2013/2014

ISSUE DATE: 15 SEPTEMBER 2014

Annual Report

SUPE R ANNUAT ION

This page has been left blank intentionally.

Statement of compliance

In accordance with Section 61 of the Financial Management Act 2006 (FMA), we hereby submit for your information and presentation to parliament, the Annual Report for the Government Employees Superannuation Board, trading as GESB, for the fi nancial year ended 30 June 2014.The Annual Report has been prepared in accordance with the provisions of the following Acts:• Disability Services Act 1993• Electoral Act 1907• Financial Management Act 2006• Freedom of Information Act 1992• Public Interest Disclosure Act 2003• Public Sector Management Act 1994• State Records Act 2000

Responsible Minister

The Hon. Troy Buswell MLA, Treasurer, Minister for Transport, Fisheries was GESB’s responsible Minister from 1 July 2013 to 10 March 2014. The Premier, the Hon. Colin Barnett MLA, was GESB’s responsible Minister from 10 March 2014 to 17 March 2014.The Hon. Mike Nahan MLA, Treasurer, Minister for Energy, Citizenship and Multicultural Interests was GESB’s responsible Minister from 17 March 2014 to 30 June 2014.

Ministerial directives

No ministerial directives were received during 2013/14.

The Hon. Mike Nahan MLA

Treasurer

Contents

Statement of compliance 3

GESB profile 4

Report from the Chairman 5

Superannuation reform 7

Corporate overview 8

The Board 10

Members of the Board 12

Corporate governance 16

Other compliance requirements 22

Certification of the financial statements 26

Financial statements 27

Independent audit opinion 90

Certification of key performance indicators 93

Key performance indicators 94

Appendix 1 108

Appendix 2 109

Appendix 3 110

Appendix 4 112

3

Purpose

GESB’s purpose is to improve the long term fi nancial security of its members.GESB’s statutory framework is principally derived from the State Superannuation Act 2000 (SSA) and the State Superannuation Regulations 2001. GESB’s functions under the SSA are to:• manage the Government Employees

Superannuation Fund (GES Fund);• administer GESB’s schemes;• provide information, advice and

assistance to the Treasurer regarding matters relating to superannuation;

• provide or facilitate the provision of products and services to:

- members of superannuation schemes administered under the SSA or any other written law; and

- employers in the WA Public Sector; and

• perform any other functions conferred upon GESB under any other written law.

In carrying out these functions, GESB is required to act in the best interests of members, as far as is practicable.

Strategic objectives

GESB’s primary objective is to deliver value to members and employers within the State Government’s policy framework.GESB achieves its purpose by focusing on four objectives:1. Sustainable growth – deliver

competitive superannuation and retirement products, and ancillary products and services.

2. Cost management – prudent management of our cost base.

3. Risk management - manage our business responsibly.

4. People management - build a performance culture focused on member value.

Value to members means providing competitive superannuation and retirement products and net investment returns with highly rated member services.Value to employers means servicing employers through workplace education programs, ongoing support around the administration of choice, and managing the costs of administering the defi ned benefi t schemes.

Effi cient administration and competitive investment returns, with appropriate risk management, are delivered within the State Government policy framework.These outcomes will continue to be achieved through a focus on members, effi cient operations and people management, underpinning GESB’s sustainable fi nancial performance.In addition to managing its core business in 2013/14, GESB allocated resources to work with the State Government to implement one of the fi nal superannuation reforms as outlined in Putting Members First - A Review of Superannuation Arrangements for the WA Public Sector (The Whithear Review).

GESB profile

GESB Values

Members first

We are committed to improving our members’ long term fi nancial security through understanding their needs and considering their interests in everything we do.

Achieve together

We partner with our members providing confi dence in their future. We are positive and energetic in the way we serve our members and in the way we manage their money.

We are dedicated to simplifying investment, superannuation and retirement, by using plain language that is easy to understand.

Sustainable performance

We pride ourselves on being knowledgeable and insightful. We make balanced decisions for the long term. We think ahead and look for ways to improve our performance at every level.

Act with integrity

We make responsible decisions based on thorough analysis, and make a point of sharing our knowledge. We approach every aspect of our work ethically and accountably. We demonstrate our sense of responsibility on a daily basis by ‘taking ownership’ of members’ issues and seeing enquiries through to ensure a satisfactory outcome.

4

The investment environment

In the 2013/14 fi nancial year, all of GESB’s schemes and investment plans delivered positive net performance. GESB’s total funds under management, including member net infl ows and investment performance, increased by 18.4% over the year to 30 June 2014, from $15.9 billion to a year-end high of $18.8 billion. For the 12 months to June 2014, the GESB Super Balanced Growth plan delivered a net return of 13.19% and the West State Super Balanced plan delivered a net return of 13.29%. The Gold State Super, Pension and Provident schemes delivered a net return of 15.91%.*As well as strong returns, GESB’s fees stayed below industry average and the fund continued to receive industry recognition. SuperRatings ranked GESB’s Super Balanced Growth Plan third across Australia over fi ve years and awarded GESB Platinum status. In addition, GESB appointed JANA Investment Advisers as its asset consultant effective 1 April 2014. JANA will provide regular independent advice to the Board on GESB’s investment strategy and performance, including the investment portfolio’s asset allocation, as required under the Treasurer’s Prudential Guidelines for Investments.

Superannuation reform

In the 12 months, GESB continued its work with the Department of Treasury to implement several State and Commonwealth reforms, most notably to bring the Superannuation Administration Outsourcing Project (SAOP) to a close. With the Treasurer’s approval, the GESB Board appointed The Link Group as its commercial provider of administration services, effective 1 July 2014.

An Australian company with more than 25 years’ experience in the Australian superannuation and retirement industry, outsourcing GESB’s administration to The Link Group allows GESB to continue to operate cost-effectively and adapt to future market conditions. In a changing superannuation landscape and with access to greater economies of scale through Link, GESB will continue to offer value for money to its members. Furthermore, GESB and The Link Group continue to operate from the same offi ces in Perth and the majority of staff from GESB’s outsourced functions transitioned to Link on handover. This ensured ongoing employment for staff and retained product knowledge for members. Due to the completion of the SAOP in the 2013/14 fi nancial year, GESB has recognised some depreciation and amortisation expenses, as well as transition and severance payments, earlier than previously anticipated which has resulted in Administration Expenses exceeding this year’s budget. These one off expenses were included when considering the long term value-for-money benefi ts to be achieved through outsourcing of administration services. GESB also continued to focus on adopting the Commonwealth’s Stronger Super reforms, an array of enhancements designed to improve back offi ce aspects of superannuation. In the past twelve months, GESB has implemented the systems and processes required to comply with electronic rollovers. Work has also begun assisting employers to meet the new superannuation contributions and data standards.

* Returns are net of Management Expense Ratio (MER) and taxes for GESB Super, and net of MER for West State Super and Gold State Super which are untaxed schemes.

Report from the Chairman

JOHN LANGOULANT

Chairman

5

Business update

GESB continued to provide members with access to low-cost superannuation and retirement products, as well as a wide range of fi nancial education services, and the organisation was recognised in the 12 months by members and by WA public sector employers. Member satisfaction reached 90% for the year, with 80% of members ‘extremely satisfi ed’. Satisfaction amongst employers was also high at 84%. Furthermore, 89% of employer representatives indicated they would choose GESB as their default fund if they had the choice. Efforts this year also concentrated on members’ insurance, given the industry wide issue around an increased trend in insurance claims paid by insurers. Following a thorough review, rate adjustments will be implemented and communicated to members in the 2014/15 fi nancial year.

Future of GESB

During the next year, GESB will review its operating arrangements and business strategy and will transition to a new structure. This structure will refl ect these future requirements of the organisation and the role of The Link Group in providing administration services. Associated staff reductions will occur during 2014/15 and the related costs are included in GESB’s 2013/14 Administration Expenses. Overall, GESB will remain focused on doing the best by its members and will maintain the quality of service members have come to expect.

Acknowledgements

I would like to take this opportunity to thank the GESB Board, the Audit and Risk Committee and the Investment Committee members for their hard work during the year. My sincere thanks and appreciation also go to the executive management group, the leadership team and all GESB staff for their loyalty and dedication to the organisation through a period of signifi cant change. A fi nal thanks to those individuals involved in the SAOP. Their professionalism and diligence have ensured the successful outcomes engrained in GESB’s new partnership with The Link Group; a partnership that has resulted in favourable conclusions for the majority of staff and members, and that will see standards maintained from the outset.

JOHN LANGOULANT

Chairman

6

During the year, GESB continued to work with the Department of Treasury to implement both State and Commonwealth superannuation reforms. These included the Superannuation Administration Outsourcing Project and the StrongerSuper reforms.

State reform

Superannuation Administration

Outsourcing Project

Consistent with a recommendation made in The Whithear Review, a Request for Proposal (RFP), developed by GESB and the Department of Treasury, was issued to providers in July 2013, following the State Election. The Department of Treasury and GESB received the proposals from the shortlist in August 2013 and, following three months’ evaluation by a panel of subject matter experts, the Treasurer approved a preferred provider in December 2013. The negotiation stage began in January 2014 and following the WA State Government approval process, the GESB Board appointed The Link Group as its commercial provider of administration services, effective 1 July 2014.

Lost and Unclaimed

Superannuation Monies

Following extensive consultation amongst Commonwealth and State Governments over recent years, the Government of Western Australia agreed to transfer lost and unclaimed superannuation monies held by public authorities and public sector superannuation schemes to the Australian Tax Offi ce (ATO).

Legislation has been introduced to State Parliament to support the transfer of State-held unclaimed superannuation monies to the ATO. After the legislation has been passed by State Parliament, GESB will begin the reporting and the remitting of unclaimed superannuation monies to the ATO every six months.

Commonwealth reform

StrongerSuper is a package of superannuation reforms which will make the superannuation system stronger and more effi cient, will help to maximise retirement income for members and will make the system more user-friendly. In the twelve months, GESB has continued to progress two components of StrongerSuper; MySuper and SuperStream.

MySuper

MySuper is a new and cost effective superannuation product to replace existing default options. MySuper products will enable members, employers, fi nancial advisers, regulators and market analysts to compare funds more easily. GESB administers State regulated exempt public sector superannuation schemes (EPSSS) and is not required to comply with the Commonwealth’s legislative requirements, including MySuper. However, as outlined in the Heads of Government Agreement (HOGA), exempt funds broadly comply with the principles of the Commonwealth’s retirement income policy.

The Western Australian Department of Treasury is continuing its discussions with the Commonwealth Treasury Department about how to respond to MySuper in relation to GESB.

SuperStream

On 1 July 2011, the Commonwealth Government announced the implementation of SuperStream, a package of measures designed to enhance the back offi ce aspects of superannuation and improve productivity of the superannuation system. SuperStream targets the employer contribution and new member creation processes, plus the processes used by funds to exchange rollover transactions. The Commonwealth intends to streamline these processes by implementing a standard set of data and payment processes. In the twelve months, GESB has implemented the systems and processes required to comply with e-rollovers. In addition, GESB and the Department of Treasury continue to work with WA public sector employers to implement the e-contributions obligations in accordance with State and Commonwealth timeframes.

Superannuation reform

7

Corporate overview

GESB governance structure

^ The Public Sector Commissioner is the CEO’s Employing Authority under Section 5 of the Public Sector Management Act 1994.

Treasurer

GESB Board

Audit and Risk Committee

Investment Committee

Corporate Governance and

External Relations Committee

Executive Remuneration

and Performance Committee

CEO^

8

GESB internal governance policies and procedures

Board charters and codes

• Board Charter• Code of Conduct• Audit and Risk Committee Charter• Corporate Governance and External

Relations Committee Charter• Investment Committee Charter• Executive Remuneration and

Performance Charter

Board procedures

• Director selection and appointment• Fit and proper procedure• Board disclosures of interest procedure

and register• Board delegation of authority

and register• Board expenses policy• Board and executive performance

and evaluation

Corporate proceduresExternal audit(OAG and EY)

As

su

ra

nc

e

Organisational charters

Internal audit(KPMG)

Organisational procedures

Fund actuary (Mercer)

Divisional procedures

9

Corporate overview Annual Report 2013/2014

The Board

As a statutory authority, the GESB Board has powers and functions under the State Superannuation Act 2000 (SSA) and is ultimately accountable to the Treasurer.The Board is responsible for the overall governance and performance of GESB in accordance with the SSA and has responsibility for all matters relating to the operation of GESB.In governing GESB, the Board sets the values and standards and ensures that GESB’s obligations to its members and other stakeholders are understood and met.In the course of carrying out its responsibilities, the Board must act honestly, fairly, diligently and, as far as practicable, in the best interests of members.GESB is not Commonwealth regulated like most other superannuation providers. GESB is a statutory authority, subject to the Heads of Government Agreement (HOGA), and administers exempt public sector superannuation schemes (see page 19). As a matter of good practice, its operations are aligned where practicable with industry standards and Commonwealth regulatory requirements.

The role of the Minister

The Board is accountable to the Treasurer in performing its obligations under the SSA in the best interests of members, as far as practicable.The Treasurer has a role in matters that affect the fi nancial rights and obligations of the State along with the general operation of GESB. Specifi c responsibilities of the Treasurer under the SSA include (but are not restricted to):• issuing prudential guidelines for investments which cover investment strategies

and the kinds of investments;• approving the appointment of Fund Managers;• issuing reserving guidelines; • guarantor of payment of benefi ts under any GESB administered scheme; • approving GESB’s Statement of Corporate Intent (SCI) and Strategic

Development Plan (SDP); • approving and certifying changes to regulations; • directing the Board; and • directing employers around superannuation practice and procedures.

The Board

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Board appointments and elections

The Board comprises an independent Chairman, three Employer Directors and three Member Directors.Directors are appointed or elected under Section 8 of the SSA as follows:• the Chairman is appointed by the Governor on the nomination of the Minister

after consultation with representative unions;• three Directors are appointed by the Governor of the State of Western Australia

as Employer Directors;• three Directors are elected as Member Directors via elections conducted by

UnionsWA in accordance with the State Superannuation Regulations 2001; and• the Chairman and Employer Directors are appointed for a term not exceeding

fi ve years. Member Directors are elected for a term not exceeding three years.All GESB Board Directors are eligible for re-appointment or re-election. If a casual vacancy occurs in the offi ce of a Member Director, the Minister may appoint a member to fi ll the vacancy after consultation with representative unions, until the new Member Director is elected. The Minister may also remove a Director in accordance with Section 6(2) of Schedule 1 to the SSA.

Changes in membership of the Board of Directors

On 1 November 2013, Mr Scott Ellis was reappointed as an Employer Director, until 31 October 2016.On 8 February 2014, Mr Matthew Farrell was reappointed as a Member Director, until 7 February 2017.

11

The Board Annual Report 2013/2014

Members of the Board

John Langoulant

Chairman(B Econ (Hons))

Mr Langoulant was appointed to the GESB Board in November 2010 and appointed as Chairman of the Board in March 2011 for a term of fi ve years, expiring in March 2016.Mr Langoulant has extensive experience in government and the private sector, including as Under Treasurer of Western Australia.Mr Langoulant served as Chief Executive Offi cer (CEO) of Oakajee Port & Rail until 30 June 2013. His previous Chief Executive positions were at Australian Capital Equity and the Chamber of Commerce and Industry of Western Australia.Mr Langoulant holds several other Board positions, including Chairman of the Telethon Kids Institute, Chairman of Leadership WA, Chairman of the Dampier Bunbury Natural Gas Pipeline and Chairman of the West Australian Ballet. In addition, Mr Langoulant consults to Curtin University and Westpac.

Matthew Farrell

Member Director(BSc, Dip Ed, MAIP, FAICD)

Mr Farrell was fi rst elected to the Board in February 1996 and is serving his seventh three year term as a Member Director, which will expire in February 2017. Mr Farrell’s appointment as Deputy Chairperson expired in February 2014.Mr Farrell is a former Vice President and Industrial Advocate of the State School Teachers’ Union of Western Australia. In 2001, he was made a Life Member of the Australian Education Union.Mr Farrell retired in 2004 after a long career as a lecturer in mathematics for Technical and Further Education (TAFE).Mr Farrell holds a Bachelor of Science degree, a Diploma of Education and a Post Graduate Diploma in Applied Physics. He also holds a Company Directors Course Diploma, is a Fellow of the Australian Institute of Company Directors and is a Member of the Australian Institute of Physics.

Robert Lewtas

Member Director(MAICD)

Mr Lewtas was fi rst elected as a Member Director to the Board for a term of three years in August 2006 and is serving his third three year term, which will expire in August 2015.Mr Lewtas is currently the Finance and Administration Manager of the WA branch of United Voice.Mr Lewtas’ executive experience includes a 20 year career in TAFE administration and nine years in facilities management at Murdoch University. He joined United Voice, formerly known as the LHMU, in 2005. Mr Lewtas was also a small business owner/ operator during his term at Murdoch University.Previously, Mr Lewtas has served on Boards for the South Coast Regional Chamber of Commerce (past president), the South Coast Business Development Organisation and Rockingham Community Financial Services Limited.Mr Lewtas has completed the Australian Institute of Company Directors course and is a Member of the Australian Institute of Company Directors.

Glen Townsing

Member Director(BAppSc)

Mr Townsing was appointed to the Board as a Member Director in July 2012, for a period of three years.Mr Townsing is a Senior Developer at the Department of Transport, where his experience extends across systems analysis and design, application development, database administration and design and capacity planning.With more than 20 years’ experience in Information Technology (IT), Mr Townsing has designed, developed and implemented a range of computer systems while at the Department of Transport, including the Private Boat and Mooring Registration system and its associated revenue management system.In addition to his role at the Department of Transport, Mr Townsing is a serving Community and Public Sector Union/Civil Service Association Councillor and serves on the Public Service Appeals Board.

12

Richard Alder

Employer Director(A Fin, FAICD)

Mr Alder was fi rst appointed to the Board in February 2008 and was re-appointed on 21 February 2013 for his second term as an Employer Director. His current term ends on 20 February 2016. Mr Alder has 37 years’ experience in the securities industry. He was Managing Partner in the Perth offi ce of JB Were & Son for 16 years, until his retirement in 2003. Prior to this, he spent six years in JB Were’s London offi ce. This provided him with an extensive understanding of global investments.Mr Alder is a Consultant to Australia’s largest listed investment company, Australian Foundation Investment Company Limited. He has also been active within the Perth branches of industry associations, including the Australian Institute of Company Directors (AICD), the Committee for Economic Development of Australia (CEDA) and the Securities Institute of Australia (now the Financial Services Institute of Australasia).Mr Alder is active in honorary roles at the Murdoch Veterinary Trust and the Lions Eye Institute.Mr Alder is currently a Deputy Chairman of the Royal Flying Doctor Service, Western Operations, and member of the National Board of the Royal Flying Doctor Service, a Trustee of the JP Stratton Trust and an Adviser to the Endowment Committee of Scotch College. Mr Alder is also Chairman of the Investment Committee of Alder & Partners Private Wealth Management.

Scott Ellis

Employer Director(BJuris, LLB, LLM, Dip Int. Comm. Arb, FCIArb, MAICD)

Mr Ellis was appointed to the Board in November 2010 and was reappointed on 1 November 2013 for his second three year term.Mr Ellis is a Barrister at Francis Burt Chambers specialising in commercial litigation and alternative dispute resolution. Mr Ellis commenced practicing as a lawyer in 1983 and was a partner at Freehills for more than a decade.Mr Ellis holds a Bachelor of Jurisprudence, a Bachelor of Laws and a Master of Laws from the University of Western Australia. He also holds a Diploma in International Commercial Arbitration from Queen Mary College, University of London.Mr Ellis is a Chartered Arbitrator, a Fellow of the Chartered Institute of Arbitrators and a National Councillor of the Institute of Arbitrators and Mediators Australia. He was a Member of the Superannuation Complaints Tribunal from 2005 until 2010 and is a Senior Sessional Member of the State Administrative Tribunal.

Catherine Nance

Employer Director (BSc, BA FIAA, F FIN)

Ms Nance was appointed to the Board in March 2011 for a period of fi ve years.Ms Nance is a Partner and Actuary at PricewaterhouseCoopers (PWC), where she heads the national Retirement Incomes and Asset Actuarial Consulting Group.Ms Nance has more than 20 years’ professional experience advising governments, companies and superannuation funds in superannuation, employee benefi ts, investment consulting, aged care, fi nance and investment-related work.Ms Nance is also a Director and Chair of the Audit Committee of the Western Australian Treasury Corporation.Ms Nance has a BSc in Pure and Applied Mathematics and Physics and a BA in Statistics from the University of Queensland. She is an Affi liate of the Institute of Actuaries (London), a Member of the Chartered Financial Analysts Institute, a Fellow of the Financial Services Institute of Australasia and a Fellow of the Actuaries Institute of Australia.

13

Members of the Board Annual Report 2013/2014

Meetings

The Board meets monthly. The number of meetings attended by each Director during 2013/14 is indicated below.

Director

Meetings held whilst

a Director

Meetings

attended

John Langoulant, Chairman 13 13

Matt Farrell, Member Director 13 12

Robert Lewtas, Member Director 13 11

Glen Townsing, Member Director 13 13

Richard Alder, Employer Director 13 10

Scott Ellis, Employer Director 13 13

Catherine Nance, Employer Director 13 13

Board committees

The Board has a number of committees to assist in the discharge of its functions under the SSA. The Chief Executive Offi cer supports the operation of the following committees and attends to assist their deliberations.

Audit and Risk Committee

The Audit and Risk Committee assists GESB to fulfi l its statutory, regulatory and fi duciary responsibilities by overseeing GESB’s activities in relation to risk management, compliance, fi nancial management and reporting and the internal and external audit function. GESB’s Audit and Risk Committee provided the Board with assurances that adequate controls and risk management practices were in place across the organisation and were effective in promoting a risk aware culture.The number of meetings attended by each committee member during the twelve month reporting period is indicated in the table below.

Member

Meetings held whilst

a committee member

Meetings

attended

Robert Lewtas (Chair) 5 4

Matt Farrell 5 5

Richard Alder 5 2

Scott Ellis 5 4

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Investment Committee

The Investment Committee assists the Board in carrying out its responsibility to discharge its statutory, regulatory and fi duciary responsibilities in relation to the prudent management and investment of the assets of the GES Fund. Given the technical nature of GESB’s investment function, the Investment Committee members were selected for their high levels of fi nancial and investment expertise.The Investment Committee comprised GESB Board Directors and external appointees; David McMahon and Warren Bird. Mr Alder was appointed Chair of the committee in June 2010. The members of the Investment Committee have suffi cient investment expertise to enable the committee to discharge its duties in line with obligations under its Charter.The number of meetings attended by each committee member during the twelve month reporting period is indicated in the table below.

Member

Meetings held whilst a

committee member

Meetings

attended

Richard Alder (Chair) 6 6

David McMahon 6 6

John Langoulant 6 4

Catherine Nance 6 6

Warren Bird 6 6

Corporate Governance and External Relations Committee

The committee assists the Board to manage strategies to enhance relationships with key stakeholders, in addition to assisting fulfi lment of its corporate governance obligations, advising it on governance standards and practices and appropriate frameworks, policies and procedures.The Board appointed fi ve Directors to the committee to ensure that there is suffi cient representation.The number of meetings attended by each committee member during the twelve month reporting period is indicated in the table below.

Member

Meetings held whilst

a committee member

Meetings

attended

John Langoulant (Chair) 5 4

Glen Townsing 5 5

Catherine Nance 5 5

Scott Ellis 5 5

Robert Lewtas 5 3

Executive Remuneration and Performance Committee

The committee assists the Board with the appointment, determination of remuneration and monitoring and evaluation of the performance of the Executive Management Group.The number of meetings attended by each committee member is indicated in the table below.

Member

Meetings held whilst

a committee member

Meetings

attended

John Langoulant (Chair) 1 1

Matt Farrell 1 1

Robert Lewtas 1 0

15

Members of the Board Annual Report 2013/2014

Corporate governance policy framework

Effective corporate governance supports compliance with regulatory and legal requirements. It also provides support to an organisation to do what is right for its stakeholders. This incorporates elements of internal controls, ethics, risk functions, policies and procedures and internal and external audit. It is underpinned by transparent disclosure, effective communication and proper measurement and accountability across the organisation. The Board operated within a corporate governance policy framework that incorporated legislative and regulatory requirements aligned to industry best practice and the Australian Securities Exchange governance principles. The framework refl ected GESB’s operating environment as a State authority within the fi nancial services market.In order to be sustainable in this environment, high standards of corporate governance were essential to ensure GESB fulfi lled State, Commonwealth, industry and regulatory compliance obligations, whilst acting in the best interests of members.In pursuing the Board’s purpose to improve the long term fi nancial security of members, GESB is committed to transparent, high quality and accountable governance. To facilitate this, the Board:• established specialist committees to assist it in discharging its legal and

statutory obligations;• granted appropriate delegations to the CEO and relevant business units to enable

the day-to-day operation of the organisation; and • embedded internal and external accountability measures, including organisational

key performance indicators (KPIs) and internal and external audit practices.The Board and its committees have individual charters and are subject to a Code of Conduct that outlines the practices and processes the Board, individual Directors and committee members adopt to discharge their responsibilities. The Board’s focus on good governance is integrated across the operations of the organisation.

