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N O R T H E R N T E R R I T O R Y G O V E R N M E N T A N D P U B L I C A U T H O R I T I E S ’ S U P E R A N N U AT I O N S C H E M E Annual Report 2011-12 Published by the Department of Treasury and Finance

Apart from any use permitted under the Copyright Act, no part of this document may be reproduced without prior written permission from the Northern Territory Government through the Department of Treasury and Finance.

ISSN: 1032-1241

Northern Territory Superannuation Office Postal address: GPO Box 4675 Darwin NT 0801

Location: Level 5, Cavenagh House 38 Cavenagh Street, Darwin

Freecall: 1800 631 630 Telephone: (08) 8901 4200 Facsimile: (08) 8901 4222 Website: ww w .nt.g o v .au/ntt/super Email: ntsuperan n u a [email protected] o v .au Northern Territory Government and Public Authorities’ Superannuation Scheme (NTGPASS) 1st Floor Cavenagh House, 38 Cavenagh Street DARWIN NT 0800 Postal Address GPO Box 4675 DARWIN NT 0801 Tel 08 8901 4200 Fax 08 8901 4222

The Honourable Robyn Lambley MLA Treasurer GPO Box 3146 Darwin NT 0801

Dear Treasurer In accordance with the provisions of section 43 of the Superannuation Act, we are pleased to provide to you: • the report of the Commissioner of Superannuation and the Superannuation Trustee Board on the operation and management of the Northern Territory Government and Public Authorities’ Superannuation Scheme for the financial year ended 30 June 2012; and • the audited financial statements of the Northern Territory Government and Public Authorities Employees’ Superannuation Fund for the financial year ended 30 June 2012.

Yours sincerely

John Montague Kathleen Robinson Commissioner of Superannuation Chairperson, Superannuation Trustee Board 28 September 2012 28 September 2012

Table of Contents About this An n ual R epo r t 2 R epo r t of the Commissioner of Superan n u a tion 3 and the Superan n u a tion T r ustee Board Highlights 4 Y ear in R e view 4 Output P er f o r mance 9 Future Priorities 9 Fund P er f o r mance 10 I n v estments 12 S c heme P er f o r mance 20 G o v e r nance 26 Financial St a tements 33 O v e r view of the Financial St a tements 34 Independent Auditor’s Report to the Trustee Board 35 St a tement b y the Superan n u a tion T r ustee Board 37 St a tement of Net Assets 38 St a tement of Changes in Net Assets 39 Notes to the Financial Statements 40 Summa r y of the R epo r t of the Actuarial I n v esti ga tion 54 of the S c heme About this Annual Report Welcome to the Northern Territory Government and Public Authorities’ Superannuation Scheme (NTGPASS) Annual Report. NTGPASS was established by the Superannuation Act and provides superannuation benefits for eligible persons employed by the Northern Territory Government. NTGPASS commenced operation on 1 October 1986 and was closed to new members on 9 August 1999. Objective The objective of this Annual Report is to provide information on the operations of NTGPASS to the Treasurer, as the Minister responsible for superannuation matters, and to members and other interested parties. This includes new developments and future directions of NTGPASS as well as the management, financial condition and investment performance of the Northern Territory Government and Public Authorities Employees’ Superannuation Fund (the fund). Quick Guide to the This report of the Commissioner of Superannuation and the Superannuation Annual Report Trustee Board provides an overview of the operation and management of NTGPASS and the fund’s investment performance during 2011-12. This section also includes information about the members of the Superannuation Trustee Board and the Superannuation Review Board and their activities during the year. Financial statements provided include the audited Statement of Net Assets, Statement of Changes in Net Assets and Notes to the Financial Statements as at 30 June 2012. Reporting The Superannuation Act requires, within six months of the end of each financial Requirements year, that: • the Commissioner of Superannuation provides a report to the Treasurer on the operation and management of NTGPASS; • the Superannuation Trustee Board provides a report to the Treasurer on its operations during the year and audited financial statements in respect of the fund; and • the Treasurer tables the reports, together with the financial statements and the Auditor-General’s report of the audit, in the Legislative Assembly within six sitting days of receiving the reports. Report of the Commissioner of Superannuation and the Superannuation Trustee Board Highlights Fund Performance Despite periods of volatility, most NTGPASS investment options recorded positive investment returns in 2011-12. The fund’s return for the default superannuation Growth option was 1.08 per cent and the pension Growth option was 0.69 per cent. Superannuation Changes The 2012 Commonwealth Budget introduced several changes including reduction in concessional caps and the co-contribution payment, as well as Superannuation continuation of the pension drawdown relief. Reform Project Stage 2 of the project to review the administration of Northern Territory superannuation schemes continues. Legislation to formalise the composition of the Superannuation Trustee Board has been introduced and the remaining Superannuation Trustee Board legislative changes are expected to progress during 2012-13. The composition of the Superannuation Trustee Board was expanded to nine members representing three schemes: NTGPASS; the Northern Territory Police Supplementary Benefit Scheme (NTPSBS); and the Legislative Assembly Members’ Superannuation Scheme (LAMS). Fund Performance Year in Review 2011-12 was a year of two parts, with poor returns in the first half and the second half showing signs of improvement. Most NTGPASS options recorded a positive investment return for the year. The NTGPASS growth option returned 1.08 per cent for superannuation accounts and 0.69 per cent for pension Superannuation accounts. Reform Project As previously reported, the administration of the Territory’s public sector superannuation schemes is under review. The purpose is to simplify administration of NTGPASS and the Northern Territory Supplementary Superannuation Scheme (NTSSS), and improve efficiencies in operating the Northern Territory Government Death and Invalidity Scheme (NTGDIS). With Stage 1 complete, work has progressed on Stage 2 of the Reform Project. This stage of the project involves a number of changes, including: • expanding the Superannuation Trustee Board (STB); • modernising three schemes (NTGPASS, NTSSS and NTGDIS); • replacing the Superannuation Review Board with the Superannuation Complaints Tribunal; and • amalgamating Northern Territory superannuation legislation for all schemes (except the Judges scheme) into one Act. Legislation has been introduced for the expansion of the STB. The process of drafting legislation for the remaining Stage 2 changes is underway. Revised legislation is anticipated to be completed towards the end of this year. Legislative A number of amendments were made to the Superannuation Act and the Amendments Superannuation Regulations to formalise changes approved as part of the reform project. Changes primarily related to trustee arrangements, increasing the membership of the Superannuation Trustee Board to nine members effective from 27 April 2012. Superannuation Changes The Commonwealth Budget was released on 8 May 2012 and made several changes to current superannuation arrangements. Announcements included: • 25 per cent reduction in minimum account-based pension drawdown continues for 2012-13; • the concessional contribution cap will be $25 000 for individuals of all ages until 30 June 2014; • reduced tax concession for contributions from people earning over $300 000; and • a reduction of the maximum co-contribution payment and reduction in the upper income threshold. The key changes relating to superannuation are outlined in detail below. Pension drawdown relief The Commonwealth previously introduced measures to allow pensioners to halve the minimum pension they must draw down for 2008-09, 2009-10 and 2010-11. Minimum pension amounts were reduced by 25 per cent for 2011-12 and this reduction will continue in 2012-13. Contribution caps Concessional contributions are contributions made from before-tax income such as salary sacrifice contributions and employer contributions made by the government when members exit the scheme, which are concessionally taxed at 15 per cent. The annual cap for these contributions will be $25 000 for people of all ages until 30 June 2014. It is proposed that from 1 July 2014, those people over the age of 50 who have less than $500 000 in superannuation will be subject to a cap of $50 000. Details of how the $500 000 balance will be determined are still subject to consultation. Any contributions that exceed the caps are subject to additional tax. People with incomes over $300 000 will have the tax on concessional contribution increased from 15 per cent to 30 per cent. This measure is effective from 1 July 2012, but its administration is yet to be finalised. In addition to salary sacrifice contributions, for members of a defined benefit superannuation scheme such as NTGPASS, a notional amount of employer contributions, known as notional taxed contributions, are treated as concessional contributions and count towards the concessional cap. As previously reported, the Commonwealth’s policy intent on concessional caps was that the limit would not include the employer component of unfunded schemes such as NTGPASS. While resolution of this matter has been pending for a number of years, recent communication indicates this matter may be resolved shortly. Until formal advice is received from the Commonwealth, it is recommended that members take into account the notional taxed contribution to ensure their salary sacrifice contributions do not exceed the concessional cap. The notional taxed contribution has been determined by the NTGPASS actuary to be 9.6 per cent of contribution salary. Non-concessional contributions are contributions made from after-tax income such as NTGPASS compulsory member contributions, spouse contributions and Commonwealth co-contributions. The annual cap of $150 000, or $450 000 over three years for those aged under 65, will continue to apply to these contributions. Co-contributions Personal contributions to a superannuation account made by individuals within specified income thresholds ($31 920 and $61 920 for 2011-12) may attract a Commonwealth co-contribution. The upper income threshold has been reduced to $46 920 for 2012-13 and the rate of superannuation co-contribution has been reduced to 50 per cent of contributions up to $1000 in any financial year. Stronger Super The Commonwealth Stronger Super reforms continued to evolve during the year. Reforms include: • the creation of a new, simple, low-cost default superannuation product called ‘MySuper’; • a package of measures called ‘SuperStream’ that will attempt to make the processing of everyday transactions easier, cheaper and faster; and • measures to strengthen the governance, integrity and regulatory settings of the superannuation system, including in relation to self- managed superannuation funds. The Stronger Super Peak Consultative Group, comprising representatives of peak industry, employer, employee and consumer groups, met throughout 2011. The group provided broad, high-level advice on the design and implementation of the reforms. Separate working groups provided more technical input on each of the key components of the reforms. The timing of different aspects varies: • the use of tax file numbers as primary account identifiers started on 1 July 2011; • superannuation funds will be able to offer a MySuper product from 1 July 2013; and • most measures in the broader SuperStream package will be in place by 1 July 2015. The timing of the commencement of measures relating to governance, integrity and other regulatory settings will be determined following consultation with the industry. The Commonwealth is consulting with state and territory governments to determine which of these changes will apply to public sector superannuation schemes, such as NTGPASS. Anti-Money The Commonwealth Anti- Money Laundering and Counter- Terrorism Financing Laundering and Act 2006 (AML/CTF) imposes a range of governance and operational Counter-Terrorism obligations designed to combat money laundering and terrorism financing Financing activities. The main governance and operational obligations require compliance with an AML/CTF program, which includes a detailed risk assessment, member identification requirements, staff training and due diligence programs, as well as the maintenance of a range of records and regular reporting to the Australian Transaction Reports and Analysis Centre (AUSTRAC). The AML/CTF program implemented in early 2008 is reviewed annually and updated as appropriate. An annual compliance report is submitted to AUSTRAC Member Education by the end of March each year. The Superannuation Office aims to provide informative material to assist members in understanding their NTGPASS entitlements, as well as superannuation in general. Information is available through a range of publications including forms, fact sheets and information books, as well as our website content, covering our products such as investment options and pensions. Information is kept up to date and new items are developed as required. Superannuation Office staff are happy to talk to members over the phone or in person through arranged appointments. Please note that we cannot provide personal financial advice. You are encouraged to seek the services of a qualified professional. Website The Superannuation Office website is regularly updated for investment returns, ‘what’s new’ information and changes made to forms and fact sheets. In the past year, a number of forms and fact sheets were updated. New forms were added to advise change of pension details and claim death benefits and a new fact sheet added to explain anti-detriment payments. Seminars The Superannuation Office, with assistance from MLC Implemented Consulting (MLC) and Centrelink, conducted seminars in March 2012 in Darwin, Casuarina, Palmerston, Alice Springs and Katherine. The Superannuation Office component of the presentations can be viewed on the Seminar page of our website. Several other presentations were provided to work groups on request. Annual Report This annual report is available electronically, via website download or email, to minimise the impact on the environment. Summarised information is produced in the Report to Members and is sent to each member with their annual personal Member Information Statement. Memberships Association of Superannuation Funds of Australia (ASFA) ASFA is a national not-for-profit and non-political organisation that represents the interests of superannuation funds, trustees and members. ASFA is the peak industry body for Australia’s superannuation funds. It undertakes extensive analysis and research on superannuation and provides education and professional development courses for trustees and fund administrators. ASFA hosts an annual national conference, which is attended by board members and senior staff of the Superannuation Office. ASFA also hosts various superannuation discussion groups throughout Australia. The Northern Territory discussion group meets each month and meetings are attended by Superannuation Office staff and representatives from superannuation funds, financial planning organisations, the Australian Securities and Investment Commission and Centrelink. Meetings include presentations on topical issues and ASFA executives provide updates on superannuation policy issues by telephone. The group has facilitated ASFA educational seminars in Darwin and provides an important forum for discussions on topical superannuation issues. Australian Institute of Superannuation Trustees (AIST) AIST is an independent professional body and a registered training organisation offering a range of services for the superannuation industry, including professional development, national and international training, events, compliance services and member support. The board members and senior staff from the Superannuation Office continued their membership of AIST. As members of AIST, board members and staff receive discounted prices for training and events. AIST has included the Northern Territory in its calendar of professional development seminars and provides training in Darwin. AIST held the second Communities of Interest meeting in Darwin in October 2011, a forum to raise issues of concern with AIST. In addition, a board member attended the annual Conference of Major Superannuation Funds hosted by AIST. Administration Online member information statements The annual member information statement provides key information to members about their member accumulation account and defined benefit. Member information statements from previous years can be viewed online by current Territory Government employees. Members must have access to ePASS to view the available information. In the future, it is intended that active members will be able to choose between having their current year’s statement posted to them or viewed online. Education and Trainin The Superannuation Office employs 23 full-time staff and also provides work and g development opportunities for students and graduates through Treasury’s entry- level programs. The complexity and technical aspects of superannuation mean that ongoing professional development and education for board members and staff is a high priority. Educational seminars and short courses attended during the year include: • ASFA 2011 National Conference; • Government Superannuation Funds Meeting; • MLC Implemented Consulting Conference; • AIST: Working with the Superannuation Complaints Tribunal; • ASFA Roadshow: The rubber hits the road; • ASFA SuperStream workshop; • Giving and Receiving Feedback; • Cross Cultural Awareness; and • CSA: Business Disaster Recovery. The following summary reports on the progress of priorities identified for 2011-12. Output Performance

