July 2002 Volume 83 Number 7 "serving the protectors"
Police Super Update www.policesuper.sa.gov.au
By Micheal Hogg

Voluntary Member Contributions

The option for members of the Police Pension and Lump Sum schemes to make additional voluntary member contributions from their Post-tax salary (Net Salary) or their Pre-tax salary (Salary Sacrifice) into the Police Superannuation Fund (the Fund) is now available.

The voluntary member contributions will accumulate in a separate account (Voluntary Contribution Account), within the Fund and will provide you with a separate lump sum superannuation benefit upon separation from SAPOL. The voluntary contribution account will be completely separate from your existing defined pension or lump sum superannuation benefit and will not attract any additional employer contributions. The voluntary account will earn the actual investment returns of the Fund, which can be positive or negative. The investment returns are different from the Fund’s crediting rates for members’ contribution accounts, which is a three-year average of the Fund’s investment returns. Therefore, earnings on your voluntary contribution account will be more volatile.

Investment of Voluntary Member Contributions

Funds SA is a statutory body established under the Superannuation Funds Management Corporation Act 1995 and is responsible for the management and investment of the Police Superannuation Fund. Voluntary member contributions, in the same way as current superannuation contributions, paid into the Fund will be invested by Funds SA in the following investment classes and allocations:
• International Shares 38%
• Australian Shares 34%
• Inflation Linked Bonds 13%
• Property 8%
• Australian Fixed Interest 5%
• Cash 2%

These investment classes and allocations can be changed by Funds SA.

Investment Objective

The investment objective for the Fund is to earn a return of 4.5% per annum in excess of inflation over a minimum investment period of eight years. Within this eight-year period, however, annual returns may be volatile and indeed negative returns may be experienced in two years out of eight.

Investment Performance

The past 18 months have witnessed an extremely difficult environment for investment markets. The period saw a massive fall in the value of technology stocks as the speculative boom in this sector unwound. A slowdown in economic conditions in the United States impacted on the value of US shares generally while the terrorist attacks of September 2001 accentuated this decline. Further, the attacks have introduced a new focus on geopolitical risk in evaluating the prospects for investment markets.

Further, the Japanese economy has remained in recession conditions while Europe has struggled to deliver solid economic growth. While the Australian economy has remained strong, the share market has recently faltered as concerns emerge over export prospects given the weak economies of our trading partners and the increasing level of the Australian dollar. There are also concerns over the sustainability of the housing boom which has been a major driver of domestic economic conditions.

With bond yields at 30-year lows, there have been few attractive areas of investment opportunity.

The investment environment has resulted in a negative return of –0.4% for the nine months to March 2002 and the likelihood that the return for the full year to June will be negative. The year provides a reminder that investment markets do not move in a steady, straight line but, rather, are marked by significant volatility. While markets are expected to move upwards over time, the pattern of this movement will be erratic with wide variability in year-to-year returns.

The Fund is structured in the knowledge that negative returns are most likely to occur periodically, probably on average, two years in eight. It is important to invest in the Fund for a minimum of eight years in order to allow the cycles inherent in investment markets to play out, hence maximizing the likelihood that the Fund’s return target of 4.5% (plus inflation) will be earned.

In this regard, the table below shows returns earned by the Fund in each of the past five years and in the nine months to March 2002. However, it is most important to focus on the average return earned over the longer term which shows a return of 10.3% per annum over the five years to March 2002. The return remains well ahead of inflation over the period, which averaged 2.5% per annum.

Investment Returns

SCHEME	1997	1998	1999	2000	2001	9 months to March 2002	5 years to March 2002
PENSION	20.6%	12.8%	9.5%	16.9%	3.2%	-0.4%	10.3%
LUMP SUM	20.2%	12.0%	10.3%	17.0%	3.2%	-0.4%	10.3%
INFLATION	0.3%	0.7%	1.1%	3.2%	6.0%	2.1%	2.5%

You can obtain more information about the investment objectives and strategies of Funds SA from its website: www.funds.sa.gov.au

Crediting Rates to Voluntary Member Contribution Accounts

The Police Superannuation Board will determine the following rates of return to be credited to Voluntary Contribution Accounts (VCAs) for members of the Pension and Lump Sum divisions of the Fund, as at 30 June each year and as at the date of separation from SAPOL.
(a) End of Financial Year Crediting Rate
  Investment earnings at a rate determined by the Board will be credited to VCAs as at 30 June each year. The end of financial year crediting rate is to be based on the investment returns (which may be positive or negative), of funds invested by Funds SA.
(b) Interim Crediting Rate
  Investment earnings at a rate determined by the Board will be credited to VCAs as at the date of separation from SAPOL. The interim crediting rate, which may be positive or negative, is to be reviewed on a quarterly basis (September, December, March and June) and is to be based on the annualized rate of return as advised by Funds SA for each quarter.

For more information on Voluntary Member Contributions, contact the Police Superannuation Office:
Police Superannuation office:
Ground floor, 30 Flinders St, Adelaide, 5000.
Postal Address: GPO Box 1539, Adelaide, 5001.
Internal postcode: 128.
Phone: 8204 2964 or 8204 2965.
Fax: 8204 2303.
E-mail: admin@policesuper.sa.gov.au
SAPOL Intranet: Police Superannuation,
Services, Business Service, FMSB.

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