Other governance matters

Directors’ duties

In carrying out its responsibilities, the Board must act honestly, fairly, diligently and, as far as practicable, in the best interests of members.Under Section 5(1) of the Statutory Corporations (Liability of Directors) Act 1996 a Board Director of GESB has the same fi duciary relationship to GESB and the same duties to act with loyalty and in good faith as a Director of a company that is incorporated under the Corporations Act 2001.Other duties under the Statutory Corporations (Liability of Directors) Act 1996 include a duty to: • act honestly in the performance of the functions of their offi ce;• exercise reasonable care and diligence in the performance of their functions;• not make improper use of information acquired by virtue of their position, to gain,

directly or indirectly, an advantage for themselves or for any other person or to cause detriment to GESB;

• not make improper use of their position to gain, directly or indirectly, an advantage for themself or for any other person or to cause detriment to GESB; and

• attend relevant superannuation conferences.These duties are also incorporated in the Board’s Code of Conduct.

Corporate governance

16

Fit and proper standards

The Board understands the need to have the range of skills, knowledge and experience on the Board to effectively govern GESB. Members of the Board have to demonstrate competencies in a number of areas.Operating standards have been developed by the Australian Prudential Regulation Authority (APRA) to cover the fi tness and propriety of superannuation trustees.To achieve best practice, the Board decided GESB would operate under a similar fi t and proper standard for its Board Directors. This policy required that each Board Director met certain standards of fi tness and propriety on an ongoing basis.The Board’s education program ensured all Directors met and maintained educational and technical competencies, enabling them to effectively discharge their duties in a knowledgeable and prudent manner and in accordance with the requirements of the Board’s Fit and Proper Policy. The program is agreed annually with each Director and is tailored to meet their individual needs.

Ethical standards

The Board acknowledged the need for, and the continued maintenance of, high standards of ethical conduct for Directors, management and staff. The Board Directors are required to comply with the GESB Board Charter, and all staff and Board Directors are required to comply with the GESB Code of Conduct.The organisational values of GESB are promoted via a strong communication program, which included information on its intranet, a quarterly recognition scheme to reward behaviour consistent with those values, and the incorporation of those values into role descriptions and performance management processes.GESB conducted staff surveys on a quarterly basis to understand to what extent staff perceived that they lived these values.

Material interests

The Board had procedures in place that set out the requirements for each Director with regard to the disclosure of interests, in order to avoid actual, potential or perceived confl icts of interest or duty and to provide guidance for dealing with any confl icts in an open and transparent way.Directors were required to disclose any material or personal interests relevant to the Board or GESB and to abstain from discussions or voting on any issues where their judgement may have been infl uenced by any material or personal interests in, or duty to, another organisation.The Board managed and monitored any confl icts or potential confl icts. It relied on the honesty and integrity of each of the Directors to ensure individual Directors discharged their duties to the Board.

17

Corporate governance Annual Report 2013/2014

Compensation and remuneration

Directors and committee members were entitled to the remuneration and allowances determined by the responsible Minister on the recommendation of the Public Sector Commissioner and endorsed by Cabinet. The current remuneration detailed below has not increased since it was set in July 2008. Superannuation increased from 9% to 9.25% on 1 July 2013.

Name of board/committee – GESB Board

Position Name Type of remuneration Period of membership Gross/actual remuneration

Chair John Langoulant Annual 2 Nov 2010 1 $116,242.00

Member Director 2 Matthew Farrell Annual 8 Feb 1996 3 $58,121.00

Member Director Robert Lewtas Annual 15 Aug 2006 $58,121.00

Member Director Glen Townsing Annual 4 July 2012 No payment

Employer Director Richard Alder Annual 26 Feb 2008 $58,121.00

Employer Director Scott Ellis Annual 2 Nov 2010 $58,121.00

Employer Director Catherine Nance Annual 7 March 2011 $58,121.00

Total $406,847.00

1 Date appointed to the Board. Appointed as Chairman in March 2011.2 Deputy Chairman appointment expired February 2014.3 Date appointed to the Board.

Name of board/committee – Audit and Risk Committee

Position Name Type of remuneration Period of membership Gross/actual remuneration

Chair Robert Lewtas Annual 26 Nov 2009 $5,462.50

Member Matthew Farrell Annual 8 Feb 1996 No payment

Member Richard Alder Annual 18 Feb 2010 No payment

Member Scott Ellis Annual 27 Jan 2011 No payment

Total $5,462.50

Name of board/committee – Investment Committee

Position Name Type of remuneration Period of membership Gross/actual remuneration

Chair Richard Alder Annual 30 June 2009 $8,740.00

Member John Langoulant Annual 13 Dec 2010 $8,740.00

Member Catherine Nance Annual 31 March 2011 $8,740.00

Member David McMahon Annual 31 May 2010 $13,110.00

Member Warren Bird Annual 10 June 2013 $13,110.00

Total $43,700.00

In accordance with government policy, Directors who are public sector employees were not paid additional remuneration for sitting on the Board.

18

Risk management

GESB has a mature approach to risk management and its risk management framework sets out GESB’s approach to the identifi cation and management of material risks. Material operational and strategic risks were managed in accordance with GESB’s risk environment which refl ects its internal environment and developments in the wider superannuation industry.GESB’s risk environment remained heavily infl uenced by the Superannuation Administration Outsourcing Project (SAOP) and the management of GESB’s custodian contract review.As part of the SAOP’s governance framework, both GESB and the Department of Treasury worked together to identify risks and treatment strategies at key stages of the project. These were regularly reviewed and reported to various forums including the GESB Board. GESB focused on the risks around managing people during a period of signifi cant change, transitioning to an outsourced service provider and putting in place a new structure and resources for the continuing GESB. The successful management of these risks and implementation of solutions remained on track for the planned operational handover.GESB initiated a program of works to ensure continuing GESB was operationally ready to manage the outsourcing contract upon operational handover. The working group addressed key areas including accommodation, infrastructure (Shared Services), staff, operations and communication required for operational handover to the external service provider. Going forward this group will identify requirements for and implement a new service partnership for the provision of information technology solutions and fi nalise GESB’s future organisational requirements. This group consists of representation from across retained business functions to ensure identifi cation and management of issues post operational handover.GESB continued with a program of operational risk reviews focused on the areas within the organisation with the greatest exposure to risk. This schedule of work assisted with the identifi cation

of improved controls and assurance activities. This exercise also further embedded GESB’s risk aware culture throughout all areas of the business.GESB’s Information Security Steering Committee is responsible for ensuring the security of GESB’s information assets. The committee meets monthly and assesses, amongst other things, security threats and adequacy of GESB’s control environment. This ensured that GESB remained vigilant to the threat of fraudulent access to members’ benefi ts and identity theft also remained a focus.GESB continued to monitor and review its procedures to ensure they were in line with industry developments. GESB also continued to refi ne and update its Anti-Money Laundering and Counter-Terrorism Financing program to comply with the requirements for Reporting Entities.

Heads of Government Agreement

The State of Western Australia is a signatory to the Heads of Government Agreement (HOGA) with the Commonwealth in respect to the GES schemes. The circumstances surrounding the schemes that GESB administers include the complex nature of the defi ned benefi t schemes, the public accountability of the schemes, the State laws governing the schemes and State prudential and regulatory arrangements. In recognition of the HOGA circumstances, the Commonwealth agreed to exempt the schemes that GESB administers from the relevant Commonwealth governing legislation for superannuation funds, ie the Superannuation Industry (Supervision) Act 1993 (SIS Act). As a consequence, the SIS Act states that exempt public sector superannuation schemes (EPSSS), such as the schemes that GESB administers, are deemed to be complying superannuation funds for superannuation guarantee purposes under the Superannuation Guarantee (Administration) Act 1992 and for income tax purposes under the Income Tax Assessment Act 1936. In return for these exemptions, WA and the other States who are signatories to the HOGA, have agreed to ensure that members’ accrued benefi ts are securely protected and the rules of its schemes will conform to the principles of the Commonwealth’s Retirement Income Policy.

An updated HOGA has recently been signed to refl ect Commonwealth superannuation reforms since the original HOGA was signed in 1996. These include StrongerSuper, including MySuper and data and e-commerce standards, as well as improved trustee governance and initiatives to return lost and unclaimed superannuation monies to members.

Compliance

GESB operated in a State regulatory environment but adhered to Commonwealth standards where practicable. GESB’s compliance program was established in accordance with the Australian Standard on Compliance Program AS 3806-2006 and was consistent with Commonwealth regulatory standards and industry good practice.The compliance framework incorporated specifi c operating obligations on GESB to ensure compliance with its Act and Regulations, the Heads of Government Agreement, other legislation relevant to State public sector agencies and the unique tax arrangements with both taxed and untaxed schemes operating within the GES Fund.The framework provided mechanisms to ensure that incidents were detected and managed appropriately. Ongoing monitoring and reporting in accordance with the compliance program provided assurance to the Board, executive and other stakeholders that adequate systems and processes were in place and working effectively to ensure GESB and its employees were meeting their legislative obligations and operating in accordance with corporate policies and procedures.The Compliance Program assisted in informing GESB’s risk profi le to ensure it adequately refl ected the operational environment. GESB monitored its risk and compliance performance against established key performance indicators.GESB continued to work with the Department of Treasury to assess the impact of Commonwealth superannuation reforms, including StrongerSuper, to ensure GESB met and continues to meet its obligations under the HOGA.

19

Corporate governance Annual Report 2013/2014

Investment risk

Risk management is an integral component of GESB’s investment process. GESB managed investment risk by:• a structured approach to

diversifi cation across the major asset classes via a strategic asset allocation framework;

• diversifi cation of Fund Managers and investment style within each of the major asset classes; and

• a rigorous Fund Manager review process encompassing on site due diligence, selection and ongoing review.

GESB does not manage derivatives directly, but rather through its Fund Managers. Fund Managers are permitted to use derivatives within the restrictions of their mandates and the Treasurer’s Prudential Guidelines for Investments. All of GESB’s Fund Managers are required to provide a Derivative Risk Statement or equivalent statement covering derivative usage in their Risk Management Plan.

Relationship with stakeholders

Department of Treasury

GESB continued to work with State Treasury to ensure the State public sector superannuation fund was effectively managed, and complied with State and Commonwealth standards, as far as practicable. In addition, State Treasury and GESB worked collaboratively on State and Commonwealth superannuation reform initiatives, see page 7.

Employers

GESB’s employer relationship team met regularly with senior executives in the public sector to: • discuss legislative or industry

changes that may impact superannuation;

• explain the superannuation obligations of employers under the State Superannuation Regulations 2001;

• provide support for ad hoc operational issues arising;

• encourage employers to partner with GESB as part of their wellness or employee benefi t program to deliver superannuation education services;

• understand the agency’s demographic profi le and provide assistance with workforce planning solutions, such as Transition to Retirement; and

• ensure there is a regular exchange of information between employers and GESB on all superannuation related matters.

GESB also provided assistance to employers’ payroll staff, to ensure timely and effi cient contribution data transition and payment.

Unions

The Board comprises seven Directors, including three Member Directors. UnionsWA is responsible for the nominations, elections and appointment of the Member Director positions on the Board. These three Board positions are currently held by nominees from the CPSU/CSA, United Voice and the State School Teachers’ Union of WA.GESB works with all key public sector unions including those unions that nominate Directors to the Board. Information sessions for union delegates and members covering education services, intra-fund fi nancial advice and changes to Commonwealth superannuation rules were delivered during the year.

20

Organisational structure

Pending the restructure of GESB in line with the superannuation administration outsourcing project, the Head of Investments, is acting as at 30 June 2014.

Chief Executive Officer

Howard Rosario

Investments

Head of Investments

Bill Dwyer

• Investment strategy• Investment

administration and compliance

Finance

Chief Financial Officer

Lee Watson

• Financial accounting• Tax• Management

accounting• Finance operations• Investment

operations• Premises and

procurement• Compliance• Risk management• Strategy

Reform

Deputy

Chief Executive Officer

Larry Rudman

• Reform• Corporate

communications• Legal• Group secretariat• Human resources

Operations

Chief Operating Officer

Andrew MacLeman

• Superannuation administration

• Project offi ce• IT services• IT security• Member services• Simple advice• Retirement

options service• Business

development• Product management

and communication

21

Freedom of information

GESB provided members with access to all of their personal and account information. An information statement that provides background on the operations of GESB, a description of the documents held and the way in which the public can access the information were made available on the website and via our Member Services Centre.GESB’s designated freedom of information offi cer during the period was:Ms Vesna Odak, GESB, Level 4, Central Park, 152 St Georges Terrace, Perth.

Disability Services Act 1993

GESB is committed to providing its members with access to information about superannuation options and entitlements, regardless of impairment. GESB ensures members have different ways of receiving information about their superannuation, including email with links to information, internet, telephone and face-to-face communication. Members can choose a communication channel that best suits their needs, including website information and paper statements in a format that is accessible by vision-impaired members. GESB is currently reviewing its recruitment practices to enhance employment opportunities for people with disability. Improvements in the year included providing job related information in alternative formats upon request and inclusive Equal Employment Opportunity (EEO) statements in job advertisements. GESB’s Disability Access and Inclusion Plan: • provides an update of GESB’s website to best meet the needs of people with

disability; • includes improvements in the publication of the complaints procedure to people

with disability; and • includes an improved awareness of consultation opportunities with GESB for

people with disability. • ensures people with disability have the same opportunity as other people to

obtain and maintain employment within a public authority.

Public interest disclosure

GESB’s Public Interest Disclosure Policy and Procedures continued to be maintained in compliance with the Public Interest Disclosure Act 2003. This facility provided GESB Directors and staff with a confi dential means of disclosing public interest information. No public interest disclosures were made in 2013/14.

Compliance with public sector standards

GESB has complied with the Public Sector Standards in Human Resource Management and the Western Australian Public Sector Code of Ethics. All Code of Conduct and internal policies were provided to all new GESB staff during induction sessions. Email activity was consistently monitored and certain material was prevented from being received and/or sent using GESB’s IT systems. GESB employs an online compliance monitoring tool to assist in ensuring that all Managers are aware of their legal compliance obligations and are meeting them. GESB promoted an ethical climate and a strong culture of compliance via monthly disclosures in every Executive Management Group management and other senior management meetings.

22

Other compliance requirements

GESB continued to monitor and ensure compliance with standards of ethical conduct by: • conducting compulsory online compliance training (SAFETRAC) within a rolling

twelve month cycle, which encompasses all applicable items specifi ed in the Accountability and Ethical Decision Making Framework. All employees are required to complete nominated online compliance topics each month;

• having a Code of Conduct in place, to incorporate the offi cial conduct requirements specifi ed under the Public Sector Commissioner’s Instruction No. 8; and

• providing all new staff with detailed induction training within a week of commencing employment. This training includes the GESB Code of Conduct, the GESB Whistleblowing Policy, the Acceptable Usage Policy and the GESB Information Management Policy.

During 2013/14, GESB received no breach claims in relation to a recruitment process.

Number of full time equivalent

employees as at 30 June 2013 30 June 2014

Permanent public service offi cers 43 41

Fixed term public service offi cers 1 1

State Superannuation Act (SSA) employees 165 171

Total 209 213

The full time equivalent (FTE) position of 213 at 30 June 2014 is two FTEs under the 215 FTE fi gure recorded in the Statement of Corporate Intent (SCI).

Health and safety indicators

Indicator Target 2013/14 Actual 2013/14

Number of fatalities 0 0

Lost time injury/disease (LTI/D) incident rate

0 (or 10% improvement on the previous three years)

0

Lost time injury severity rate 0 (or 10% the previous three years)

0

Percentage of injured workers returned to work within (i) 13 weeks and (ii) 26 weeks

Greater than or equal to 80% return to work

within 26 weeks

n/a

Percentage of managers trained in occupational safety, health and injury management responsibilities

Greater than or equal to 80%

86%

23

Other compliance requirements Annual Report 2013/2014

The GESB focus is on a preventative approach, consistent with the principal objective of the Occupational Safety and Health Act 1984 to promote and secure the safety and health of persons in the workplace. A comprehensive induction process, easily accessible web information and ongoing strategies and initiatives are in place to assist staff safety and well-being.

GESB governance arrangements

The Occupational Health and Safety (OHS) Management Framework comprises a Health, Safety and Well-being Policy issued at Board level, Occupational Health and Safety Manual and an Injury Management System (IMS). GESB’s business continuity procedures specifi cally provide for employee safety and well-being through a Human Resources (HR) Sub-Plan, People Support Plan and Pandemic Management Plan, along with supporting procedures.

Occupational Health and Safety Committee

GESB’s Occupational Health and Safety Committee met regularly and were responsible for hazard inspections, incident reporting, lost time injury reporting and supporting First Aid Offi cers, Fire Wardens and Contact Offi cers. The Committee considered matters as they arose and monitored trends in the GESB workplace. Minutes were made available on notice Boards.

Education and training

Induction

All new staff and contractors received a comprehensive induction that included coverage of GESB’s OHS policies, grievance resolution processes and the Employee Assistance Program.

SAFETRAC

All staff were required to complete annual refresher training on OHS online as part of GESB’s compliance framework. The SAFETRAC online training system was developed by lawyers, and covers a full suite of topics, including the law, OHS responsibilities of employers and employees and the powers of Inspectors. The training also provided specifi c guidance on OHS in the offi ce, including preventing risks associated with manual handling, occupational overuse, slips, trips and falls, stress, hazardous substances, biological hazards and electrical hazards. The training covered handling emergencies and reporting requirements.

Trained First Aid Practitioners, Fire Wardens, Contact Officers

All GESB First Aid Offi cers received either full training over two days or refresher training as required in 2013. There are now seven fully trained First Aid Offi cers. Central Park conducts regular training sessions for the GESB Fire Wardens. Training needs and gaps continue to be monitored by the OHS Committee.

Building evacuation

All staff participated in routine drills of building evacuation procedures.

Preventative measures

Work environment

GESB promoted a safe working environment. All GESB employees were provided with an ergonomic workstation and chair, with low glare lighting to the workstation. The stairwells are well lit and equipped with high visibility markings, anti-slip strips, hand rails and wheelchair refuges on each fl oor, in case of evacuation.

Ergonomic assessments

A comprehensive ergonomic assessment is conducted by trained staff for all employees and contractors on commencement. The workstation is tailored to individual requirements, including ergonomic keyboard and mouse, foot stools, wrist supports, anti-glare screens, monitor risers and document holders.

24

Well-being

GESB promoted employee well-being through access to a suite of fl exible work practices and a full and popular annual calendar of initiatives via the GESB Goodlife program. The program provided a calendar of events to promote employee well-being, including preventative strategies such as fruit in the workplace, free fl u vaccines, Healthy Heart Checks, yoga sessions, massages and a variety of information sessions on topics of interest such as men’s health, skin cancer awareness and stress management. GESB provided paid time off for staff who donated blood and subsidised eye testing and eye glasses. Staff had access to discounted corporate rates for HBF and for travel insurance. All staff had access to free, independent personal counselling through The ORS Group.

Workers Compensation and injury management

GESB has documented procedures for looking after workplace incidents, injuries and Workers Compensation Claims for staff. Trained First Aid Offi cers were available as a fi rst line of assistance for injured staff. Incidents were reported to HR. All incidents including near misses were monitored and tracked on the HR System, investigated thoroughly by trained staff and measures taken to prevent future incidents. RiskCover, a division of the Insurance Commission of WA, currently manages GESB’s insurance obligations for OHS risk events.

Equal opportunity employment

Equal opportunity performance is measured from the Equity Index fi gures which are gathered from the Diversity Questionnaire completed by all GESB employees. The index measures the extent to which members represented within the diversity groups outlined below are distributed across the salary levels, including senior management tiers. An equity index of 100 indicates an even distribution across all levels of an organisation.

Diversity groupsDiversity groups

GESB 2014

Representation Equity Index

Women 55.8% 88

Culturally diverse 18.6% 78

Indigenous 0% 0

Disabilities 0.9% 39

In addition 30% of GESB employees are mature workers over the age of 45 and 2% are under the age of 25. Women in senior management make up 65.2% of GESB staff.

Electoral Act 1907

GESB incurred the following expenditure on advertising and related market research:

2012/13 2013/14

Advertising agencies

The Brand Agency $6,635 $4,386

Market research organisations

Painted Dog $137,900 $167,533

Costs to The Brand Agency cover the design and production of advertising materials. Painted Dog costs cover GESB’s member satisfaction surveys, the annual employer satisfaction survey and monthly staff satisfaction surveys. Additional work in the 2013/14 fi nancial year included the Retirement Product research, Member Statement research and the Member Online research. Figures exclude GST.

25

Other compliance requirements Annual Report 2013/2014

26

Certification of the financial statements

The accompanying fi nancial statements of the Government Employees Superannuation Board (the Fund), have been prepared in compliance with the provisions of the Financial Management Act 2006 from proper accounts and records, to present fairly the fi nancial transactions for the fi nancial year ended 30 June 2014, and the fi nancial position as at 30 June 2014.At the date of signing, we are not aware of any circumstances which would render any particulars included in the fi nancial statements misleading or inaccurate.

L WATSON

CHIEF FINANCE OFFICER03 September 2014

KM FARRELL JL LANGOULANT

DIRECTOR CHAIRMAN03 September 2014 03 September 2014

27

Financial statements

Note 1: Statement of signifi cant accounting policies 30Note 2: Scheme information 39Note 3: Cash and cash equivalents 39Note 4: Investment revenue, expenses and assets 40Note 5: Financial risk management objectives and policies 42Note 6: Employer contributions, benefi t payments and other income 55Note 7: Liability for accrued benefi ts 57Note 8: Vested benefi ts 60Note 9: Guaranteed benefi ts 61Note 10: Employer funding arrangements 61Note 11: Administration expenses 62Note 12: Income tax 64Note 13: Apportionment of net assets 66Note 14: Plant and equipment 67Note 15: Intangible assets 68Note 16: Receivables and payables 69Note 17: Provision for employee benefi ts 71Note 18: Provision for post-employment benefi ts 72Note 19: Interest bearing loan and borrowings 78Note 20: Remuneration of members of the Board, Investment Committee and senior offi cers 78Note 21: Remuneration of auditor 80Note 22: Related party transactions 80Note 23: Employee benefi ts expense 81Note 24: Other expenses 81Note 25: Changes in net market value of other assets 82Note 26: Write–offs 82Note 27: Commitments and contingencies 83Note 28: Explanatory statement 84Note 29: Scheme fi nancial report 86Note 30: Summary of actuarial report 88Note 31: Events subsequent to end of reporting period 89

Notes to and forming part of the financial statements for the year ended 30 June 2014

Statement of changes in net assets for the year ended 30 June 2014

2014 2013NOTE $’000 $’000

REVENUE

Investment revenue

Interest 4 216,032 187,684

Dividends and distributions 4 470,459 289,101

Other investment income 4 4,638 2,242

Realised changes in net market value of investment assets 4 518,878 475,487

Unrealised changes in net market value of investment assets 4 972,231 1,098,991

Total investment revenue 2,182,238 2,053,505

Superannuation revenue

Contributions income

Member 822,193 623,163

Employer 6(A) 1,546,576 1,389,048

Inward transfer from other funds 235,193 201,399

Total superannuation revenue 2,603,962 2,213,610

Other revenue

Group life insurance proceeds 47,740 30,380

Other income 6(C) 17,949 17,355

Changes in net market value of fi nancial liabilities 28 1,248 11,279

Total other revenue 66,937 59,014

TOTAL REVENUE 4,853,137 4,326,129

EXPENSES

Superannuation benefi t payments 6(B) 1,589,993 1,261,617

Group life insurance premium 69,243 67,469

Administration expenses 11 47,855 39,748

Investment expenses 4 49,891 42,687

Changes in net market value of other assets 25 6,667 4,180

Loan interest 19 24,501 26,968

TOTAL EXPENSES 1,788,150 1,442,669

Change in net assets before income tax 3,064,987 2,883,460

Income tax expense 12(A) (139,541) (109,032)

Change in net assets after income tax 2,925,446 2,774,428

Net assets available to pay benefits at the beginning of the financial year 15,456,360 12,681,932

NET ASSETS AVAILABLE TO PAY BENEFITS AT THE END OF THE FINANCIAL YEAR 18,381,806 15,456,360

This statement should be read in conjunction with the accompanying notes.

28

Statement of net assets as at 30 June 2014

2014 2013NOTE $’000 $’000

ASSETS

Investment assets

Cash and cash equivalents 3 49,176 48,954

Investments 4 18,732,790 16,215,218

Derivative fi nancial assets 5(B) 93,162 25,787

Other assets

Receivables 16(A) 143,481 214,946

Deferred tax asset 12(C) - 5,106

Prepayments 194 731

Plant and equipment 14 346 1,358

Intangible assets 15 342 5,099

TOTAL ASSETS 19,019,491 16,517,199

LIABILITIES

Derivative fi nancial liabilities 5(B) 18,057 410,644

Payables 16(B) 189,636 199,759

Provision for employee benefi ts 17 5,464 4,473

Provision for post employment benefi ts 18 1,876 1,986

Interest bearing loans and borrowings 19 361,478 398,122

Current tax liabilities 12(C) 35,930 31,383

Deferred tax liabilities 12(C) 25,244 14,472

TOTAL LIABILITIES 637,685 1,060,839

Net assets available to pay benefits 18,381,806 15,456,360

REPRESENTED BY

Liability for accrued benefi ts related to funded liabilities 7 17,875,097 15,202,375

Reserves 7 151,015 124,506

Fund surplus 355,694 129,479

TOTAL 18,381,806 15,456,360

This statement should be read in conjunction with the accompanying notes.

