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Impact on defined benefit obligation
Change in
assumption
Increase in
assumption
Decrease in
assumption
2017
2016
2017
2016
$’000
$’000
$’000
$’000
Discount rate
1.0%
3,694
4,209
(4,499)
(5,196)
Salary growth rate
0.5%
(1,054)
(1,248)
1,007
1,190
Rate of CPI increase
0.5%
(1,006)
(1,096)
919
1,000
Pensioner mortality rate
Higher mortality**/
Lower mortality*
(158)
175
366
(420)
(g) Non-current liabilities - Defined benefit plans (continued)
(iv) Actuarial assumptions and sensitivity (continued)
The sensitivity of the total defined benefit obligation as at 30 June 2017 under several scenarios
is shown below.
Scenarios related to changes to the discount rate (effectively investment return), salary growth
rate and rate of CPI increase relate to sensitivity of the total defined benefit obligation to economic
assumptions, and scenarios related to pensioner mortality relate to sensitivity to demographic
assumptions. The assumption as to the expected rate of return on assets is determined by weighing
the expected long term return for each asset class by the target allocation of assets to each class.
The returns used for each class are net of investment tax and investment fees.
(v) Risk exposure
There are a number of risks to which the Fund
exposes the Employer. The more significant
risks relating to the defined benefits are:
•
•
Investment risk - The risk that investment
returns will be lower than assumed
and the Employer will need to increase
contributions to offset this shortfall.
•
•
Longevity risk - The risk that pensioners
live longer than assumed, increasing future
pensions.
•
•
Pension indexation risk - The risk that
pensions will increase at a rate greater
than assumed, increasing future pensions.
•
•
Salary growth risk - The risk that wages or
salaries (on which future benefit amounts
for active members will be based) will rise
more rapidly than assumed, increasing
defined benefit amounts and thereby
requiring additional employer contributions.
•
•
Legislative risk - The risk is that legislative
changes could be made which increase
the cost of providing the defined benefits.
The defined benefit fund assets are invested
with independent fund managers and have
a diversified asset mix.
The Fund has no significant concentration
of investment risk or liquidity risk.
*Assumes the short term pensioner mortality improvement factors for years 2017-2021 also apply
for years after 2021
**Assumes the long term pensioner mortality improvement factors for years post 2021 also apply
for years 2017 to 2021
The defined benefit obligation has been recalculated by changing the assumptions as outlined
above, whilst retaining all other assumptions.
97
NOTE 7
NON-FINANCIAL ASSETS AND LIABILITIES (CONTINUED)