of Actuaries in 1977 (rated down three years but with a further age adjustment).

Disability pensioners under the age of 55 will have an adjusted age of 75, while those who are over

55 will receive an adjustment of 20 years added onto their age. This adjustment is reduced gradually

from 20 years to 0 years by the age of 85. These adjustments were also assumed in the previous

investigation.

9.19 In valuing pensioner liabilities, child pensions are assumed to be paid until the age of 25.

9.20 No explicit assumptions are made regarding the incidence of new spouse or child pensions as this

risk is covered by insurance in the first instance. I have assumed that 90% of future pensioners are

married, with male pensioners three years older than their spouses (if spouse’s date of birth is not

provided). In the previous investigation, we assumed that all pensioners were married.

10 SOLVENCY AND OTHER MEASURES OF FINANCIAL POSITION

10.1 When assessing the adequacy of the assets and future contribution rates, both the long-term funding

and short-term solvency positions should be considered. I have calculated two measures of the

Fund’s financial position at the investigation date: the Vested Benefits Index and the Accrued

Benefits Reserve Index for the DB and the Fund as a whole. I have also considered the Fund’s

position with respect to the minimum benefits required to be paid to satisfy Superannuation

Guarantee legislation, and the position on termination of the Fund.

10.2 The indices allow for the offsets (totalling applied to future benefits to be paid from the

Fund to reflect the Company’s accumulated contributions made to the Queensland Coal

Superannuation Fund, now AUSCOAL, on behalf of DB members and to the New South Wales

Coal Superannuation Fund, now AUSCOAL, on behalf of DB members.

Vested Benefits Index

10.3 The Vested Benefits Index (VBI) represents the ratio of the assets at market value to the vested

benefits. The value of vested benefits represents the total amount which the Fund would be required

to pay if all members were to voluntarily leave service on the valuation date. This is the key measure

used under applicable legislation in assessing the financial condition of a Fund.

10.4 The vested benefits have been determined as the amount of the member resignation benefit, or the

early retirement benefit for those members who are eligible to retire (including an allowance for the

assumed pension take-up). In the case of lifetime pensioners, the present value of the expected

future pension payments is used to determine the vested benefit.

10.5 We have determined that the VBI for the entire Fund as at 30 June 2015 was 100.9% compared to

100.5% at 30 June 2013. A VBI above 100% indicates that the Fund was not in an “Unsatisfactory

Financial Position” as at 30 June 2015 as defined in section 9.04 of the Superannuation Industry

Supervision (SIS) Regulations.

10.6 The following table shows the calculation of the VBI for the DB (the DB VBI) as at 30 June 2015

along with the corresponding figure as at the date of the previous triennial investigation. This

calculation excludes the voluntary account balances of DB members and includes the vested

benefits in respect of the lifetime pensioners.

Date

Market value of assets covering DB members

($ M)

Vested benefits of DB members

($ M)

DB VBI (%)

30 June 2015 327.1 304.5 107.4%

30 June 2013 349.2 337.5 103.5%

10.7 Accordingly, there was a surplus of assets relative to vested benefits.

10.8 In light of the subsequent successor fund transfer of South32 in October I have also tested the DB

VBI excluding South32. Deducting the value of the notional South32 Reserve as at 30 June 2015 (as

determined in 11.7) and South32’s share of the self-insurance reserve from the DB assets and the

vested benefits of the South32 DB members as at 30 June 2015 from the DB vested benefits, I have

determined that the DB VBI (excluding South32) was 108.0% as at 30 June 2015 indicating a slight

strengthening of the Fund’s financial condition would arise from the transfer out of South32.

Accrued Benefits Reserve Index

10.9 While the VBI is a measure of the immediate ability of the Fund to meet the resignation or retirement

benefits of members at the investigation date, the Accrued Benefits Reserve Index is a simple

measure of a Fund’s strength on a continuing or “going concern” basis over the longer term. This

index compares the market value of assets to the present value of the accrued benefits of members

in respect of service to the valuation date. The method of calculating the accrued benefits reserve is

the same as that used to determine the present value of accrued benefits for the purposes of AAS25

disclosure and uses the actuarial assumptions set in Appendix B of this report.

10.10 We have determined that the Accrued Benefit Reserve Index for the entire Fund as at 30 June 2015

was 99.9% compared to 99.0% at 30 June 2013.

10.11 The following table shows the calculation of the Accrued Benefit Reserve Index for the DB liabilities

only as at 30 June 2015 along with the corresponding figure as at the date of the previous triennial

investigation. This calculation excludes the voluntary account balances of DB members and includes

the vested benefits in respect of the lifetime pensioners.

Date

Market value of assets covering DB

members

($ M)

Accrued benefits of DB members

($ M)

Accrued Benefits Reserve Index

(%)

30 June 2015 327.1 341.8 95.7%

30 June 2013 349.2 375.0 93.1%

The above table shows that the Accrued Benefits Reserve Index has increased since the

determination at 30 June 2013.

Minimum Requisite Benefit Index

10.12 Minimum Requisite Benefits (MRBs) are the minimum benefits required to be paid in respect of a

member to satisfy Superannuation Guarantee legislation. Regulation 9.06(3) of the Superannuation

Industry (Supervision) Regulations defines a superannuation plan to be “technically insolvent” if its

market value of assets is not sufficient to cover its accrued MRBs.

10.13 The MRB Index compares the market value of assets to the MRBs of members at the valuation date.

10.14 We understand that the MRBs may not have been fully and accurately coded at the time of this

actuarial investigation. Given that for most DB members, the leaving service benefit is significantly

higher than their MRB, in aggregate, total MRBs are expected to be much less than the total leaving

service benefits for DB members as at 30 June 2015.

10.15 With a DB VBI of 107.4% at 30 June 2015, in my opinion it is extremely likely that the net market

value of DB assets exceeds the DB MRBs as at that date.

10.16 As also recommended in the 30 June 2013 valuation report, I recommend that the configuration of

the MRB should be reviewed for all Defined Benefit members of the Fund as quickly as possible to

allow for confirmation of the above result and to allow for ongoing testing of technical insolvency,

particularly given that the SG rate is legislated to progressively increase in the future. In addition, the

Fund will be required to report values of the MRB to APRA on a regular basis and hence it will be

necessary to be able to make these calculations.

Termination of the Fund

10.17 The Trust Deed states that, on termination of employer contributions, the Fund must be closed to

new members. Benefits are to be allocated to members and either transferred into another

superannuation fund, approved deposit fund or eligible rollover fund or retained in the Fund and paid

to the member on their cessation of service with the employer.

10.18 As total allocations are limited to the assets held in the Fund, the Fund is never technically unable to

cover benefits payable on termination of the Fund. However, if the Fund was to be wound up at a

time when its VBI was less than 100%, DB members’ vested benefits would likely be reduced unless

the employer made up any shortfall.

10.19 In the event of winding up, lifetime pensioners would be paid prior to the payment of active members’

benefits (in excess of Minimum Requisite Benefits) as required by legislation.

10.20 On wind up, the Trustee would need to consider whether to:

continue to provide lifetime pensions in a superannuation fund similar to the Fund; or

outsource lifetime pensions to a life insurance company (i.e. purchase lifetime annuities for

the pensioners).