29

Financial statements Annual Report 2013/2014

A) Basis of preparation of financial statements

GESB is a not-for-profi t reporting entity. The fi nancial statements constitute general purpose fi nancial statements which have been prepared in accordance with Australian Accounting Standard AAS25 Financial Reporting by Superannuation Plans as amended by AASB 2005-13 Amendments to Australian Accounting Standards (AAS25) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), as applied by the Treasurer’s Instructions (TI) and the State Superannuation Act 2000 (SSA). Several of these accounting standards are modifi ed by the TI to vary application, disclosure, format and wording. The Financial Management Act 2006 and the TI are legislative provisions governing the preparation of fi nancial statements and take precedence over Australian Accounting Standards and other authoritative pronouncements of the AASB. The modifi cations are intended to fulfi l the requirements of general application to the public sector, together with the need for greater disclosure and to satisfy accountability requirements. If any such modifi cation has a material or signifi cant fi nancial effect upon the reported results, details of that modifi cation and where practicable, the resulting fi nancial effect, are disclosed in individual notes to these fi nancial statements. The fi nancial statements have been prepared on the accrual basis of accounting. The accounting policies adopted in the preparation of the fi nancial statements have been consistently applied throughout all periods presented, unless otherwise stated.The fi nancial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000), unless otherwise stated.The judgements that have been made in the process of applying GESB’s accounting policies that have the most signifi cant effect on the amounts recognised in the fi nancial statements are included in Note 1(W).The key assumptions made concerning the future, and other key sources of estimation uncertainty at reporting date that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year, are included in Note 1(X).

The fi nancial statements have been prepared in accordance with the reporting format prescribed under paragraph 22(a) of AAS25. The Standard applies to general purpose fi nancial reports of each superannuation plan in the private or public sector that is a reporting entity.GESB has both defi ned contribution and defi ned benefi t schemes. AAS25 states that in this circumstance, the reporting formats applicable to defi ned benefi t schemes should be used. The format adopted by GESB includes a “Statement of changes in net assets”, a “Statement of net assets”, and “Notes” thereto.

B) Application of Australian accounting standards

The fi nancial statements comply with AAS25. Since AAS25 is the principal accounting standard that applies to fi nancial statements of superannuation funds, other standards, including Australian Accounting Standards issued by the AASB, are also applied where necessary except to the extent that they differ from AAS25.GESB has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2013. The adoption of these Standards did not have a material effect.AASB 13 Fair Value Measurement This Standard defi nes fair value, sets out a framework for measuring fair value and requires additional disclosures for assets and liabilities measured or disclosed at fair value. There is no fi nancial impact.AASB 119 Employee Benefi ts This Standard supersedes AASB 119 (October 2010) and changes the defi nition of short term employee benefi ts. The distinction between short term and other long term employee benefi ts is now based on whether the benefi ts are expected to be settled wholly within 12 months after the reporting date.GESB has assessed employee leave patterns to determine whether annual leave is a short term or other long term employee benefi t. The resultant discounting of annual leave liabilities that were previously measured at the undiscounted amounts is not material.

Note 1: Statement of significant accounting policies

30

C) Accounting standards issued but not yet effective

GESB cannot early adopt an Australian Accounting Standard unless specifi cally permitted by TI1101 Application of Australian Accounting Standards and Other Pronouncements. Therefore, GESB will adopt any Standards which have been issued and are applicable from their operative date.Other than those specifi ed below, GESB has not fully determined the impact of the following relevant Accountant Standards. With the exception of AASB 1056, it is expected that the adoption of these Standards will have little or no signifi cant fi nancial impact on GESB or its accounting policies. GESB is currently assessing the impact of AASB 1056.

Accounting standard

Application date

periods beginning

on/after

Application

date to GESB

AASB 9 Financial InstrumentsThis Standard supersedes AASB 139 Financial Instruments: Recognition and Measurement, introducing a number of changes to accounting treatments. The mandatory application date of this Standard was amended to 1 January 2018.

1 Jan 2018 1 Jul 2018

AASB 10 Consolidated Financial StatementsThis Standard, issued in August 2011, supersedes AASB 127 Consolidated and Separate Financial Statements and Int 112 Consolidation – Special Purpose Entities, introducing a number of changes to accounting treatments. Mandatory application of this Standard was deferred for not - for - profi t entities by AASB2012-10 Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments. The adoption of the new Standard has no fi nancial impact for GESB.

1 Jan 2014 1 Jul 2014

AASB 12 Disclosure of Interests in Other EntitiesThis Standard, issued in August 2011, supercedes disclosure requirements in AASB127 Consolidated and Separate Financial Statements, AASB 128 Investments in Associates and AASB 131 Interests In Joint Ventures. Mandatory application was deferred for not - for -profi t entities by AASB 2012-10. There is no fi nancial impact.

1 Jan 2014 1 Jul 2014

AASB 1031 MaterialityThis Standard supersedes AASB 1031 (February 2010), removing Australian guidance on materiality that is not available in IFRSs and refers to other Australian pronouncements that contain guidance on materiality. There is no fi nancial impact.

1 Jan 2014 1 Jul 2014

AASB 1055 Budgetary ReportingThis Standard specifi es the nature of budgetary disclosures, the circumstances in which they are to be included in the general purpose fi nancial statements of not-for-profi t entities within the GGS. The Authority will be required to disclose additional budgetary information and explanations of major variances between actual and budgeted amounts, though there is no fi nancial impact.

1 Jul 2014 1 Jul 2014

AASB 1056 Superannuation EntitiesThis Standard replaces AAS25 Financial Reporting by Superannuation Plans and introduces in particular improvements in liability measurement requirements and consistency in presentation of fi nancial statements by all types of superannuation entities. GESB will adopt this standard from the application date.

1 Jul 2016 1 Jul 2016

AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Int 10 & 12][modifi ed by AASB 2010-7]

1 Jan 2015 1 Jul 2015

31

Financial statements Annual Report 2013/2014

Accounting standard

Application date

periods beginning

on/after

Application

date to GESB

AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Int 2, 5, 10, 12, 19 & 127]This Standard makes consequential amendments to other Australian Accounting Standards and Interpretations as a result of issuing AASB 9 in December 2010. There is no fi nancial impact.

1 Jan 2015 1 Jul 2015

AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities [AASB 132]This Standard adds application guidance to AASB 132 to address inconsistencies identifi ed in applying some of the offsetting criteria, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement. There is no fi nancial impact.

1 Jan 2014 1 Jul 2014

AASB 2013-9 Amendments to Australian Accounting Standards - Conceptual Framework, Materiality and Financial Instruments.This omnibus Standard makes amendments to other Standards arising from the deletion of references to AASB 1031 in other Standards for periods beginning on or after 1 January 2014 (Part B), and defers the application of AASB 9 to 1 January 2017 (Part C). There is no fi nancial impact.

1 Jan 20141 Jan 2017

1 Jul 20141 Jul 2017

D) Investments and derivatives

Investments and derivatives are initially recognised at fair value. After initial recognition, investments and derivatives are measured at net market value after allowing for estimated costs of realisation. Changes in the net market value of investments and derivatives are brought to account in the Statement of changes in net assets, in the period in which they occur.Net market values have been determined as follows:• Equities in listed companies and other listed securities by reference to relevant market quotations at 30 June each year, at last

sale price quoted by the relevant Stock Exchange at the close of business on the reporting date.• Units in managed funds by reference to redemption prices determined by the managers of the funds at 30 June each year. • Derivatives are measured at market rates at close of business on the reporting date.• Unlisted unit trusts are recorded at the redemption value per unit as reported by the managers of such trusts. These values are

verifi ed by confi rming unit holdings and movements in unit prices against appropriate market indices.Estimated costs of realisation have been deducted in determining net market value. As costs of realisation are generally immaterial net market value is considered a reasonable approximation of fair value.Purchases and sales of fi nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date, i.e. the date that the Fund commits to purchase or sell the asset.

32

E) Plant and equipment

Plant and equipment is initially recognised at cost and is carried at cost less accumulated depreciation and any accumulated impairment losses. Plant and equipment is depreciated using the straight line method over their expected useful life ranging from four to 11 years, depending on the nature and use of the asset. The useful life is reviewed periodically, and adjusted where necessary to ensure the remaining useful life continues to be appropriate. Written down value is considered a reasonable approximation of net market value. Items costing less than $5,000 are expensed in the year of acquisition.

Derecognition

An item of plant and equipment is derecognised upon disposal or when no further future economic benefi ts are expected from its use.

Impairment of assets

Plant and equipment is tested for any indication of impairment at each reporting date. Where there is an indication of impairment, the recoverable amount is estimated. Where the recoverable amount is less than the carrying amount, the asset is written down to the recoverable amount and an impairment loss is recognised. Unless an asset has been identifi ed as a surplus asset, the recoverable amount is the higher of an asset’s fair value less costs to sell and the depreciated replacement cost.The risk of impairment is generally limited to circumstances where an asset’s depreciation is materially understated or where the replacement cost is falling. Each relevant class of assets is reviewed annually to verify that the accumulated depreciation refl ects the level of consumption or expiration of the asset’s future economic benefi ts and to evaluate any impairment risk from falling replacement costs.The recoverable amount of assets identifi ed as surplus assets is the higher of fair value less costs to sell and the present value of future cash fl ows expected to be derived from the asset. Surplus assets carried at fair value have no risk of material impairment. Surplus assets at cost are tested for indications of impairment at each reporting date.

F) Intangible assets

All acquired and internally developed intangible assets are initially measured at cost.Acquisitions of intangible assets costing $5,000 or more and internally generated intangible assets costing $50,000 or more are capitalised. The cost of utilising the assets is expensed (amortised) over their useful lives.The cost model is applied for subsequent measurement requiring the asset to be carried at cost less any accumulated amortisation and any accumulated impairment losses, which is considered a reasonable approximation of net market value.Amortisation for intangible assets with fi nite useful lives is calculated for the period of the expected benefi t (estimated useful life) on the straight line basis using rates which are reviewed annually. All intangible assets controlled by GESB have a fi nite useful life and zero residual value. The expected useful lives for each class of intangible asset are:

Computer software costs 3-5 years

Computer software development projects 3-5 years

Website costs 3-5 years

The useful life is reviewed periodically, and adjusted where necessary to ensure the remaining useful life continues to be appropriate.

Computer software costs

Where the computer software is an integral part of the related hardware, it is treated as plant and equipment. Where the computer software is not an integral part of the related hardware, it is treated as an intangible asset.

Computer software development projects

The costs for computer software development projects are expensed when they are incurred unless they relate to acquisition and/or development of an asset when they may be capitalised and amortised. Costs in relation to feasibility studies during the planning phase of a project and training costs after implementation of the software system are expensed. Costs incurred in developing the system specifi cations and implementation, to the extent that they represent future economic benefi ts that can be reliably measured, are accumulated as “Works in Progress” until the asset is fi nalised and in production, at which time costs are capitalised and amortised over their estimated useful life.

33

Financial statements Annual Report 2013/2014

Impairment of assets

Intangible assets are tested for any indication of impairment at each reporting date. Where there is an indication of impairment, the recoverable amount is estimated. Where the recoverable amount is less than the carrying amount, the asset is written down to the recoverable amount and an impairment loss is recognised. As GESB is a not-for-profi t entity, unless an asset has been identifi ed as a surplus asset, the recoverable amount is the higher of an asset’s fair value less costs to sell and the amortised replacement cost.The risk of impairment is generally limited to circumstances where an asset’s amortisation is materially understated or where the replacement cost is falling. Each relevant class of assets is reviewed annually to verify that the accumulated amortisation refl ects the level of consumption or expiration of the asset’s future economic benefi ts and to evaluate any impairment risk from falling replacement costs.Intangible assets not yet available for use are tested for impairment at each reporting date irrespective of whether there is any indication of impairment.The recoverable amount of assets identifi ed as surplus assets is the higher of fair value less costs to sell and the present value of future cash fl ows expected to be derived from the asset. Surplus assets carried at fair value have no risk of material impairment. Surplus assets at cost are tested for indications of impairments at each reporting date.

G) Income tax

The Commonwealth Income Tax Assessment Regulations 1997 confi rm that schemes established by section 29 of the State Superannuation Act 2000 are to be constitutionally protected. The following schemes administered by GESB are constitutionally protected and therefore exempt from income tax:• Pension Scheme (including Provident Account)• Gold State Super • West State Super Retirement products were introduced for members as taxed schemes within the Fund and are subject to income tax.Retirement Income Allocated Pension commenced on 19 March 2003 and is a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 and accordingly is concessionally taxed. Retirement Income – Term Allocated Pension commenced on 17 December 2004 and is a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 and accordingly is concessionally taxed.GESB Super and GESB Super (Retirement Access) are complying superannuation funds under the Superannuation Industry (Supervision) Act 1993 and accordingly are concessionally taxed. All further references in the fi nancial statements to GESB Super include both schemes.

GESB apportions investment income and expenses to the taxed and non-taxed schemes of the Fund on the basis of the proportion of funds under management. Other expenses are apportioned on the basis of actual or allocated cost.Current tax is the expected tax payable on the taxable income for the year using the concessional tax rate of 15% for Fund income and any adjustment to tax payable in respect of previous years.Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.Deferred income tax is recognised on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes.Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting surplus nor taxable surplus or defi cit.Deferred income tax assets are recognised for all deductible temporary differences and carry forward unused tax losses, to the extent that it is probable that a taxable surplus will be available against which the deductible temporary differences, and the carry forward unused tax losses can be utilised. However, this would not apply where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting surplus nor the taxable surplus or defi cit.The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that suffi cient taxable surplus will be available to allow all or part of the deferred income tax asset to be utilised.Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable surplus will allow the deferred tax assets to be recovered.Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

34

H) Investment and superannuation revenue

Revenue is recognised and measured at fair value of the consideration received or receivable to the extent that it is probable that the economic benefi ts will fl ow to the Fund and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised.

Interest

Interest revenue on cash and other fi nancial assets carried at net market value is recorded according to the terms of the contract and when the Fund’s right to receive the interest is established.

Dividends and distributions

Revenue is recognised when the right to receive payment is established.

Changes in net market value

Changes in the net market value of investments and derivatives are calculated as the difference between the net market value at sale, or at reporting date, and the net market value at the previous valuation point. All changes are recognised in the Statement of changes in net assets.

Contributions and transfers in

Contributions and transfers in are recognised when control of the asset has been attained and are recorded, gross of any tax, in the period to which they relate.

Group life insurance proceeds

Insurance claim amounts are recognised where the insurer has agreed to pay the claims lodged and has transferred the claim amount to the Fund.

I) Liability for accrued benefits

Accrued benefi ts are the benefi ts that the Fund is committed to provide in the future in respect of the membership at reporting date.The liability represents the Fund’s present obligation to pay benefi ts to members and other benefi ciaries and has been calculated on the present value of expected future payments arising from membership of the Fund up to reporting date. For defi ned benefi t schemes, the amount stated has been determined by reference to expected future salary levels and by application of a market based, risk adjusted discount rate and appropriate actuarial assumptions. For defi ned contribution schemes, the liability has been calculated as the difference between the carrying amount of the assets and the carrying amount of non-interest bearing liabilities at reporting date.The liability for accrued benefi ts is measured annually at reporting date by the Fund Actuary, Mercer (Australia) Pty Ltd, as part of a comprehensive actuarial review of the Fund.

J) Vested benefits

Vested benefi ts are the benefi ts that are not conditional upon continued membership of the Fund and include benefi ts which members are entitled to receive had they terminated membership at reporting date.Under the provisions of the State Superannuation Act 2000, member entitlements are vested as follows:Pension Scheme – no vesting rights until retirement at age 55 years or over or earlier death or disablement, although on redundancy members have an option to elect for either:• an actuarial deferred pension payable upon attainment of

age 55 years, or• an immediate cash payment including a State subsidy equal

to 2.5 times the member’s primary unit contributions, or• a transfer of membership to Gold State Super and retention

of their transferred service entitlements.Provident Scheme - same vesting rights as the Pension Scheme except for redundancy:• Subsidised Provident members made redundant do not

have the right to a deferred pension.• Non-subsidised Provident members made redundant do

not have the right to a deferred pension or state subsidy.Gold State Super, West State Super, Retirement Income Allocated Pension, Retirement Income – Term Allocated Pension and GESB Super – full vesting from inception.

K) Recognition of benefits payable

All benefi t entitlements that were paid or became payable during the fi nancial year have been included within the Statement of changes in net assets. All accrued benefi t entitlements that were due and payable as at reporting date have also been recognised as a liability within the Statement of net assets. Benefi ts payable are valued at net market value which comprise the entitlements of members who ceased employment prior to the year end but had not been paid at that time. Benefi ts payable are settled within the industry standard of 30 days.

L) Investments in controlled entities

GESB Wealth Management Pty Ltd (GWM) was a wholly owned subsidiary of GESB. In July 2012, the GESB Board endorsed a cabinet decision to proceed to wind up GWM, a position formally noted by the GWM Board at its August 2012 meeting.The fi nancial statements of GWM were fi nalised on 11 April 2013, at which point the only remaining asset, cash at bank of $530,372, was transferred back to GESB the sole shareholder. GWM incurred a net loss after income tax of $517,934 for the period to 11 April 2013.

35

Financial statements Annual Report 2013/2014

GESB is the sole unit holder of the Macquarie Global Private Equity Fund. Macquarie Global Private Equity Fund provides exposure to companies that are not publicly traded on a stock exchange. These may be start-up companies, but are often more established fi rms. Common strategies in private equity include leveraged buyouts, venture capital and growth capital. Private equity strategies are typically illiquid, meaning the investment may not be exited as quickly as investments that trade on public stock exchanges.As at 30 June 2014, Macquarie Global Private Equity Fund represents 4.08% of Investment Assets and is recognised at net market value in the Statement of net assets.

M) Superannuation expense

The superannuation expense of the defi ned benefi t plans is made up of the following elements: • current service cost; • interest cost (unwinding of the discount); • actuarial gains and losses; and • past service cost.Actuarial gains and losses of the defi ned benefi t plans are recognised immediately as income or expense in profi t or loss. The superannuation expense of the defi ned contribution plans is recognised as and when the contributions fall due.

N) Receivables and payables

Receivables, excluding Investments, generally have a term of seven to 14 days and are recognised as the amount receivable less any allowance for impairment. The collectability of receivables is reviewed on an ongoing basis and any receivables identifi ed as uncollectible are written off. The provision for uncollectible amounts (impaired receivables) is raised when debts are overdue and all reasonable efforts to recover these debts have been unsuccessful. Receivables are carried at nominal value, which approximates net market value.Payables, excluding Investments, represent liabilities for member benefi ts due and payable, and the value of goods and services provided to the Fund prior to the end of the fi nancial year, which are unpaid. Payables are normally settled within the payment terms stated on the invoice ranging from 30 to 90 days. Payables are carried at nominal value, which approximates net market value.Investment receivables and payables are comprised of unsettled buy and sell trades on the investment portfolio at the reporting date.

O) Provisions

Provisions are liabilities of uncertain timing and amount. GESB only recognises a provision where there is a present legal or constructive obligation as a result of a past event and when the outfl ow of economic benefi ts is probable and can be measured reliably. Provisions are reviewed at each reporting date and adjusted to refl ect the current best estimate.

Employee benefits provisions

Annual leave and long service leave

All annual leave and long service leave provisions are in respect of employees’ services up to the end of the reporting period.Annual leave is not expected to be settled wholly within 12 months after the end of the reporting period and is therefore considered to be ‘other long term employee benefi ts’. The annual leave liability is recognised and measured at the present value of amounts expected to be paid when the liabilities are settled using the remuneration rate expected to apply at the time of settlement. The provision for annual leave is classifi ed as a current liability as GESB does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.Long service leave is not expected to be settled wholly within 12 months after the end of the reporting period and is therefore recognised and measured at the present value of amounts expected to be paid when the liabilities are settled using the remuneration rate expected to apply at the time of settlement. When assessing expected future payments consideration is given to expected future wage and salary levels including non-salary components such as employer superannuation contributions, as well as the experience of employee departures and periods of service. The expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outfl ows. Unconditional long service leave provisions are classifi ed as current liabilities as GESB does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. Pre-conditional and conditional long service leave provisions are classifi ed as non-current liabilities because GESB has an unconditional right to defer the settlement of the liability until the employee has completed the requisite years of service.

Superannuation

GESB’s employees are eligible to receive superannuation under one of the schemes established under the State Superannuation Act 2000.Eligible employees contribute to the Pension Scheme, a defi ned benefi t Pension Scheme closed to new members since 1987, or the Gold State Superannuation Scheme (GSS), a defi ned benefi t lump sum scheme closed to new members since 1995.

36

Employees commencing employment prior to 16 April 2007 who were not members of either the Pension Scheme or the GSS became non-contributory members of the West State Superannuation Scheme (WSS). Employees commencing employment on or after 16 April 2007 became members of the GESB Super Scheme. From 30 March 2012, existing members of the WSS or GESB Super and new employees have been able to choose their preferred superannuation fund provider. GESB contributes to the schemes or other fund providers on behalf of employees in compliance with the Commonwealth Government’s Superannuation Guarantee (Administration) Act 1992. Contributions to these accumulation schemes extinguish GESB’s liability for superannuation charges in respect of employees who are not members of the Pension Scheme or GSS.The Pension Scheme and the pre-transfer benefi t for employees who transferred to GSS are defi ned benefi t schemes. These benefi ts are wholly unfunded and the liabilities for future payments are provided at the end of the reporting period. The liabilities under these schemes have been calculated separately for each scheme annually by the Actuary using the projected unit credit method. The expected future payments are discounted to present value using market yields at the end of the reporting period on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outfl ows.GSS, WSS, and GESB Super, where the current service superannuation charge is paid by GESB to the Funds, are defi ned contribution schemes. The liabilities for current service superannuation charges under GSS, WSS, and GESB Super are extinguished by the concurrent payment of employer contributions to the Funds. GSS is a defi ned benefi t scheme for the purposes of employees and whole-of-government reporting. However, from an agency perspective, apart from the transfer benefi ts, it is a defi ned contribution plan under AASB 119.

Other provisions

Employment on-costs

Employment on-costs, including workers’ compensation insurance, fringe benefi ts tax and payroll tax, are not employee benefi ts and are recognised as liabilities and expenses when the employment to which they relate has occurred.

P) Accrued salaries

Accrued salaries represent the amount due to staff but unpaid at the end of the fi nancial year, as the end of the last pay period for that fi nancial year does not coincide with the end of the fi nancial year. Accrued salaries are settled within a few days of the fi nancial year end. GESB considers the carrying amount of accrued salaries to be equivalent to the net market value.

Q) Goods and services tax (GST)

Revenues, expenses and assets, with the exception of receivables and payables, are recognised net of the amount of GST to the extent that the GST is recoverable from the taxation authority. Where GST is not recoverable, it is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable.Receivables and payables are stated inclusive of GST. The net amount of GST payable to the taxation authority is included as part of payables in the Statement of net assets.

R) Cash and cash equivalents

Cash and cash equivalents include deposits held at call with a bank or fi nancial institution and highly liquid investments, if any, with three months or less to maturity which are readily convertible to cash on hand and are subject to insignifi cant risk of changes in value.

S) Borrowing costs

GESB does not currently hold qualifying assets but, if it did, the borrowing costs directly associated with these assets would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). All other borrowing costs are expensed as incurred.

T) Interest bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.After initial recognition, interest-bearing loans and borrowings are subsequently measured at net market value.Gains and losses are recognised in the Statement of changes in net assets.

U) Derecognition of financial assets and financial liabilities

A fi nancial asset is derecognised when:• the rights to receive cash fl ows from the asset have expired;

or• the Fund transfers substantially all the risks and rewards of

ownership of the asset.A fi nancial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

37

Financial statements Annual Report 2013/2014

V) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfi lment of the arrangement is dependent on the use of a specifi c asset or assets and the arrangement conveys a right to use the asset.Finance leases, which transfer to GESB substantially all the risks and benefi ts incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the fi nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the Statement of Changes in Net Assets.Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that GESB will obtain ownership by the end of the lease term.Operating lease payments are recognised as an expense in the Statement of changes in net assets on a straight-line basis over the lease term. Lease incentives are recognised in the Statement of changes in net assets as an integral part of the total lease expense.

W) Judgements made by management in applying accounting policies

Expenditure commitments

The Fund has entered into an outsourcing arrangement for the provision of information and communication technology services. This arrangement is a services agreement, as all the signifi cant risks and rewards of ownership are retained by Fujitsu Australia Limited.

