CONTENTS Interest Rates – Where they are heading Changes to our investment portfolio Passive vs active share management Reduction in contribution caps Super comes under the microscope Administration reminders Contributions for those over age 70 years New OTE Ruling – Workers' Compensation Payments Keep us up to date Investment returns Quarterly Superannuation Guarantee (SG) Contributions Would you like to see more of us? Office locations Are you sending your communications to the right place?

November 2009 Welcome In this edition of the Employer Newsletter, we report on a number of important changes made to our investment portfolio, including a shift towards an increased use of "passive" investment managers. In line with this change, we discuss the difference between active and passive investment management.

We also provide details about three important Government reviews that could transform the superannuation landscape in the future.

In addition, we discuss some changes announced in the May Federal Budget that could put employees who salary sacrifice at risk of exceeding contribution caps and incurring excess contributions tax.

There are several administration updates and, as usual, we update you on the Energy Industries Superannuation Scheme’s investment performance and our forthcoming seminar schedule.

We value your feedback, so please feel free to send us your comments or any suggestions on what articles you'd like to see in future newsletters by emailing: employerservices@eisuper.com.au

Interest Rates – Where they are heading

One of the positive aspects of the global economic downturn has been the decline in interest rates. Floating mortgage rates have fallen from 9.6% at the peak to 5.8% in the space of 1 year, saving borrowers hundreds of dollars off their monthly repayments.

Investors in long-term Government bonds also got a benefit from the increase in value related to the fall in the market yield. Government bond yields fell by about 3% in the year to December 2008, and that produced a total return for the year of over 17% from Government bonds.

However interest rates won't stay low forever and investors should be prepared for rising interest rates and higher mortgage repayments.

What's the Reserve Bank of Australia (RBA) doing?

The RBA has a duty to contribute to the economic prosperity of Australians. To achieve this, its primary aim is to keep inflation in a target range of 2 to 3%. The RBA uses monetary policy to influence economic activity and inflation. It can set short-term interest rates by changing the supply of funds to the financial system.

In the middle of last year the RBA started to worry about the global financial crisis and became less concerned about slowing inflation, even though the CPI inflation rate was well above the target range. After twelve gradual cash rate hikes from 2002, in September last year the RBA changed strategy and began aggressively reducing the cash rate. It was cut from 7.25% to 3% over a period of seven months.

The flexibility to lower interest rates, as well as Australia’s trade links with the strong China economy and a huge Government stimulus program, have allowed the Australian economy to weather the global slowdown surprisingly well. However, the RBA has already raised rates by 0.25% in October and November and recent comments from them are warning of higher interest rates in the future.

The outlook

The fact that the RBA is signalling that we may be facing higher interest rates in the future represents a mixed message for investors. On the one hand, it indicates that the outlook for the economy and job prospects is improving and members with cash in the bank can look forward to better interest payments. On the other, it will result in higher repayment costs for borrowers and it may lead to turbulence in bond markets which may translate to a challenging environment for bond investors for some time to come.

Changes to our investment portfolio

As part of our continual drive to improve the returns we earn for our members and to maintain a flexible and efficient approach to investments, the Scheme is comprehensively reviewing its investment portfolio. Already we have made a number of important changes.

Our basic objectives were to ensure we are getting the best advice, to simplify our portfolio to reduce costs and ensure that our investment strategies satisfy members' needs.

One of the steps we have taken has been to increase our use of "passive" investment managers (those that invest in shares based on the make-up of a particular market index).

This is a change from the past where we primarily relied on carefully selected "active" investment managers (those that actively trade securities in an attempt to produce above-index returns). In recent times, however, this approach has not achieved the returns that were expected.

Our increased use of "passive" managers means that we have reduced the overall number of managers we engage, and have thus simplified the management of our investment portfolio and achieved significant savings in management fees.

Next we will be reviewing the asset class weightings within many of our investment strategies to ensure they have the best chance of meeting their investment objectives, both in current market conditions and in the long term.

In addition, we have changed the asset allocation in our Cash Plus option which has been rebadged Cash. Over the past three years, we invested a small portion of the Cash Plus option's assets in global fixed interest type assets. However, the extreme market volatility of recent times has led to lower returns than expected. In response to member feedback, we are moving back to a more pure cash allocation which will minimise the likelihood of short-term negative returns.

Finally, we are also reviewing our age-based default strategies to make sure they match the long-term retirement needs of our members.