10.21 The calculations of the VBI, Accrued Benefit Reserve Index and MRBI all assume that the first of

these scenarios applies. Life insurance companies have strict capital adequacy requirements that

would require significantly higher assets to be held in respect of lifetime pensioners than held by the

Fund. In practice, the amount of assets required to outsource lifetime pensioners would depend upon

commercial considerations at the time. I have estimated the order of magnitude of the assets

required by calculating the amount that would be required to be held in a bond portfolio to meet the

pension liabilities. This is likely to understate the required amount because it makes no allowance for

the insurer’s profit margin, expenses and any reserves required.

10.22 Based on a fixed interest portfolio (with a 10 year duration) of government bonds, the estimated

pension liability is This is higher than the liability of m included in the VBI

calculation based on the “funding” assumptions.

10.23 On wind up, the Trustee also would need to consider the impact of not having the ability to realise

any future income tax benefit and having to sell illiquid assets on a forced sale basis.

10.24 For the purpose of this investigation, the Deferred Tax Asset (DTA) in respect of the assets attributed

to the DBD was assumed to be zero.

10.25 The Fund has only a small proportion of assets invested in illiquid assets and the likelihood of having

to sell the illiquid assets in the Fund on a forced sale basis is quite small. As a result, I have

considered the impact of illiquid assets on the VBI of the DB and of the entire Fund to be not

material.

Summary of Key Indices for the Fund

10.26 As requested by the Trustee, we have set out below the key indices for the total fund as at 30 June

2015 on the basis set out above:

Vested Benefit basis

($ M)

Accrued Benefits Reserve basis

($M)

Defined Benefit 304.5 341.8*

Voluntary account balances (Parts 1, 2 & 9) 31.3 31.3

Defined Contribution Division (Parts 10, 17, 18 & 19) 1,388.8 1,388.8

Retained Benefits Division (Part 14) 1,624.9 1,624.9

Spouse Account (Part 15)

Allocated Pensioners (Part 16)

Total liabilities 3,715.9 3,753.2

Market Value of Assets 3,748.6 3,748.6

Total Fund Indices 100.9% 99.9%

* Note that the Free Insurance Reserve and the Self Insurance Reserve are included in both the assets and the DB liabilities for the

purpose of calculating the Accrued Benefit Reserve Index as they represent an ongoing liability of the Fund. These reserves

are included in the assets for the purpose of determining the Vested Benefit Index but not the liabilities.

11 DETERMININATION OF COSTS UNDER THE AGGREGATE FUNDING METHOD

11.1 This section sets out the results under the Aggregate funding method at 30 June 2015.

11.2 This method has been used in this valuation to determine the long term contribution rate required to

cover the cost of benefits.

11.3 This method involves:

calculating the amount of all defined benefits expected to be paid in the future in respect of the

current Fund members and pensioners, based on both accrued and future service, and allowing

for future salary increases; and

discounting the stream of expected future benefit and pension payments to determine the

present value of future liabilities.

11.4 The difference between the present value of future benefit liabilities and the total value of the assets

available to meet future defined benefit liabilities (plus the present value of future member

contributions) represents the amount that must be funded by future company contributions

Adjustments are made for tax on company contributions and a suitable allowance for expenses

(including insurance premiums) is included.

11.5 As set out in Section 5.8, the net value of assets supporting the DB liabilities for funding purposes

excludes the Free Insurance Reserve and the Self Insurance Reserve.

11.6 We have reflected several post 30 June 2015 events in these calculations as set out below:

Transfer out of South32 DB Members

11.7 On 31 October 2015, the remaining South32 employees who were DB members transferred to the

Plum Superannuation Fund in accordance with a Successor Fund Transfer Agreement. For the

purpose of this valuation, we have excluded the South32 members as at 30 June 2015 from the

liability calculations and deducted the value of the notional South32 Reserve (plus adjustments

relating to pre 30 June 2015 and 30 June 2015 accruals) from the net value of assets as follows:


South32 DB Reserve (#293)* $44,865,422

Less Adjustments as at 30 June 2015# ($1,242,358)

Less DB contribution tax payable (South32) ($51,117)

Net Value of assets supporting DB liabilities for South32

members for funding purposes

$43,571,947



#These adjustments were as at 25 May 2015 as set out in my letter dated 9 November 2015 and

related to the correction to the pensioner liability, share of contributions receivable (including top-up

contributions) as at 25 May 2015 and share of expenses payable as at 25 May 2015.

11.8 We have calculated the DB vested benefits (including an allowance for the assumed pension take-

up) for the South32 members as at 30 June 2015 to be million.

Post 30 June 2015 DB exits

11.9 Together with the South32 exits, we have recognised the advised exits of BHP Billiton employees

after 1 July 2015.

Number of DB Members

As at 30 June 2015 294

Less: Advised exits of BHP Billiton employees post 30 June 2015 25

Less: South32 Transfers (including members who exited prior to 31

October 2015).

53

Total members included in projections 216

11.10 We have calculated the DB vested benefits (including an allowance for the assumed pension take-

up) as at 30 June 2015 of the 25 exits (excluding the South32 members) to be

11.11 Taking into account the South32 members as at 30 June 2015, the vested benefits as at 30 June

2015 of the exits post that date that have been taken into account in the calculations is

million.

Post 30 June 2015 ORR Funding

11.12 We have also adjusted the net assets to take into account the expected funding of 0.05% of assets

from the 182 Reserve to the ORR as at 30 June 2016. We have deducted the assets relating to

South32 and the post 30 June 2015 benefits payable from assets before determining the ORR

funding in this calculation.

11.13 As a result, the net assets to be used to determine the costs of benefits under the Aggregate funding

benefit (noting that the self-insurance reserve and the free insurance reserve are not included in the

assets for this purpose) are as follows:

Value at 30 June 2015

($)


South32 DB Reserve (#293)* $44,865,422




Less South32 share of assets ($43,571,947)

Less estimated post 30 June 2015 ORR Funding ($119,540)

Net Value of assets supporting DB liabilities for funding purposes $238,959,758



Post 30 June 2015 salary increases

11.14 We have also reflected the salary increases as at 1 September 2015 that applied to the DB members

that have been advised to us to date. The weighted average of the salary increases for the

members remaining as at 31 October 2015 at that date was 0.4%.

11.15 The results of these calculations (under the Aggregate Funding method) are as follows;

$m % of Salaries

Present Value of Future Salaries 209.1

Future Service Liability 39.2 18.8%

Future Member Contributions (2.3) (1.1%)

Contributions Tax 6.5 3.1%

Total Service Cost 43.4 20.8%

Future Expenses 1.0%

Future Insurance Premiums 0.7%

Total Future Cost 22.5%

Past Service Deficit 8.9 4.3%

Contributions Tax 1.6 0.7%

Total 27.5%

11.16 The above determination indicates that over the long term a contribution rate of 27.5% of salaries

may be satisfactory to finance the cost of the benefits in the future.

12 VALUATION RESULTS

12.1 This Section considers the long-term funding of the Fund and assesses the appropriateness of

applying the cost determined under the current contribution rate in future years.

Long Term Funding Objectives

12.2 For this valuation, we have adopted the actuarial financing objective of achieving and maintaining a

DB VBI of at least 105% over the period to the next actuarial investigation.

12.3 It is important to note that the contribution rate of 27.5% of salaries determined under the Aggregate

Funding method in section 12 is the minimum rate required to ensure that there are sufficient assets

in the Fund over the longer term to cover benefits (and therefore this rate may not meet a DB VBI

objective of 105% in the next three years).