X) Key sources of estimation uncertainty

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a signifi cant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting periods are:

Valuation of accrued benefits

The amount of accrued benefi ts has been actuarially determined. The key assumptions are discussed in Note 7.

Post-employment benefits

The amount of post-employment benefi ts has been actuarially determined. The key assumptions are discussed in Note 18.

Valuation of investments and derivatives

Signifi cant judgements and assumptions are required in determining net market value for investments that are classifi ed in Level 3 in the fair value hierarchy. (Refer to Note 5G).

38

Pension Scheme – was the government’s original superannuation scheme and has been closed to new members since 1986. It provides a salary linked unit based pension for retiring members. This scheme is an untaxed scheme.Provident Account – is a lump sum scheme for persons who were not eligible to join the Pension Scheme. This scheme was also closed to new members in 1986. For scheme reporting purposes the Provident account is included with the Pension Scheme. This scheme is an untaxed scheme.Gold State Super – is a defi ned benefi t, lump sum superannuation scheme that has been closed to new members since 1995. This scheme is an untaxed scheme.West State Super – is a market linked accumulation superannuation scheme established to comply with the provisions of the Commonwealth’s Superannuation Guarantee (Administration) Act 1992. Within the scheme there are certain members entitled to a Minimum Benefi t Guarantee amount. These members are classifi ed as having a defi ned benefi t interest. It has been closed to new members since April 2007. This scheme is an untaxed scheme.GESB Super – is a market linked taxed accumulation superannuation scheme which also includes GESB Super (Retirement Access). GESB Super is open to new employees of the State Government.Retirement Income Allocated Pension – is an allocated pension that enables retiring members to keep their funds with GESB in a concessionally taxed environment, while receiving fl exible periodic payments. Retirement Income – Term Allocated Pension – is a market linked income stream similar to an allocated pension but with restricted redemption options and qualifi es as a complying pension for tax and social security purposes. It has been closed to new members since September 2007.

Note 3: Cash and cash equivalents

2014 2013 $’000 $’000

Cash and cash equivalents 49,176 48,954

Cash and cash equivalents earn interest at fl oating daily bank deposit rates and are invested in fi nancial institutions with at least an AA- credit ranking.

Note 2: Scheme information

39

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40

Investment assets

2014 2013Net Market

ValuesNet Market

ValuesNOTE $’000 $’000

INTERNALLY MANAGED PORTFOLIO

Term deposits 1,249,556 1,122,733

1,249,556 1,122,733

EXTERNALLY MANAGED PORTFOLIO

Australian equities 3,814,297 3,115,583

Cash 1,463,880 1,374,585

Diversifi ed fi xed interest 2,452,725 2,070,149

Global property 1,300,724 1,147,229

Higher risk return investment 466,232 387,487

International equities 5,107,595 4,441,324

Private equity 766,159 763,793

Unlisted property 258,316 229,551

Global government bonds 1,853,306 1,562,784

(A) 17,483,234 15,092,485

TOTAL INVESTMENT ASSETS 18,732,790 16,215,218

A) Externally managed portfolio (including cash managers)

The majority of the external investments are comprised of individual investment pools managed by Australian based fund managers, via GESB’s custodian NAB Asset Servicing (NAS).

41

Financial statements Annual Report 2013/2014

A) Objectives, strategies, policies and processes

GESB is responsible for the prudent management and investment of the assets of the Fund. To fulfi l this statutory responsibility and meet its legal and fi duciary obligations, the Board has an integrated investment governance framework to govern its processes in formulating investment objectives, setting strategic asset allocations and developing appropriate investment strategies. The Treasurer issues Prudential Guidelines for Investments to the Board incorporating the roles and responsibilities of both parties and they are subject to review annually. A Board Investment Committee reports to and advises the Board about investment matters. The Committee draws on expertise outside the Board, and meets regularly to consider, approve and monitor all strategic aspects of the Fund’s investment activities. The Committee is comprised of both Board Directors and external appointees, who have been appointed for their specialist professional expertise and who discharge their duties as specifi ed in the Committee’s Charter.The Investment Division provides strategic advice to the Board and Investment Committee in setting investment objectives, asset allocation, investment strategy and fund manager selection. The assets of the portfolio are managed by specialist fund managers, who are appointed subject to Treasurer’s approval. Each fund manager is required to invest the assets it manages according to the terms of a written investment mandate and report regularly on compliance with the mandate. The Board monitors fund manager performance as well as compliance with investment management agreements and Prudential Guidelines for Investments. Derivative exposure is managed in accordance with the Fund’s Risk Management Statement as recommended by the Australian Prudential Regulation Authority. Rebalancing of the portfolio occurs on a regular basis in accordance with Board approved policies. The Fund’s principal fi nancial instruments, other than derivatives, comprise units in pooled trusts, equities, fi xed interest securities, cash and short term deposits. The main purpose of these fi nancial instruments is to generate a return on investment.

The Fund also has other fi nancial instruments such as receivables, payables and borrowings, which arise directly from its operations. These are mainly current in nature.The Fund does not directly enter into derivative transactions. It may enter into derivative transactions, including fi xed interest future and foreign exchange contracts, via its fund managers.Risks arising from holding fi nancial instruments are inherent in the Fund’s activities, and are managed using a process of ongoing identifi cation, measurement and monitoring. The main risks arising from the Fund’s fi nancial instruments are credit risk, market risk (price risk, foreign currency risk, interest rate risk) and liquidity risk. GESB reviews and establishes policies for managing each of these risks and they are summarised below.

B) Use of derivative financial instruments

Derivatives are usually separated into these generic classes - forwards, options, swaps, futures and warrants - although individual products may combine the features of more than one class. GESB makes use of derivative fi nancial instruments via the portfolios held by its fund managers.The Treasurer’s Prudential Guidelines for Investments allow the use of derivative fi nancial instruments.Under the investment strategy of GESB, derivatives are principally used as an effective alternative to physical assets and to gain access to, or allow fl exibility in, fi nancial markets. This enables the Fund to manage and structure its investment portfolio to achieve a desired level of total exposure to various asset classes. Derivatives are not utilised to leverage the investment portfolio.In line with GESB’s net market value accounting policy, derivatives are valued on a mark-to-market basis. Therefore unrealised gains and losses on all current positions are calculated and recognised in the Statement of Changes in Net Assets.

Note 5: Financial risk management objectives and policies

42

As at 30 June 2014 the signifi cant derivative positions held by GESB’s fund managers were as follows:

2014 2013 $’000 $’000

DERIVATIVE ASSETS:

Swaps 6,678 11,982

Futures 1,589 3,368

Options 210 259

Forward foreign exchange contracts 84,680 10,173

Warrants 5 5

Total derivative assets 93,162 25,787

DERIVATIVE LIABILITIES:

Swaps 5,968 2,703

Futures 5,490 614

Options 549 691

Forward foreign exchange contracts 6,050 406,636

Total derivative liabilities 18,057 410,644

TOTAL NET DERIVATIVES 75,105 (384,857)

All derivative fi nancial assets and liabilities are classifi ed as Level 2 in the fair value hierarchy, except futures which belong to Level 1. (Refer to Note 5G).

C) Credit risk

Credit risk represents the risk that the counterparty to the fi nancial instrument will fail to discharge an obligation and cause the Fund to incur a fi nancial loss. It arises from the fi nancial assets of GESB, which comprise cash and cash equivalents, receivables, investments and derivative fi nancial instruments. The Fund’s exposure to credit risk arising from its fi nancial assets, other than derivatives, arises from default of the counterparty. The current exposure is equal to the net market value of these investments as disclosed in each applicable note. This best represents the current maximum exposure at reporting date, not the maximum risk exposure that could arise in the future as a result of changes in values.Credit risk arising from derivative fi nancial instruments is, at any time, generally limited to those with positive fair values.The Fund minimises credit risk by undertaking transactions with a large number of creditworthy third parties in various countries. GESB does not have any signifi cant exposure to any individual counterparty or industry other than the state of Western Australia in respect of GESB’s unfunded superannuation liability. In addition, receivable balances are monitored on an ongoing basis so that the Fund’s exposure to bad debts is not signifi cant.

Credit quality per class of financial instrument

Credit ratings are a key indicator in assessing the credit quality of fi nancial assets. GESB uses the Standard & Poor rating categories, in accordance with its investment policy. Exposure in each grade is monitored on a periodic basis, which assists in assessing the potential loss as a result of the risks and any corrective actions necessary.GESB’s interest bearing fi nancial instruments portfolio is managed in a manner that is consistent with investment restrictions and credit rating limits contained within each fund manager’s mandate and individual investment agreements.

43

Financial statements Annual Report 2013/2014

The table below shows the credit quality by class of asset for fi nancial instruments:

AAA to AA- A1+ to A1 A2 BBB+ to B- Other 1 Total

2014 $'000 $'000 $'000 $'000 $'000 $'000

FINANCIAL ASSETS HELD AT NET MARKET VALUE:

Asset backed securities 6,931 6,071 - 358 1,600 14,960

Cash and deposits 1,850,311 955,996 - 5,261 - 2,811,568

Discount securities 32,900 186,613 11,943 - 30,469 261,925

Fixed interest bonds 2,250,433 465,571 - 460,347 82,572 3,258,923

Floating rate notes 190,245 125,595 - 44,347 5,593 365,780

Indexed annuities 2,884 - - - 1,955 4,839

Indexed bonds 136,937 - - 3,887 12,574 153,398

Mortgage backed securities 312,444 13,026 - 4,229 47,441 377,140

Perpetual securities - 4,894 - - - 4,894

Zero coupon bonds - - - - 43 43

4,783,085 1,757,766 11,943 518,429 182,247 7,253,470

AAA to AA- A1+ to A1 A2 BBB+ to B- Other 1 Total

2013 $'000 $'000 $'000 $'000 $'000 $'000

FINANCIAL ASSETS HELD AT NET MARKET VALUE:

Asset backed securities 6,013 5,545 - - 2,934 14,492

Cash and deposits 2,466,762 122,534 - 7,062 - 2,596,358

Convertible notes - - - - 224 224

Discount securities 113,352 363,427 8,943 - 1,623 487,345

Fixed interest bonds 1,697,526 425,133 - 327,119 84,843 2,534,621

Floating rate notes 119,892 100,687 - 35,065 19,059 274,703

Indexed annuities 5,619 - - - 4,973 10,592

Indexed bonds 134,151 - - 3,478 - 137,629

Mortgage backed securities 240,239 4,248 - 4,432 56,366 305,285

Perpetual securities - 4,687 - - - 4,687

Zero coupon bonds - - - - 45 45

4,783,554 1,026,261 8,943 377,156 170,067 6,365,981

1 The Fund’s custodian uses the Standard & Poor’s (S&P) rating category to determine credit quality for each fi nancial asset. Not all fi nancial assets are rated by S&P. Although some fi nancial assets are unrated this does not imply that they are non investment grade. The investment quality of the portfolio is managed through compliance with the Fund Manager Investment Agreement.

GESB restricts the exposure to credit losses on derivative instruments it holds by entering into master netting arrangements with major counterparties with whom a signifi cant volume of transactions are undertaken. Such an arrangement provides for a single net settlement of all fi nancial instruments covered by the agreement in the event of default on any one contract. Master-netting arrangements do not result in an offset of balance-sheet assets and liabilities unless certain conditions for offsetting under AASB 132 apply.Although master-netting arrangements may signifi cantly reduce credit risk, it should be noted that:• Credit risk is eliminated only to the extent that amounts due to the same counterparty will be settled after the assets are realised.• The extent to which overall credit risk is reduced may change substantially within a short period because the exposure is

affected by each transaction subject to the arrangement.At 30 June 2014, master-netting arrangements reduced the credit risk on favourable contracts that have a fair value of $91,358k (2013: $22,153k).

44

D) Market risk

Market risk relates to the risk of loss due to a change in market and economic conditions (e.g. interest rate changes, equity price fl uctuations or exchange rate fl uctuations). It comprises three types of risk: price risk, foreign currency risk and interest rate risk.GESB invests in Australian and overseas equities, fi xed interest securities, property and other fi nancial securities and therefore is exposed to market risk on all of its investment assets. It minimises this risk by ensuring that all investment activities are undertaken in accordance with established mandate limits and investment strategies.To further mitigate market risk, the Fund also indirectly enters into derivative transactions, principally fi xed interest rate swaps and foreign exchange contracts, via its fund managers.The market risk disclosures are prepared on the basis of the Fund’s direct investments and not on a look through basis for investments held in the Fund.

i) Price risk

Price risk is the risk that the net market value of investments in equities decreases or increases as a result of changes in market prices, whether those changes are caused by factors specifi c to the individual equity price or factors affecting all equities in the market. Price risk exposure arises from the Fund’s investment portfolio.To limit price risk the Fund diversifi es its investment portfolio in line with its investment strategy. Additionally, the Fund invests in other asset classes that tend to be negatively correlated to equities which may generate profi ts when equities generate losses. The Fund monitors its exposure to various indices on an ongoing basis throughout the year to ensure the accuracy of pricing.The effect on the Statement of changes in net assets due to a reasonably possible change in market factors, as represented by the equity market indices, with all other variables held constant, is indicated in the table below.

2014 2013Change in equity prices +/-10% +/-10%

After tax change in net assets and net assets available to pay benefits

$'000 $’000

Listed equities 835,883 / (835,883) 720,033 / (720,033)

Listed property trusts 112,950 / (112,950) 93,361 / (93,361)

Listed unit trusts 8,296 / (8,296) 3,297 / (3,297)

Unlisted equities 512 / (512) - / -

Pooled development fund 328 / (328) 786 / (786)

Redeemble preference shares 512 / (512) 689 / (689)

Unlisted managed investment schemes 165,973 / (165,973) 153,892 / (153,892)

Unlisted partnership 4,739 / (4,739) 3,455 / (3,455)

Futures 671 / (671) 5,861 / (5,861)

Options 175 / (175) - / -

Warrants 1 / (1) 1 / (1)

Total 1,130,040 / (1,130,040) 981,374 / (981,374)

The sensitivity is based on reasonably possible changes expected over the following fi nancial year using economic and fi nancial forecasts published by one of the big four Australian banks. The analysis was performed on the same basis for the year ended 30 June 2013.

ii) Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate due to changes in foreign exchange rates. GESB believes that the long term benefi ts from investing overseas outweigh the effect of possible short term currency fl uctuations. The management of foreign currency risk is covered in detail in GESB’s agreements with its fund managers and in the Fund’s policy. GESB’s international fund managers can use transactions such as currency forward contracts and swaps to manage the currency exposure of the Fund. The terms of such contracts must not exceed one year, during which time 100% of the contract commitment must be covered at all times by cash, debt securities or equities denominated in the currency or one highly correlated with the currency sold forward. Foreign currency risk is managed on an ongoing basis by regular monitoring of the performance of the appointed fund managers. The risk is measured using sensitivity analysis.

45

Financial statements Annual Report 2013/2014

GES

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46

The table below analyses the sensitivity of the Fund’s net assets to the movement of major currencies to which the Fund had signifi cant exposure at 30 June 2014. The analysis calculates the effect of a reasonably possible movement of the currency rate against the Australian Dollar on Net Assets and Investment Returns, with all other variables held constant.

Change in currency rate Effect on net assets / investment returns

2014 2013 2014 2013% % $'000 $'000

British pound/AUD +/-5 +/-5 (15,383) / 13,918 (15,265) / 13,812

Canadian dollar/AUD +/-10 +/-5 (8,486) / 6,943 (3,208) / 2,903

EUR/AUD +/-5 +/-5 (12,621) / 11,419 (10,548) / 9,543

Hong Kong dollar/AUD +/-15 +/-5 (15,160) / 11,205 (5,089) / 4,605

Japanese yen/AUD +/-5 +/-10 (16,631) / 15,047 (36,813) / 30,120

Swiss franc/AUD +/-5 +/-5 (8,516) / 7,705 (6,673) / 6,038

USD/AUD +/-10 +/-10 (134,307) / 109,888 (101,358) / 82,929

Other/AUD +/-5 +/-5 (12,835) / 11,612 (10,969) / 9,924

The sensitivity is based on reasonably possible changes expected over the following fi nancial year using economic and fi nancial forecasts published by one of the big four Australian banks. The analysis was performed on the same basis for the year ended 30 June 2013.Management believe the reporting date risk exposures are representative of the risk exposure inherent in the fi nancial instruments.

iii) Interest rate risk

Interest rate risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market interest rates. This risk is managed by a combination of duration analysis and derivative positions to enhance the interest rate performance of the investment portfolio, according to the Fund’s policy. The interest rate risk is measured using sensitivity analysis.GESB invests in fi nancial assets for the primary purpose of obtaining a return on investments. GESB’s investments are subject to interest rate risk and the return on the investments will fl uctuate in accordance with movements in the market interest rates.

47

Financial statements Annual Report 2013/2014

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49

Financial statements Annual Report 2013/2014

The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.At 30 June 2014, if interest rates had moved, with all other variables held constant, the effect of a change in Net Assets and Investment Returns would have been affected as follows:

Judgements of reasonably

possible movements

Effect on net assets /

investment returns

Basis Points $'000

2014 +/- 25 (36,685) / 36,700

2013 +/- 25 (33,207) / 37,825

The movements in the change in net assets and net assets available to pay benefi ts are due to higher/lower interest costs from variable rate cash balances and increase/decrease in fair value of fi xed rate investments. The sensitivity is based on reasonably possible changes expected over the following fi nancial year using economic and fi nancial forecasts published by one of the big four Australian banks. The analysis was performed on the same basis for the year ended 30 June 2013.

E) Liquidity risk

Liquidity risk is the risk that GESB will encounter diffi culty in raising funds to meet commitments associated with fi nancial liabilities. To control liquidity risk, GESB substantially invests in fi nancial instruments which, under normal market conditions, are readily convertible to cash. The Fund also maintains suffi cient cash and cash equivalents to meet normal operating requirements.One of the Fund’s signifi cant fi nancial liabilities are benefi ts payable to members. The contractual maturity of vested superannuation benefi ts can be considered payable on demand. On demand payments comprise the entire defi ned contribution component and the vested portion of the defi ned benefi t component. Refer to Note 7 and Note 8. The Fund’s manages its obligation to pay the defi ned contribution component on an expected maturity basis, based on management’s estimates and actuarial assumptions on when such funds will be drawn down by members. It is considered highly unlikely that all defi ned contribution members will request to roll over their superannuation balances at the same time. Furthermore, in relation to the vested defi ned benefi t component, the Fund has adequate resources readily convertible to cash to satisfactorily meet these obligations when called upon.The Fund’s other signifi cant fi nancial liability is an interest bearing loan which was entered into with the State Government. Loan repayments are made on an agreed schedule to discharge the unfunded West State Super liability over 20 years. Refer to Note 19.Other fi nancial liabilities of the Fund comprise trade, other payables and outstanding investment trade settlements which are contractually due within 30 days and derivative fi nancial liabilities which are payable within 12 months.The table below refl ects the remaining contractual maturities of the interest bearing loan as of 30 June 2014.

2014 2013 $’000 $’000

1 year or less 59,718 59,897

1 - 2 years 59,527 59,718

2 - 3 years 59,322 59,527

3 - 4 years 59,104 59,322

4 - 5 years 58,870 59,104

over 5 years 116,971 175,841

413,512 473,409

50

F) Concentrations of risk

Concentrations of risk arise when a number of fi nancial instruments or contracts have the same features or have the same underlying exposure, for example, where they are entered into with the same counterparty, or when a number of counterparties are engaged in similar business activities, have activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.In order to avoid excessive concentrations of risk, GESB monitors its exposure to ensure concentrations of risk remain within levels acceptable by the investment policy, and imposes mandated limits on the use of derivative instruments by fund managers and on maximum concentrations of risk tolerances.The following table classifi es the Fund’s listed equity portfolio by industry sector as at 30 June 2014.

2014 2013 $’000 % $’000 %

Consumer discretionary 1,032,824 12.05 912,551 12.46

Consumer staples 437,429 5.10 514,542 7.03

Energy 724,025 8.44 551,926 7.54

Financials 2,484,198 28.98 2,164,528 29.57

Health care 875,834 10.21 635,728 8.68

Industrials 872,532 10.18 728,354 9.95

Information technology 707,633 8.25 631,960 8.63

Materials 977,158 11.40 793,086 10.83

Telecommunication services 331,112 3.86 305,643 4.17

Utilities 131,293 1.53 83,829 1.14

8,574,038 100.00 7,322,147 100.00

The following table analyses the Fund’s investment portfolio by geographic regions (excluding the effect of foreign currency exposure) as at 30 June 2014.

2014 2013 $’000 % $’000 %

Australia 9,968,650 53.28 8,081,317 49.68

Canada 205,423 1.10 182,566 1.12

France 408,995 2.19 333,853 2.05

Germany 406,466 2.17 377,416 2.32

Hong Kong 169,185 0.90 195,982 1.20

Japan 925,980 4.95 1,038,065 6.38

Netherlands 205,532 1.10 162,103 1.00

Singapore 142,128 0.76 167,204 1.03

Switzerland 316,422 1.69 249,070 1.53

United Kingdom 862,203 4.61 773,963 4.76

United States 3,978,156 21.26 3,755,938 23.09

Other 1,119,937 5.99 949,590 5.84

18,709,077 100.00 16,267,067 100.00

51

Financial statements Annual Report 2013/2014

G) Net market values of financial assets and liabilities

The Fund’s fi nancial assets and liabilities recognised in the Statement of net assets are carried at their net market value, which approximates their fair values.Refer to Note 1 for the methods and assumptions adopted in determining the net market values of investments and derivatives.The following inputs are used to estimate the fair value of a fi nancial instrument:Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 - inputs are unobservable inputs for the asset or liability.The table below sets out the fi nancial assets and liabilities measured at fair value according to the fair value hierarchy as at 30 June 2014.

Level 1 Level 2 Level 3 Total2014 $’000 $’000 $’000 $’000

FINANCIAL ASSETS

Asset backed securities - 14,961 - 14,961

Cash and deposits 2,846,510 - - 2,846,510

Convertible notes - - - -

Discount securities - 261,926 - 261,926

Fixed interest bonds - 3,258,923 - 3,258,923

Floating rate notes - 365,781 - 365,781

Indexed annuities - 4,839 - 4,839

Indexed bonds - 153,398 - 153,398

Listed equities 8,489,865 3,814 222 8,493,901

Listed trusts 1,241,409 - 21 1,241,430

Mortgage backed securities - 377,140 - 377,140

Perpetual securities - 4,894 - 4,894

Pooled development funds 3,332 - - 3,332

Pref shares redeemable 5,206 - - 5,206

Unlisted partnership - 48,173 - 48,173

Unlisted trusts - 921,098 766,179 1,687,277

Zero coupon bonds - - 43 43

Total financial assets 12,586,322 5,414,947 766,465 18,767,734

FINANCIAL LIABILITIES

Interest bearing loans - 361,478 - 361,478

Cash and deposits 34,942 - - 34,942

Total financial liabilities 34,942 361,478 - 396,420

GRAND TOTAL 12,551,380 5,053,469 766,465 18,371,314

52

Level 1 Level 2 Level 3 Total

2013 $’000 $’000 $’000 $’000

FINANCIAL ASSETS

Asset backed securities - 14,492 - 14,492

Cash and deposits 2,596,358 - - 2,596,358

Convertible notes - 224 - 224

Discount securities - 487,346 - 487,346

Fixed interest bonds - 2,504,205 - 2,504,205

Floating rate notes - 274,703 - 274,703

Indexed annuities - 10,592 - 10,592

Indexed bonds - 137,629 - 137,629

Listed equities 7,307,986 1,003 85 7,309,074

Listed trusts 981,131 - 41 981,172

Mortgage backed securities - 305,285 - 305,285

Perpetual securities - 4,687 - 4,687

Pooled development funds 7,981 - - 7,981

Pref shares redeemable 6,990 - - 6,990

Unlisted partnership - - 35,071 35,071

Unlisted trusts - 798,370 763,793 1,562,163

Zero coupon bonds - - 45 45

Total financial assets 10,900,446 4,538,536 799,035 16,238,017

FINANCIAL LIABILITIES

Interest bearing loans - 398,122 - 398,122

Cash and deposits 22,799 - - 22,799

Total financial liabilities 22,799 398,122 - 420,921

GRAND TOTAL 10,877,647 4,140,414 799,035 15,817,096

Quoted market price, less transaction costs represents the net market value determined based on quoted prices on active markets as at reporting date. For fi nancial instruments not quoted in active markets, GESB uses valuation techniques such as:• quoted prices for similar securities in active markets• quoted prices for identical or similar securities in markets that are not active, market corroborated inputs• inputs that are developed based on available data and refl ect assumptions that markets would use when pricing similar

securities. Example of observable inputs includes interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates.