In order to ensure that we get the best advice, we have also appointed Mercer (Australia) as our new investment adviser following an extensive selection process. Mercer replaces Russell Investments Group, which had advised the Scheme since its inception in 1997.

If your employees would like more information on the changes or if any are considering a major change to their super investment, please encourage them to call Member Services on 1300 369 901.

Passive vs active share management

In order to boost its returns to you and reduce our investment risks and costs, the Scheme's Trustees recently decided to increase its use of "passive" managers when looking after your investments in shares.

In the past, we focused solely on choosing a complementary range of carefully monitored active managers. Active managers believe they have the skills and investment styles to "beat" the broad market as measured by a particular benchmark or index, such as the S&P/ASX 200 Index. This means they also have to beat most of the other managers who measure themselves against the same benchmark. To achieve this goal, they actively research and monitor a wide range of investment alternatives, which all adds to their operating costs and forces them to charge higher fees.

While good managers often beat the index, many struggle to consistently beat the index over a long period of time. All managers have their own investment styles and philosophies and these produce different results at varying stages of the market cycle. Indeed, their style may be in or out of favour with the market at any given time.

Even with the best skills and processes, managers can also make unwise choices which can dent your returns. What's more, because an index can be likened to an average of share price performance, it stands to reason that when some managers are beating it, others will be underperforming against it.

In contrast, passive or indexed managers believe the broad market cannot be consistently beaten. Instead, they aim to match the performance of an index. To do this, they try to buy the same shares, in the same proportions, as the index. As a result, they don’t have to invest in making those hard decisions about which shares to buy and sell. They also do less buying and selling of shares altogether, which means they have lower transactional expenses. In short, they are able to operate at lower costs and charge much lower fees.

Overall, investing via passive managers helps the Scheme to access the overall gains (or losses) of the market at lower costs. It also reduces the risks of human error denting our returns and of us paying higher fees to a manager who may underperform the market.

Reduction in contribution caps

Employers should be aware that employees salary sacrificing may be at risk of exceeding contribution caps and of incurring excess contributions tax.

In the May 2009 Federal Budget, the Government halved its cap on the amount of concessional (or pre-tax) contributions members can make to super to $25,000 a year (indexed). This change came into effect from 1 July 2009 and is relevant to those under the age of 50.

Income that's salary sacrificed as additional superannuation contributions is counted towards the concessional contributions capital, as is the 9% Superannuation Guarantee.

The transitional concessional contributions cap (for members aged 50 and over or who turn 50 before the end of the 2011/12 financial year) has also been reduced from $100,000 to $50,000 a year.

The annual cap on non-concessional or after-tax contributions remains at $150,000 a year for the 2009/10 financial year. It will in future be calculated as six times the level of the (indexed) concessional contributions cap.

Excess concessional contributions are currently taxed at 31.5% in addition to the standard 15% contributions tax. So to help your staff avoid any nasty surprises, it’s important to review any salary sacrifice arrangements you make on their behalf. Remember that our team is on hand to help you through this process and in communicating these changes to your employees. Just call 1800 636 441 for assistance.

Super comes under the microscope

The Super System Review headed by Jeremy Cooper, the former deputy chair of the Australian Securities and Investments Commission (ASIC), is well under way. The review panel has already released its Issues Paper for Phase One of the review and expects submissions back on this by the end of October 2009.

The Review, announced by former Minister for Superannuation and Corporate Law Nick Sherry in May, will examine the governance, efficiency, structure and operation of Australia’s $1.1 trillion superannuation system.

Its panel consists of Kevin Casey, Greg Evans, Sandy Grant, David Gruen, Meg Heffron, Ian Martin and Brian Wilson.

"The Expert Panel will guide what will be a substantial national project aimed at boosting the retirement savings of all Australians by increasing efficiencies, reducing costs and fees and in turn lifting long-term rates of return," Sherry said in May, when announcing the review’s terms of reference.

"After some 20 years of compulsory superannuation, and the development of many new features, the Rudd Government and the industry itself strongly agree it is time for such a thorough examination to take place."

"Our system is strong and people should have confidence in it - but let's work to make sure that we keep it that way and that we boost the retirement incomes of all Australians."

The review will examine Australia's superannuation system in three phases, but according to Cooper, it was important to divide the issues into manageable bites, given the complexity of Australia's super system. "Each of the three phases – Governance, Operation and Efficiency, Structure – deals with distinct issues. People can make submissions on all three phases, or just the phase that deals with the issues they are interested in," he says.