Projection of Long-Term Financial Position

12.4 As described in Section 6, the funding method to be used to determine the long-term contribution

requirements involves firstly projecting forward the Fund’s financial position (i.e. the Vested Benefit

Index) on the basis of the selected assumptions and assessing the extent to which these rates are

sufficient to meet the funding objective. Therefore, I have projected the DB Vested Benefits Index

over the 10 years to 30 June 2025.

12.5 The indices allow for the offsets applied to future benefits to be paid from the Fund to reflect the

Company’s accumulated contributions made to AUSCOAL, on behalf of DB members. The value of

vested benefits excludes the voluntary account balances of DB members and includes the vested

benefits in respect of the lifetime pensioners.

12.6 As set out in Section 5.8, for the purpose of this analysis the net value of assets supporting the DB

liabilities for funding purposes excludes the Free Insurance Reserve and the Self Insurance Reserve.

These reserves are also excluded from the liabilities for the purpose of this analysis.

12.7 The projections also take into account the post 30 June 2015 adjustments relating to the South32

successor fund transfer, benefit payments, salary increases and ORR funding as set out in Section

11.

12.8 The projections are based on the actuarial assumptions as per Appendix B.

12.9 The following table summarise the results of the DB VBI projection assuming that contributions

remain at the current rate of 31.6% of salary:

Date DB Vested Benefit Index (DB VBI)

30 June 2015* 103.2%

30 June 2016 104.4%

30 June 2017 105.0%

30 June 2018 105.5%

30 June 2019 106.0%

30 June 2020 106.4%

30 June 2021 107.0%

30 June 2022 107.5%

30 June 2023 108.2%

30 June 2024 108.7%

30 June 2025 109.5%

* Including South 32 and known exits post 30 June 2015. Noting that the DB VBI as at 30 June 2015 differs from the value

shown in 10.6 as the assets used in the DB VBI calculation in the table above excludes the Free Insurance Reserve and the

Self Insurance Reserve.

12.10 The results show that the current contribution rate of 31.6% is expected to be sufficient to achieve a

DB VBI just above 105% as at 30 June 2018 (the effective date of the next actuarial valuation).

Given that the funding objective is projected to have just been met at that date, we have not further

considered reducing the contribution rate (i.e. as determined under the Aggregate Funding method).

12.11 It is important to note that the above projection is based on the assumptions used in this actuarial

investigation. Of course, these assumptions will not always be borne out in practice and these

results should be considered only as our best estimate of future experience.

12.12 Based on the above projections of DB VBI, I recommend that the Company retain the current

contribution rate of 31.6% of salaries.

100.0%

101.0%

102.0%

103.0%

104.0%

105.0%

106.0%

107.0%

108.0%

109.0%

110.0%

Projection year

VBI projection

12.13 We have also set out below the projection of the DB Accrued Benefits Reserve Index under the

same scenario as above.

Date DB Accrued Benefit Reserve Index (DB ABRI)

30 June 2015* 95.5%

30 June 2016 97.0%

30 June 2017 97.8%

30 June 2018 98.6%

30 June 2019 99.5%

30 June 2020 100.3%

30 June 2021 101.3%

30 June 2022 102.3%

30 June 2023 103.3%

30 June 2024 104.5%

30 June 2025 105.7%

* Including South 32 and known exits post 30 June 2015.

12.14 The results show that the current contribution rate of 31.6% is expected to be sufficient to improve

the DB ABRI to above 100% in the next five years.

13 SENSITIVITY OF ASSUMPTIONS

13.1 This section examines the potential impact of changes to the actuarial assumptions and in particular

the sensitivity of the projected vested benefits index to the major economic assumptions (relating to

the long term investment returns and rates of salary increase) and the take-up of pensions.

Changes to Assumptions

13.2 As noted in Section 7, the assumed long term real rate of return used for the investigation has

reduced from 0% p.a. to -0.90% p.a. (with short term assumptions also applying).

13.3 As noted in Section 9, we have also changed the following demographic assumptions:

changed the retirement decrement scale;

changed the mortality basis applying to pensioners; and

introduced a pension take-up rate of 15% for eligible retirement (and assumed that 75%

of the benefit is taken as a pension).

13.4 The table below sets out the projected values of the DB VBI on the basis of the 2013 assumptions

and the 2015 assumptions assuming that the current contribution rate of 31.6% of salaries continues

to apply:

Assumptions

Projected VBI From 30 June 2015

investigation

From 30 June 2013

investigation

30 June 2015* 103.2% 108.5%

30 June 2016 104.4% 111.6%

30 June 2017 105.0% 114.9%

30 June 2018 105.5% 118.1%

30 June 2019 106.0% 121.8%

30 June 2020 106.4% 126.3%

30 June 2021 107.0% 131.7%

30 June 2022 107.5% 138.0%

30 June 2023 108.2% 145.5%

30 June 2024 108.7% 154.0%

30 June 2025 109.5% 163.9%

*Including South32 members and known exits post 30 June 2015

13.5 The table shows that the effect of the changes in the assumptions have been to significantly reduce

the DB Vested Benefit Indices.

Sensitivity to Major Economic Assumptions

13.6 In order to test the sensitivity of the results to varying economic circumstances, I have projected the

DB Vested Benefits Index over the 10 years to 30 June 2025 using different investment earnings

assumptions. I have considered two scenarios, with the long term gap being either 0.5% p.a. higher

or 0.5% p.a. lower (on a gross basis) than the gap assumed in Section 7, to illustrate the impact of

changing these assumptions.

13.7 In all scenarios, I have assumed that a contribution rate of 31.6% of salaries continues to apply.

13.8 The scenarios considered are as follows:

Scenario 1: (-0.5% x 0.85 p.a. long-term gap) – investment returns of 2.43% p.a. in the first year

and then 2.28% p.a. thereafter and salary increases of 3.6% p.a..

Scenario 2: (+0.5% x 0.85 p.a. long-term gap) – investment returns of 3.28% p.a. in the first

year and then 3.13% p.a. thereafter and salary increases of 3.6% p.a..

noting that under these scenarios we have adjusted the investment returns for lifetime pensions by

0.5%.

13.9 The results of the DB VBI projections for each scenario are shown in the table and graph below.

Year Ended Scenario 1

Real Return of -0.5%

Scenario 2

Real Return of +0.5%

30 June 2015* 103.2% 103.2%

30 June 2016 102.3% 106.4%

30 June 2017 102.3% 107.6%

30 June 2018 102.2% 108.8%

30 June 2019 102.0% 110.0%

30 June 2020 101.6% 111.2%

30 June 2021 101.4% 112.8%

30 June 2022 100.9% 114.4%

30 June 2023 100.5% 116.2%

30 June 2024 99.8% 118.1%

30 June 2025 99.3% 120.3%


13.10 The table shows the impact of a 0.5% higher or lower gross return than assumed in this valuation. It

is noted that based on the recommended contribution plan, the projected DB VBI is expected to

achieve the funding target of 105% before 30 June 2016 under scenario 2 and is not expected to

achieve the funding target under scenario 1 and shows a steady decline in the financial position

while not falling into an unsatisfactory financial position until 2024.

Sensitivity to Pension Take-up Rate

13.11 In the 30 June 2013 actuarial investigation, I assumed that all retirees elect a lump sum benefit. Due

to the recent increase in eligible members electing the pension option, I have assumed that 15% of

eligible retirees elect to have 75% of their benefit paid in pension form in this valuation.

13.12 In order to test the sensitivity of the results to this take-up rate, I have projected the DB Vested

Benefits Index over the 10 years to 30 June 2025 using different take-up rates.