53

Financial statements Annual Report 2013/2014

Transfer between categories

There were no signifi cant transfers between level 1 and level 2 during the year.The following table presents the movement in level 3 instruments:

Equities Fixed interest Total2014 $’000 $’000 $’000

Opening balance 806,164 46 806,210

Total realised/unrealised gains and losses (15,062) (1) (15,063)

Purchases 174,967 - 174,967

Sales (157,538) - (157,538)

Transfers into level 3 135 - 135

Transfers out of level 3 (42,246) - (42,246)

Closing balance 766,420 45 766,465

Equities Fixed interest Total

2013 $’000 $’000 $’000

Opening balance 732,976 1,023 733,999

Total realised/unrealised gains and losses 48,289 301 48,590

Purchases 66,237 316 66,553

Sales (41,338) - (41,338)

Transfers into level 3 - - -

Transfers out of level 3 - (1,594) (1,594)

Closing balance 806,164 46 806,210

Gains or losses recognised in the Statement of changes in net assets for level 3 transactions are presented in the movement in net market value of investments as in the following table.

Equities Fixed interest Total2014 $’000 $’000 $’000

Total losses recognised in the Statement of changes in net assets for the period

(15,062) (1) (15,063)

Total losses recognised in the Statement of changes in net assets for the period for assets held at the end of the reporting period

(15,062) (1) (15,063)

Equities Fixed interest Total

2013 $’000 $’000 $’000

Total gains recognised in the Statement of changes in net assets for the period 48,289 301 48,590

Total gains recognised in the Statement of changes in net assets for the period for assets held at the end of the reporting period 48,289 301 48,590

For fi nancial instruments classifi ed in level 3 in the fair value hierarchy some of the inputs to the valuation models are unobservable and therefore subjective in nature. The use of reasonably possible alternative assumptions could possibly produce a different net market value measurement. If the impact of using those alternative assumptions would cause the fair value of level 3 asset to be higher or lower by 5%, the net assets of the fund and the result for the year would have been higher or lower by $38,323,233 (2013: $40,310,488).

H) Unitised investments

The fund managers of unitised investment vehicles have investments in a variety of investment instruments, including derivatives that expose GESB’s investments to a variety of investment risks, including market risk, credit risk, interest risk and currency risk. Note 5C) to 5E) cover how GESB minimises these risks.

54

2014 2013 $’000 $’000

A) EMPLOYER CONTRIBUTIONS

Pension Scheme

Employer’s share of pensions 212,013 214,825

212,013 214,825

Gold State Super

Employer contributions 42,173 43,322

Recoup past service liabilities 7,326 9,814

Recoup consolidated account portion of lump sum benefi ts 411,492 296,655

460,991 349,791

West State Super

Employer contributions 500,517 490,156

Recoup treasury unfunded liabilities 59,897 59,652

560,414 549,808

GESB Super

Employer contributions 313,158 274,624

313,158 274,624

TOTAL EMPLOYER CONTRIBUTIONS 1,546,576 1,389,048

B) SUPERANNUATION BENEFIT PAYMENTS

Pension Scheme

Pensions 220,652 223,806

Commutation lump sums 829 1,433

221,481 225,239Gold State Super

Retirement 148,707 122,012

Disability 12,253 8,821

Death 14,487 11,739

Family law 5,908 1,346

Financial hardship 66 45

Compassionate 139 371

Phased retirement 30,642 28,170

Others 549 242

212,751 172,746

Note 6: Employer contributions, benefit payments and other income

55

2014 2013 $’000 $’000

B) SUPERANNUATION BENEFIT PAYMENTS continued

West State Super

Retirement 456,689 328,049

Disability 21,358 15,183

Death 23,825 27,089

Financial hardship 1,022 885

Compassionate 2,776 2,174

Phased retirement 49,144 43,712

Other 86,900 69,420

641,714 486,512GESB Super

Retirement 92,608 78,411

Disability 4,008 2,226

Death 5,848 5,686

Financial hardship 442 369

Compassionate 307 204

Phased retirement 629 1,264

Other 22,411 17,346

126,253 105,506Retirement Income (Allocated Pension/Term Allocated Pension)

Pension 170,710 131,040

Commutation lump sums 212,981 136,866

Death 3,851 2,714

Other 252 994

387,794 271,614

TOTAL SUPERANNUATION BENEFIT PAYMENTS 1,589,993 1,261,617

C) OTHER INCOME

Insurance administration fee 3,263 3,359

Service fee - 1,060

Administration expenses recovered 14,109 12,494

Other 577 442

TOTAL OTHER INCOME 17,949 17,355

56

Gross accrued benefits

The liability for accrued benefi ts is the Fund’s present obligation to pay future benefi ts. For the defi ned contribution schemes the liability has been calculated as the scheme assets less sundry liabilities and income tax liabilities as at reporting date. For the defi ned benefi t schemes the liability has been calculated on the basis of the present value of future benefi t payments of the Fund up to measurement date. The amount stated has been determined by adding the liability for accrued benefi ts related to funded liabilities and unfunded liabilities in respect of completed membership (see table below).

Gross Accrued Benefits

2014 2013 $’000 $’000

Gold State Super 6,486,522 6,416,958

Pension Scheme 2,616,991 2,637,406

West State Super 11,174,533 9,640,571

GESB Super 1,998,177 1,533,012

Retirement Income 2,623,159 1,983,810

Term Allocated Pension 22,194 21,741

Total 24,921,576 22,233,498

Liability for accrued benefits related to funded liabilities

The liability for accrued benefi ts of the Fund, related to funded liabilities as at 30 June 2014, was calculated by GESB’s Actuary, Mercer (Australia) Pty Ltd, with reference to expected future salary levels and by application of market based, risk-adjusted discount rates, appropriate to the expected investment returns of the Fund and other relevant actuarial assumptions. For the defi ned contribution schemes the liability has been calculated as the difference between the carrying amounts of the assets and the carrying amounts of the sundry liabilities and income tax liabilities as at reporting date. The valuation was undertaken as part of the annual actuarial investigation and is in accordance with the provisions of Section 17 of the State Superannuation Act 2000.This value may be compared to the net assets of the Fund for the purpose of considering the fi nancial position of the Fund as at reporting date. Details of this liability are set out below.

Accrued liability related to funded liabilities

2014 2013 $’000 $’000

Gold State Super 2,339,522 2,338,958

Pension Scheme 78,991 82,406

West State Super 10,813,054 9,242,448

GESB Super 1,998,177 1,533,012

Retirement Income 2,623,159 1,983,810

Term Allocated Pension 22,194 21,741

Total 17,875,097 15,202,375

Note 7: Liability for accrued benefits

57

The treatment of reserves is subject to the Treasurer’s Guidelines for Government Employees Superannuation Fund Reserves. No reserves, or any increase in liabilities are accounted for in the Fund to cover future expenses for defi ned benefi t administration and government services. These expenses are funded from Consolidated Account appropriations and Gold State Super employer contributions.The main assumptions used to determine the actuarial value of accrued benefi ts at the last review date were:

2014 2013

Future rate of investment returns (net of investment taxes and net of investment management fees) earned on the fund’s assets

7.5% 7.5%

Future rate of salary infl ation 5.0% 5.0%

Unfunded liabilities in respect to completed membership

A proportion of member benefi ts are only funded by employers upon the emergence or payment of member entitlements. The Department of Treasury, for their own purposes, has determined the value of the unfunded liabilities of employers (i.e. the Government) which have arisen in respect of membership of the fund up to 30 June 2014 based on advice from the actuarial fi rm, PricewaterhouseCoopers Securities Ltd. The PricewaterhouseCoopers Securities Ltd valuation of unfunded liabilities adopts a different discount rate to that adopted for funded liabilities. The discount rate adopted is the long term government bond rate 3.50% (2013: 3.80%).GESB’s Actuary considered it appropriate that these values be taken as the amount of the Fund’s unfunded liabilities in respect of completed membership as these amounts will not be funded from the Fund’s investments. These values are as follows:

Unfunded liabilities in respect of completed membership

2014 2013 $’000 $’000

Gold State Super 4,147,000 4,078,000

Pension Scheme 2,538,000 2,555,000

West State Super 361,479 398,123

GESB Super - -

Retirement Income - -

Term Allocated Pension - -

Total 7,046,479 7,031,123

The unfunded liability in respect of West State Super stands at $361 million as at 30 June 2014 (2013: $398 million). An agreement was reached with the State Government that this unfunded amount would be discharged over a 20 year period commencing 15 July 2001. The unfunded liabilities relating to the West State Super for the current and previous years have been adjusted to refl ect the market value of the WATC loan as prescribed by AAS25.

58

Reserves

Movement in reserves

Minimum benefit

guarantee reserve

Insurance

reserve

Operational

risk reserve

Accumulation

general reserve

Total

reserves

$’000 $’000 $’000 $’000 $’000

Balance at 1 July 2012 44,852 4,755 48,943 - 98,550

Amount credited/(debited) to reserves 1,148 (197) 25,005 - 25,956

Balance at 30 June 2013 46,000 4,558 73,948 - 124,506

Balance at 1 July 2013 46,000 4,558 73,948 - 124,506

Utilisation of reserve (292) (794) - (1,086)

Contribution to reserves - - 3,832 12,360 16,192

Accumulation schemes surplus - - 2,625 4,646 7,271

Investment performance 1,416 134 2,426 156 4,132

Balance at 30 June 2014 47,124 3,898 82,831 17,162 151,015

A description of the reserves and the actuarial recommendation in relation to those reserves is provided in Note 30: Summary of Actuarial Report.

59

Financial statements Annual Report 2013/2014

Vested benefi ts are benefi ts which are not conditional upon continued membership of the Fund (or any factor other than resignation from the Fund) and include benefi ts which members were entitled to receive had they terminated their Fund membership as at reporting date.Australian Accounting Standard AAS25 requires the disclosure of vested benefi ts as at 30 June 2014. The latest calculation of vested benefi ts was undertaken by GESB’s Actuary, Mercer, as part of a comprehensive investigation of the Fund. The levels of vested benefi ts, as reported by the Actuary are as follows:

Gross vested benefits

2014 2013 $’000 $’000

Gold State Super 6,260,003 6,292,145

Pension Scheme 2,616,991 2,637,406

West State Super 11,185,723 9,653,096

GESB Super 1,998,177 1,533,012

Retirement Income 2,623,159 1,983,810

Term Allocated Pension 22,194 21,741

Total 24,706,247 22,121,210

The liability for vested benefi ts of the Fund related to funded liabilities as at 30 June 2014 may be compared to the net assets of the Fund at reporting date for the purpose of considering the fi nancial position of the Fund as at reporting date. These values are as follows:

Vested benefits related to funded liabilities

2014 2013 $’000 $’000

Gold State Super 2,598,842 2,592,077

Pension Scheme 78,991 82,406

West State Super 10,824,244 9,254,973

GESB Super 1,998,177 1,533,012

Retirement Income 2,623,159 1,983,810

Term Allocated Pension 22,194 21,741

Total 18,145,607 15,468,019

The discount rate adopted to value vested benefi ts was the same rate adopted by GESB’s Actuary to value funded accrued benefi ts.West State Super vested benefi ts are calculated on the assumption that all members exit the scheme on reporting date and accordingly includes the full cost of the minimum benefi ts guarantee.

Note 8: Vested benefits

60

The payment of benefi ts to members or their benefi ciaries of the Pension Scheme, Gold State Super, West State Super, GESB Super, Retirement Income Allocated Pension and Retirement Income – Term Allocated Pension is guaranteed by the State under Section 31 of the State Superannuation Act 2000.

Benefi ts paid to members and benefi ciaries of the Pension Scheme are guaranteed to the extent that Sections 30, 46, 62 and 83AA of the Superannuation and Family Benefi ts Act 1938 (continued under section 26 (Transitional and Consequential Provisions) of the State Superannuation Act 2000) provide for the State to pay the required employer share of benefi ts. The Consolidated Account is permanently appropriated for the purpose of meeting the State’s obligations.

Note 10: Employer funding arrangements

The Funding policy adopted by the government in respect of the Fund is directed at ensuring that benefi ts accruing to members and benefi ciaries are fully funded at the time benefi ts become payable. As such, the Actuary has considered long term trends in such factors as scheme membership, salary growth and average market value of Fund assets when advising the government on employer and employee contribution rates. The employer funding arrangements under the State Superannuation Act 2000 (Gold State Super, West State Super and GESB Super) and the Superannuation and Family Benefi ts Act 1938 (Pension Scheme) are summarised below.

A) Pension Scheme

The level of pension payable is determined by the number of units purchased, the length of service and the fi nal salary of the member. The employer liability is funded only on the emergence of a member’s pension benefi t entitlement and is recouped fortnightly following the payment of each pension.

B) Gold State Super

Those employers listed in Division 2 of Schedule 1 of the State Superannuation Regulations 2001 are required under Regulations 29 and 30 to make concurrent employer contributions direct to the Fund in respect of contributory members who are their employees.The remaining employers, as listed under Division 1 of Schedule 1 of the State Superannuation Regulations 2001, are not required to make concurrent contributions. It is Government policy that these employer liabilities be met from the Consolidated Account at the time that the benefi ts become payable to members. In this case, contributions are unfunded but notional contributions are placed in departmental budgets so that the superannuation component is accurately refl ected in an agency’s fi nancial statements. The agency forwards the notional Gold State

Super contribution to GESB and these are credited direct to a Department of Treasury bank account.The employer contribution rate for 2014 for contributory members was 15% (2013: 15%) of a member’s salary, based on a 5.0% member contribution. The employer contribution rate is proportionately less or more where members elect for a contribution rate of 3%, 4%, 6% or 7% of salary. The Consolidated Account liability for 2014 was assessed at 73.6% (net of administration fee) (2013: 73.6%) of the contributory service benefi t and is payable at the time payment is made to the member. In respect of those members who transferred their membership from the Pension Scheme, the employer liability in relation to service or period of employment constituted as service for the purposes of the Superannuation and Family Benefi ts Act 1938, is calculated at a rate of 12% of fi nal average salary for each year of such service, based upon a 5% member’s average contribution rate to the scheme (this rate is proportionately less where a member’s average contribution rate is less than 5%). This employer liability becomes payable on payment (Division 1, Schedule 1 Employers) or the emergence (Division 2, Schedule 1 Employers) of the benefi t to the member.

C) West State Super

The employer contribution rate payable is determined under State legislation and is currently 9.25% (2013: 9%). From 1 July 2014 the employer contribution rate payable will rise to 9.5%

D) GESB Super

The employer contribution rate payable is determined under State legislation and is currently 9.25% (2013: 9%). From 1 July 2014 the employer contribution rate payable will rise to 9.5%.

Note 9: Guaranteed benefits

61

Details of administration expenses incurred by GESB during the year ended 30 June 2014 are set out below:

2014

Actual

2014

Budget

Variance actual

to budget2013

ActualVariance actual to

prior year actual

Note $’000 $’000 $’000 % $’000 $’000 %

Employment expenses (i) 27,646 23,512 (4,134) (18) 22,429 (5,217) (23)

Information technology costs (ii) 8,641 7,931 (710) (9) 6,713 (1,928) (29)

Consultants 405 457 52 11 332 (73) (22)

Accommodation costs (iii) 4,112 4,470 358 8 4,015 (97) (2)

Professional fees (actuarial, legal and audit) (iv) 830 1,203 373 31 1,032 202 20

Postage, printing and record management (v) 1,560 1,827 267 15 1,218 (342) (28)

Promotions and advertising 350 495 145 29 417 67 16

Other administration costs (vi) 7,503 7,750 247 3 6,221 (1,282) (21)

51,047 47,645 (3,402) (7) 42,377 (8,670) (20)

Less:

Investment administration costs (vii) 3,192 3,373 181 5 2,629 (563) (21)

Total administrative costs excluding changes in net market value of other assets

47,855 44,272 (3,583) (8) 39,748 (8,107) (20)

Changes in net market value of other assets (viii) 6,667 3,948 (2,719) (69) 4,180 (2,487) (59)

Total schemes administration costs 54,522 48,220 (6,302) (13) 43,928 (10,594) (24)

Note 11: Administration expenses

62

Notes on significant variances in administration expenses

In accordance with Treasurer’s Instruction 945, the following notes are provided where there is ‘signifi cant variation’ between Actual expenditure and Budget or the prior year’s Actual.‘Signifi cant variation’ is defi ned as a variance of greater than 10% of total administrative expenditure or $250,000, whichever is smaller.Both actual and budget amounts include direct costs associated with superannuation reform. Actual 2014 Reform costs are $5.4 million (2013 – $1.7 million) against a budget of $2.0 million (2013 – $2.5 million). Excluding the Reform costs, the actual expenses were in line with budget for 2013/14.

i) Employment expenses

2013/14 Actual to Budget (increased expenditure $4,134k), 2013/14 Actual to Previous Year’s Actual (increased expenditure $5,217k)The increase in expenditure against budget and prior year is primarily due to the recognition of severance and transition costs associated with the implementation of the Superannuation Administration Outsource Project.

ii) Information technology costs

2013/14 Actual to Budget (increased expenditure $710k) and Actual to Previous Year’s Actual (increased expenditure $1,928k)The increase in expenditure is primarily due to the removal of software development costs from work in progress which were subsequently expensed. These projects related to systems and activities to be undertaken by The Link Group and therefore GESB will no longer continue with these projects.

iii) Accommodation

2013/14 Actual to Budget (Decreased expenditures $358k)The decrease in expenditure against budget is primarily due to lower than expected utilities costs.

iv) Professional fees (actuarial, legal and audit)

2013/14 Actual to Budget (Decreased expenditures $373k)The decrease in expenditure against budget is primarily due to reduced internal and external audit fees and lower than expected legal fees.

v) Postage, printing and records management costs

2013/14 Actual to Budget (Decreased expenditures $267k)The decrease in expenditure against budget is primarily due to a reduction in planned campaign activity.2013/14 Actual to Previous Year’s Actual (increased expenditure $342k)The increase in expenditure against previous years actual is primarily due to increased printing and processing costs.

vi) Other administration costs

2013/14 Actual to Previous Year’s Actual (Increased expenditure $1,282k)The increase in expenditure is primarily due to increased contractor expenditure, increased irrecoverable GST costs and increased compensation costs.

vii) Investment administration costs

2013/14 Actual to Previous Year’s Actual (Increased expenditure $563k)The increase is primarily due to planned growth within the Investment Strategy team and additional external contractor costs.

viii) Changes in net market value of other assets

2013/14 Actual to Budget (increased expenditure $2,719k), 2013/14 Actual to Previous Year’s Actual (Increased expenditure $2,487k)The implementation of the Superannuation Administration Outsourcing Project has triggered a review of the useful life of tangible and intangible assets. As the assets utilised by The Link Group in delivery of services will provide no future economic benefi t to GESB we have accelerated the depreciation and amortisation to bring the carrying value to nil at 30 June 2014. This adjustment has been refl ected in the current year depreciation and amortisation charge.

63

Financial statements Annual Report 2013/2014

Note 12: Income tax

2014 2013 $’000 $’000

A) MAJOR COMPONENTS OF TAX EXPENSE

Current tax expense 124,563 93,786

Adjustment to the current tax for prior periods (901) (1,312)

Adjustment to the deferred tax for prior periods 161 107

Deferred tax expense relating to the origination and reversal of temporary differences 15,718 16,451

Tax expense reported in statement of changes in net assets 139,541 109,032

B) EXPLANATION OF THE RELATIONSHIP BETWEEN TAX EXPENSE AND CHANGE IN NET ASSETS BEFORE INCOME TAX

Changes in net assets before tax 3,064,987 2,883,460

Changes in net assets related to constitutionally protected schemes (1,757,326) (1,856,536)

Changes in net assets related to WATC loan (36,644) (43,963)

Changes in net assets related to reserves (26,509) (25,956)

Total change in net assets related to retirement products 1,244,508 957,005

Tax expense calculated at 15% 186,676 143,551

Tax effect of expenses that are not deductible in determining taxable income

Benefi ts paid 100,502 70,139

Non-deductible expenses 1,076 1,500

Tax effect of income that is not assessable in determining taxable income

Income from managed portfolio (25,989) (19,603)

Member contributions (6,747) (4,787)

Transfers in (86,516) (59,875)

Tax credit and offsets (16,724) (10,514)

Exempt current pension income (11,178) (12,395)

Proceeds from insurance policy (1,346) (1,070)

Other items - (19)

Tax effect of other adjustments

Other deductions (393) (266)

Current tax for prior year (901) (1,312)

Deferred tax for prior year 161 107

No TFN contributions tax 920 3,576

Tax expense reported in statement of changes in net assets 139,541 109,032

64

2014 2013 $’000 $’000

C) RECOGNISED TAX ASSETS AND LIABILITIES

Current Tax Deferred Tax Current Tax Deferred Tax

Opening balance (31,383) (9,365) (27,805) 7,193

Charged to income (123,661) (15,879) (92,474) (16,558)

Other payments 119,114 - 88,896 -

Closing balance (35,930) (25,244) (31,383) (9,365)

Tax expense in statement of changes in net assets (139,541) (109,032)

Deferred tax asset at 30 June related to the following:

Realised capital losses - 5,106

- 5,106

Deferred tax liability at 30 June related to the following:

Unrealised capital gain (20,942) (13,605)

Accrued income (4,302) (867)

Closing balance (25,244) (14,472)

65

Financial statements Annual Report 2013/2014

Section 16 of the State Superannuation Act 2000 requires GESB to maintain such accounts within the Fund that are considered necessary for the management of the Fund and its separate elements and provides guidelines for the apportionment of investment income and expenses between those elements of the Fund.Contribution receipts and benefi t payments have been directly allocated to the relevant scheme.

A) Apportionment of investment income

Section 22 of the State Superannuation Act 2000 provides that GESB is to allocate earnings derived from the investment of the Fund between the schemes in accordance with the Treasurer’s guidelines and otherwise as it considers appropriate. Commencing 1 July 2001, as a result of the introduction of Member Investment Choice, the income attributable to the accumulation schemes has been allocated in accordance with income credited to the members’ account. Income is allocated based on actual investment income received in accordance with the Treasurers Guidelines for Reserves.

B) Apportionment of net assets

The Net Assets of the Fund have been apportioned between the elements of the Fund as described below.

2014 2013 $’000 $’000

Pension Scheme 90,600 86,801

Gold State Super 2,683,607 2,464,042

West State Super 11,174,533 9,640,571

GESB Super 1,998,177 1,533,012

Retirement Income 2,623,159 1,983,810

Retirement Income - Term Allocated Pension 22,194 21,741

WATC Loan (361,479) (398,123)

Reserves 151,015 124,506

18,381,806 15,456,360

Note 13: Apportionment of net assets

66

Plant and equipment comprises of computer hardware and offi ce furniture, equipment and renovations. These assets are recorded at written down value which is considered a reasonable approximation of net market value. Details are listed in the table below.

Computer

hardware

Office furniture,

equipment and

renovations Total

$’000 $’000 $’000

2014

Cost 190 2,325 2,515

Accumulated depreciation (190) (1,979) (2,169)

CARRYING AMOUNT - 346 346

2013

Cost 190 2,311 2,501

Accumulated depreciation (145) (998) (1,143)

CARRYING AMOUNT 45 1,313 1,358

A reconciliation of the carrying amounts of each asset class at the beginning and end of the current and previous fi nancial year is set out in the table below.

Computer

hardware

Office furniture,

equipment and

renovations Total

$’000 $’000 $’000

2014

Carrying amount at start of year 45 1,313 1,358

Additions - 19 19

Disposals - - -

Depreciation expense (45) (986) (1,031)

CARRYING AMOUNT AT END OF YEAR - 346 346

2013

Carrying amount at start of year 39 1,495 1,534

Additions 35 32 67

Disposals - - -

Depreciation expense (29) (214) (243)

CARRYING AMOUNT AT END OF YEAR 45 1,313 1,358

GESB have entered into an outsourced administration arrangement with The Link Group. The services agreement covering this arrangement facilitates the use of a number of GESB items of equipment by Link in delivering their services to GESB. The services agreement does not place any economic value on these assets. As a result of this GESB has reviewed the useful life of the assets to be utilised by Link and accelerated the depreciation to bring the carrying value to nil at 30 June 2014. This adjustment is refl ected in the tables above and is included in the current year depreciation expense.

Note 14: Plant and equipment

67

Financial statements Annual Report 2013/2014

Intangible assets comprise computer software costs and computer software development projects. These assets are recorded at amortised values. Details provided below.

Computer

software

Computer

software

development

projects Total

$’000 $’000 $’000

2014

Cost 63,314 - 63,314

Accumulated amortisation (62,972) - (62,972)

CARRYING AMOUNT 342 - 342

2013

Cost 61,420 1,014 62,434

Accumulated amortisation (57,335) - (57,335)

CARRYING AMOUNT 4,085 1,014 5,099

Reconciliation of the carrying amounts of each asset class at the beginning and end of the current and previous fi nancial year is set out in the table below.

Computer

software

Computer

software

development

projects Total

$’000 $’000 $’000

2014

Carrying amount at start of year 4,085 1,014 5,099

Additions - 880 880

Transfers 1,894 (1,894) -

Amortisation expense (5,637) - (5,637)

CARRYING AMOUNT AT END OF YEAR 342 - 342

2013

Carrying amount at start of year 6,517 796 7,313

Additions - 1,723 1,723

Transfers 1,505 (1,505) -

Amortisation expense (3,937) - (3,937)

CARRYING AMOUNT AT END OF YEAR 4,085 1,014 5,099

GESB have entered into an outsourced administration arrangement with The Link Group. The services agreement covering this arrangement facilitates the use of a number of GESB systems by Link in delivering their services to GESB. The services agreement does not place any economic value on these assets. As a result of this GESB has reviewed the useful life of the assets to be utilised by Link and accelerated the amortisation to bring the carrying value to nil at 30 June 2014. This adjustment is refl ected in the tables above and is included in the current year amortisation expense.