The issues examined in Phase One include trustee knowledge, skills and training, conflicts in outsourcing, accountability to members and the composition of boards of trustees, among other matters. The panel will release its recommendations on Phase One by early December.

The issues paper for Phase Two, which will deal with fees and charges and a range of other issues, was released on 16 October 2009 with submissions called for by 14 December 2009.

The review will report to the Government by 30 June 2010, although it may report on particular issues prior to that date.

For more information on the review, visit: http://www.supersystemreview.gov.au. Alternatively, you can call the Super System Review infoline on 03 9280 4476.

Two further reviews could also affect the future of the superannuation industry. They are:

The Henry Review: Headed by Treasury secretary Ken Henry, the Australia's Future Tax System Review Panel published an interim report on Australia's retirement income system in May. It stated that the three-pillar architecture of Australia's retirement income system — consisting of the means tested Age Pension, compulsory saving through the Superannuation Guarantee and voluntary saving for retirement — should be retained. But it also called for some adaptive change to calibrate the three pillars so the system serves its purposes and retains its strengths. Among its recommendations were that:

• The Age Pension age be gradually increased to 67 years and the age at which people can access their superannuation savings (the preservation age) be gradually aligned with the increased Age Pension age.
• The fairness and coherence of the pension means tests be improved.
• The fairness of tax concessions for super contributions be improved.
• The ability of people to use their superannuation to manage longevity risk be improved. The Panel's final report is due in December 2009.

The Harmer Review: The Pension Review, headed by Jeff Harmer, secretary of the Department of Families, Housing, Community Services and Indigenous Affairs, was completed in February 2009. It examined pension levels, sustainability of the pension and where lines should be drawn between public and private support in the pension system. In the May 2009 Federal Budget, Treasurer Wayne Swan announced that the Government would adopt Harmer’s recommendation to increase the amount of the Age Pension.

Administration reminders

Paying Contributions to the Scheme

Employers are obliged to pay all contributions into the Scheme by no later than the 28th of the month following the month to which those contributions relate.

Contributions can be paid weekly, fortnightly, or monthly. Payment can be made either by:

• EFT - details can be found on our website; or
• Cheque - made out to the EI Pool A or EI Pool B, depending on the Plan, and forwarded to the Scheme Administrator.

In either case, a return, detailing the contributions paid and certain personal details of new members is to be forwarded to the Scheme Administrator. The contribution information is to be provided using the contribution file format or the contribution spreadsheet (both of which can be found in the employer section of our website), and e-mailed to the following address: employeronline@eisuper.com.au to enable downloading of the details into the members' individual accounts.

If making payment via online banking, direct deposit or EFT notification, please ensure you advise your Employer Name or Reporting Centre Code in the reference area.

Contributions for those over age 70 years

Remember to warn employees approaching the age of 70 that you will soon no longer be able to make superannuation contributions on their behalf.

Under superannuation law, employers cannot make Superannuation Guarantee (SG) contributions on behalf of staff members after they turn 70 years of age.

Mandated contributions, which are contributions agreed to as part of an agreement between the employer and employee, can continue to be made past age 70. Employers should advise us of any mandated contributions by marking them as "award" contributions when remitting contributions.

Employees aged 70 to 74 are free to make their own personal superannuation contributions from their after-tax income, or to direct their employer to make salary sacrifice contributions on their behalf.

The only requirement is that an individual making contributions must have worked a minimum of 40 hours over a period of 30 consecutive days. If they fail to meet this work test, no contributions can be made for that person other than mandated contributions. This test is administered by the Scheme and does not need to be applied by the employer.

New OTE Ruling – Workers' Compensation Payments

Any workers' compensation payments received by an injured employee for the hours the employee performs work or attends work is classed as ordinary time earnings (OTE) and the Superannuation Guarantee (SG) is payable.

In contrast, if employment has been terminated or if the employee is paid workers' compensation for hours not worked (or not attending work as required), the payment would not be “salary or wages”. This payment is not classed as OTE and no SG contributions should be paid.

A reminder about Tax File Numbers

Please remember that you are required to pass on the Tax File Number (TFN) of any new employees to us within 14 days of their start of employment.

According to the ATO, it is an offence not to provide an employee's TFN within the required timeframe.