Priorities for 2011-12 Results in 2011-12 Continue Stage 2 of the Superannuation In progress – legislation has been Reform Project to formalise the introduced for the expanded STB composition of the new STB, establish representation and work will continue on a mechanism for a second tier review the remaining legislative amendments of appeals, and simplify NTGPASS and during 2012-13. NTSSS through the establishment of a single benefit system. Continue to progressively introduce Ongoing – Work continued with scanning electronic retention of records throughout of approximately 4000 creditor member the Superannuation Office, including records. Electronic retention of various member records. records will continue as part of continuous business improvement practices. Proceed with changes resulting from In progress – discussions are continuing Stronger Super, as they impact on with the Commonwealth to determine the Northern Territory superannuation extent these changes will apply to public schemes. sector schemes. Finalise an anti-detriment policy in line Achieved – An anti-detriment policy with contemporary practices. has been implemented and relevant publications are available to assist claimants. Refocus effort to reduce the number of Ongoing – work continued to reunite accounts where benefits have remained members with their benefit. unclaimed for a lengthy period.

Future Priorities • Superannuation Reform Project – continue Stage 2 of the reforms to amalgamate the Northern Territory schemes into one Act, establish a second tier review of appeals mechanism and simplify NTGPASS and NTSSS through the establishment of a single benefit system. • Commonwealth reviews – continue to work with the Commonwealth and other jurisdictions to consider Stronger Super changes and their impact on Northern Territory superannuation schemes. • Lost members and unclaimed monies – refocus effort to reduce the number of accounts where benefits have remained unclaimed for a lengthy period. Fund Performance 2011-12 Investment Nervous market conditions in 2011-12 caused most NTGPASS investment Returns options to experience periods of positive and negative returns. Overall, most NTGPASS options ended the year with a positive result. The NTGPASS Growth option returned 1.08 per cent for superannuation accounts and 0.69 per cent for pension accounts. These returns are above the median return (as reported by Super Ratings) for growth options (77 to 90 per cent growth assets), of -0.95 per cent and 0.45 per cent for balanced options (60 to 76 per cent growth assets). As Member Investment Choice was introduced in 2007, five-year average returns are able to be calculated for the first time for several superannuation options (Conservative, Cautious, Assertive and Aggressive) in addition to the superannuation Growth (default) option. The results are mixed over this period of significant volatility. The Growth option remains the only option that has been available for the full 10 years, with a return of 4.98 per cent over 10 years and 8.4 per cent since inception. Table 1 details the fund’s superannuation and pension investment returns for 2011-12, as well as the average annual return (compound average effective rate of net earnings) since each option commenced. Options have been introduced at different times since 2007 and this information is provided in note form. The returns indicated below assume investment in that option for the full year.

Table 1: 2011-12 Investment Returns

Commencement dates: (1) March 2009; (2) July 2007; (3) 1986; (4) April 2008; (5) June 2008; (6) March 2010. NTGPASS pensions commenced in early 2008. MLC manages both NTGPASS superannuation and pension funds, but they are held in separate accounts. The same investment options are offered with the same target asset allocation, however, the actual allocations do vary. Superannuation funds are taxed at 15 per cent while pension funds are tax exempt. A combination of these factors and market conditions results in differing returns across the two accounts. NTGPASS members are further advantaged as the Territory Government meets the cost of administering the scheme. The Trustee has also negotiated favourable investment management fees, on average 0.48 per cent, which is low for professional funds management. Table 2 illustrates the net return over the last five years for the default (Growth) option after taking account of the effect of inflation, as measured by the consumer price index (CPI). The five-year average is calculated as a compound average in line with Corporations Regulations.

Table 2: Investment Returns After Inflation

ote: Real rate of return = I n v estment retu r ns – CPI 1 + CPI The negative returns in 2007-08 and 2008-09 have offset positive returns in recent years, with a five-year average annual return after inflation of -3.26 per cent per annum.