13.13 In both scenarios, I have maintained the proportion of benefits elected to be taken in pension form of

75% and assumed that a contribution rate of 31.6% of salaries continues to apply.

13.14 The results of the DB VBI projections for each scenario are shown in the table and graph below.

Year Ended Scenario 1

pension take-up of 15%

Scenario 2

pension take-up of 30%

30 June 2015* 103.2% 103.2%

30 June 2016 104.4% 103.9%

30 June 2017 105.0% 104.0%

30 June 2018 105.5% 103.9%

30 June 2019 106.0% 103.8%

30 June 2020 106.4% 103.5%

30 June 2021 107.0% 103.4%

30 June 2022 107.5% 103.0%

30 June 2023 108.1% 102.7%

30 June 2024 108.7% 102.2%

30 June 2025 109.4% 101.8%


13.15 It is noted that if the pension take-up rate is higher than assumed, it will have a negative impact on

the projected DB VBI in the future and the funding target is less likely to be achieved.

13.16 The above projections are based on the membership data, post 30 June 2015 updates (set out in

Section 12) and the assumptions used in this actuarial investigation. Of course, these assumptions

will not always be borne out in practice and these results should be considered only as illustrative of

the future.

13.17 While the above sensitivity tests have been selected to provide a range of possible economic

outcomes, they do not represent upper or lower bounds for all possible outcomes.

13.18 I recommend that monitoring continue on a quarterly basis which is consistent with the reporting

requirements to APRA.

Shortfall Limit

13.19 Shortfall Limit is defined in SPS 160 as:

“the extent to which an RSE Licensee considers that a fund can be in an unsatisfactory financial

position with the RSE Licensee still being able to reasonably expect that, because of corrections to

temporary negative market fluctuations in the value of fund assets, the fund can be restored to a

satisfactory financial position within one year”

13.20 For this purpose, “satisfactory” or “unsatisfactory” financial position refers to whether assets are

sufficient or insufficient to cover vested benefits.

13.21 The Trustee adopted a Shortfall Limit of 99% from 1 July 2013. Given the current investment

strategy of the Fund, I believe that this Shortfall Limit is still appropriate.

14 CONSIDERATION OF PENSION LIABILITIES

14.1 Paragraph 23(h) of SPS 160 requires the Actuary to form an opinion as to whether there is a high

probability that the pensions payable from the Fund will continue to be paid.

14.2 In forming this opinion, it is necessary to identify the assets which would be available to finance

future pension payments. The principles set out in Guidance Note 465 issued by the Actuaries

Institute require the Actuary to consider which assets would be available to meet the current pension

liabilities (after allowing for benefit liabilities which rank ahead of or equally with the current

pensions) if the Scheme were to be wound up.

Wind-up Basis

14.3 In accordance with the legislation, in the event of winding up, lifetime pensioners would be paid prior

to the payment of active members’ benefits (in excess of the Minimum Requisite Benefits).

It is noted that in aggregate the vested benefits exceed the Minimum Requisite Benefits, and that as

at 30 June 2015, the DB Vested Benefit Index exceeded 100% by an amount of

compared to the value of pension liabilities of In my opinion there is a high probability

that the Fund will be able to pay the pensions required by the Trust Deed in the event of winding up.

Ongoing Basis

14.4 Our projection of the Fund’s financial position from 1 July 2015 shows that, the VBI is expected to

continue to be over 100% for the next ten years, assuming that the employer continues to contribute

at 31.6% of salaries.

14.5 This indicates that, on an ongoing basis, it is expected that the assets of the Fund should be more

than sufficient to cover the benefit payments for active members, even if we assume that the liability

in respect of defined benefit pensioners are fully funded. As such, this allows us to conclude that

there is a high degree of probability that the Fund will be able to pay the pensions on an ongoing

basis.

14.6 In conclusion, this analysis allows us to provide the required certification under Paragraph 23(h) of

SPS 160.

15 INSURANCE

15.1 The Trustee has appointed TAL to underwrite most of the death and disablement benefits in respect

of DB and DC members. Such external insurance is appropriate to protect the Fund against adverse

death or disability experience and to smooth out the inevitable fluctuations in such experience.

15.2 Although TAL underwrites the vast majority of the insured benefit for Defined Benefit (DB) and

Defined Contribution (DC) members, effective from 1 January 2009, some Fund risks remain

uninsured as insurance is not available and the Employer continues to prefer that the benefit be

payable. Accordingly, in some situations, the Fund may still be liable for the uninsured portion of the

benefit.

15.3 In my self-insurance report dated 12 November 2013, I detailed the self-insurance risks facing the

Fund. I have summarised the uninsured risks below.

Uninsured claims relating to period before 1 January 2009

15.4 Although the risk of claims arising in these situations is now small with the passing of time, there

remains the possibility that the Fund may be liable to meet the uninsured portion of the benefit

relating to the period before 1 January 2009.

15.5 Such circumstances are as follows:

Uninsured claims relating to period before 1 July 2002: there is a risk of claims that may

be submitted in the future relating to the period before external insurance was taken out

on 1 July 2002. In addition, the successor fund deed between Total Risk Management

Pty Limited as the former trustee of the Fund and Total Risk Management Pty Limited as

the trustee of the BlueScope Steel Superannuation Fund provides that the former fund

will reimburse the latter fund for any uninsured benefits paid from the latter fund for any

uninsured benefits paid from the latter fund, in relation to claims arising in respect of the

period prior to 1 July 2002.

DB members whose insured benefits exceed (the excess was

respect of claims arising prior to 1 July 2005) are not covered by the insurer in respect of

the excess over these amounts if no medical evidence has been provided by these

members or the medical evidence provided by these members is unsatisfactory. There

remains a low risk of a claim arising in respect of such a member from an insurance

event which occurred prior to 1 January 2009.

Similarly, DCD members who have multiple units of cover that provide a benefit in

excess of million are not covered for the amount in excess of million if no medical

evidence has been provided by these members or the medical evidence provided by

these members is unsatisfactory. There remains a low risk of a claim arising in respect of

such a member from an insurance event which occurred prior to 1 January 2009.

For claims arising in respect of events prior to 1 March 2009, the definition of total &

permanent disablement in the Hannover policy applying prior to 1 January 2009 (and

under the TAL Policy up to that date) provided that a member would be entitled to a

benefit if unable ever to return to work, whereas a benefit is payable pursuant to the

Fund governing rules to a member who is unlikely ever to return to work.

Prior to 1 March 2009, part-time employees who were DB members and who worked

less than 10 hours per week did not have insurance cover for TPD benefits.

Similarly, prior to 1 March 2009, part-time employees who were DC members and who

worked less than 10 hours per week did not have insurance cover in respect of TPD

benefits (a 20 hour threshold applied prior to 1 July 2005).

DB and DC members whose occupation involved working underground were not covered

for TPD benefits by Hannover.

Members whose work was overseas and who were not covered by Hannover.

Prior to 1 January 2009, the insured benefits for DB members were calculated as

follows:

Value of Lump Sum Death Benefit less Vested Benefit

For most DB members, the Total and Permanent Disablement benefit is an amount that is

equal to a commuted pension benefit plus an amount equal to a partial lump sum death

benefit (if applicable) which in total may be greater than the Lump Sum Death Benefit. As a

result, there is a potential uninsured risk in respect of claims arising prior to 1 January 2009,

in those cases where the TPD benefit exceeds the lump sum death benefit.

15.6 In our opinion, there continues to be a low risk of claims, but it should be noted that there have been

such claims paid between 1 July 2013 and 31 October 2015 (totaling in respect of

former DC members including BlueScope Steel Superannuation Fund members). However, with the

passing of time, it is no longer statistically reasonable to estimate with confidence the amount or

number of any future claims which may arise in respect of these self-exposure risks.

Other circumstances

15.7 Other situations in which there is an uninsured risk are as follows:

DB members whose insured benefits exceed million (or a lower AAL if that applied

at the time of claim), and where no medical evidence has been provided by these

members (or the insurer has refused to cover the excess). At 30 June 2015 the excess in

respect of the benefits of a total of seven DB members (including South32 DB

member and other members who exited after 1 July 2015) was million which is

not insignificant but could be covered from DB assets. In the 30 June 2013 valuation

report, I recommended that the Trustee advise the Company of the uninsured portion of

benefits in respect of DB members who have not provided medical evidence in respect

of amounts in excess of the automatic acceptance limits. I have been advised that since

that time there have been discussions with the insurer about managing these risks.

Part-time employees who are DB members and who work less than 10 hours a week,

making a claim for TPD benefits only where they do not qualify for the insurer’s tougher

Activities of Daily Living TPD definition. This risk is not material given that most DB

members are permanent employees who work more than 10 hours per week. As at 30

June 2015, all DB members work more than the required minimum hours.

15.8 It should be noted that since 1 July 2013, the salary continuance benefits in respect of Part 2 (Hay

Point) DBD members have been covered under the insurance policy with TAL.

Management of self-insured risks

15.9 In my self-insurance report as at 30 June 2013, I advised that given the financial strength of the

Company, the relatively small value of any uninsured claim which might arise, and the low probability

of any such claim arising, I believed that there were two approaches which might be adopted to

manage these self-insured risks:

Seek to maintain the DB VBI at a level sufficiently above 100% to provide for the value of

a claim that might reasonably be expected with any additional claims being funded by

the Company should they eventuate, or

Maintain a modest self-insurance reserve of value sufficient to meet a single claim which

might be reasonably expected to arise, while also seeking to maintain the DB VBI above

100%. Should a self-insurance reserve be adopted I recommended that the opening

value be set at million.

15.10 As a result, I note that as the Trustee had a preference for the creation of self-insurance reserves

when it is appropriate to do so, a self-insurance reserve of million was established in April/May

2014.

15.11 In the triennial actuarial investigation as at 30 June 2013, I further recommended that unless

required to meet a known liability at the time, of this reserve should be included as a DB asset

in any calculation of the Vested Benefit Index.

15.12 Since the establishment of this reserve, I note that there have been claims paid between 1 July

2013 and 31 October 2015 (totaling respect of former DCD members including

BlueScope Steel Superannuation Fund members).

15.13 The value of the self-insurance reserve as at 31 October 2015 is Subsequent to

31 October 2015, was transferred to another plan as part of the South32 Successor Fund

Transfer. The value of this reserve after the transfer is marginally higher than the value of the largest

possible claim as at 31 October 2015 from one of the remaining four members whose insured

benefits exceed the AAL of $1.5 million.

15.14 On the basis that the Trustee wishes to retain a reserve for this purpose, we recommend that this

reserve continue to be maintained (with no additional funding required). We also suggest that the

value of this reserve be included as a DB asset in any calculation of the Vested Benefit Index.

15.15 It is noted that there may be other self-insured claims relating to the period prior to 1 July 2002. The

funding target of a DB VBI of 105% effectively includes a margin to provide for any such claims not

covered by the self-insurance reserve (with any additional claims being funded by the Company

should they eventuate).

15.16 Taking into account all insured and uninsured risks, the approximate position as at 30 June 2015 of

the Fund’s insurance arrangements in respect of DB members can be summarised as follows:

Death & TPD($M)

Death / Disablement Benefits (A) 395.1

Market Value of Assets* (B) 283.8

Death / Disablement Benefits at Risk (A) – (B) 111.3

Amount of Risk Insured 136.7

*Amount excludes assets covering DCD, Retained Benefit Division members, Spouse Accounts, Allocated Pensioners,

DB_MIC and Lifetime Pensioners.

15.17 The table shows that the amount at risk should all DB members die or become disabled at the

investigation date (i.e. the death benefit less the market value of assets) is less than the amount of

benefit insured (assuming that the Fund has insurance for all members) by an amount of $25.4

million.

15.18 The main reason why the amount at risk is less than the amount of risk insured is that the Fund’s

assets are greater than the Fund’s vested benefits.

Free Insurance Reserves in respect of DCD members

15.19 The Free Insurance Cover Reserves (FIR) was established to cover the expected cost of granting

two units of death and TPD insurance cover to all DCD members.

15.20 Rule A.12.1E of the Trust Deed provides that the following may be debited from the Free Insurance

Reserve Account:

the Free Insurance Cover Costs;

investment earnings on the Free Insurance Cover Reserve Account (if negative) at such

rates as the Trustee determines, and

with the consent of the Company, any amounts determined by the Trustee after obtaining the

advice of the Actuary to be applied for such purposes of the Fund as the Trustee thinks fit

from time to time including, without limitation, the payment of benefits in whole or part.

15.21 In the event of termination of the Fund, this reserve may be available to support the vested benefits

of DB members.

15.22 The notional FIR as at 30 June 2015 was (which is consistent with the value of this

reserve as at 30 June 2013). The drawdown of insurance costs for the year ending 30 June 2015

was compared to investment earnings of approximately It should be noted that no

portion of the Free Insurance Reserve was transferred under the Successor Fund Transfer as at 31

October 2015.

15.23 In my opinion the FIR plus investment earnings on the FIR is considerably more than sufficient to

meet the expected cost of providing the cost of two free units of cover to DCD members during the

period to the next actuarial valuation.

16 MATERIAL RISKS

16.1 The funding of the Defined Benefits is dependent upon future experience. As part of this review I

have briefly considered the following to be the material risks associated with the actuarial

assumptions used in the valuation and that relate directly to the ongoing actuarial management of

the Fund. If adverse outcomes relating to these risks occur then the financial position and the DB

VBI would be adversely affected. For example, a DB VBI above 100% may fall below 100%, it may

take longer than expected for a DB VBI below 100% to return to 100% or it may become necessary

for the Employer to increase contributions.

16.2 The risks that have been identified are:

Investment returns being lower than expected;

Salary increases being higher than expected;

The Employer being unable to make recommended contributions when the VBI is less than

100%;

The Fund becoming technically insolvent;

More members taking pensions on retirement; and

The tax structure of superannuation changes.

16.3 If any of these risks were to eventuate, one or more of the following consequences would likely

result:

DB VBI will decrease faster than expected and drop below 100% before the next actuarial

valuation;

Additional employer contributions may be required;

A restoration plan may be required;

The strict requirements mandated under SIS Regulations would need to be satisfied if the

Fund were to become technically insolvent; or

It may become necessary to adjust member benefits.

Investment Risk

16.4 A risk is that investment returns will not be as high as expected. If that were to occur, the DB VBI

may fall below 100% or the shortfall limit. Consequently, the current funding plan might need to be

amended prior to 30 June 2018.

16.5 Under the Dynamic Investment Strategy, it is expected that the DB assets will remain invested in

85% “defensive assets” and 15% “growth assets” from 31 January 2016. The investment risk facing

the DB is minimised by the implementation of this defensive strategy.

Salary and Price Inflation Risk

16.6 Salary increases or price inflation exceeding expectations will have a negative impact on funding.

Although one aim of the DIS is to protect the Fund against price inflation, higher than expected real

salary increases (i.e. salary increase rates minus price inflation) would have a negative impact on the

funding position of the Fund.

16.7 The assumptions in relation to salary increases have been set in conjunction with the Company. The

Company recognises the potential for higher increases within certain business units/Reporting

Entities within the Company. In response to this risk, BHP Billiton has advised that Reporting

Entities that award salary increases in excess of the assumed rates for Company accounting

purposes will continue to be required to make additional contributions in respect of the additional

liabilities arising from those increases. These contributions will continue to be made on an annual

basis following the end of each financial year. These additional contributions significantly minimise

the impact of higher than assumed salary increases.

16.8 In accordance with APRA’s reporting requirements, the Trustee will monitor the DB VBI on a

quarterly basis and as such would identify if the funding position is deteriorating as a result of

investment performance or salary increases.

Funding Risk

16.9 In the event that the Employer was unwilling or unable to make the recommended contributions if the

DB VBI were to fall below 100%, and no other party was able to make the required contributions, it

likely would be necessary for the Fund benefits to be adjusted downwards. Given the strong

financial position of the Company (relative to the size of the DB risks) and the fact that the DB VBI is

currently above 100%, this funding risk is considered to be low.

Pensioner Liability Risk

16.10 I have assumed that 15% of all eligible retiring members will elect to take pension benefits on

retirement (and will take 75% of their benefit as a pension benefit), noting that the present value of

the pension is higher than the lump sum benefit. Given the recent spike in the proportion of members

electing to take a pension benefit, it is possible that more members may elect a pension benefit in

the future. If this eventuates, the Fund would be further exposed to risks associated with increasing

life expectancy

16.11 In response to this risk, BHP Billiton has advised that, at its discretion, additional contributions may

be made by the Company if it is identified that there is a financial strain in respect of the pensioner

liabilities. These additional contributions would minimise the requirements for higher funding

requirements (as a percentage of salaries) as a result of financial strain due to the pensioners.

Other

16.12 Other material risks include:

Material retrenchment programs, company restructuring or other large downsizing of DB

membership while the DB VBI is less than 100% because each benefit payment would

further erode the value of the DB VBI (although this risk can be minimised by additional top-

up contributions in respect of benefit payments).

Allowing members to voluntarily transfer from the DB to the DC at a time when the DB VBI

was less than 100%. For example, to commence a transition to retirement pension while

remaining employed, a DB member’s benefit would first be crystallised and transferred to the

DC. While the DB VBI is less than 100%, each such transfer further erodes the value of the

DB VBI unless top-up contributions are made. While the DB VBI is in excess of 100% this

risk is not applicable.

16.13 It should be noted that I have taken into account the significant number of exits (including the

South32 transfers) from the DB between 1 July 2015 and 31 October 2015 in this valuation.

16.14 Any changes to the tax structure of superannuation arrangements may have an impact on the

financial position of the Fund.

17 STATEMENTS REQUIRED UNDER REGULATION 23(H) OF SPS 160

BHP Billiton Superannuation Fund (the Fund)

As the Actuary to the Fund, I hereby confirm that in my opinion:

a) At 30 June 2015, the value of the assets of the Defined Benefit Division of the Fund, excluding the

funded amount held to meet the Operational Risk Financial Requirement (ORFR), was $327.1

million.

b) The projected likely future financial position of the Defined Benefit Division of the Fund during the

three years following the valuation date and based on my best estimate assumptions is as follows.

Date Assets*

($m)

Vested

Benefits

($m)

Vested Benefits Index

(%)

30 June 2015 314.3 304.5 103.2%

30 June 2016 219.6 210.3 104.4%

30 June 2017 205.9 196.1 105.0%

30 June 2018 191.9 181.9 105.5%

The projections above take into account adjustments for the Successor Fund Transfer of South32

members as at 31 October 2015; and known exits and advised salary increases after 1 July 2015.

The assets exclude the Free Insurance Reserve and the Self Insurance Reserve on the basis that

these assets would not be expected to be available to fund DB benefits on a going concern basis.

c) In my opinion, the value of the assets of the Defined Benefit Division of the Fund at 30 June 2015,

excluding the amount held to meet the ORFR, was not adequate to meet the liabilities in respect of

the accrued benefits of members of the Defined Benefit Division of the Fund (measured as the value

of members’ accrued entitlements using the valuation assumptions). I consider that the assumptions

and valuation methods set out in this report are appropriate for determining the accrued benefit

liability.

d) At 30 June 2015 the Fund was in a satisfactory financial position, as defined in SPS 160. In my

opinion the Fund does not need to be treated as being in an unsatisfactory financial position. The

shortfall limit does not need to be reviewed.

e) At 30 June 2015 the value of the liabilities of the Defined Benefit Division of the Fund in respect of

minimum benefits of the members of the Defined Benefit Division of the Fund were less than the

assets of the Defined Benefit Division as at that date. Minimum benefits are as defined in Regulation

5.04 of the Superannuation Industry (Supervision) Regulations.

f) Funding and Solvency Certificates for the Fund covering the period from 30 June 2013 to 30 June

2015 have been obtained. The Fund was solvent, as defined in the Superannuation Industry

(Supervision) Regulations, at 30 June 2015. In my opinion, the solvency of the Fund will be able to

be certified in any other Funding and Solvency Certificate required under the Regulations during the

three year period to 30 June 2018.

g) On the basis of the actuarial investigation as at 30 June 2015, it is recommended that the Employer

makes contributions at the rates set out below:

Continue to contribute at 31.6% of salaries in respect of members of Parts 1, 2 and 9;

in accordance with Rule 2.2 of Section A and Rule 3 of Section B of Part 10 in respect of Part

10 members;

in accordance with Rule B.17A.2.2 of Section A and Rule B.17B.3 of Section B of Part 17 in


in accordance with Rule B.19.3 of Section B of Part 19 in respect of Part 19 members; and

in accordance with Rule A.11.1A in respect of members who are receiving deemed member

contributions.

h) I understand that the Company, at its discretion, may wish to make additional top-up contributions by






i) I further understand that the Company at its discretion may wish to make additional top-up

contributions if it is identified that there is a financial strain in respect of the pensioner liabilities.

j) In my opinion, as at 30 June 2015, there is a high degree of probability that the Fund will be able to

pay the pensions as required in the governing rules.

Tony Miller


30 March 2016

I confirm that this actuarial investigation report satisfies Russell Investment Group’s Quality Assurance

standards and meets the requirements of Professional Standard 400 of The Institute of Actuaries of

Australia.

Gabrielle Baron


30 March 2016

Russell Investments Level 13 8 Exhibition Street MELBOURNE VIC 3000

APPENDIX A - APPENDIX ASUMMARY OF BENEFITS AND CONDITIONS

The Fund consists of a number of classes of membership (known as Parts), each of which provides different

benefits.

Part 1 – Permanent Employees (Staff) – closed 1/8/1997

Part 2 – former members of the Hay Point Services Superannuation Fund – closed 1/1/1995

Part 9 – former members of the GML Staff Superannuation Fund – closed 1/6/1991

Part 10 – Permanent Employees (Wages) – closed 31/12/1999

Part 14 – Retained Benefits: see definitions

Part 15 – Spouse Accounts: see definitions

Part 16 – Allocated Pensions: see definitions

Part 17 – General Defined Contribution Part (open section)

Part 18 – Defined Contribution (former members of the QNI Superannuation Scheme) – Closed and now

contains no members

Part 19 – General Defined Contribution Part (open section)

Under the Trust Deed, as a result of an actuarial investigation, the Trustee may change employer

contributions, member contributions and/or benefits payable to members after obtaining the advice of the

actuary and subject to the consent of the Company. In addition, under the Trust Deed, the Trustee has the

power to amend the Rules subject to certain constraints.

Definitions

Allocated Pensioner – a person entitled to an Allocated Pension Account under Part 16 of the Fund.

Contributory Membership (CM) – the time during which the Member was a contributor to the Fund.

Defined Wage (DW) – sum of all wages of the Member.

Early Retiring Age – For Parts 1 and 9 members, it is age 55. For Part 2 members, it is age 57.

Final Average Salary (FAS) – For Parts 1 and 2 members, it is the average salary of a Member during the

three years immediately preceding termination of service or attainment of Normal Retirement Age. For Part

9 members, it is calculated as the average of highest 3 consecutive salaries over the last 10 years at Annual

Review dates (1 July).

Final Average Wage (FAW) – the average weekly wage as at 1 January on each of the final three years of

Contributory Membership, multiplied by 52.

Member’s Accumulated Contributions (MAC) – total contributions made by the Member, accumulated

with interest, assuming all contributions are paid mid-year.

Membership Period – the time between the date the Member joined the Fund and the date the Member

leaves the Fund, subject to a maximum of 36 years.

Normal Retirement Date – for Parts 1, 2, and 9, it is the Member’s 65th birthday.

Retained Member – a person entitled to a retained benefit under Part 14 of the Fund.

Salary – the yearly rate of the ordinary fixed salary of the Member, as determined by BHP Billiton.

Spouse Accounts – refers to Part 15 of the Fund. Includes members who have elected to contribute to the

Fund in respect of the Member’s Eligible Spouse.

Wage – the Member’s wage as advised by BHP Billiton.

A.1 PART 1 – DEFINED BENEFITS

Contributions and Accounts

Contributions by Members

Part 1 Members of the Fund are required to contribute at 4% of Salary (excluding bonuses, overtime and

allowances), subject to a maximum of $2,400 per annum. If the member chooses to make the contributions

as salary sacrifice (before tax), the member is to contribute 4.71% of Salary (this is to take account of the

15% contributions tax).

Members may make additional voluntary contributions (“AVCs”) which accumulate with interest and are paid

on leaving service for any reason.

There are no administration fees for members in Part 1 of the Fund.

Benefits

Minimum Benefit

The minimum benefit that applies on resignation and retirement is equal to the sum of:

2.5 x Member’s Accumulated Contributions;

3% x Final Average Salary x years of membership from 1/3/1987;

balance of additional voluntary accounts the member may have; and

any roll-in that bought back-dated membership while in BHP Billiton.

Leaving Service Benefit

When the member leaves for any reason other than death or disablement the benefit is calculated as:

20% x Final Average Salary x Membership Period x Benefit Factor

where

Benefit Factor = max (0, (1 – (55 – max (40, min (55, age))) x 0.02))

plus the balance of additional voluntary accounts in the Fund.

The leaving service benefit is subject to the minimum benefit.

On leaving service after Early Retiring Age the member can take the benefit as a pension rather than a lump

sum, equal to:

1/54 x Final Average Salary x Membership Period x Discount Factor

where

Discount Factor = 10.80 / (10.80 + (65 – age at retirement) x 0.3)

The pension is fixed (that is, it is not indexed with price increases). A reversionary pension may be paid on

the death of the member.

Death Benefit

A lump sum benefit equal to:

20% x Projected Final Average Salary at 65 x Potential Membership to 65

Potential Membership has a maximum of 36 years.

If the member joined BHP Billiton Superannuation Fund before 1/7/1994 the death benefit can be paid as

part lump sum plus part pension(s) payable to the Spouse and Child Dependant(s).

The part lump sum is calculated as:

Final Average Salary x (65 – max (age at death, 45)) x 0.15

The Spouse Pension is calculated as:

Half of the member’s TPD pension.

The Dependants’ Pension on death is calculated as:

One sixth of the member’s TPD pension, provided for up to three dependants, where dependants

include children up to 18 years of age, or children up to 25 if in full-time study.

Pensions, other than those payable to children, do not increase in line with inflation or investment

earnings.

Pensions may be commuted to lump sum amounts at any time.

Disablement Benefit

A benefit is payable on assessment of total and permanent disability equal to the benefit payable had the

Member died on the date of assessment.

If the member joined BHP Billiton Superannuation Fund before 1/7/1994 the TPD benefit can be paid as part

lump sum plus part pension

The part pension is calculated as:

1/54 x Final Average Salary x Total Potential Membership to 65

In addition, these members would also receive a part lump sum calculated as:

Final Average Salary x (65 – max (age at death, 45)) x 0.15




Part 2 Members of the Fund are required to contribute 5% of their Wage (excluding bonuses, overtime and

allowances). If the member chooses to make the contributions as salary sacrifice (before tax), the member

is to contribute 5.88% of Wage (to take account of the 15% contributions tax).



No administration fees are levied on members in Part 2 of the Fund.

Productivity Accumulation Account

The accumulation with interest at the determined rate of productivity contributions at the following rates:

2.55% of Wage for the period of Contributory Membership (CM) from 6 July 1987 to 30 June 1992;

3.40% of Wage for the period of CM from 1 July 1992 to 31 December 1992;

4.25% of Wage for the period of CM from 1 January 1993 to 30 June 1995;

5.10% of Wage for the period of CM from 1 July 1995 to 30 June 1998;





8.08% of Wage for the period of CM from 1 July 2014 to 30 June 2015; and

85% of applicable SG rates from 1 July 2015 onwards.

Benefits

Benefit Multiple

The Benefit Multiple is the sum of:

12.5% of that part of the Member’s Contributory Membership (CM) prior to 1 January 1984;

15.0% of that part of the Member’s CM between 1 January 1984 and 31 December 1987;

16.0% of that part of the Member’s CM between 1 January 1988 and 30 June 1990;

14.4% of that part of the Member’s CM commencing on or after 1 July 1990; and

any other multiple granted in respect of amounts transferred into the Fund from any other eligible fund.

Retirement Benefit


Benefit Multiple at date of Retirement x Final Average Wage


A lump sum equal to the sum of:

Member contributions plus interest; and

The greater of:

10% of member contributions plus interest for each year of contributory membership in excess of

three years, subject to a maximum of 100% after 13 years; and

the Member’s Productivity Accumulation Account

Death Benefit


Death Benefit Multiple x Prospective Final Average Wage

where Prospective Final Average Wage is that which would have applied at Normal Retirement Age,

assuming Wage remained unaltered until Normal Retirement Age.

Disablement Benefit


Member died on the date of assessment. This benefit is equal to that payable on death.




Part 9 Members of the Fund are required to contribute 2% of their Salary (excluding bonuses, overtime and

allowances). If the member chooses to make the contributions as salary sacrifice (before tax), the member

is to contribute 2.35% of Salary (to take account of the 15% contributions tax).



No administration fees are levied on members in Part 9 of the Fund.

Benefits

Retirement Benefit Factor

The Retirement Benefit Factor (RBF) is:

23% x period of Membership to Normal Retirement Age (years and complete months), subject to a

maximum of 7.