Note 15: Intangible assets

68

A) Receivables

Represented by:

2014 2013 $’000 $’000

INVESTMENTS

Receivables 125,525 199,292

Accrued interest 467 99

125,992 199,391

PENSION SCHEME

Recoup state's share of pensions 6,253 5,119

6,253 5,119

GOLD STATE SUPER

Employer contributions 6,343 6,481

Contribution arrears 3,161 2,959

9,504 9,440

OTHER DEBTORS 1,732 996

TOTAL 143,481 214,946

Receivables past due

As at 30 June 2014, receivables of $3,167,993 (2013: $2,965,646) were past due but not impaired. The ageing analysis of these receivables is described in the table below.

2014 2013 $’000 $’000

31 - 60 days 3 6

61 - 90 days 2 -

91 + days 3,163 2,960

3,168 2,966

Receivables considered impaired

As at 30 June 2014, receivables of $20,109 were past due and considered impaired (2013: NIL).

Net market value and credit risk

Due to the short term nature of these receivables, their carrying value approximates their net market value.The maximum exposure to credit risk is the net market value of receivables. GESB does not hold any collateral in relation to these receivables.

Interest rate risk

Details regarding interest rate risk exposure are disclosed in Note 5.

Note 16: Receivables and payables

69

Financial statements Annual Report 2013/2014

B) Payables

Represented by:

2014 2013 $’000 $’000

INVESTMENTS

Payables 145,713 159,049

Management fees 12,315 11,373

158,028 170,422

GESB SUPER

Benefi ts due and payable 278 598

278 598

GOLD STATE SUPER

Benefi ts due and payable - 77

Contribution in advance 1,637 1,730

1,637 1,807

WEST STATE SUPER

Benefi ts due and payable 1,211 3,432

1,211 3,432

PENSION AND RETIREMENT SCHEME

Pension due and payable 6,507 5,388

Retirement income 2,890 407

9,397 5,795

OTHER PAYABLES AND ACCRUALS 19,085 17,705

189,636 199,759

Net market value

Due to the short term nature of these payables, their carrying value approximates their net market value.

Interest rate and liquidity risk

Information regarding interest rate and liquidity risk exposure is set out in Note 5.

70

The provision for employee benefi ts for long service leave and annual leave has been calculated in accordance with the provisions of the Accounting Standard AASB 119 Employee Benefi ts. The value of leave benefi ts has been estimated as described in the table below.

2014 2013 $’000 $’000

CURRENT LIABILITY

Long service leave 1,718 1,561

Annual leave 908 1,822

Severance and transition payments 2,500 -

5,126 3,383

NON-CURRENT LIABILITY

Long service leave 338 1,090

338 1,090

Total employee benefi ts 5,464 4,473

NUMBER OF EMPLOYEES (HEAD COUNT) 93 223

The settlement of annual and long service leave liabilities gives rise to the payment of employment on-costs including payroll tax and workers compensation. The associated expenses are included at Note 23 ‘Employee Benefi t Expense’ and Note 24 ‘Other Expenses’.The split between current and non-current liabilities has been determined in accordance with the accounting standard AASB 101 Presentation of Financial Statements. All unconditional leave entitlements as at 30 June 2014 plus any entitlement becoming unconditional within 12 months of that date, has been classifi ed as a current liability in the Statement of net assets.

Severance and Transition Payments

A provision has been established for severance and transition obligations arising from the implementation of the Superannuation Administration Outsourcing Project (SAOP). Severance obligations arise from the identifi cation of a number of roles which become surplus following the outsourcing of administration and a reduction in the number of FTE required to support GESB’s future organisational structure. Transition payment obligations arise from s11(3) of the State Superannuation Act 2000 and Regulation 9 of the Public Sector Management (Redeployment and Redundancy) Regulations which entitle staff transferring to The Link Group to a transition payment.

Note 17: Provision for employee benefits

Financial statements Annual Report 2013/2014

71

2014 2013Present value of defined benefit obligations at the end of the year $’000 $’000

Pension Scheme 1,571 1,655

Gold State Super 305 331

Total 1,876 1,986

Pension Scheme

Nature of the benefits provided by the scheme

The employer-fi nanced benefi t is a pension benefi t payable on retirement, death or invalidity, or a lump sum benefi t on resignation.

Description of the regulatory framework

The scheme operates under the State Superannuation Act 2000 (Western Australia) and the State Superannuation Regulations 2001 (Western Australia).Although the scheme is not formally subject to the Superannuation Industry (Supervision) (SIS) legislation, the Western Australian government has undertaken (in a Heads of Government Agreement) to operate the scheme in accordance with the spirit of the SIS legislation.As an exempt public sector superannuation scheme (as defi ned in the SIS legislation), the scheme is not subject to any minimum funding requirements. As a constitutionally protected scheme, the scheme is not required to pay tax.

Description of other entities’ responsibilities for the governance of the scheme

The Government Employees Superannuation Board (GESB) is the scheme’s Trustee and is responsible for the governance of the scheme. As Trustee, GESB has a legal obligation to act solely in the best interests of scheme benefi ciaries. GESB has the following roles: • Administration of the scheme and payment to the benefi ciaries when required in accordance with the scheme rules; • Management and investment of the scheme assets (although the liabilities in this report are not supported by assets); and• Compliance with the Heads of Government Agreement referred to above.

Description of risks

There are a number of risks to which the scheme exposes GESB. The more signifi cant risks relating to the defi ned benefi ts are: Legislative risk – The risk is that legislative changes could be made which increase the cost of providing the defi ned benefi ts.Pensioner mortality risk – The risk is that pensioner mortality will be lighter than expected, resulting in pensions being paid for a longer period. Infl ation risk – The risk that infl ation is higher than anticipated, increasing pension payments, and the associated employer contributions.

Description of significant events

There were no plan amendments, curtailments or settlements during the year.

Reconciliation of the net defined benefit liability/(asset)

2014 2013 $’000 $’000

Defi ned benefi t obligation 1,571 1,655

(-) Fair value of scheme assets - -

Defi cit/(surplus) 1,571 1,655

(+) Adjustment for effect of asset ceiling - -

Net defined benefit liability/(asset) 1,571 1,655

Note 18: Provision for post-employment benefits

72

Reconciliation of the fair value of scheme assets

2014 2013 $’000 $’000

Fair value of scheme assets at beginning of the year - -

(+) Interest income - -

(+) Actual return on scheme assets less Interest income - -

(+) Employer contributions 134 131

(+) Contributions by scheme participants - -

(-) Benefi ts paid 134 131

(-) Taxes, premiums and expenses paid - -

(+) Transfers in - -

(-) Contributions to accumulation section - -

(+) Settlements - -

(+) Exchange rate changes - -

Fair value of scheme assets at end of the year - -

Reconciliation of the defined benefit obligation

2014 2013 $’000 $’000

Present value of defi ned benefi t obligations at beginning of the year 1,655 1,745

(+) Current service cost - -

(+) Interest cost 54 48

(+) Contributions by scheme participants - -

(+) Actuarial (gains)/losses arising from changes in demographic assumptions - 52

(+) Actuarial (gains)/losses arising from changes in fi nancial assumptions (39) (78)

(+) Actuarial (gains)/losses arising from liability experience 35 19

(-) Benefi ts paid 134 131

(-) Taxes, premiums and expenses paid - -

(+) Transfers in - -

(-) Contributions to accumulation section - -

(+) Past service cost - -

(+) Gain/loss on settlements - -

(+) Settlements - -

(+) Exchange rate changes - -

Present value of defined benefit obligations at end of the year 1,571 1,655

Reconciliation of the effect of the asset ceiling

The asset ceiling has no impact on the net defi ned benefi t liability/(asset).

Fair value of scheme assets

There are no assets in the Pension Scheme to support the State share of the benefi t. Hence, there are: • No fair value of scheme assets;• No asset allocation of scheme assets;• No fi nancial instruments issued by the employer;• No assets used by the employer;• No asset-liability matching strategies.

Financial statements Annual Report 2013/2014

73

Significant actuarial assumptions at the reporting date

Assumptions to determine start of year defi ned benefi t obligation and defi ned benefi t cost for the current year

2014 2013Pension Scheme % %

Discount rate (active members) 3.38 2.84

Discount rate (pensioners) 3.38 2.84

Expected salary increase rate 5.00 5.50

Expected pension increase rate 2.50 2.50

Assumptions to determine defi ned benefi t obligation at the valuation date

2014 2013Pension Scheme % %

Discount rate (active members) 3.69 3.38

Discount rate (pensioners) 3.69 3.38

Expected salary increase rate 5.00 5.00

Expected pension increase rate 2.50 2.50

The discount rate is based on the Government bond maturing in April 2024. The decrement rates used (eg mortality and retirement rates) are based on those used at the last actuarial valuation for the schemes.

Sensitivity analysis

The defi ned benefi t obligation as at 30 June 2014 under several scenarios is presented below.Scenario A and B relate to discount rate sensitivity. Scenario C and D relate to expected pension increase rate sensitivity. Scenario A: 0.5% pa lower discount rate assumptionScenario B: 0.5% pa higher discount rate assumptionScenario C: 0.5% pa lower expected pension increase rate assumptionScenario D: 0.5% pa higher expected pension increase rate assumption

Base Case Scenario A Scenario B Scenario C Scenario D

-0.5% pa discount rate

+0.5% pa discount rate

-0.5% pa pension

increase rate

+0.5% pa pension

increase rate

Discount rate 3.69% pa 3.19% pa 4.19% pa 3.69% pa 3.69% pa

Pension increase rate 2.50% pa 2.50% pa 2.50% pa 2.00% pa 3.00% pa

Defi ned benefi t obligation (A$'000s) 1,571 1,635 1,511 1,510 1,636

The defi ned benefi t obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other obligations.

Funding arrangements

GESB contributes, as required, to meet the benefi ts paid.

Expected contributions

2015

$'000

Expected employer contributions 137

Maturity profile of defined benefit obligation

The weighted average duration of GESB’s defi ned benefi t obligation is 8.2 years.

74

Gold State Super (transferred benefits)

Nature of the benefits provided by the scheme

Some former Pension Scheme members have transferred to Gold State Super. In respect of their transferred benefi t the members receive a lump sum benefi t at retirement, death or invalidity which is related to their salary during their employment and indexed during any deferral period after leaving public sector employment.

Description of the regulatory framework

The scheme operates under the State Superannuation Act 2000 (Western Australia) and the State Superannuation Regulations 2001 (Western Australia).Although the scheme is not formally subject to the Superannuation Industry (Supervision) (SIS) legislation, the Western Australian government has undertaken (in a Heads of Government Agreement) to operate the scheme in accordance with the spirit of the SIS legislation.As an exempt public sector superannuation scheme (as defi ned in the SIS legislation), the scheme is not subject to any minimum funding requirements. As a constitutionally protected scheme, the scheme is not required to pay tax.

Description of other entities’ responsibilities for the governance of the scheme

The Government Employees Superannuation Board (GESB) is the scheme’s Trustee and is responsible for the governance of the scheme. As Trustee, GESB has a legal obligation to act solely in the best interests of scheme benefi ciaries. GESB has the following roles: • Administration of the scheme and payment to the benefi ciaries when required in accordance with the scheme rules; • Management and investment of the scheme assets (although the liabilities in this report are not supported by assets); and• Compliance with the Heads of Government Agreement referred to above.

Description of risks

There are a number of risks to which the scheme exposes GESB. The more signifi cant risks relating to the defi ned benefi ts are: Infl ation risk – The risk that wages or salaries (on which future benefi t amounts will be based) will rise more rapidly than assumed, and/or that infl ation (which affects the indexation of deferred benefi ts) will be higher than assumed, increasing defi ned benefi t amounts and the associated employer contributions. Legislative risk – The risk is that legislative changes could be made which increase the cost of providing the defi ned benefi ts.

Description of significant events

There were no plan amendments, curtailments or settlements during the year.

Reconciliation of the net defined benefit liability/(asset)

2014 2013 $’000 $’000

Defi ned benefi t obligation 305 331

(-) Fair value of scheme assets - -

Defi cit/(surplus) 305 331

(+) Adjustment for effect of asset ceiling - -

Net defined benefit liability/(asset) 305 331

Financial statements Annual Report 2013/2014

75

Reconciliation of the fair value of scheme assets

2014 2013 $’000 $’000

Fair value of scheme assets at beginning of the year - -

(+) Interest income - -

(+) Actual return on scheme assets less Interest income - -

(+) Employer contributions 32 157

(+) Contributions by scheme participants - -

(-) Benefi ts paid 32 157

(-) Taxes, premiums and expenses paid - -

(+) Transfers in - -

(-) Contributions to accumulation section - -

(+) Settlements - -

(+) Exchange rate changes - -

Fair value of scheme assets at end of the year - -

Reconciliation of the defined benefit obligation 2014 2013

$’000 $’000

Present value of defi ned benefi t obligations at beginning of the year 331 518

(+) Current service cost - -

(+) Interest cost 11 14

(+) Contributions by scheme participants - -

(+) Actuarial (gains)/losses arising from changes in demographic assumptions - (7)

(+) Actuarial (gains)/losses arising from changes in fi nancial assumptions (4) (10)

(+) Actuarial (gains)/losses arising from liability experience - (27)

(-) Benefi ts paid 33 157

(-) Taxes, premiums and expenses paid - -

(+) Transfers in - -

(-) Contributions to accumulation section - -

(+) Past service cost - -

(+) Gain/loss on settlements - -

(+) Settlements - -

(+) Exchange rate changes - -

Present value of defined benefit obligations at end of the year 305 331

Reconciliation of the effect of the asset ceiling

The asset ceiling has no impact on the net defi ned benefi t liability/(asset).

Fair value of scheme assets

There are no assets in Gold State Super for current employees to support the transferred benefi ts. Hence, there are:• No fair value of scheme assets;• No asset allocation of scheme assets;• No fi nancial instruments issued by the employer;• No assets used by the employer;• No asset-liability matching strategies.

76

Significant actuarial assumptions at the reporting date

Assumptions to determine start of year defi ned benefi t obligation and defi ned benefi t cost for the current year.

2014 2013Gold State Super % %

Discount rate (active members) 3.38 2.84

Discount rate (pensioners) 3.38 2.84

Expected salary increase rate 5.00 5.50

Expected pension increase rate 2.50 2.50

Assumptions to determine defi ned benefi t obligation at the valuation date.

2014 2013Gold State Super % %

Discount rate (active members) 3.69 3.38

Discount rate (pensioners) 3.69 3.38

Expected salary increase rate 5.00 5.00

Expected pension increase rate 2.50 2.50

The discount rate is based on the Government bond maturing in April 2024. The decrement rates used (eg mortality and retirement rates) are based on those used at the last actuarial valuation for the schemes.

Sensitivity analysis

The defi ned benefi t obligation as at 30 June 2014 under several scenarios is presented below.Scenario A and B relate to discount rate sensitivity. Scenario C and D relate to expected salary increase and indexation rate sensitivity. Scenario A: 0.5% pa lower discount rate assumptionScenario B: 0.5% pa higher discount rate assumptionScenario C: 0.5% pa lower expected salary increase and indexation rate assumptionScenario D: 0.5% pa higher expected salary increase and indexation rate assumption

Base Case Scenario A Scenario B Scenario C Scenario D

-0.5% pa discount rate

+0.5% pa discount rate

-0.5% pa salary increase and

indexation rate

+0.5% pa salary increase and

indexation rate

Discount rate 3.69% pa 3.19% pa 4.19% pa 3.69% pa 3.69% pa

Salary increase rate 5.00% pa 5.00% pa 5.00% pa 4.50% pa 5.50% pa

Defi ned benefi t obligation (A$'000s) 305 312 298 299 312

The defi ned benefi t obligation has been recalculated by changing the assumptions as outlined above, whilst retaining all other obligations.

Funding arrangements

GESB contributes, as required, to meet the benefi ts paid.

Expected contributions

2015

$'000

Expected employer contributions 43

Maturity profile of defined benefit obligation

The weighted average duration of the GESB’s defi ned benefi t obligation is 4.8 years.

Financial statements Annual Report 2013/2014

77

The term loan from the Western Australian Treasury Corporation commenced on 30 May 2001 and was entered into following successful negotiations with the State Government in regard to an agreed payment schedule to discharge the unfunded West State Super liability over twenty years.The loan enabled the balances on West State Super members’ accounts at 1 July 2001 to be fully funded from an investment perspective. This funding was a prerequisite for Member Investment Choice, as all monies had to be available to be invested in accordance with the plans chosen by members of West State Super.The loan is unsecured and is repayable in quarterly instalments over 20 years. It bears interest at a fi xed rate of 6.5699%pa, plus a government guarantee fee 0.7%pa from 1 July 2012 (previously 0.2%pa). The interest and government guarantee fee recognised for the period to 30 June 2014 is $24,500,826 (2013: $26,968,064).As at 30 June 2014 the market value of the loan is $361,478,239 (2013: $398,122,453), with a premium of $34,373,381.21 (2013: $35,621,633) from a face value of $327,104,858 (2013: $362,500,820). The premium represents

the difference in present value between the interest rate the loan was fi xed at (6.5699% pa quarterly compounding) and the interest rates applicable on 30 June 2014.

Net market value

The carrying amount of the Fund’s interest bearing loans and borrowings approximate their net market value. The change in net market value is attributable to changes in the discount rate resulting from market related movements in long term interest rates together with principal and interest repayments.

Interest rate and liquidity risk

Details regarding interest rate and liquidity risk are disclosed in Note 5. The change to the fair value of $1.2m (2013:$11.3m) is a refl ection of the change to the interest rate outlook from 30 June 2013 to 30 June 2014.

Defaults and breaches

During the current and prior years, there were no defaults or breaches on the interest bearing loans and borrowings.

Note 19: Interest bearing loan and borrowings

Note 20: Remuneration of members of the Board, Investment Committee and senior officers

Remuneration of members of the Board

The number of members of the board whose total of fees, salaries, superannuation, non-monetary benefi ts and other benefi ts for the fi nancial year fall within the following bands are:

Remuneration of members of the Board 2014 2013

$0 – 10,000 1 2

$50,000 – 60,000 2 2

$60,001 – 70,000 3 3

$120,001 – 130,000 1 1

Total 7 8

Cash remuneration and superannuation $440,273 $437,521

Annual leave and long service leave accruals - -

Other benefi ts - -

Total remuneration of members of the Board $440,273 $437,521

78

The Board is comprised of seven Board Directors. As at 30 June 2014 no positions were vacant. During 2013/14, remuneration in accordance with Section 8(2) of the SSA was paid to six Board Directors. One Director of the Board, Glen Townsing, did not receive any Director’s fees in accordance with Government Policy.

Remuneration of senior officers

The number of senior offi cers whose total of fees, salaries, superannuation, non-monetary benefi ts and other benefi ts for the fi nancial year fall within the following bands are:

Remuneration of senior officers 2014 2013

$100,001 – 110,000 - 1

$240,001 – 250,000 1 1

$280,001 – 290,000 - 1

$290,001 – 300,000 1 -

$300,001 – 310,000 - 1

$340,001 – 350,000 - 1

$350,001 – 360,000 1 -

$360,001 – 370,000 1 -

$400,001 – 410,000 - 1

$420,001 – 430,000 1 -

Total 5 6

Cash remuneration and superannuation $1,603,734 $1,651,868

Annual leave and long service leave accruals $19,748 $23,404

Other benefi ts $94,204 $34,569

Total remuneration of senior officers $1,717,686 $1,709,841

Howard Rosario serves as Chief Executive Offi cer of GESB under a contract of employment with the Public Sector Commissioner which applies in conjunction with, and subject to, the relevant provisions of the Public Sector Management Act 1994 and the Minimum Conditions of Employment Act 1993. This contract is for the period 30 January 2012 to 29 January 2017. The remuneration of the Chief Executive Offi cer of GESB is set by the Salaries and Allowances Tribunal. Mr Rosario received total remuneration of $428,985 comprising salary, superannuation contributions, cashable car allowance, non-cashable parking benefi ts and accrued leave entitlements (2013: $401,051).“Senior Offi cer” represents a person, by whatever name called, who is concerned with or takes part in the management of GESB, but excludes any person acting in such a position for a limited period.In 2013/14, GESB used the services of Jardine Lloyd Thompson Pty Ltd for its Directors and Offi cers Liability insurance policy. The premium paid in respect of this insurance was $77,500 (2013 - $77,500) (excluding GST).

79

Financial statements Annual Report 2013/2014

The total fee paid or due and payable to the Auditor General for the fi nancial years was as follows:

2014 2013 $’000 $’000

Fee for auditing the fi nancial statements and key performance indicators 281 353

Note 22: Related party transactions

GESB had no related party transactions during the current fi nancial year. During the previous fi nancial year the fi nancial statements of GESB Wealth Management (GWM) were fi nalised on 11 April 2013. During the 2012/13 fi nancial year the only remaining GWM asset, cash at bank of $530,372, was transferred back to GESB, the sole shareholder. GWM incurred a net loss after income tax of $517,934 for the period to 11 April 2013. During 2012/13 GESB received total service fees of $1,060,655 from GWM in relation to the performance of services, as agreed between the parties. GWM also provided certain fi nancial services to GESB members, relating to member education and general fi nancial information. A fee was agreed between both parties for the provision of these services to GESB members. For 2012/13 these fees amounted to $31,900.Remuneration payments to key management personnel are refl ected in Note 20.

Note 21: Remuneration of auditor

80

Note 23: Employee benefits expense

2014 2013 $’000 $’000

Salaries 17,605 15,959

Superannuation - defi ned contribution plans 1,811 1,596

Superannuation - defi ned benefi t plans 222 217

Long service leave 1 1,000 566

Annual leave 1 1,509 1,668

Other related expenses 2 5,499 2,423

27,646 22,429

1 Includes an accrued payroll tax and superannuation contribution component.2 Includes severance and transition costs arising from the implementation of the Superannuation Administration Outsourcing Project (SAOP).

Employment on-costs such as workers’ compensation insurance and payroll tax are included at Note 24 ‘Other Expenses’.

Note 24: Other expenses

2014 2013 $’000 $’000

Information technology services 8,641 6,713

Consultants 405 332

Accommodation (a) 4,112 4,015

Professional fees 830 1,032

Printing, postage and record management 1,560 1,218

Promotion and advertising 350 417

Other expenses 1 7,503 6,221

23,401 19,948

1 Includes other employment on-costs such as workers’ compensation insurance and payroll tax. Superannuation contributions accrued as part of the provision for leave are employee benefi ts and are not included in employment on-costs.

a) Accommodation expenses

2014 2013 $’000 $’000

Lease rentals 3,272 3,242

Other accommodation costs 840 773

4,112 4,015

Financial statements Annual Report 2013/2014

81

Note 25: Changes in net market value of other assets

2014 2013 $’000 $’000

DEPRECIATION

Computer hardware 45 29

Offi ce furniture, equipment and renovations 985 214

Total depreciation 1,030 243

AMORTISATION

Intangible assets 5,637 3,937

Total amortisation 5,637 3,937

TOTAL DEPRECIATION AND AMORTISATION 6,667 4,180

GESB have entered into an outsourced administration arrangement with The Link Group. The services agreement covering this arrangement facilitates the use of a number of GESB systems and items of equipment by Link in delivering their services to GESB. The services agreement does not place any economic value on these assets. As a result of this GESB has reviewed the useful life of the assets to be utilised by Link and accelerated the depreciation and amortisation to bring the carrying value to nil at 30 June 2014. This adjustment is refl ected in the tables above and is included in the current year depreciation and amortisation expense.

Note 26: Write–offs

The write-offs made during the current fi nancial year are as follows: $10,921 (2013: $12,247).

82

Operating lease commitments

GESB is committed to operating leases on four motor vehicles. These leases are non-cancellable and have a term of one and two years with no renewable options included in the contract. There are no restrictions imposed by these leasing arrangements on other fi nancing transactions.GESB is committed to a lease agreement on its premises. The property lease is a non-cancellable lease with a 10 year term and an option to renew the lease at the end of the term for an additional term of fi ve years. As a result of the Superannuation Administration Outsourcing Project, GESB has entered into a contract to sublease half of its premises to the new service provider for a period of three years to the end of the lease term.

2014 2013 $’000 $’000

COMMITMENTS PAYABLE PREMISES VEHICLES PREMISES VEHICLES

Within 1 year 3,780 7 3,589 21

Later than 1 year and not later than 5 years 7,773 5 11,518 -

11,553 12 15,107 21

COMMITMENTS RECEIVABLE PREMISES SUBLEASE PREMISES SUBLEASE

Within 1 year 1,890 -

Later than 1 year and not later than 5 years 3,886 -

5,776 -

Other expenditure commitments

Other expenditure commitments relate to contracted expenditure for outsourced information and communication technology services, and outsourced superannuation administration services.