Market Performance From an investment perspective, 2011-12 was a year of two parts with poor returns in the first six months and signs of recovery over the last six months. Investment markets were adversely affected by concern regarding the ability of countries such as Greece to service their debt, combined with signs that China’s pace of economic growth was starting to slow. Overall, it was a year when good news was hard to sustain and investors remained very cautious. Australian stocks dropped 7 per cent for the financial year to 30 June 2011, while unhedged global shares fell approximately 2 per cent. The Australian dollar generally maintained its position against most major currencies. Net Assets Net assets represent the value of the fund after taking into account contributions, investment returns, benefit payments and other expenses made throughout the year. Table 3 details the net assets of the fund over the last five years. Table 3: Five-year Summary of Net Assets as at 30 June

During the year, net assets increased from $736.6 million to $750.9 million, partly due to an increase of around $10 million in the market value of investments. Investments Investment Returns No reserve is held and the net earnings of the fund are distributed among members to the extent possible. Investment Choices Returns for superannuation accounts are calculated and applied weekly, while pension accounts are calculated and applied monthly. The current and historical NTGPASS investment returns are published on the NTGPASS website. Members have six investment options from which to choose. Members are able to change (switch) the option in which their accumulation account is invested. Superannuation members can choose one option for their account balance and another option for their future contributions. Where superannuation members do not choose an investment option, their member accounts continue to be invested in the default (Growth) option. Pension members are required to choose at least one investment option as there is no default option for the pension product, but can choose up to six. The majority of NTGPASS superannuation members remain in the Growth investment option. Table 4 shows the distribution of member funds across investment choices for member accounts as at 30 June 2012. Superannuation Accounts Pension Accounts Table 4: Member Investment % of funds % of funds Choice Investment Option

Managed Cash 5.33 21.29 Conservative 4.45 15.45 Cautious 4.75 20.30 Growth (default) 80.95 39.74 Assertive 2.14 0.76 Aggressive 2.38 2.46 Total 100 100

Note: Includes creditors who have ceased employment but not claimed their benefit. A total of 295 requests for superannuation account investment switches and 24 requests for pension account switches were processed during the year. In developing the investment options, the Trustee has determined a pre- mixed asset allocation for each option containing a different mix of growth assets (property and shares) and defensive assets (fixed interest and cash). To improve diversity and reduce risk, a low correlation and a multi-asset strategy were introduced into most superannuation options in 2011-12. The board will look at introducing these strategies into the pension portfolio when the opportunity arises. Each investment option has its own return and risk objective to assist members to choose the investment option with the asset allocation that best suits their personal circumstances and tolerance towards investment risk. The return objective is the net return (that is, after fees and taxes) that the option is expected to achieve above the rate of inflation (as measured by the increase in CPI) over rolling five-year periods. For example, the return objective for the Growth option is expected to be at least 3 per cent higher than inflation, when measured over a five-year period. The risk objective is expressed as an average number of years before the option is expected to have a negative return. For example, the Growth option is expected, on average, to have a negative return once in every four years. Table 5 details the return and risk objective and the pre-mixed asset allocation for each of the six investment options as at June 2012.

Return and Risk 2011.12 is the first year that risk and return objectives are measurable for Objectives superannuation options (in addition to the Growth option) indicated below. For the options which can be measured over the five-year period, return objectives have not been met, while the risk objective has only been met for the Growth option.

Return 5-Year Objective Table 6: Risk and Return Objectives Investment Option Objective average Met Risk Objective Result Managed Cash CPI + 0.5% N/A N/A low probability N/A Conservative CPI + 2.0% 3.11% No 1 in 7 years N/A Cautious CPI + 2.5% 2.27% No 1 in 4.5 years 2 in 5 Growth (default) CPI + 3.0% - 0.05% No 1 in 4 years 3y eain r26s yea Assertive CPI + 3.5% - 0.57% No 1 in 3.5 years 2 in 5 Aggressive CPI + 4.0% - 1.86% No 1 in 3 years 3yea inr 5s years Growth Option The majority of members’ accounts are invested in the Growth (default) option, which allocates approximately 75 per cent of the invested amounts to growth assets (shares and property) and 25 per cent to defensive assets (cash and fixed interest). As noted in Table 5, the Trustee’s return and risk objective for this option is to achieve a net return greater than CPI plus 3 per cent over rolling five-year periods and to limit the probability of a negative return to one year in every four years, on average. The key drivers to achieve the objective are the strategic asset allocation (to growth versus defensive assets) and the performance of the underlying investment markets in which these assets are invested. Figure 1 shows performance against the return objective for the Growth option over the life of the NTGPASS fund. It illustrates that, when measured on this basis, the fund has Figure 1: Rolling met the return objective for the majority of the time. Five- However, returns were not sufficiently strong in recent years year Real to offset the negative returns in 2007-08 and 2008-09, and Retu rn as a result the performance target was not met in 2011-12.

Real r e t u r n ( a b o v e C P I) % 1 2

- 1991

2011 Figure 2 shows performance against the risk objective for the Growth option over the life of the NTGPASS fund, demonstrating that the fund has exceeded expectations, with only three negative returns in 26 years. Figure 2: Frequency of Negative Return Return % 20

Year to 30 June Investment In 2005, following a select tender process, MLC was appointed to provide Manager Structure advice on investment issues and to manage the fund’s investment portfolio. In its role as consultant to the board, MLC advises the board on investment objectives and strategies, and selects and monitors investment managers who manage the funds. MLC appoints investment managers with complementary styles across different asset classes such as international and Australian shares, property and fixed interest securities. This style of management creates a well-diversified portfolio that helps minimise risk to produce positive long-term returns. Another function performed by MLC is portfolio re-balancing, to bring the actual asset mix in line with the target allocation. MLC aims to keep the actual asset allocation of each investment option in the fund within plus or minus 5 per cent of the board’s target allocation. The asset allocation ranges are continually monitored by the board to ensure they are within the board’s targets. As at 30 June 2012, MLC’s investment structure utilised 37 investment managers (excluding the multi-manager private market investments). MLC’s managers hold around 2000 bonds and are invested in shares in around 1500 different companies across 60 industries and in over 40 countries. During the year MLC announced a merger with JANA Investment Advisers (JANA). While MLC has owned JANA since 2000, the two organisations have operated independently. This merger will bring the two organisations together under the JANA name and will create the largest implemented consulting firm in Australia with some $24 billion under advice. The major initial benefit will come from the increased research and investment capabilities of the combined organisation. There will be no changes to NTGPASS products or services as a result of this merger but the scheme will benefit from the broader range of technical and analytical skills. In line with good governance practices, the STB engaged Cumpston Sarjeant Performance Review Pty Ltd to conduct a triennial review on MLC in respect of its role as investment manager for NTGPASS, including: • review of the investment performance of each asset class against a range of benchmarks including index results and industry competitors; and • review of investment performance of each investment option against the stated investment goals for that option. The report dated February 2012 concluded that: • MLC asset sector returns generally track relevant indices quite closely; • MLC’s investment performance for growth and defensive investment options neither consistently outperforms or consistently underperforms either its peers or the relevant indices; and • MLC consistently has high quality communication of their strategies. The next review is due to be conducted in 2015. Investment The STB is committed to act in the long-term interests of NTGPASS members Governance and have engaged Regnan, an investment governance company, to provide specialist research and advice to the fund. Regnan researches environmental, social and corporate governance (ESG) risks to the long-term sustainability of Australian companies listed on the ASX 200. The Regnan model is unique in that it engages in proactive, constructive and confidential dialogue with companies on ESG issues. During the year, Regnan undertook 110 engagements with 67 individual companies and logged 229 distinct topics. Corporate governance was the sole topic engaged on in 32 cases and environment in 15, whereas social risks were the sole topic on only three occasions. In 13 instances, topics across the ESG spectrum were raised. Main topics were remuneration, climate change and ESG disclosures. Climate change grew significantly as a discussion topic, being raised 38 times compared with 11 in the previous year. Regnan has significantly increased engagement at director level, in keeping with its objective of further developing capacity for influence. The number of face-to-face meetings with directors increased from 26 in 2010- 11 to 41 in 2011-12. Table 7 shows the investment managers used by MLC under each asset class as at 30 June 2012.

Table 7: Investment Managers Investment Managers Asset Class Australian shares Balanced Equity Management Vanguard JCP Investment Partners Dimensional Maple-Brown Abbott Northcape Capital Northward Capital Wallara Asset Management Global shares Capital International Carnegie Asset Management Dimensional Harding Loevner Mondrian Investment Partners Sands Capital Tweedy, Browne Walter Scott Listed property LaSalle Investment Management Morgan Stanley Investment Management Resolution Capital Diversified debt Antares Capital UBS Asset Management Goldman Sachs Wellington Rogge Global Partners Deutsche Bank Principle Global Investors Amundi Franklin Templeton PIMCO WR Huff Asset Management Oaktree Capital Management Shenkman Capital Management Stone Tower Capital Low Correlation Strategy Bridgewater Associates Nephila Capital Balestra Capital Multi-asset Strategy Ruffer Investment Company Pyrford International Scheme Performance Scheme Overview NTGPASS is established by the Superannuation Act (the Act), which sets out the arrangements for administration and management of the scheme. The NTGPASS Rules are established by way of a schedule to the Act and contain administrative instructions regarding contributions and benefits applicable under the scheme. NTGPASS is a defined benefit scheme that provides a lump sum benefit upon resignation, age retirement or retrenchment. Lump sum benefits generally comprise two components, a member accumulation component and a Territory-financed component. The member component is made up of member contributions, rollovers and investment earnings. Members are required to contribute between 2 per cent and 6 per cent of their salary to the fund. The Territory-financed component is calculated according to a formula based on the member’s length of membership in the scheme, final average salary and contribution rate. This component is unfunded, meaning it is only paid by the Territory when members claim their benefit (generally after ceasing employment with the Territory public sector). Members over preservation age (currently age 55) who have retired from the public sector can elect to receive their superannuation benefit as an income stream in the form of a pension, rather than a lump sum. NTGPASS members are also entitled to a Territory-financed benefit from the NTSSS. The NTSSS is a non-contributory lump sum scheme that provides a 3 per cent productivity payment for each year of membership. Other publications (primarily the Member Information Book) are available, which Operational provide more information on how NTGPASS works. Performance The following table reports operational performance of the office in its administration and management of the scheme. It shows the actual performance against targets, some of which are also published in the Northern Territory Treasury Annual Report.

