RAW: Is SA Broke Already? – The Mess That Is Super SA – Part I

With the Rann Government spruiking its development vision for the city, questions are being increasingly asked about the State’s ability to meet extra debt levels.

An examination of the State owned and managed South Australian Superannuation Scheme (SASS) suggests the Global Financial Crisis (GFC) has rained down upon us losses that rival those of the State Bank of the late 1980s / early 1990s, greatly impacting on the State’s ability to meet its future commitments.

In the 2008 and 2009 years, the SASS lost $2.42 billion. On top, the Motor Accident Commission lost $350m and the Super Triple S Scheme a further $270m, all up just over $3b. Students of the State Bank fiasco will recall its losses of around $3-4billion brought this state to its knees.

As at 30 June 2010, in the SASS, the excess of liabilities (future superannuation payments) over assets held (to meet those commitments) was $6.2 billion, up $2.3 billion or nearly 60% on the excess position at 30 June 2007, three years before.

That equates to about $4,000 for every man, woman and child in the State.

The situation is actually much worse than this as future liabilities are discounted back at 7%pa (4.5% over the CPI of 2.5%) when only the CPI adjustment is appropriate and necessary – there being no risk factor to adjust for.

The position is exacerbated by the fact that payments out now exceed contributions made by $300m per year or 50% and that is after a $350m injection by the State Government on account of past service liabilities (more on that in Part II) but out of step with commercially managed superannuation funds. Member entitlements also grow by $200m per year.

With the much reduced asset base now in SASS, the fund needs to produce annual returns of 7%pa just to break even, let alone deliver growth to members on their superannuation investments. Returns on net assets in 2010, a somewhat benign year in the financial markets, were a mere 4%, half of that from three years earlier, but nearly all of this can be attributed to an extra Government top up last year of $100m.

While the GFC may stand as the head line cause of these massive problems, the fact remains that for what should have been a conservatively managed fund with the pursuit of long term gains and income over capital gains, between 30 June 2007 and 30 June 2010, the fund lost 28% of its value (which includes income or dividends received) when the average of comparable funds was around 20%. (See further in Part III.)

The past Treasurer (Kevin Foley) and the new Treasurer (Jack Snelling) like to talk about GST revenue shortfalls as the reasons for their budgetary plight – these conveniently put the perceived blame for the problems out of their hands and on to consumers and the Federal Government – but compared with the superannuation mess which is directly and totally their responsibility, we are literally talking small change. The reality is such talk has been and remains just a smokescreen for these massive losses that hitherto nobody has much spoken about.

Just why as employees of the state you would entrust your super to an organisation that can do no better than provide 4% growth in a good year and which managed to lose 28% across two bad ones, more than the share markets did, is anybody’s guess. The TAB offers far better returns than that.

Just how this State can afford a new sports stadium and hospital with a total cost now understood to be $3 billion when this massive superannuation liability hangs over the state (and other equally good options for those projects are costed at 25% of this total) is unclear. Perhaps Mr Snelling will provide the answers in his budget on 9^th June. If he does, it will be a first for any budget since the Labor Party won government in 2002, with the unfunded liability growing in every year bar two.

Perhaps also by then the ratings agencies, the ones you will remember who got so hopelessly wrong the credit worthiness of derivative property investments, can explain how this State can retain a triple A rating when losses like these have been incurred, so little is being done to deal with them and so much additional expense is slated that will produce little if any net benefit to the State.