2014 2013 $’000 $’000

COMMITMENTS PAYABLE IT SERVICES

ADMINISTRATION

SERVICES

SHARED

SERVICES IT SERVICESADMINISTRATION

SERVICESSHARED

SERVICES

Within 1 year 3,370 650 120 211 - -

Later than 1 year and not later than 5 years 3,032 2,798 -

- - -

6,402 3,448 120 211 - -

The Fujitsu IT management services contract was renewed during the year and the amounts above represent commitments for the fi xed term of the contract as at 30 June 2014. After this date, the contract will be novated to the new service provider and GESB will not have commitments under this arrangement.GESB have entered into an outsourced administration arrangement with The Link Group. The amount included above under “Administration Services” is the minimum amount payable under the outsourcing contract. The amount payable in respect of the outsourced services as outlined in GESB’s 2014-15 Statement of Corporate Intent is projected to be $22.5m annually, increasing each year in line with CPI / WPI.

Note 27: Commitments and contingencies

Financial statements Annual Report 2013/2014

83

In accordance with Treasurer’s Instruction 945, this statement compares 2013/14 Revenue and Expenditure as shown within the Statement of changes in net assets with:The 2013/14 Budget fi gures published in the 2012/13 Annual ReportThe 2012/13 Revenue and Expenditure fi gures

2014

Actual

2014

Budget

Variance actual

to budget2013

ActualVariance actual to

prior year actualNote $’000 $’000 $’000 % $’000 $’000 %

REVENUE

Investment revenue

Investment revenue (i) 2,182,238 1,239,142 943,096 76 2,053,505 128,733 6

Less: investment expenses (ii) (49,891) (47,250) (2,641) 6 (42,687) (7,204) 17

Net investment revenue 2,132,347 1,191,892 940,455 79 2,010,818 121,529 6

Superannuation revenue

Contributions income

Member (iii) 822,193 557,306 264,887 48 623,163 199,030 32

Employer 1,546,576 1,469,364 77,212 5 1,389,048 157,528 11

Rollover into retirement products (iv) 932,154 518,115 414,039 80 612,876 319,278 52

Inward transfer from other funds (v) 652,442 462,160 190,282 41 481,128 171,314 36

Group life insurance proceeds (vi) 47,740 33,871 13,869 41 30,380 17,360 57

Other income 17,949 18,242 (293) (2) 17,355 594 3

Total superannuation revenue 4,019,054 3,059,058 959,996 31 3,153,950 865,104 27

TOTAL REVENUE 6,151,401 4,250,950 1,900,451 45 5,164,768 986,633 19

EXPENSES

Superannuation benefi ts (vii) 2,939,396 2,242,953 (696,443) (31) 2,154,222 (785,174) (36)

Administration expenses (viii) 47,855 44,213 (3,642) (8) 39,748 (8,107) (20)

Group life insurance premium 69,243 70,031 788 1 67,469 (1,774) (3)

Changes in net market value of other assets

(ix) 6,667 3,948 (2,719) (69) 4,180 (2,487) (59)

Changes in net market value of fi nancial liabilities

(x) (1,248) - 1,248 100 (11,279) (10,031) 89

Loan interest 24,501 22,627 (1,874) (8) 26,968 2,467 9

Total expenses 3,086,414 2,383,772 (702,642) (29) 2,281,308 (805,106) (35)

OPERATING RESULT BEFORE TAX FOR THE YEAR 3,064,987 1,867,178 1,197,809 64 2,883,460 181,527 6

Note 28: Explanatory statement

84

Notes to the explanatory statement

The following notes apply only where a variance from budget or prior year’s actual is greater than 10%, is material and/or deemed signifi cant in the context of the operations of GESB.

i) Investment revenue

Investment revenue is $943.1m (76%) higher than budget. The full year investment performance of the fund was 13.6% compared to a budget of 8.2%. The stronger than expected investment performance in the 2013/14 fi nancial year was driven by the very strong returns from private equity, listed equity and listed property markets as a result of an improved environment for private equity sales domestically and continued extraordinarily accommodative monetary policy globally. Details of investment revenue are included in Note 4.

ii) Investment expenses

Investment expenses were $2.6m (6%) higher than budget and $7.2m (17%) higher than prior year. Higher than budgeted and historic investment expenses are a result of increased funds under management.

iii) Member contributions

Member contributions were $264.9m (48%) higher than budget and $199m (32%) higher than the prior year due to higher post tax contributions and higher salary sacrifi ce contributions.

iv) Rollover into retirement products

Total rollovers into retirement products were $414.0m (80%) higher than budget and $319.3m (52%) higher than prior year due to higher retirement benefi ts. In addition a higher than expected proportion of benefi ts was retained, the projected reduction in benefi t retention due to the closure of GWM did not materialise.

v) Inward transfer from other funds

Inward transfer from other funds were $190.3m (41%) higher than budget and $171.3m (36%) higher than prior year due to higher benefi ts and increased consolidation activities.

vi) Group life insurance proceeds

Group life insurance proceeds were $13.9m (41%) higher than Budget and $17.4m (57%) higher than prior year primarily due to increased disability benefi ts.

vii) Superannuation benefits

Total superannuation benefi ts were $696.4m (31%) higher than budget and $785m (36%) higher than prior year. Higher benefi ts are a result of higher member balances driven by investment returns over the last two fi nancial years. In addition there has been increased retirement benefi t volumes and increased member consolidation activity.

viii) Administration expenses

Refer to Note 11.

ix) Changes in net market value of other assets

Refer to Note 11.

x) Changes in net market value of financial liabilities

Refer to Note 19.

85

Financial statements Annual Report 2013/2014

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87

Financial statements Annual Report 2013/2014

In accordance with Clause 63 of Australian Accounting Standard AAS25, the following information is provided in the Actuarial Report on the latest investigation as to the state and suffi ciency of the Fund.The valuation was undertaken in accordance with Section 17 of the State Superannuation Act 2000.

1) Effective date of the latest actuarial investigation

The effective date of the latest valuation was 30 June 2014.

2) Name and qualification of actuary

The valuation of funded liabilities was undertaken by GESB’s Actuary, Mercer (Australia) Pty Ltd. The valuation of unfunded accrued liabilities was performed by PricewaterhouseCoopers Securities Limited on behalf of the Department of Treasury.

3) Fund summary

The overall fi nancial position of the Fund as at 30 June 2014 was as stated in the table below.

2014

$m

Net assets of the Fund (excluding WATC Loan) 18,743.2

Actuarial liabilities (inclusive of reserves)

West State Super 11,174.5

GESB Super 1,998.0

Retirement Products 2,645.4

Fund Reserves 151.0

Pension Scheme 79.0

Gold State Super 2,339.6

Total actuarial liabilities 18,387.5

Net position 355.7

In the opinion of the Actuary, the overall fi nancial position of the Fund has improved since the last actuarial investigation as at 30 June 2013, primarily due to higher than expected investment returns to 30 June 2014. The combined funding percentage in respect of the funded liabilities for Gold State Super and the Pension Scheme has increased from 105.3% at 30 June 2013 to 114.7% at 30 June 2014. West State Super continues to provide a guarantee for some members and the current reserve is more than suffi cient to meet this guarantee.

4) Financial condition of each scheme as at 30 June 2014

GESB’s Actuary reported that in respect of funded liabilities:

a) Pension Scheme

The Actuary reported that the scheme has an improved fi nancial position with an increase in the surplus of assets over the value of funded accrued liabilities.

b) Gold State Super

The Actuary reported that the scheme has an improved fi nancial position with an increase in the surplus of assets over the value of funded accrued liabilities.

c) GESB Super

The Actuary reported that the accumulation schemes (West State Super, GESB Super and Retirement products) are supported by an operational risk reserve equal to 0.52% of their liabilities.

Note 30: Summary of actuarial report

88

d) West State Super

The Actuary reported that the accumulation schemes (West State Super, GESB Super and Retirement products) are supported by an operational risk reserve equal to 0.52% of their liabilities.

e) Retirement Products

The Actuary reported that the accumulation schemes (West State Super, GESB Super and Retirement products) are supported by an operational risk reserve equal to 0.52% of their liabilities.

5) Reserves

In addition to the above funded liabilities and scheme explicit reserves, the Actuary recommended that the Fund maintains a portion of its assets in the following reserve:Operational risk reserve $82.8 millionThe operational risk reserve provides GESB with access to funds to protect members’ interests and mitigate the impact of an adverse event. Transfers in and out of the reserve are made in accordance with the GESB’s strategy for GES Fund reserves.The current level of this reserve represents the contributions made to this reserve from the accumulation schemes since 30 June 2009. It also includes a contribution from the insurance arrangements and relevant investment returns. Minimum benefi t guarantee reserve (West State Super) $47.1 millionThe reserve arises from the guarantee provided to WSS members in respect of their balance as at 30 June 2001 indexed by CPI plus 2%. Insurance reserve (West State Super) $3.9 millionThe self-insured Permanent Partial Disability insurance claims and the run-off in respect of pre-existing conditions for West State Super members are continuing to be provided by GESB. Hence, an insurance reserve has been established to protect the Fund from these ongoing risks. Accumulation general reserve $17.2 millionThis reserve has been set up to support the costs of strategic development and ongoing Commonwealth superannuation reform that are relevant for the accumulation and retirement product schemes.

Note 31: Events subsequent to end of reporting period

There were no events subsequent to the reporting date which have a material effect on GESB’s fi nancial statements as at 30 June 2014.

89

Financial statements Annual Report 2013/2014

Independent audit opinion

90

Auditor General

Page 1 of 3

7th Floor Albert Facey House 469 Wellington Street Perth MAIL TO: Perth BC PO Box 8489 Perth WA 6849 TEL: 08 6557 7500 FAX: 08 6557 7600

INDEPENDENT AUDITOR’S REPORT To the Parliament of Western Australia GOVERNMENT EMPLOYEES SUPERANNUATION BOARD Report on the Financial Statements I have audited the accounts and financial statements of the Government Employees Superannuation Board. The financial statements comprise the Statement of Net Assets as at 30 June 2014 and the Statement of Changes in Net Assets for the year then ended, and Notes comprising a summary of significant accounting policies and other explanatory information. Board’s Responsibility for the Financial Statements The Board is responsible for keeping proper accounts, and the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards and the Treasurer’s Instructions, and for such internal control as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility As required by the Auditor General Act 2006, my responsibility is to express an opinion on the financial statements based on my audit. The audit was conducted in accordance with Australian Auditing Standards. Those Standards require compliance with relevant ethical requirements relating to audit engagements and that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Board’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Board, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements are based on proper accounts and present fairly, in all material respects, the net assets of the Government Employees Superannuation Board at 30 June 2014 and the changes in net assets for the year then ended. They are in accordance with Australian Accounting Standards and the Treasurer’s Instructions.

91

Financial statements Annual Report 2013/2014

Report on Controls I have audited the controls exercised by the Government Employees Superannuation Board during the year ended 30 June 2014. Controls exercised by the Government Employees Superannuation Board are those policies and procedures established by the Board to ensure that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions. Board’s Responsibility for Controls The Board is responsible for maintaining an adequate system of internal control to ensure that the receipt, expenditure and investment of money, the acquisition and disposal of public and other property, and the incurring of liabilities are in accordance with the Financial Management Act 2006 and the Treasurer’s Instructions, and other relevant written law. Auditor’s Responsibility As required by the Auditor General Act 2006, my responsibility is to express an opinion on the controls exercised by the Government Employees Superannuation Board based on my audit conducted in accordance with Australian Auditing and Assurance Standards. An audit involves performing procedures to obtain audit evidence about the adequacy of controls to ensure that the Board complies with the legislative provisions. The procedures selected depend on the auditor’s judgement and include an evaluation of the design and implementation of relevant controls. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the controls exercised by the Government Employees Superannuation Board are sufficiently adequate to provide reasonable assurance that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions during the year ended 30 June 2014. Report on the Key Performance Indicators I have audited the key performance indicators of the Government Employees Superannuation Board for the year ended 30 June 2014. The key performance indicators are the key effectiveness indicators and the key efficiency indicators that provide information on outcome achievement and service provision. Board’s Responsibility for the Key Performance Indicators The Board is responsible for the preparation and fair presentation of the key performance indicators in accordance with the Financial Management Act 2006 and the Treasurer’s Instructions and for such controls as the Board determines necessary to ensure that the key performance indicators fairly represent indicated performance. Auditor’s Responsibility As required by the Auditor General Act 2006, my responsibility is to express an opinion on the key performance indicators based on my audit conducted in accordance with Australian Auditing and Assurance Standards.

92

An audit involves performing procedures to obtain audit evidence about the key performance indicators. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the key performance indicators. In making these risk assessments the auditor considers internal control relevant to the Board’s preparation and fair presentation of the key performance indicators in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the relevance and appropriateness of the key performance indicators for measuring the extent of outcome achievement and service provision. I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the key performance indicators of the Government Employees Superannuation Board are relevant and appropriate to assist users to assess the Board’s performance and fairly represent indicated performance for the year ended 30 June 2014. Independence In conducting this audit, I have complied with the independence requirements of the Auditor General Act 2006 and Australian Auditing and Assurance Standards, and other relevant ethical requirements. Matters Relating to the Electronic Publication of the Audited Financial Statements and Key Performance Indicators This auditor’s report relates to the financial statements and key performance indicators of the Government Employees Superannuation Board for the year ended 30 June 2014 included on the Board’s website. The Board’s management is responsible for the integrity of the Board’s website. This audit does not provide assurance on the integrity of the Board’s website. The auditor’s report refers only to the financial statements and key performance indicators described above. It does not provide an opinion on any other information which may have been hyperlinked to/from these financial statements or key performance indicators. If users of the financial statements and key performance indicators are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial statements and key performance indicators to confirm the information contained in this website version of the financial statements and key performance indicators.

COLIN MURPHY AUDITOR GENERAL FOR WESTERN AUSTRALIA Perth, Western Australia 11 September 2014

Certification of key performance indicators

In the opinion of the Board, the key performance indicators are based on proper records, are relevant and appropriate for assisting users to assess the performance of GESB, and fairly represent the performance of GESB for the fi nancial year ended 30 June 2014.

KM FARRELL JL LANGOULANT

DIRECTOR CHAIRMAN03 September 2014 03 September 2014

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The key performance indicators in this report are produced in order to evaluate GESB’s performance in achieving its outcome and delivering its services. Included are key effectiveness and effi ciency performance indicators required by the Financial Management Act 2006 and Treasurer’s Instruction 904. The key effectiveness indicators provide information on the extent to which the agency level government desired outcome has been achieved through the production of the agreed service. The key effi ciency indicators link the service GESB provides to the level of resource inputs required to produce them.

GESB’s outcomeGESB has statutory obligations under its enabling legislation to administer superannuation schemes and provide products and services, such as our retirement products, to our members. In doing this we are obligated to act in the best interests of our members. Our outcome is to ‘improve the long term fi nancial security of our members’. This means supporting members’ in achieving a comfortable retirement. GESB’s outcome contributes to the government goal of fi nancial and economic responsibility. GESB also contributes to the government goal of a stronger focus on the regions where GESB has specifi c programs in place given that nearly one third of government’s workforce (our members) is regionally based.

Key effectiveness indicators

1. Members’ satisfaction with GESB’s services

During 2013/14, GESB amended its key effectiveness indicator in relation to member satisfaction. The revised measure, Members’ satisfaction with GESB’s services replaces the previous measure, Members’ overall satisfaction with GESB. The rationale for this change is that overall satisfaction can be linked to external factors such as investment performance and changes in legislation whereas satisfaction with GESB’s services is a more appropriate indication of a member’s satisfaction with services provided directly by GESB. Member satisfaction remains an important measure in evaluating GESB’s performance in achieving its outcome which is to ‘improve the long term fi nancial security of our members’. Achieving member satisfaction through the provision of value for money products and services, engaging members in their superannuation and supporting them in making fi nancial decisions illustrates how GESB helps members improve their long term fi nancial security.

Member satisfaction with the service provided by GESB was 90% (6-10 out of 10 ratings) for the 2013/14 fi nancial year, against a target of 80%, with 80% of members rating the service as 8-10 out of 10.GESB uses an external market research company to conduct its member surveys. A monthly sample database of at least n=500 respondents from the GESB database ensures a minimum sample of n=100 respondents is achieved per month, assuming a response rate of 20%. This generates a margin of error of ±2.53% on an annual sample of n=1200 at the 95% confi dence level. Note, these are the minimum sample targets. The sample now includes active, inactive and Retirement Income members. In order to improve the accuracy of the results they are post weighted to ensure they are representative.

Key performance indicators

Target

2013/14

Actual

2013/14

Percentage who are fairly satisfied, satisfied or

extremely satisfied 80% 90%

Note: Prior to 2013/14 satisfaction was measured using members’ overall satisfaction with GESB. Members’ satisfaction with GESB’s services and the target of 80% was approved for use from 2013/14 by the Deputy Under-Treasurer in April 2014.

94

2. Investment performance against benchmarks

Performance by asset classes

Measuring investment performance against benchmarks is an important indicator in evaluating GESB’s performance in achieving its objective of ‘improved long term fi nancial security of members’. Strategies which achieve above benchmark returns result in higher than average returns for members, improving their long term fi nancial security.The following table shows the performance of the various asset classes compared to established industry benchmarks. Asset class benchmarks are developed in consultation with GESB’s asset consultant.

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Cash 3.25 4.07 4.26Benchmark UBS Bank Bill Index 2.68 3.55 3.90Relative Performance 0.57 0.52 0.36

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Global Government Bonds 5.59 7.09 8.19

BenchmarkCitigroup World Government Bond Index, hedged into Australian Dollars 7.33 7.59 7.78

Relative Performance (1.74) (0.50) 0.41

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Global Property 15.74 13.46 18.62

BenchmarkFTSE EPRA/NAREIT Developed Total Return Index, hedged into Australian Dollars 15.33 13.79 18.65

Relative Performance 0.41 (0.33) (0.03)

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class International Equities~ 20.73 15.46 13.84

BenchmarkInternational Equities Composite Benchmark 22.00 16.34 14.57

Relative Performance (1.27) (0.88) (0.73)

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Australian Equities 18.33 10.20 11.04Benchmark S&P/ASX 300 Accumulation Index 17.25 9.94 10.95Relative Performance 1.08 0.26 0.09

Financial statements Annual Report 2013/2014

95

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Private Equity~ 22.99 13.80 11.42Benchmark 1/3 S&P/ASX 200 Accumulation Index +

2/3 MSCI World ex Australia Index Net Dividends, hedged into Australian Dollars

22.25 15.24 11.81

Relative Performance 0.74 (1.44) (0.39)

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Diversifi ed Fixed Interest 6.22 6.04 6.49Benchmark UBS Bank Bill Index 2.68 3.55 3.90Relative Performance 3.54 2.49 2.59

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Unlisted Property˜** 8.44 9.59 N/A

BenchmarkGESB Customised Unlisted Property Benchmark 8.60 9.02 N/A

Relative Performance (0.16) 0.57 N/A

Investment Plan

1 Year Gross

Return*

%

3 Year Gross

Return*

% pa

5 Year Gross

Return*

% pa

Asset Class Higher Risk Return˜** 8.87 N/A N/ABenchmark CPI (Trimmed Means) plus 5.0% pa 7.74 N/A N/ARelative Performance 1.13 N/A N/A

* All returns are reported gross of Management Expense Ratio (MER) and applicable taxes when compared against a gross industry benchmark except where assets are invested in a Unit Trust~. The Unit Trust return component is reported after underlying investment costs have been deducted. Gross returns can be useful in analysing the performance of managers or portfolios before other factors are introduced. Returns greater than one year are annualised.

** Unlisted Property was introduced in October 2009 and Higher Risk Return was introduced in December 2012.

96

Performance against primary objectives

The investment objectives of GESB’s schemes and plans were revised over the year. The Gold State Super, Pension and Provident schemes adopted Australian Average Weekly Earnings (AWE) + 2.5% pa as their return objective which aligns more closely with the main driver of their liabilities, which is salary growth. The Australian Consumer Price Index (CPI) related return objectives of the diversifi ed investment plans were rounded to the nearest 0.5%. The Cash plans adopted the UBS Bank Bill Index, a market-relative return benchmark, bringing them into line with all other single asset class investment plans.

Performance of West State Super plans

The primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with the exception of the Cash plan which is measured against the UBS Bank Bill Index over a 12 month period.The table below shows the net performance along with the specifi ed performance targets.The underperformance of the Balanced plan versus its primary objective was primarily due to the poor performance of growth assets such as the equity and property asset classes during the Global Financial Crisis in 2008/09.The Growth plan has outperformed its primary objective over its longer time horizon of 10 years, which includes both strong recent returns from growth assets and good returns prior to the Global Financial Crisis in 2008/09.

Investment Plan Objective

Multi-Year

Period Net Return

% pa#

Target

Return

% pa#

Relative

Performance

% pa

Cash plan • At least the UBS Bank Bill Index over rolling 12 months periods

• The probability of a negative absolute return over any 12 month period is expected to be negligible

3.12 2.68 0.44

Conservative plan • CPI + 3.0% pa over rolling 5 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 2

8.11 5.65 2.46

Balanced plan • CPI + 4.0% pa over rolling 7 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 3

4.97 6.73 (1.76)

Growth plan • CPI + 4.5% pa over rolling 10 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 6

7.43 7.27 0.16

# All returns are reported net of Management Expense Ratio (MER) when compared against a net investment target. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. West State Super does not pay tax on the investment earnings of the fund due to its untaxed status.

97

Financial statements Annual Report 2013/2014

The secondary performance objectives are to outperform the asset-weighted benchmark by a specifi ed margin over rolling three year periods and to outperform the asset-weighted benchmark over rolling 12 month periods. Returns are measured after fees and asset class benchmarks are developed in consultation with GESB’s asset consultant. The table below shows the net performance along with the 12 month and three year performance targets.One out of four Readymade plans and one out of four MY plans, exceeded their target over the three year period to June 2014. The Balanced plan (the plan adopted by the majority of West State Super members) achieved a net return of 10.59% pa for the three year period underperforming its target of 11.40% pa by 0.81% pa.The Balanced plan achieved a net return of 13.29% for the 12 month period underperforming its benchmark of 13.74% by 0.45%.Four out of the eight West State Super plans exceeded their benchmarks over the 12 month period.The relative performance of each plan versus its secondary performance objectives is considered within expectations over both the 12 month and three year rolling periods.

12 Months 3 Years

12 Month Net

Plan Return

%*

12 Month

Benchmark

%

Relative

Performance

%

3 Year Net

Plan Return

% pa*

3 Year

Benchmark

% pa Target

3 Year

Target

% pa

Relative

Performance

% pa

Cash plan 3.12 2.68 0.44 3.93 3.55 Benchmark 3.55 0.38

Conservative plan

8.15 8.04 0.11 7.54 7.48 Benchmark + 0.4% pa

7.88 (0.34)

Balanced plan 13.29 13.74 (0.45) 10.59 10.90 Benchmark + 0.5% pa

11.40 (0.81)

Growth plan 15.02 15.47 (0.45) 11.06 11.71 Benchmark + 0.5% pa

12.21 (1.15)

MY plan – Fixed Interest

5.70 3.83 1.87 7.17 5.93 Benchmark + 0.1% pa

6.03 1.14

MY plan – Listed Properties

15.12 15.33 (0.21) 12.87 13.79 Benchmark + 1.1% pa

14.89 (2.02)

MY plan – Australian Equities

17.65 17.25 0.40 9.64 9.94 Benchmark + 1.0% pa

10.94 (1.30)

MY plan – International Equities

20.47 22.59 (2.12) 14.83 16.53 Benchmark + 1.2% pa

17.73 (2.90)

* All returns are reported net of Management Expense Ratio (MER) when compared against a gross investment benchmark. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. West State Super does not pay tax on the investment earnings of the fund due to its untaxed status.

98

Performance of GESB Super plans

The primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with the exception of the Cash plan which is measured against the UBS Bank Bill Index over a 12 month period. The table below shows the net performance along with the specifi ed performance targets.The Cash plan marginally underperformed its primary objective on a net basis due to the negative impact of the statutory earnings tax of 15% on its returns.The underperformance of the Balanced Growth plan versus its primary objective was primarily due to the poor performance of growth assets such as the equity and property asset classes during the Global Financial Crisis in 2008/09.The Growth plan in GESB Super has not been in operation for a suffi cient time period to assess its performance over the specifi ed time horizon.

Investment Plan Objective

Multi-Year

Period Net Return

% pa#

Target

Return

% pa#

Relative

Performance

% pa

Cash plan • At least the UBS Bank Bill Index over rolling 12 months periods

• The probability of a negative absolute return over any 12 month period is expected to be negligible

2.42 2.68 (0.26)

Conservative plan • CPI + 2.5% pa over rolling 5 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 2

7.82 5.15 2.67

Balanced plan* • CPI + 3.0% pa over rolling 6 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 3

6.43 5.45 0.98

Balanced Growth plan

• CPI + 3.5% pa over rolling 7 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 4

3.92 6.23 (2.31)

Growth plan • CPI + 4.0% pa over rolling 10 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 6

N/A 6.77 N/A

# All returns are reported net of Management Expense Ratio (MER) and applicable taxes when compared against a net investment target. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. GESB Super was introduced in April 2007 therefore some multi-year period returns are not available.

* The GESB Super Balanced plan was previously called ‘Balanced Conservative’. The plan’s asset allocation is not affected by the name change.

99

Financial statements Annual Report 2013/2014

The secondary performance objectives are to outperform the asset-weighted benchmark by a specifi ed margin over rolling three year periods and outperform the asset-weighted benchmark over rolling 12 month periods. Returns are measured after fees and asset class benchmarks are developed in consultation with GESB’s asset consultant.The table below shows the net performance along with the 12 month and three year performance targets.One out of the fi ve Readymade plans and one out of four MY plans exceeded their target over the three year period to June 2014. The Balanced Growth plan (the plan adopted by the majority of GESB Super members) achieved a net return of 10.79% pa for the three year period underperforming its target of 11.54% pa by 0.75% pa. The Balanced Growth plan achieved a net return of 14.73% for the 12 month period outperforming its benchmark of 14.41% by 0.32%.Seven out of the nine GESB Super plans exceeded their benchmark over the 12 month period. The relative performance of each plan versus its secondary performance objectives is considered within expectations over both the 12 month and three year rolling periods.

12 Months 3 Years

12 Month Net

Plan Return

%*

12 Month

Benchmark

%

Relative

Performance

%

3 Year Net

Plan Return

% pa*

3 Year

Benchmark

% pa Target

3 Year

Target

% pa

Relative

Performance

% pa

Cash plan 2.83 2.68 0.15 3.86 3.55 Benchmark 3.55 0.31

Conservative plan 9.47 8.99 0.48 8.10 7.89 Benchmark + 0.4% pa

8.29 (0.19)

Balanced plan** 13.32 12.92 0.40 10.06 10.26 Benchmark + 0.5% pa

10.76 (0.70)

Balanced Growth plan

14.73 14.41 0.32 10.79 11.04 Benchmark + 0.5% pa

11.54 (0.75)

Growth plan 16.14 16.52 (0.38) 11.29 12.05 Benchmark + 0.6% pa

12.65 (1.36)

MY plan – Fixed Interest

6.17 3.83 2.34 7.09 5.93 Benchmark + 0.1% pa

6.03 1.06

MY plan – Listed Properties

17.05 15.33 1.72 13.02 13.79 Benchmark + 1.1% pa

14.89 (1.87)

MY plan – International Equities

20.34 22.59 (2.25) 15.07 16.53 Benchmark + 1.2% pa

17.73 (2.66)

MY plan – Australian Equities

18.45 17.25 1.20 10.32 9.94 Benchmark + 1.0% pa

10.94 (0.62)

* All returns are reported net of Management Expense Ratio (MER) only when compared against a gross investment benchmark. ** The GESB Super Balanced plan was previously called ‘Balanced Conservative’. The plan’s asset allocation is not affected by the name change.

100

Performance of retirement products

Retirement Income

The primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with the exception of the Cash plan which is measured against the UBS Bank Bill Index over a 12 month period.The table below shows the net performance along with the specifi ed performance targets.The underperformance of the Balanced plan versus its primary objective was primarily due to the poor performance of growth assets such as the equity and property asset classes during the Global Financial Crisis in 2008/09.The Growth plan has outperformed its primary objective over its longer time horizon of ten years, which includes both strong recent returns from growth assets and good returns prior to the Global Financial Crisis in 2008/09.

Investment Plan Objective

Multi-Year

Period Net Return

% pa#

Target Return

% pa#

Relative

Performance

% pa

Cash plan • At least the UBS Bank Bill Index over rolling 12 month periods

• The probability of a negative absolute return over any 12 month period is expected to be negligible

2.86 2.68 0.18

Conservative plan • CPI + 3.0% pa over rolling 5 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 2

7.99 5.65 2.34

Balanced plan • CPI + 4.0% pa over rolling 7 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 3

4.97 6.73 (1.76)

Growth plan • CPI + 4.5% pa over rolling 10 year periods• The estimated number of negative annual

returns over any 20 year period is to be less than 6

7.74 7.27 0.47

# All returns are reported net of Management Expense Ratio (MER) and inclusive of franking credits when compared against a net investment target. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence.

101

Financial statements Annual Report 2013/2014

The secondary performance objectives are to outperform the asset-weighted benchmark by a specifi ed margin over rolling three year periods and outperform the asset-weighted benchmark over rolling 12 month periods. Returns are measured after fees and asset class benchmarks are developed in consultation with GESB’s asset consultant.The table below shows the net performance along with the 12 month and three year performance targets.One out of four Readymade plans and one out of four MY plans exceeded their target over the three year period to June 2014. The Balanced plan (the plan adopted by the majority of Retirement Income members) achieved a net return of 9.94% pa for the three year period underperforming its target of 10.91% pa by 0.97% pa. The Balanced plan achieved a net return of 12.63% for the 12 month period underperforming its benchmark of 13.09% by 0.46%. Two out of eight Retirement Income plans exceeded their benchmark over the 12 month period. The relative performance of each plan versus its secondary performance objectives is considered within expectations over both the 12 month and three year rolling periods.

12 Months 3 Years

12 Month Net

Plan Return

%*

12 Month

Benchmark

%

Relative

Performance

%

3 Year Net

Plan Return

% pa*

3 Year

Benchmark

% pa Target

3 Year

Target

% pa

Relative

Performance

% pa

Cash plan 2.86 2.68 0.18 3.67 3.55 Benchmark 3.55 0.12

Conservative plan 8.04 8.11 (0.07) 7.35 7.44 Benchmark + 0.4% pa

7.84 (0.49)

Balanced plan 12.63 13.09 (0.46) 9.94 10.41 Benchmark + 0.5% pa

10.91 (0.97)

Growth plan 14.40 15.05 (0.65) 10.58 11.36 Benchmark + 0.5% pa

11.86 (1.28)

MY plan – Fixed Interest

5.47 3.83 1.64 6.94 5.93 Benchmark + 0.1% pa

6.03 0.91

MY plan – Listed Properties

14.95 15.33 (0.38) 12.69 13.79 Benchmark + 1.1% pa

14.89 (2.20)

MY plan – Australian Equities

16.56 17.25 (0.69) 9.03 9.94 Benchmark + 1.0% pa

10.94 (1.91)

MY plan – International Equities

20.17 22.59 (2.42) 14.59 16.53 Benchmark + 1.2% pa

17.73 (3.14)

* All returns are reported net of Management Expense Ratio (MER) and excluding franking credits when compared against a gross investment benchmark. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits.

102

Retirement Income – Term Allocated Pension

The primary objective is to deliver investment performance in excess of CPI targets over a specifi ed rolling multi-year period, with the exception of the Cash plan which is measured against the UBS Bank Bill Index over a 12 month period.The table below shows the net performance along with the specifi ed performance targets.The Cash plan marginally underperformed its primary objective on a net basis due to the higher fees associated with the Retirement Income – Term Allocated Pension as a result of its small size.The underperformance of the Balanced plan versus its primary objective was primarily due to the poor performance of growth assets such as the equity and property asset classes during the Global Financial Crisis in 2008/09.The Growth plan has not been in operation for a suffi cient time period to assess its performance over the specifi ed time horizon.

Investment Plan Objective

Multi-Year

Period Net Return

% pa#

Target

Return

% pa#

Relative

Performance

% pa

Cash plan • At least the UBS Bank Bill Index over rolling 12 month periods

• The probability of a negative absolute return over any 12 month period is expected to be negligible

2.45 2.68 (0.23)

Conservative plan • CPI + 3.0% pa over rolling 5 year periods• The estimated number of negative

annual returns over any 20 year period is to be less than 2

7.66 5.65 2.01

Balanced plan • CPI + 4.0% pa over rolling 7 year periods• The estimated number of negative

annual returns over any 20 year period is to be less than 3

4.73 6.73 (2.00)

Growth plan • CPI + 4.5% pa over rolling 10 year periods• The estimated number of negative

annual returns over any 20 year period is to be less than 6

N/A 7.27 N/A

# All returns are reported net of Management Expense Ratio (MER) and inclusive of franking credits when compared against a net investment target. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits. Net returns are the returns that members receive and are refl ected in GESB’s member reporting correspondence. Retirement Income – Term Allocated Pension Growth plan was funded in November 2005 therefore the ten year return is not available.

103

Financial statements Annual Report 2013/2014

The secondary performance objectives are to outperform the asset-weighted benchmark by a specifi ed margin over rolling three year periods and outperform the asset-weighted benchmark over rolling 12 month periods. Returns are measured after fees and asset class benchmarks are developed in consultation with GESB’s asset consultant. The table below shows the net performance along with the 12 month and three year performance targets.None of the four Readymade plans and one out of four MY plans exceeded their target over the three year period to June 2014. The Balanced plan (the plan adopted by the majority of Retirement Income – Term Allocated Pension members) achieved a net return of 9.51% pa for the three year period underperforming its target of 10.91% pa by 1.40% pa. One out of the eight Retirement Income – Term Allocated Pension plans exceeded their benchmark over the 12 month period. The Balanced plan achieved a net return of 12.15% for the 12 month period underperforming its benchmark of 13.09% by 0.94%.The relative performance of each plan versus its secondary performance objectives is considered within expectations over both the 12 month and three year rolling periods.

12 Months 3 Years

12 Month Net

Plan Return

%*

12 Month

Benchmark

%

Relative

Performance

%

3 Year Net

Plan Return

% pa*

3 Year

Benchmark

% pa Target

3 Year

Target

% pa

Relative

Performance

% pa

Cash plan 2.45 2.68 (0.23) 3.25 3.55 Benchmark 3.55 (0.30)

Conservative plan

7.61 8.11 (0.50) 6.93 7.44 Benchmark + 0.4% pa

7.84 (0.91)

Balanced plan 12.15 13.09 (0.94) 9.51 10.41 Benchmark + 0.5% pa

10.91 (1.40)

Growth plan 13.91 15.05 (1.14) 10.07 11.36 Benchmark + 0.5% pa

11.86 (1.79)

MY plan – Fixed Interest

5.12 3.83 1.29 6.54 5.93 Benchmark + 0.1% pa

6.03 0.51

MY plan – Listed Properties

14.87 15.33 (0.46) 12.37 13.79 Benchmark + 1.1% pa

14.89 (2.52)

MY plan – Australian Equities

16.07 17.25 (1.18) 8.54 9.94 Benchmark + 1.0% pa

10.94 (2.40)

MY plan – International Equities

19.77 22.59 (2.82) 14.18 16.53 Benchmark + 1.2% pa

17.73 (3.55)

* All returns are reported net of Management Expense Ratio (MER) and excluding franking credits when compared against a gross investment benchmark. Retirement products are exempt from paying tax on investment earnings and are eligible for the benefi t of franking credits.

104

Gold State Super, Pension and Provident schemes

The assets of the defi ned benefi ts schemes, Gold State Super, Pension and Provident schemes, are managed with a single investment strategy and a common asset allocation to manage the funded liability on behalf of the State. The primary objective is to deliver investment performance in excess of the Average Weekly Earnings (AWE) + 2.5% over rolling fi ve year periods. The change of objective for 2013/14 from CPI + 4.0% to AWE + 2.5% was made to align the investment objectives of the defi ned benefi t scheme assets with the main driver of their liabilities, which is salary growth. The table below shows the net performance along with the fi ve year AWE performance target.

Investment Plan Objective

Multi-Year

Period Net Return

% pa#

Target Return

% pa#

Relative

Performance

% pa

Gold State, Pension and Provident

• AWE + 2.5% pa over rolling 5 year periods• Limit the probability of the funding index

(Assets/Accrued Benefi ts) being below 100% to less than 1 in every 5 years

11.87 6.60 5.27

# All returns are reported net of Management Expense Ratio (MER) when compared against a net investment target. Net returns are the returns received by the fund.

The secondary performance objectives are to outperform the target asset-weighted benchmark by a specifi ed margin over rolling three year periods and outperform the target asset-weighted benchmark over rolling 12 month periods. Returns are measured after fees and asset class benchmarks are developed in consultation with GESB’s asset consultant.The table below shows the net performance along with the 12 month and three year performance targets.Over the three year rolling period the strategy has achieved a return of 11.69% pa, underperforming its target of 12.60% pa by 0.91% pa.

12 Months 3 Years

12 Month

Net Plan

Return %*

12 Month

Benchmark

%

Relative

Performance

%

3 Year Net

Plan Return

% pa*

3 Year

Benchmark

% pa Target

3 Year

Target

% pa

Relative

Performance

% pa

Gold State, Pension and Provident

15.91 16.26 (0.35) 11.69 12.10 Benchmark + 0.5% pa

12.60 (0.91)

* All returns are reported net of Management Expense Ratio (MER) when compared against a gross investment benchmark. Net returns are the returns received by the fund.

105

Financial statements Annual Report 2013/2014

Key efficiency indicators

GESB provides access to competitive superannuation and retirement products, insurance cover through superannuation and a wide range of information, education services and resources for members. Value is delivered to members by providing effi cient and competitive superannuation and retirement products and services with above market-average, risk controlled net returns and highly rated member services including member education and general advice services.

1. Average administration cost per member account

The average cost per member of administering the schemes increased by 13.8% in real terms and 17.6% in nominal terms compared to the previous year and was 2.4% under target. The increase on last year is primarily due to increased depreciation and amortisation charges resulting from a review of the useful life of tangible and intangible assets. The nominal/real cost per account in 2013/14 excluding these increases to depreciation and amortisation would be $124.24. The variance against target is due to higher than targeted member account numbers. This reduction has been largely offset by the increased depreciation and amortisation charges outlined above.

2009/10 2010/11 2011/12 2012/13 2013/14

Nominal Cost – Target $133.48 $124.66 $119.27 $138.11 $136.87

Nominal Cost – Actual $123.41 $119.53 $105.98 $113.65 $133.61

Real Cost – Actual $136.10 $127.98 $112.21 $117.40 $133.61 The direct costs of superannuation reform have been excluded from the total administration costs in order to maintain comparability with prior year’s fi gures. For illustrative purposes the following table shows the nominal cost per member account including superannuation reform costs.

2009/10 2010/11 2011/12 2012/13 2013/14

Nominal Cost $138.81 $127.43 $110.49 $118.28 $148.29

Average cost per member account

2013/14 is the base year, so nominal and real costs are the same.

Nominal Cost - Target Nominal Cost - Actual Real Cost - Actual

$150

$140

$130

$120

$110

$1002009/10 2010/11 2011/12 2012/13 2013/14

106

2. Investment Management Expense Ratio (investment management costs as a percentage of portfolio mean value invested)

The cost of managing GESB’s investments is monitored closely. In addition to direct investment management costs incurred by GESB, external specialist investment managers are appointed to invest funds in specifi c asset classes. Both internal and external management costs have been included in determining this indicator, in order to illustrate the full investment management costs incurred by GESB. In addition to the costs refl ected below, the cost to accumulation scheme members includes a contribution to reserves of 0.13%. The indicator refl ects investment management costs as a percentage of portfolio mean value invested for the year.Disciplined control over investment costs contributed to the MER being contained to 0.40% for 2013/14, therefore, outperforming its target of 0.42%. This resulted in positive impacts for both members and the assets backing the funded defi ned benefi t liabilities.

Investment Management

Expense Ratio

Actual

2009/10

Actual

2010/11

Actual

2011/12

Actual

2012/13

Target

2013/14

Actual

2013/14

Investment Management Expense Ratio - Investment Management Costs as a Percentage of Portfolio Mean Value Invested

0.46 0.44 0.41 0.42 0.42 0.40

107

Financial statements Annual Report 2013/2014

Government goals

GESB’s contribution to the achievement of government goals is indirect as its priority is to act in the best interest of members, as far as practicable. GESB provides superannuation services to current and former public sector employees and their partners, while other government agencies provide services to all Western Australians.

Financial and economic responsibility

GESB manages fi nances responsibly so as to support the effi cient and effective delivery of services to members.

Stronger focus on the regions

Around one third of GESB’s members are based in regional Western Australia. GESB provides regional members with access to the same education and information resources as those in the metropolitan areas. This is done via seminars, webinars, presentations and one-to-one meetings.

Appendix 1

108

Legislation administered

During 2013/14, GESB was directly responsible for administering the following State legislation:• State Superannuation Act 2000;• State Superannuation Regulations 2001; and• Superannuation and Family Benefi ts Act 19381.

State legislation impacting on activities

As a State public sector entity and employer, GESB was responsible for complying with a wide range of State legislation. This included:• Corruption and Crime Commission

Act 2003• Disability Services Act 1993• Electoral Act 1907• Equal Opportunity Act 1984• Fair Trading Act 2010• Family Court Act 1997• Financial Management Act 2006• Freedom of Information Act 1992• Industrial Relations Act 1979

• Judges’ Salaries and Pensions Act 1950• Minimum Conditions of Employment

Act 1993• Occupational Safety and Health Act 1984• Parliamentary Commissioner Act 1971• Parliamentary Superannuation Act 1970• Pay-roll Tax Assessment Act 2002• Public Interest Disclosure Act 2003• Public Sector Management Act 1994• Salaries and Allowances Act 1975

• Stamp Act 1921• State Records Act 2000• State Supply Commission Act 1991• Statutory Corporations (Liability of

Directors) Act 1996• Unclaimed Money (Superannuation and

RSA Providers) Act 2003• Unclaimed Money Act 1990• Government Employees

Superannuation Board (Policy Instruments) Regulations 2009

Commonwealth legislation impacting on activities

• A New Tax System (Goods and Services Tax) Act 1999

• Age Discrimination Act 2004• Anti-Money Laundering and

Counter-Terrorism Financing Act 2006• Bankruptcy Act 1966• Child Support (Registration and

Collection) Act 1988• Competition and Consumer Act 2010• Corporations Act 2001• Disability Discrimination Act of 1992

• Family Law Act 1975• Financial Sector (Collection of Data)

Act 2001• Financial Transaction Reports Act 1988• Income Tax Assessment Act 1936• Privacy Act 19882

• Retirement Savings Accounts Act 1997• Sex Discrimination Act 1984• Superannuation Contributions Tax

(Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997

• Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997

• Superannuation Guarantee (Administration) Act 1992

• Superannuation Industry (Supervision) Act 1993

• Superannuation (Resolution of Complaints) Act 1993

• Veterans’ Entitlements Act 1986

1 The provisions of the Superannuation and Family Benefi ts Act 1938 are deemed to continue under Section 26 of the State Superannuation (Transitional and Consequential Provisions) Act 2000.

2 While not required to comply with this legislation, as a matter of best practice GESB has implemented a Privacy Policy and procedures that adopt the guiding principles of the Privacy Act 1988, and reports lost members in accordance with the Superannuation (Unclaimed Money and Lost members) Act 1999.

Appendix 2

109

Appendix 3

Budget estimate 2014/15

Statement of changes in net assets

For the financial year ending 30th June

Budget 2015

$'000

Net assets available to pay benefits at the beginning of the financial year 17,907,543

REVENUE Investment revenue

Realised income 451,684

Realised changes in net market value of investment assets 451,684

Unrealised changes in net market value of investment assets 602,244 Income from investment 1,505,612

Superannuation revenue

Contributions

Member 759,063

Employer 1,578,808

Rollover into retirement products 747,215

Inward transfers 572,431

Member insurance benefi ts received 46,122

Other income 12,702 3,716,341

TOTAL REVENUE 5,221,953

EXPENSES

Superannuation benefi t payments 2,852,796

Administration expenses 42,619

Treasury funded reform expenses (through eerc) -

Consolidated account appropriation direct expenses

Group life insurance premiums 82,593

Investment expenses 57,578

Changes in nmv of fi nancial liabilities

Changes in nmv other assets 1,226

Loan interest 22,436 TOTAL EXPENSES 3,059,248

Changes in net assets before income tax 2,162,705

Income tax expense (132,479)

Changes in net assets after income tax 2,030,226 NET ASSETS AVAILABLE TO PAY BENEFITS AT THE END OF THE FINANCIAL YEAR 19,937,769

110

Statement of net assets

For the financial year ending 30th June

Budget 2015

$'000

ASSETS  

Cash and cash equivalents 72,232

Investments 20,202,238

Plant and equipment 480

Intangible assets 747

Receivables 16,045

Prepayments 749

Deferred tax assets 5,106

TOTAL ASSETS 20,297,597

   

LIABILITIES  

Contributions paid in advance 1,772

Unpaid and accrued liabilities 209

Payables 24,366

Provision for employee entitlements 1,118

Provision for post employment liabilities 497

Interest bearing loans and borrowings 284,865

Current tax liabilities 47,001

TOTAL LIABILITIES 359,828

NET ASSETS AVAILABLE TO PAY BENEFITS 19,937,769

111

Publications

GESB produces and updates a range of publications to make sure members are provided with the latest information relevant to them. GESB aims to use plain English so members can understand their options and entitlements and employer agencies can understand their super obligations.Below is a list of GESB’s publications including forms, brochures, fl yers and fact sheets.

For all members

• Annual fund update• Quarterly investment update• Newsletters• Privacy statement• Freedom of information fact sheet• Resolving your complaint fact sheet• Proof of identity fact sheet• Tax fi le number form• Notifi cation of retirement or

resignation• Super – your retirement options

brochure

For GESB Super members

• GESB Super Product Information Booklet

• GESB Super schedule of fees• Welcome to your GESB Super scheme

– GESB Super induction fl yer• Investment choice form – GESB Super • Salary sacrifi ce – GESB Super fact

sheet• Obtaining personal fi nancial advice –

GESB Super fact sheet• Transition to Retirement – GESB

Super fact sheet• Your super and Family Law – GESB

Super fact sheet

For West State Super members

• West State Super Product Information Booklet

• West State Super schedule of fees• Investment choice form – West State

Super• Salary sacrifi ce – West State Super

fact sheet• Obtaining personal fi nancial advice –

West State Super fact sheet• Transition to Retirement – West State

Super fact sheet• Your super and Family Law – West

State Super fact sheet

For Gold State Super members

• Gold State Super essentials brochure• Working part-time fact sheet• Salary sacrifi ce – Gold State Super

fact sheet• Obtaining personal fi nancial advice –

Gold State Super• Transition to Retirement – Gold State

Super fact sheet• Your super and Family Law – Gold

State Super fact sheet• Salary maintenance fact sheet• Taking unpaid leave fact sheet• Resigning from the WA public sector

fact sheet• Your super and redundancy fact

sheet• Insurance and your super – Gold

State Super fact sheet• Benefi t access form – Gold State

Super

For Retirement Income members

• Retirement Income Allocated Pension Product Information Booklet

• Retirement Income schedule of fees• Retirement Income Allocated Pension

information sheet• Investment choice form – Retirement

Income Allocated Pension• Investment choice form – Retirement

Income – Term Allocated Pension• Change of details and pension

payment variation form – Retirement Income Allocated Pension

• Change of details and pension payment variation form – Retirement Income – Term Allocated Pension

• Retirement Income partial payment form

• Withdrawal form – Retirement Income Allocated Pension

• Withdrawal form – Retirement Income – Term Allocated Pension

Appendix 4

112

For GESB Super and West State Super members

• Contributing to your super brochure• Consolidating your super fact sheet• Super consolidation form• Super contributions brochure• Super contributions form• Payroll deduction form• Contribution splitting fact sheet• Contribution splitting form• Spouse contribution brochure and

making your fi rst contribution form• Additional spouse contribution form• Commonwealth Government Co-

contribution fact sheet• Transferring your UK pension –

information guide• How to claim or vary a tax deduction

for personal contributions fact sheet• Notice of intent to claim or vary a tax

deduction form• Investment choice brochure• Insurance and your super brochure• Super and insurance fact sheet –

protecting yourself and your family• Age and Life Event insurance options

fact sheet• Professional and Executive

occupation category insurance information

• Understanding the GESB insurance claims process fact sheet

• Insurance application form• Insurance variation form• Insurance transfer declaration form

• Insurance opt-in form for casual employees

• Professional and Executive occupation category application form

• Tax and super fact sheet• Accessing your super fact sheet• Benefi t access form – GESB Super

and West State Super

For GESB Super, West State Super and Gold State Super members

• What super scheme am I in? A summary of GESB schemes

• Change of details form• Superannuation Contributions

Surcharge fact sheet• Military leave and your

super fact sheet

For West State Super and Gold State Super members

• Pre-1 July 1983 service for untaxed super funds fact sheet

For GESB Super and Retirement Income members

• Your super and Family Law – GESB Super and Retirement Income fact sheet

For employer agencies

• GESB Super induction fl yer• Transition to Retirement fact sheets• Departmental report for Gold State

Super members• Notifi cation of unpaid leave• Retirement checklist

Other publications

• Annual Report

Website

These publications are available on the GESB website at gesb.com.au.

113

09/1

4 G

ESC0

060

Issued by

Government Employees Superannuation BoardABN 43 418 292 917

Contact

Member Services Centre 13 43 72Facsimile 1800 300 067PO Box J 755, Perth WA 6842Level 4 Central Park, 152 St Georges Terrace, Perthgesb.com.au