Performance Measures 2011-12 2011-12 Table 8: Performance Measures Benefits processed Target Actual

1 Stakeholders are the Treasurer, Trustee and superannuation scheme members. Measures range from a rating of 1: extremely dissatisfied to 6: extremely satisfied. 2 All necessary information from the member and the employing agency must be received before a benefit can be paid. During the year, the office responded to approximately 5500 member enquiries. The most common contact with members related to quote requests, lost members, scheme rules and to update member records. Benefit Payments Table 9 illustrates the different categories of benefits paid. Of members leaving Northern Territory Public Sector (NTPS) employment, age retirement was the most common type of benefit category. Table 9: Total Benefits Paid for the Year Ended 30 June

Note: Pension benefits paid include regular payments as well as lump sum withdrawals. During the year, 816 lump sum benefits were paid to Contributions members, totalling $155 million. This is an increase of $20 million (15 per cent) Table 10: Total from last year. Contributions Received for the Year Ended 30 June Table 10 shows the number and value of contributions received into the fund.

Note: Pension contributions do not include additional contributions made by existing pension members. In 2012, there was a decrease in most contributions received into the fund, attributable to the current uncertainty surrounding investment returns. A total of 15 seminars and presentations were held in Darwin, Casuarina, Information Seminars Palmerston, Alice Springs and Katherine and were attended by around 440 members. This is a decrease on the previous year, when two rounds of seminars were held. While desirable, work priorities do not always allow for a second round of presentations each year. Surveys were conducted at each seminar, with results indicating a high level of satisfaction with the quality of information presented at the seminars. During 2011-12, seminars focused on recent investment performance and making investment choices, member benefits and products, recent and proposed reforms and the current superannuation environment. Details of the new opt-out provisions, including transition to retirement pension options, were also explained. As in previous years, the seminars were coordinated and run by the Superannuation Office with assistance from MLC, with Centrelink providing an overview of its Financial Information Service. The Superannuation Office component of the presentations can be viewed on the Seminar page of our website. Membership Profile When active members cease NTPS employment (or opt out of the scheme), they may choose to retain some or all of their NTGPASS benefit in the fund. Consequently, as the active membership declines, the retained membership generally increases. Figure 3 illustrates the decline in active NTGPASS membership since the scheme closed to new members in August 1999. In the financial year immediately prior to scheme closure, there were around 12 000 active members. Figure 3: Membership Since the Closure of NTGPASS in Members (000) August 1999 16

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Active members Retained members Total members

During the year, active membership of NTGPASS decreased by 7 per cent to 4109. The number of retained members also decreased by 3 per cent to 4350.

Active Members Active members of NTGPASS are those members still employed by the NTPS and who will be eligible to receive a Territory-financed benefit w en th y le v em pl ym ent. T b 11 illu str tes the c ng es in acti v N G AS S me mb e hi Table 11: Active NTGPASS Members

NTGPASS active membership reduced from 4416 to 4109.

Membership by Entity Active membership is widely distributed across the Northern Territory public sector, detailed in Table 12. Table 12: Active NTGPASS Membership by Entity

1 Entities listed are those as at 30 June 2012. 2 ‘Other’ includes the Northern Territory Electoral Commission, Auditor-General’s Office, Land Development Corporation, Ombudsman’s Office and Aboriginal Areas Protection Authority. Around 49 per cent of active members are employed in the education and health sectors. Member Contribution Rates Active members can maximise the Territory-financed component of their NTGPASS benefit by contributing at a higher contribution rate. Member contribution rates generally increase with age. As members approach retirement they tend to increase their contribution rates to maximise their final NTGPASS age retirement benefit. Table 13 shows the number of members contributing at different rates. Table 13: Member Contribution Rates

82 per cent of active members choose to contribute at the highest rate of 6 per cent.

Membership by Age and Gender Membership by age and gender is illustrated in Figure 4. Women continue to represent the majority of active members at 62 per cent of the total membership. Figure 4: Membership by Age and Gender Members 1400

0 <30 30-39 40-49 50-59 60+ Age (years) Female Male

The majority of men and women are in the 50 to 59 year age group. Retained members of NTGPASS include members who have retained all or part Retained and Spouse Members of their benefit in NTGPASS when they ceased active membership, as well as spouse account holders and non-member spouses who retained all or part of their family law benefit in NTGPASS. Retained members are not required to make contributions but can do so under the NTGPASS Rules. Table 14 illustrates the changes in retained NTGPASS membership. Usually, as active membership decreases, retained membership increases. Table 14: Retained NTGPASS Members

The number of retained members decreased from 4505 Pension members to 4350. Members NTGPASS pensions have been available to members since March 2008, with the first pension payments commencing in April 2008. Table 15 shows the change Table 15: NTGPASS in the number of members. P en si on M e m be rs

The number of members utilising the pension product Compl increased from 114 to 150. aints The Superannuation Office has a complaints management policy and internal complaints management framework. The objective of the policy is to ensure that complaints are dealt with fairly, promptly and in an efficient and confidential manner. One complaint was received and resolved during 2011-12. Governance Administration and The Superannuation Act requires: Management of NTGPASS • the Commissioner of Superannuation to administer NTGPASS; • the STB to act as the Trustee of the fund; and • the Superannuation Review Board to advise the Treasurer on proposed amendments to NTGPASS Rules and to hear appeals against decisions of the Commissioner of Superannuation.

Figure 5: NTGPASS Commissioner of Superannuation Administrative Structure Superannuation Superannuation Trustee Board Review Board

Northern Territory Superannuation Office

Operations Finance and Policy Investments

The Superannuation Act provides that the costs of day-to-day administration and management of NTGPASS are paid by the Territory. These costs include the salaries of Superannuation Office staff, actuarial fees, office accommodation, system administration costs and board expenses relating to sitting fees, travel expenses and board member education. The Superannuation Act requires the fund to pay expenses incurred by or on behalf of the Trustee in relation to the management of the fund. These expenses include investment management fees and costs for Regnan and the fund’s tax agent. The Superannuation Office provides secretariat services to the STB and the Superannuation Review Board. These services include recording minutes of meetings, preparation and distribution of board papers, financial and investment reports, travel arrangements, payment of sitting fees to board members and arranging attendance at educational seminars and conferences for board members. Payments to board members are made in accordance with a determination under the Assembly Members and Statutory Officers (Remuneration and Other Entitlements) Act 2006 (AMSO), which sets the rates payable to board members for attendance at board meetings, travel and other board-related activities. Remuneration is not payable where a board member is also an employee of the NTPS, the Commonwealth or a state public service. Commissioner of Superannuation Section 4 of the Superannuation Act provides for a Commissioner of Superannuation to be appointed by the Administrator. The statutory role of the Commissioner is to administer NTGPASS and to undertake and manage the investments of the fund as directed by the STB. Following a period of acting in the role, John Montague was appointed as Commissioner of Superannuation in March 2012. Northern Territory The Commissioner of Superannuation manages the Northern Territory Superannuation Office Superannuation Office, which is a division of Northern Territory Treasury, a Northern Territory Government agency. The primary role of the Superannuation Office is to: • provide superannuation policy advice to the Territory; • administer the Northern Territory’s public sector superannuation schemes and NTGDIS; • manage the investments of the Northern Territory’s public sector superannuation funds as directed by the trustees of the various schemes; and • provide secretariat services for the Superannuation Review Board and the STB. Further information on the Northern Territory Superannuation Office can be Superannuation found in the Northern Territory Treasury Annual Report. Trustee Board The Superannuation Trustee Board (STB) is a body corporate established by section 8A of the Superannuation Act. The functions of the board are to act as trustee of the fund and to direct the Commissioner of Superannuation in managing the investments and the fund on its behalf. Additionally, the board may direct the Commissioner to: • engage investment managers, actuaries, financial and legal advisers and other experts in relation to the management of the investments of the fund; and • invest the monies of the fund in investments that the board considers appropriate. With the Minister’s approval, the STB may also administer any other superannuation scheme and manage investments of the fund for any such scheme. Last year it was reported that the STB replaced the previous Superannuation Investment Board. Legislative amendments to formalise the structure of the expanded STB have now been completed. Commencing 27 April 2012, the legislation provides for a nine-member board representing three schemes: • NTGPASS; • LAMS Scheme; and • NTPSBS. Representatives from the previous boards became the initial members of the expanded STB. The membership of the STB includes the Under Treasurer, a chairperson, a deputy chairperson and six nominated persons. Of the nominated persons, two must be nominated by the Under Treasurer, two must be nominated by unions, one must be nominated by the Commissioner of Police and one by the Police Association. All members (except the Under Treasurer) are appointed by the Minister. Members of the Superannuation Trustee Board at 30 June 2012:

Ms Kathleen Robinson FCPA BBUS (Acc) – Chairperson Kathleen is Deputy Under Treasurer Corporate and Information Services for the Department of Treasury and Finance. She has had a long career with the NTPS, including extensive experience in senior positions in Shared Services and Northern Territory Treasury. Kathleen was appointed as Chair of the former Superannuation Investment Board on 22 March 2007. She was re-appointed as Chair (now Chairperson) of the STB on 22 March 2012, for a five-year term.

Ms Marianne McAdie BBUDP – Deputy Chairperson Marianne is currently Director Finance and Budgets, Tourism NT. She joined the NTPS in 1978 and has previously held positions within Northern Territory Treasury. Marianne was appointed as Acting Chair of the former Superannuation Investment Board on 22 March 2007. She was re-appointed as Acting Chair (now Deputy Chairperson) of the STB on 22 March 2012, for a five-year term.

Mr Michael Martin OAM FCPA BA BCom Grad Dip (Admin) AdvDip (Superannuation) – Member, nominated by Unions NT Michael is a former senior public servant with both the Commonwealth and Territory governments and has been involved in the accounting and finance environment for over 30 years. He is currently Chairman of the Larrakia Trade Training Centre, a partner with a local Territory consultancy firm and a company director. Michael was appointed as Member of the former Superannuation Investment Board on 11 May 2004. He was re-appointed on 11 May 2009 and his position carries over as Member of the STB for five years from that date.

Ms Michelle Kempster – Member, nominated by Unions NT Michelle is the Data Migration Manager for the Northern Territory Government Asset Management System Project with the Department of Infrastructure. She joined the NTPS in 1991. Michelle was appointed as Alternate Member of the former Superannuation Investment Board on 11 May 2004. She was re-appointed on 11 May 2009 and her position carries over as Member of the STB for five years from that date.

Mr Alex Pollon GAICD – Member, nominated by the Under Treasurer Alex is the General Manager of the Northern Territory Treasury Corporation. He joined the NTPS in 1998 and has more than 18 years experience in the Australian financial markets industry. Alex is a member of the Australian Institute of Company Directors and has been granted Australian Financial Markets Association dealer accreditation. Alex was appointed as Member of the former Superannuation Investment Board on 1 April 2009. His position carries over as Member of the STB for five years from that date. Ms Vicky Coleman BBUS (Acc) CPA GAICD – Member, nominated by the Under Treasurer Vicky is Manager Financial Administration of the Northern Territory Treasury Corporation. She is a Certified Practising Accountant, has completed the Australian Institute of Company Directors’ course, the Chartered Secretaries Australia’s Certificate in Governance and Risk Management, is a member of the Finance and Treasury Association and serves on a number of external boards. She joined the NTPS in 2000. Vicky was appointed as Alternate Member of the former Superannuation Investment Board on 1 April 2009. Her position carries over as Member of the STB for five years from that date.

Jennifer Prince – Member, Under Treasurer (to August 2012) Jennifer Prince held the position of Under Treasurer from 2002 to August 2012. The Under Treasurer became a member of the STB on 27 April 2012 to represent members of the Legislative Assembly Members’ Superannuation scheme. Alan Tregilgas was appointed to the position of Under Treasurer in August 2012.

Mr Mark McAdie BEc M Pub Pol Grad Cert App Mgt – Member, nominated by Commissioner of Police Mark is a former Assistant Commissioner, Crime and Support Services of the Northern Territory Police. He retired on 4 August 2010 after 35 years of service. Mark is also Chair of the board of Northern Territory Police Legacy, President of Beat the Heat NT (Inc) and President of the Northern Territory Police Museum and Historical Society (Inc). He has previously served on the executive of the Northern Territory Police Association (NTPA), the committee of the Duke of Edinburgh Award (NT) (including several terms as Chair) and the Duke of Edinburgh Award Australian Coordinating Council. Mark previously held an ongoing appointment as Chairman of Trustees of the NTPSBS (Police representative). His appointment carries over as Member of the STB from 25 May 2012 for a period of five years.

Mr Gowan Carter – Member, nominated by Police Association Gowan is a former Sergeant of the Northern Territory Police, who retired in 2008 after 32 years of service. Gowan was a long-term Executive Member of the NTPA. Gowan was previously appointed as Trustee of the NTPSBS (member representative). His appointment carries over as Member of the STB until 8 August 2013.

Board Meetings The Board met four times during the year. The meetings related to general business of the board and investment decisions of the fund. Representatives of MLC attended all the meetings to update the board on investment performance and present on contemporary investment topics. Conflict of Interest Section 8S of the Superannuation Act provides that a member of the board who has a direct or indirect interest in any matter being considered by the board must disclose the nature of that interest as soon as possible at a meeting of the board. The disclosure of interest does not apply where a member of the board has a direct or indirect interest in a matter because they are a member of NTGPASS or if they are a member of an incorporated company with 25 or more members of which they are not a director. The Board maintains a conflict of interest register as part of its best practice processes. At the commencement of each meeting, the members are required to sign the register and record any disclosure in the minutes of that meeting. Where a disclosure is made in relation to a matter being considered, the members cannot take part in deliberations or decisions made on that matter and the member is disregarded for constituting a quorum on that matter. During the year, there were no conflicts of interest registered. Remuneration The current remuneration rate applicable to board members is set in the Statutory Bodies Classification Structure 2012, issued under AMSO. The rate is $304 per day or an hourly rate of one-fifth of the daily rate. In 2011-12 only one board member was entitled to receive sitting fees for board and conference attendance, and the total amount of remuneration received was $1495. The Superannuation Review Board is established by section 9 of the Superannuation Superannuation Act. The role of the board is to review decisions or actions of Review Board the Commissioner of Superannuation (on request or appeal of those whose benefits are affected by a decision or action of the Commissioner) and to advise the Treasurer, as the Minister responsible for superannuation matters, on amendments to the NTGPASS Rules. The Superannuation Review Board comprises an independent chair, a member nominated by Unions NT, a member nominated by the NTPA and a member nominated by the Treasurer. The nominee of the NTPA participates in an appeal hearing only where the appeal concerns a member of the Northern Territory Police. The nominee of Unions NT does not participate in Police appeal matters. The current members of the Review Board are: Chair Ms Jane Large Acting Chair Mr Christopher Hosking Member nominated by Unions NT Mr Lynton Sherry Alternate Member Mr Rod Smith Member nominated by NTPA Mr Gowan Carter Alternate Member Mr Andrew Smith Member nominated by Minister Mr Robert Bradshaw Alternate Member Mr Stephen Herne Appeals Section 46(5) of the Superannuation Act provides for a member or other person dissatisfied by a decision of the Commissioner of Superannuation to request the Commissioner to reconsider the decision. Section 47(1) of the Superannuation Act allows a person to appeal to the Superannuation Review Board in relation to a decision or action of the Commissioner, or the Commissioner’s failure to make a decision or take action. No appeals were lodged with the Review Board during 2011-12. Compliance with The superannuation industry is regulated by an extensive and diverse legislative Commonwealth framework. Commonwealth legislation includes the superannuation industry Superannuation supervision framework, the resolution of complaints system, superannuation Legislation guarantee regime, superannuation contributions regime and the taxation of superannuation benefits and superannuation entities. Most state and territory public sector schemes, including NTGPASS, are regulated under their own legislation and have been classified as exempt public sector superannuation schemes under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS). SIS legislation treats exempt public sector superannuation schemes as complying funds for concessional taxation and superannuation guarantee purposes. A Heads of Government Agreement requires NTGPASS to conform to the principles of SIS and the Commonwealth’s retirement income policies. As a result, NTGPASS is not regulated under SIS but is required to comply with most other Commonwealth superannuation legislation, for example, superannuation surcharge and family law. The results of the annual compliance audit and the NTGPASS Annual Report are provided to the Commonwealth each year to assist in its monitoring of Audits NTGPASS under the Heads of Government Agreement. The Northern Territory Auditor-General’s Office provides audit services to both the scheme and the fund. Section 43 of the Superannuation Act requires the fund’s financial statements to be audited by the Auditor-General and tabled in the Legislative Assembly. The audited financial statements are presented from page 33. The audit services also include an annual compliance audit to ensure the scheme complies with the principles of SIS and other relevant legislation. To date there have been no significant compliance issues arising from these audits. Actuarial Services Section 45 of the Superannuation Act requires an actuarial review of NTGPASS to be undertaken every three years. The review examines the scheme’s experience during the previous three years, and prepares projections of the Territory-financed cash flows and accrued liabilities. The most recent actuarial review of the scheme was undertaken as at 30 June 2010 by PricewaterhouseCoopers Securities Ltd. A summary of the review is presented on page 54 with the financial statements. The next review is due in 2013. The actuarial estimates of future cash flows to fund the Territory-financed component of NTGPASS benefits and accrued liabilities of the scheme (based upon nominal values) have been updated based on 2011-12 information and are shown in Table 16.

Table 16: Estimated Estimated Cash Flow Estimated Accr Year to 30 June NTGPASS Territory-financed $M $M Benefit Costs 79.3 821.6 2015 2020 94.4 788.8 2025 95.7 652.1 2030 83.8 456.8 2035 61.9 255.0 2040 35.3 99.1 2045 11.4 20.1 2050 1.2 1.0

In addition to undertaking actuarial reviews, the actuary provides advice on superannuation policy matters, including advice on the offset provisions to apply where a member is retired on the grounds of invalidity and is entitled to workers compensation benefits for loss of earning capacity. The actuary also assists with advice in relation to taxation deductions available to the fund. The Territory has a panel contract for the provision of actuarial services to Northern Territory Treasury and ad hoc actuarial advice to the Northern Territory Government. On the panel are Cumpston Sarjeant Pty Ltd, PricewaterhouseCoopers Securities Ltd and Bendzulla Actuarial Pty Ltd. The contract commenced on 1 July 2007 for a six-year period. Actuarial services to the scheme are provided by PricewaterhouseCoopers Securities Ltd. Financial Statements Overview of the Financial Statements Form and Content Financial statements for superannuation funds are prepared in conformity with Accounting Standard AAS25 Financial Reporting by Superannuation Plans. To reflect the overall change in the value of assets available to pay superannuation benefits to members, AAS25 requires that periodic changes in the net market value of assets be recognised as revenue. AAS25 provides for an alternative reporting format to that of other entities, namely: • a statement of changes in net assets replaces the operating statement; • a statement of net assets replaces the balance sheet; and • a cash flow statement is not required. Investments The fund held investments of $763.8 million with MLC and $1.4 million with Super Loans Trust as at 30 June 2012. The investment with Super Loans Trust allows members access to low interest home loans and credit cards. Cash of approximately $6 million was held in the operating accounts for the day-to-day operations of the fund. Benefit Payments A benefit payment comprises the member’s accumulation account and, where applicable, a Territory-financed component. The Territory guarantees to meet the employer share of benefit entitlements as it arises, and transfers the Territory-financed component to the fund at the time a benefit is paid. This funding method is known as emerging cost and is an appropriate way to meet benefits in a public sector scheme. The member accumulation account contains the member’s contributions and rollovers, accumulated with interest at the fund’s crediting rate on an annual basis. If applicable, benefit payments are reduced by the amount of the member’s surcharge debt account at the time the benefit is paid. Fund Expenses Expenses paid by the fund relate to benefit payments, management expenses incurred in the investment of funds, membership of the governance advisory service and the provision of tax accounting services. All other administrative costs such as salaries, audit, actuarial, administration and operational costs are paid by the Territory.

Statement by the Superannuation Trustee Board In the opinion of the Board: • the accompanying financial statements consisting of a Statement of Net Assets, Statement of Changes in Net Assets and Notes to the Financial Statements are drawn up to present fairly the financial position of the Northern Territory Government and Public Authorities’ Superannuation Scheme as at 30 June 2012 and the results of its operations for the year then ended in accordance with Australian Accounting Standards and other mandatory reporting requirements; • the financial statements have been prepared in accordance with the requirements of the Superannuation Act as amended; and • the scheme has operated in accordance with the provisions of the Superannuation Act as amended and in compliance with the requirements of the Superannuation Industry (Supervision) Act 1993 during the year ended 30 June 2012.

Chairperson Date: 28 September 2012

K ROBINSON

Member Date: 28 September 2012

A POLLON Statement of Net Assets as at 30 June 2012 Note 2012 2011 $000 $000 ASSETS Cash and cash equivalents 6 444 7 097 Units in life policies 763 858 748 775 Super Loans Trust 1 410 1 400 Territory contributions receivable 19 989 19 453 Other receivables 102 95 Deferred tax assets 1 1 TOTAL ASSETS 791 804 776 821 Less LIABILITIES Benefits payable 4(a) 33 428 34 349 Sundry liabilities 6 6 Provision for surcharge contributions tax 2 444 2 514 Current tax liability 7(c) 2 057 386 Deferred tax liability 7(d) 2 989 2 908 TOTAL LIABILITIES (excluding net assets available to pay benefits) 40 924 40 163 NET ASSETS AVAILABLE TO PAY BENEFITS 750 880 736 658

The statement of net assets should be read in conjunction with the notes to financial statements. Statement of Changes in Net Assets for the year ended 30 June 2012 Note 2012 2011 $000 $000 REVENUE 10 578 58 261 Investment revenue 257 370 Interest 228 134 Distributions from investments 10 093 57 757 Movement in net market value of investments 5 174 005 170 440 Contributions revenue 51 790 50 603 Member contributions 136 222 Surcharge payments received 254 393 Government co-contributions 67 903 59 605 Territory contributions 53 922 59 617 Transfers from other funds and rollovers 184 583 228 701 TOTAL REVENUE EXPENSES 162 712 139 865 Benefits paid 4 3 938 3 095 Disablement benefits 73 185 56 984 Retirement benefits 75 691 72 384 Withdrawal benefits 2 647 2 699 Death benefits 7 251 4 703 Pensions paid 338 265 Other expenses 272 139 Other expenses 66 126 Superannuation surcharge contributions tax 163 050 140 130 TOTAL EXPENSES 21 533 88 571 Net change for the year before income tax 7 311 6 338 Income tax expense 7(b) 14 222 82 233 Net change for the year after income tax 736 658 654 425 NET ASSETS AVAILABLE TO PAY BENEFITS AT THE BEGINNING OF THE FINANCIAL YEAR 750 880 736 658 NET ASSETS AVAILABLE TO PAY BENEFITS AT THE END OF THE FINANCIAL YEAR

The statement of changes in net assets should be read in conjunction with the notes to financial statements. 1. Reporting Entity The Northern Territory Government and Public Authorities Employees’ Superannuation Fund (ABN 67 738 128 022) is established under the Superannuation Act (as amended). The fund incorporates a member accumulation and a defined benefit component and operates for the purpose of providing benefits for or in relation to members under the Northern Territory Government and Public Authorities’ Superannuation Scheme Rules (as amended). Administration of the scheme is conducted by the Northern Territory Superannuation Office on behalf of the Trustee.

2. Basis of Preparation a) Statement of compliance The financial report is a general purpose report that is prepared in accordance with Australian Accounting Standards (AAS) including AAS25, other applicable accounting standards, the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations and the provisions of the Superannuation Act as amended. International Financial Reporting Standards (IFRS) form the basis of Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB). Certain requirements of AAS25 however differ from the equivalent requirements that would be applied under IFRS. The financial statements were approved by the Trustee on 28 September 2012. b) Basis of measurement The financial statements are prepared on a net market value basis. c) Functional and presentation currency The financial statements are presented in Australian dollars, which is the functional currency of the scheme. Amounts have been rounded to the nearest one thousand dollars except where otherwise noted. d) Use of estimates and judgements The preparation of financial statements requires the Trustee to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are viewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and any future periods affected. There are no critical accounting estimates and judgments contained in these financial statements other than those used to determine the liability for accrued benefits, which are not brought to account but disclosed by way of note. The following significant accounting policies have been adopted in the preparation and presentation of the financial report. 3. Significant Accounting Policies The accounting policies set out below have been applied consistently in these financial statements. a) Assets Assets are included in the statement of net assets at net market value as at reporting date and movements in net market value of assets are recognised in the statement of changes in net assets in the periods in which they occur. The fund recognises financial assets on the date it becomes party to the contractual provisions of the asset. Financial assets are recognised using trade date accounting. From this date any gains and losses arising from changes in net market value are recorded. Estimated costs of disposal are deducted in the determination of net market value. As disposal costs are generally immaterial, unless otherwise stated, net market value approximates to fair value. The fund’s investments with MLC Implemented Consultants (MLC) are unitised and operate as units in pooled superannuation trusts. The fund’s investment with Super Loans Trust is identified as a unitised unlisted managed investment scheme. As such, both investments are valued at the redemption price at reporting date, as advised by the investment managers, and are based on the net market value of the underlying investment. Unit values denominated in foreign currency are then translated to Australian dollars at the current exchange rates. b) Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily converted to known amounts of cash and are subject to an insignificant risk of changes in value. c) Financial liabilities The fund recognises financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Benefits payable comprises the entitlements of members who ceased employment with the employer sponsor prior to year end, but have not been paid by that date. Other payables are payable on demand or short time frames of less than 60 days. The fund recognises financial liabilities at net market value as at reporting date with any change in net market values of the fund’s financial liabilities since the beginning of the reporting period included in the statement of changes in net assets for the reporting period. Net market value approximates to the amortised costs of the liability using effective interest rate method less estimated transaction costs. As disposal costs are generally immaterial, unless otherwise stated, net market value approximates to fair value. 3. Significant Accounting Policies (continued) d) Accrued benefits The amount of accrued benefits has been determined on the basis of the present value of expected future payments, which arise from membership of the scheme up to the reporting date. The figure reported below has been determined by reference to expected future salary levels and by application of a market-based, risk-adjusted discount rate and relevant actuarial assumptions. The liability for accrued benefits is not included in the statement of net assets, but the liability at the latest measurement date is reported by way of note. In accordance with section 45ZA of the Superannuation Act, the actuarial review of the operations of the scheme was carried out as at 30 June 2010. In determining accrued benefits, it was assumed that rates of return will on average exceed the rate of general salary inflation by 2.5 per cent per year. The next triennial review is scheduled for 2013. e) Revenue Interest revenue Interest revenue is recognised when the fund has established its right to receive the interest. Distributions Distributions from managed investment schemes are recognised as at the date the unit value is quoted ex-distribution and, if not received at reporting date, are reflected in the statement of net assets as a receivable at net market value. Contribution revenue and transfers Member and contribution revenue is recognised on an accrual basis. Members contribute to the fund each pay period at an elected contribution rate of between 2 per cent and 6 per cent of their contribution salary. Member contributions are accumulated with investment returns in the fund. Members may make additional contributions to their accumulation accounts by making voluntary contributions or entering into an approved salary sacrifice arrangement. Investment returns are applied annually to member’s accumulation accounts based on the earning rate of the fund. Member contributions and investment returns thereon are accumulated in the fund. The Territory does not make direct contributions to the fund. Under section 29 of the Superannuation Act, all benefits are paid from the fund. Where a benefit contains a Territory-financed component, the Territory reimburses the fund for this amount at the time the benefit is paid. Thus, the employee component of benefits is met on a fully funded basis while the Territory-financed component of benefits is met on an emerging cost basis. This policy is reflected in the difference between the net assets available to pay benefits and the amount of the accrued benefits, as calculated by the actuary. Superannuation co-contributions from the Commonwealth are recognised on a cash basis as this is the only point at which measurement is reliable. 3. Significant Accounting Policies (continued) Co-contributions revenue from the Australian Taxation Office is recognised when the control and benefits of the funds from the revenue have transferred to the fund. Movement in net market value of investments Changes in net market value of investments are recognised as income and are determined as the difference between the net market value at year end or consideration received (if sold during the year) and the net market value as at the prior year or cost (if the investment was acquired during the period). f) Income tax The superannuation scheme established under the Superannuation Act as amended is an exempt public sector superannuation scheme under the Superannuation Industry (Supervision) Act 1993 and is deemed to be a complying superannuation fund for the purposes of Part IX of the Income Tax Assessment Act 1936 as amended. Accordingly, the concessional tax rate of 15 per cent has been applied. Income tax on benefits accrued as a result of operations for the year comprises current and deferred tax. Income tax is recognised in the statement of changes in net assets except to the extent that it relates to items recognised directly in members’ funds. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the statement of net assets and any adjustments to tax payable in respect of previous years. Deferred tax is calculated using the balance sheet method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation of the asset using tax rates enacted or substantially enacted at reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that a related tax benefit will be realised. The expense (and any corresponding liability) is brought to account in the period in which the assessments are received by the Trustee and are properly payable by the fund. g) Superannuation contributions (surcharge) tax The fund recognises amounts paid or payable in respect of the surcharge tax as an expense of the fund. The expense (and any corresponding liability) is brought to account in the period in which the assessments are received by the fund and are properly payable by the fund. 3. Significant Accounting Policies (continued) No estimate has been made for the balance of any tax payable in respect of surchargeable contributions received by the fund during the current year as the Trustee is unable to determine this amount until receipt of applicable assessments in the following period. h) Goods and services tax (GST) The fund is not registered for GST. Where GST has been applied, revenues, expenses and assets are recognised inclusive of GST. Receivables and payables in the statement of net assets are also shown inclusive of GST. i) Issued standards not early adopted A number of new standards, amendments to standards and interpretations are effective for annual periods commencing 1 July 2011 and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements. The scheme does not plan to adopt this standard early and the extent of the impact has not been determined.

4. Payables

2012 2011 $000 $000 (a) Benefits payable Member financed benefits 13 439 14 896 Territory financed 19 989 19 453 benefits 33 428 34 349 (b) Benefits payable movement Member financed benefits - 1 666 Territory financed benefits 457 171 536 1 (c) Benefits paid 237 Member financed benefits 96 266 79 987 Territory financed benefits 67 367 57 501 163 633 137 488 BENEFITS EXPENSE 162 712 139 865 5. Movements in Net Market Values

2012 2011 $000 $000 Investments held at the end of the financial year: Super Loans Trust 8 - 51 Units in pooled superannuation trusts 8 997 55 825 Units in pooled superannuation pension trusts 1 088 1 983 TOTAL CHANGES IN NET MARKET VALUE 10 093 57 757

6. Auditors’ Remuneration Audit services are provided by the Northern Territory Auditor-General’s Office at no cost to the fund.

7. Income Tax Expense

2012 2011 $000 $000 a) Current tax expense Current income tax Current 7 229 5 tax charge - 690 Adjustments to current tax for prior period 396 Deferred income tax 82 Relating to the origination and reversal of temporary 252 differences 7 311 6 INCOME TAX EXPENSE b) Income tax expense 21 533 88 571 Total revenue less expenses before income tax 3 230 13 285 Tax eapplicaffect ofb lee xpensesat the r a thatte of are 15% not (2011: deductible 15%) in determining taxable income: Benefit payments 24 407 20 980 Superannuation contributions surcharge 1 - Other non deductible expenses 1 - Tax effect of income that are not assessable/deductible in determining taxable income: Investment income - 1 513 - 8 668 Member contributions and transfers in - 9 655 - 10 738 Non-taxable employer contributions - 8 930 - 8 685 Surcharge payments received - 20 - 33 Tax effect of other adjustments: Deduction for anti-detriment payments -12 - Notional premium deduction for death and disability - 192 - 195 Over provision prior period - 396 Exempt income - 6 - 4 Income tax expense 7 311 6 338 7. Income Tax Expense (continued) 2012 2011 $000 $000 c) Current tax liabilities/(assets) comprises: Balance at beginning of year 386 2 030 Income tax paid – current period - 5 172 - 5 303 Income tax paid – prior period - 386 - 2 426 Current year’s income tax provision 7 229 5 689 Under/(over) provision prior period - 396 - 2 057 386 d) Deferred tax liabilities The amount of deferred tax liabilities recognised in the Statement of Net Assets at reporting date is made up as follows: Contributions receivable 2 999 2 918 Accrued expenses - 1 - 1 Unrealised capital gains - 9 - 9 2 989 2 908 e) Deferred tax assets The amount of deferred tax asset not recognised in the Statement of Net Assets at reporting date due to the fact that it is not probable that it will be realised is made up as follows: Realised carried forward capital losses 2 831 2 831

8. Liability for Accrued Benefits and Funding Arrangements a) Benefits payable Benefits payable include benefits in respect of members who ceased to be members prior to year end but had not been paid by 30 June 2012. The amount of accrued benefits has been determined on the basis of the present value of expected future payments, which arise from membership of the scheme up to the reporting date. The accrued benefits value has been determined by reference to expected future salary levels and by application of market-based, risk-adjusted discount rate and relevant actuarial assumptions. b) Accrued benefits 2012 2011 $M $M Accrued benefits as at 30 June 1 738.79 1 522.89

c) Employer contributions tax receivable To ensure fair and equitable treatment, a retrospective payment into the fund for employer contribution tax is being received. This tax is payable in respect of contributions paid by the Northern Territory Government to the fund for employees whose service commenced prior to 1 July 1983. 8.Liability for Accrued Benefits and Funding Arrangements (continued) d) Closure of scheme In 1999 the Territory Government closed NTGPASS to new members. The superannuation arrangements that apply now require employees who commenced service on or since 10 August 1999 to nominate a superannuation fund to which employer superannuation (as required under superannuation guarantee legislation) is paid. Under the Superannuation Act, this means that they cannot become members of NTGPASS.

9.Vested Benefits Vested benefits are benefits that are not conditional upon continued membership of the scheme and include benefits that members are entitled to receive had they terminated their membership of the scheme at the reporting date. Vested benefits at a particular date represent the present value of benefits payable in respect of former members and the benefits payable to current members on voluntary withdrawal from scheme membership at that date. These benefits include the payment of member contributions accumulated with investment returns. The accrued employer-financed component is partially vested after five years of membership and fully vested after ten years and also on retrenchment or after attaining age 55. Benefits credited to former members of the Northern Territory Electricity Commission Superannuation Scheme for Trade Categories and, where relevant, benefits payable in consequence of other transfer arrangements entered into by the scheme have been taken into account in determining vested benefits.

2012 2011 $M $M Vested benefits as at 30 June 1 708.93 1 635.97 Net assets as at 30 June 750.88 736.66

10. Related Parties a) Sponsor The Superannuation Act provides that costs incurred by the Superannuation Trustee Board such as brokerage fees, costs for investment advice, membership of Regnan (a governance advisory service) and other expenses relating to the functions of the board in the investment of the scheme’s funds are paid directly by the fund. Costs for the day-to-day management of the scheme are paid by the Territory and include salaries, sitting fees (where applicable), audit, actuarial, office accommodation, administration and operational costs. 10. Related Parties (continued) b) Trustee The Trustee of the fund is the Superannuation Trustee Board (STB). Membership of the STB was expanded during the year to nine members. The LAMS representative (J Prince) commenced on 27 April 2012 and the PSBS representatives (M McAdie and G Carter) commenced on 25 May 2012. Members at 30 June 2012: Kathleen Robinson Chairperson Marianne McAdie Deputy Chairperson Michael Martin Member Michelle Kempster Member Alex Pollon Member Vicky Coleman Member Jennifer Prince Member Mark McAdie Member Gowan Carter Member One member was paid STB sitting fees for services during the 2011-12 financial year ($1495). Where a board member is also a member of the fund, member contributions are made on an arm’s length basis.