If you do not pass on your employees' TFNs:

• You will be guilty of an offence and liable to pay a penalty.
• Your employees may have to pay extra tax (possibly 31.5% more) on the contributions.
• The Scheme won't be able to accept personal contributions from your employee.
• Your employee may miss out on Super Co-contribution payments.

The maximum penalty that can be imposed is 10 penalty units (currently $1,100). However, the courts may increase the maximum penalty payable by a body corporate to 50 penalty units (currently $5,500).

The maximum penalty applies for each employee, so if an employer fails to report five TFNs to the Scheme, five penalties can apply.

Exiting members

When completing the Employment Termination Advice (ETA) form please ensure that if you still have to remit member contributions after you forward the ETA, you answer “No” to the question: "Have all contributions for this member been paid?"

Please advise the date they are likely to be paid in the date boxes. For Div B and Div D members also advise the outstanding amount to be remitted.

When a Div B or Div D member ceases employment due to retrenchment please ensure sections 3(1) and 3(2) of the ETA form are completed.

Keep us up to date

Please keep us informed about any changes to your employer contact details or about any changes in personnel. We need to keep our contact information up to date (especially for payroll, HR/Finance Managers, and General Managers) so that we can communicate any important information regarding the Scheme or administrative changes efficiently and to the right people. Any updates can be emailed to employerservices@eisuper.com.au

Investment returns

September 2009 quarter returns for the Contributor Financed Benefit - Retirement Scheme

Strategy	Quarterly Returns
High Growth	12.4%
Trustee Selection*	11.6%
Diversified	10.0%
Balanced	8.7%
Capital Guarded	6.1%
Cash Plus	1.5%

All figures are shown to one decimal place. Returns may vary slightly between Divisions of the Scheme.
* Available to Retirement Scheme members only.

September 2009 quarter returns for the Accumulation Scheme

Strategy	Quarterly Returns
High Growth	12.0%
Diversified	9.8%
Balanced	8.5%
Capital Guarded	6.0%
Cash Plus	1.7%

All figures are shown to one decimal place. Returns may vary slightly between Divisions of the Scheme.

Quarterly Superannuation Guarantee (SG) Contributions

Under the SG requirements all employers must contribute the minimum level of 9% of each eligible employee's earning base in super support for each financial year. The Superannuation Guarantee contribution is required to be contributed on at least a quarterly basis. From 1 July 2008, your employees' earning base is their ordinary times earnings (OTE).

The following describes the ATO deadlines for employer contributions and the penalties that may apply if employers do not meet them. Energy Industries employers who make monthly contributions in accordance with the Scheme rules will more than satisfy these minimum requirements and will therefore avoid any of the penalties listed.

The ATO imposes penalties if SG contributions are not made by the quarterly cut-off date by applying an SG Charge (SGC)* which is made up of three parts:

• SG shortfall amounts based on OTE
• Interest on that amount (currently 10% per annum)
• Administration fee of $20 per employee per quarter.

If the SGC and the SGC statement are not submitted by the due date for lodgement additional penalties may apply and these are:

• General Interest Charge (GIC) from the SGC due date will be incurred. GIC compounds daily until SGC and accrued GIC are paid in full. The ATO can reduce the penalty. GIC is tax deductible in the year it is incurred.



• An amendment in the SG legislation, from 24 June 2008, means that if an employer makes an SG contribution to a superannuation fund which is late, the employer can elect to have this contribution used to offset against the amount of SG charge they have to pay to the ATO for not meeting their superannuation obligations. Please refer to the ATO website for further information at www.ato.gov.au.



• Penalties may also apply for false or misleading statements, avoidance, failure to provide information or failure to keep SG records.

The following table obtained from the ATO lists the standard cut-off and lodgement dates.

Superannuation Guarantee quarter ended	Cut-off date for Superannuation Guarantee Contributions	Due date for lodgement of a SG statement and payment of the SG charge if contributions are not made on time
1 July - 30 Sept	28 October	28 November
1 Oct - 31 Dec	28 January	28 February
1 Jan - 31 March	28 April	28 May
1 April - 30 June	28 July	28 August

Would you like to see more of us?

As part of our service to you we offer free pre-retirement seminars to your employees, either on your site or at a venue close to you. If you'd like to organise a free seminar for employees, please call 1800 636 441.

Free pre-retirement planning seminars

Pre-retirement seminars are targeted at people who are over 50 years of age and provide information on the following: