Letter to Canberra Times
CSS CEO addresses a number of factual errors for the information
of members.

9 September 2003

The Editor
The Canberra Times
PO Box 7155
CANBERRA BUSINESS CENTRE ACT 2610

Dear Sir

I refer to the article "Earnings Rate Disappoints" in the most recent Public Sector Informant (2 September 2003) about the Commonwealth Superannuation Scheme (CSS).

It is not appropriate for me to comment on the opinions expressed in the article (of which there were many) but I would like to correct some errors of fact.

• The article says that members of the CSS must be relieved by the fact that their fund earned 3.3% last financial year but that “the fund will still declare a negative return for 2002-2003”. The Fund did not declare a negative return. The crediting rate was zero. (Please note that the audited earning rate, declared after the article and this letter were written, is 3%).

• The practice of not declaring a negative return is not a "policy" as the article claims but is in fact necessitated by the CSS legislation. This is conceded by way of a later comment in the article.

• The performance of the CSS in 2002-03 was not low relative to other funds as is implied in the comparison of the CSS with two other funds. The CSS performance in 2002-03 was very good relative to most other Funds. In the InTech Major Funds Performance Survey of 16 large Australian superannuation funds, the CSS audited earning rate of 3% was the second best of all and compared with a median return in that survey of minus 0.5%. Furthermore, another InTech survey of superannuation funds run by professional fund management companies shows that the CSS audited return was again second best of all 31 funds in that survey. The median return in that survey by the way was minus 2.1% and only four of the 31 funds returned a positive return.

• The article claims that the trustees have "shown little recognition of the potential adverse impact on continuing members from current practices if the world economy moves into serious recession and deflation". Again, as the article's author knows, the trustees moved last year to significantly change the CSS's strategic asset allocation. The fund's international equity allocation was over halved and its bond allocation was more than doubled. The asset class that offers most protection against recession and deflation is bonds.

• The article claims that the fund still owns a "high percentage of overseas assets involving significant investment risk". The CSS exposure to international equities at the end of June was 23%, which is lower than the average. The average exposure to this asset class in the InTech Major Funds survey was 27%, and of the professionally managed funds in the second InTech survey referred to above, it was 25%. Furthermore, the only extra element of risk involved with "overseas assets" as distinct from domestic assets, is the foreign currency risk and, as is also well known, virtually all of the CSS's overseas assets were fully hedged with regard to foreign exchange risk through all of 2002-03.

Yours sincerely

 

Steve Gibbs
Chief Executive Officer
Public Sector and Commonwealth Superannuation Schemes (PSS/CSS)