11. Financial Instruments Investments of the fund (other than cash held for liquidity purposes) comprise units in collective investment products, such units in pooled superannuation trusts and unlisted managed investment schemes. The Trustee has determined that this type of investment is appropriate for the fund and is in accordance with the fund’s investment strategy. The Trustee has overall responsibility for the establishment and oversight of the fund’s risk management framework. The Trustee established risk management policies to identify and analyse the risks faced by the fund and set appropriate risk limits and controls, monitor risks and adherence to risk limits. Monitoring of risks includes those managed by the investment manager, MLC Implemented Consulting (MLC) appointed in 2005. The Trustee regularly reviews the risk management policies to ensure changes in market conditions and the fund’s activities are reflected. The fund’s investments are exposed to a variety of investment risks, such as market risk and liquidity risk. This note presents information about the fund’s exposure to these risks, the fund’s objectives, policies and processes for measuring and managing risk. 11. Financial Instruments (continued) MLC reports regularly to the STB and provides a formal risk management statement. Other reports from MLC include: • details of the controls it has in place to monitor compliance with the fund’s investment strategy; • current asset allocations against target positions; • investment performance against benchmarks; and • fund manager compliance reporting. The following section identifies and outlines the management of risks faced by the fund. MLC manages these risks on behalf of the fund. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk; interest rate risk; and other price risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on investment. Also to aid in mitigating market risk, MLC undertakes extensive due diligence prior to the appointment of investment managers and monitors ongoing investment manager performance. Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The fund is exposed to currency risk on financial instruments that are denominated in a currency other than Australian dollars. Consequently, the fund is exposed to the risk that exchange rates may change in a manner that adversely affects the value of the fund’s investments held in foreign currencies. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the fund’s financial assets are non-interest-bearing with only cash being directly subject to interest rate risk. As a result, the fund is subject to limited exposure to interest rate risk due to fluctuations in interest rates. All the fund’s cash assets as at 30 June 2012 are held with National Australia Bank and Territory Insurance Office. An increase (or decrease) of 1 per cent in interest rates at the reporting date would have increased (decreased) the benefits accrued as a result of operations and net assets available to pay benefits by the amounts shown below. 11. Financial Instruments (continued)

1% movement in interest rates Benefits accrued as a Net assets available Balance result of operations to pay benefits $000 $000 $000 30 June 2012 6 444 ± 64 ± 64 30 June 2011 7 097 ± 71 ± 71

Other market price risk Other market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The fund’s financial instruments are carried at net market value with changes recognised in the statement of changes in net assets. All changes in market conditions affecting net market value are therefore recognised in the statement of changes in net assets. Investments of the fund (other than cash held for liquidity purposes and investment properties) comprise fixed interest securities, listed Australian equities, units in collective investment vehicles such as life office policies, pooled superannuation trusts and other unitised investments. The fund’s exposure to other market price risk is therefore limited to the market price movement of these investments. The Trustee has determined that these investments are appropriate for the fund and are in accordance with the fund’s published investment strategy in respect of asset class allocation. The following sensitivity analysis demonstrates the movement in the total value of investments as a result of a 5 per cent variation in value.

5% movement in investments Change for the year in net assets available to Net assets available Investments Balance pay benefits to pay benefits 30 June 2012 771 712 ± 38 586 ± 38 586 30 June 2011 757 272 ± 37 864 ± 37 864

For an explanation of the return and risk objectives for each of the investment options offered by the scheme please refer to the Investments section of this report starting on page 12. Credit risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss by failing to discharge an obligation. No financial assets are considered past due as all payments are considered recoverable when contractually due. The employer-financed superannuation component is paid to the fund at the time the benefit is paid. 11. Financial Instruments (continued) The maximum exposure to credit risk (excluding the value of any collateral or other security) to recognised financial assets at balance date, is the carrying amount of those assets. With the exception of the Northern Territory Government, the fund does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the fund. The Territory financed superannuation component is guaranteed under section 29 of the Superannuation Act.

Level 2 Investments 2012 2011 $000 $000 Cash and cash equivalents 6 444 7 097 Superannuation investments MLC – Superannuation Managed Cash 38 019 14 364 MLC – Superannuation Conservative 31 803 22 650 MLC – Superannuation Cautious 33 931 31 309 MLC – Superannuation Growth 578 132 608 404 MLC – Superannuation Assertive 15 268 18 779 MLC – Superannuation Aggressive 17 016 18 669 Pension investments MLC – Pension Managed Cash 10 580 2 278 MLC – Pension Conservative 7 678 3 032 MLC – Pension Cautious 10 087 6 859 MLC – Pension Growth 19 744 18 892 MLC – Pension Assertive 380 1 209 MLC – Pension Aggressive 1 220 2 330 Unit trust investment Super Loans Trust 1 410 1 400 Total 771 712 757 272 Liquidity risk Liquidity risk is the risk that the fund will not be able to meet its financial obligations as they fall due. The fund’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses. The fund’s liquidity risk is managed on a daily basis in accordance with policies and procedures in place and the fund’s investment strategy. The fund’s overall liquidity risks are regularly monitored by the Trustee. 11. Financial Instruments (continued)

Contractual cash flows Balance potentially payable in 2012-13 $000 $000 30 June 2012 Benefits payable 33 428 33 428 Vested benefits 1708 930 1708 930 1742 358 1742 358

30 June 2011 Benefits payable 34 349 34 349 Vested benefits 1 635 970 1 635 970 1 670 319 1 670 319

Vested benefits (refer Note 9) have been included, as this is the amount that members could call upon as at year end. This is the earliest date on which the fund can be required to pay members’ vested benefits, however members may not necessarily call upon amounts vested to them during this time. Estimation of fair values The fund’s financial assets and liabilities included in the statement of net assets are carried at net market value, which the Trustee believes approximates net fair value. The major methods and assumptions used in determining net market value of financial instruments were disclosed in note 3(a) of the summary of significant accounting policies section. Fair value measurements The following table analyses financial instruments carried at net market value, which approximates fair value, by valuation method. The different levels are defined as: • Level 1 net market value measurements are those instruments with value based on quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 net market value measurements are those instruments with value based on inputs other than quote prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and • Level 3 net market value measurements are those instruments with value based on inputs for the asset or liability that are not based on observable market data. The STB has determined that the fair value of the fund’s investments are Level 2. 11. Financial Instruments (continued)

Level 2 Investments 2012 2011 $000 $000 Superannuation investments MLC – Superannuation Managed Cash 38 019 14 364 MLC – Superannuation Conservative 31 803 22 650 MLC – Superannuation Cautious 33 931 31 309 MLC – Superannuation Growth 578 132 608 404 MLC – Superannuation Assertive 15 268 18 779 MLC – Superannuation Aggressive 17 016 18 669 Pension investments MLC – Pension Managed Cash 10 580 2 278 MLC – Pension Conservative 7 678 3 032 MLC – Pension Cautious 10 087 6 859 MLC – Pension Growth 19 744 18 892 MLC – Pension Assertive 380 1 209 MLC – Pension Aggressive 1 220 2 330 Unit trust investment Super Loans Trust 1 410 1 400

12. Contingent Liabilities The fund has no contingent liabilities at 30 June 2012 (2011: nil).

13. Segment Reporting The superannuation scheme operates in one business and geographical segment, being the provision of superannuation benefits for members in the Northern Territory of Australia.

14. Events Subsequent to Reporting Date There were no significant subsequent events after balance date. Summary of the Report of the Actuarial Investigation of the Scheme as at 30 June 2010

The last actuarial review of the scheme was performed as at 30 June 2010 by Catherine A Nance FIAA, from PricewaterhouseCoopers Securities Ltd and the results were provided in her report dated August 2010. The review dealt with the employer liabilities, which are guaranteed by the Territory under the Superannuation Act and met on an emerging cost basis. The future employer cash flows and accrued liabilities were projected to the year 2052. The scheme started in 1986 and was closed to new members from 9 August 1999. The employer cash flow for the year ended 30 June 2010 was $36.4 million. It is expected that the cash flow will continue to grow over the next thirteen years to peak at $95.1 million in the year 2019-2020. It is then expected to decline slowly, becoming zero by 2052. It was assumed that notional earning rates would exceed the rate of general salary inflation by 0.7 per cent per year. On this basis the accrued employer liability was $752.0 million as at 30 June 2010. The accrued liability is expected to increase over the next six years to peak at $832 million by 2016. The last members are expected to leave by 2052, at which stage the liabilities will be zero. If a real discount rate of 1.7 per cent, rather than 0.7 per cent were used, the accrued liability would be reduced from $752.0 million to $691.6 million. If a real discount rate of negative 0.3 per cent, rather than 0.7 per cent were used, the accrued liability would be increased from $752.0 million to $822.0 million. Member contributions are invested in the scheme and credited with interest. Interest rates are determined so that the market value of the assets of the scheme is very close to the sum of the member accounts, so members share fairly in the earnings on their own contributions. The financial soundness of the scheme arises from the Territory guarantee to meet the employer share of benefit entitlements as they arise. This is an appropriate way to meet benefits in a public sector scheme provided the extent and nature of the liabilities is disclosed and included within public sector accounts as is the case with the NTGPASS.

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