A lump sum equal to the greater of:

(M/N) x RBF at date of withdrawal x Final Average Salary x DF

where:

M = Membership period to date of withdrawal

N = Total potential Membership to Normal Retirement Date

DF = 1- (0.02 x M55)

M55 = period to age 55, in complete years and months

OR

Two times the total of:

(i) member contributions to any previous plan, and to this Plan, up to and including 1 July 1987,

increased by 2% for each year of membership to that date, subject to a maximum of 38%, together

with (compound) interest from 1 July 1987; and

(ii) the accumulation with interest of Member contributions to this Fund since 1 July 1987.

Early Retirement Benefit


(M/N) x RBF at date of Retirement x Final Average Salary

where:

M = Membership period to date of retirement

N = Total potential Membership to Normal Retirement Date

Retirement Benefit


RBF at date of Retirement x Final Average Salary

Death Benefit

A lump sum benefit equal to the prospective Normal Retirement Benefit assuming the Member’s Salary

would have remained unchanged from the date of death to Normal Retirement Date.

Disablement Benefit


Member died on the date of assessment. This benefit is equal to that payable on death.

A.4 PARTS 10, 17 and 19 – DEFINED CONTRIBUTION BENEFITS TO MEMBERS


Members of these parts can be either contributory or non-contributory. Contributory Members of Parts 10

and 17 may make basic contributions (3%, 4% or 5% of Defined Wage) and additional voluntary

contributions (“AVCs”) (above 5% of Defined Wage) which accumulate with interest and are paid on leaving

service for any reason. No member contributions are required in respect of Part 19 members.

Fees, administration charges and additional insurance costs are deducted from the member’s account

balance. The current administration fee is $52 p.a. plus 0.14% of the member’s account balance.

BHP Billiton contributes at the following rates which depend on the member’s own contribution rate:

Member Contributes

Pre-tax Post-tax

BHP Billiton contributes

0% 0% 9%

3.55% 3% 10%

4.71% 4% 12%

5.88% 5% 14%

Employer contributions in respect of Part 19 members do not depend on the rate of the member’s

contributions. The employer makes contributions as agreed with the member, subject to the contributions

being no less than required to satisfy Superannuation Guarantee (SG) minimums.

Benefits – Contributory & Non-Contributory Members


On leaving employment for any reason other than death or disablement, a Member is entitled to a lump sum

benefit equal to the balance of their superannuation account, including both employer and member

contributions.

Death Benefit

In the event of a Member dying in service, a benefit is payable equal to the member’s account balance plus

the insured amount which is based on the member’s number of units of insurance cover. The insured

amount per unit varies according to the member’s age next birthday. The cost of each unit of cover is $0.64

per week. The Fund’s Free Insurance Cover Reserves bear the cost of two free units of cover for each

member of Part 10, 17 or 19. The level of cover available to each member of those Parts based on their Age

Next Birthday (ANB) is as follows:

ANB 1 Unit ($) ANB 1 Unit ($) ANB 1 Unit ($)

<36 76,000 46 18,700 57 4,000

36 67,600 47 16,400 58 3,500

37 59,200 48 14,400 59 3,100

38 51,700 49 12,500 60 2,700

39 43,000 50 11,000 61 2,500

40 38,800 51 9,500 62 2,300

41 34,900 52 8,200 63 2,100

42 31,100 53 7,200 64 1,900

43 27,400 54 6,100 65 1,600

44 24,300 55 5,300 Over 65 0

45 21,300 56 4,600

Disablement Benefit

A lump sum benefit is payable on assessment of total and permanent disability equal to the benefit payable

had the Member died on the date of assessment.

APPENDIX B - SUMMARY OF ACTUARIAL ASSUMPTIONS

Assumption 30 June 2013 30 June 2015

Investment Returns (pa)

Active Assets

Pensioner Assets

Year 1 Year 2 Year 3+

4.2% 4.1% 4.0%

5.1% 4.8% 4.6%

Year 1 Year 2+

2.85% 2.7%

4.0% 3.9%

Salary Increases

Inflation

Promotional

4.0% pa

Scale ending at age 40

3.6% pa

None (youngest member 39)

Pensioner Mortality

Normal Health Pensioners

Disability Pensioners

a(90) rated down 3 years

a(90) rated up 20 years at age

55 reducing to a(90) at age 85

ALT 2010-12 with

1% pa improvements

a(90) rated up 20 years at age

55 reducing to a(90) at age 85

Pensioner Life Expectancies

Normal Health - Male 65

Normal Health - Female 65

Disability - Male 65

Disability - Female 65

17.7 years

22.0 years

12.7 years

17.3 years

20.4 years

23.4 years

12.7 years

17.3 years

Proportion Married 100% 90%

Spouse Age Difference

Active Members

Pensioner Members

Males 3 years older

Males 3 years older

Husbands 3 years older

Actual difference if spouse DoB

known else +/- 3 years

Pension Take-Up nil

15% of eligible retirees take

75% of their benefit as a

pension

Decrement Rates

Specimen annual rates of decrement appear in the tables below.

Age X

Number out of 10,000 members aged X at the beginning of the year assumed to leave the Fund during the year on account of:

Death Disablement Resignation

25 5 3 1000

30 5 3 1000

35 5 3 1000

40 8 7 1000

45 11 16 1000

50 16 38 1000

55 25 85 -

Age X Number out of 10,000 members aged X at the beginning of the year assumed to retire during

the year

30 June 2013 30 June 2015

55 1,000 1,000

56 1,000 1,000

57 1,500 1,500

58 2,000 2,000

59 2,500 2,500

60 3,500 3,000

61 4,500 3,500

62 5,500 4,000

63 7,500 4,500

64 7,500 5,000

65 10,000 10,000

Post Retirement Mortality

Specimen annual rates of mortality appear in the tables below.

Age X

Number out of 10,000 pensioners aged X at the beginning of the year assumed to die during the year

Males Females

55 44 26

60 66 40

65 105 62

70 168 103

75 289 181

80 519 332

85 934 664

90 1,612 1,281

95 2,478 2,188

Expenses

Expenses of investment management are allowed for within the assumed net rates of investment return.

Annual administration, actuarial, audit and other expenses in respect of the DB have been allowed for at the

rate of 0.15% of DB assets. The cost of insurance has been allowed for at the rate of 0.7% of the DB

members’ salaries.

Taxation

It has been assumed that the current rates of taxation applying to the Fund will remain unchanged and that

the Fund will remain a complying fund and therefore be entitled to concessional tax treatment.

Accordingly, future employer contributions have been assumed to be taxed at 15%.

Member Contributions

Member contributions for Part 1 members are currently capped at $2,400 per annum (the contribution for a

member with a salary of $60,000 or more). For the purpose of this investigation I have assumed that the

maximum member contribution will not be varied in the future.

APPENDIX C - STATEMENT OF CHANGES IN NET ASSETS FOR THE FUND FOR THE PERIOD 1 JULY 2013 TO 30 JUNE 2015

2013/2014

$’000

2014/2015

$’000

Net Market Value at Beginning of

Financial Year 3,137,996 3,518,728

Plus

Employer Contributions 251,401 249,292

Member Contributions 18,542 21,938

Transfers from Other Plans 91,915 74,714

Investment Revenue 358,097 317,941

Other Revenue 705 1,261

Less

General Administration Expenses 8,753 9,745

Group Life Premiums 3,568 3,502

Custody and investment expenses 1,067 476

Other Operating Expenses 1,013 432

Income Tax Expense/(Benefit) 64,115 32,807

Net Market Value at End of Year 3,518,728 3,751,504

report on the actuarial investigation as at 30 june 2015 -...

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