B55/1992 MANAGED INVESTMENTS - SAMPLE RESPONSES FOR ENQUIRES ON HOW THE CURRENT ANNUAL RATE OF RETURN IS CALCULATED FOR ACCRUING RETURN INVESTMENTS

DATE OF ISSUE: 07 December 1992

MANAGED INVESTMENTS - SAMPLE RESPONSES FOR ENQUIRES ON HOW THE CURRENT ANNUAL RATE OF RETURN IS CALCULATED FOR ACCRUING RETURN INVESTMENTS

PURPOSE

1.The purpose of this instruction is to provide sample written responses for use by Branch Office staff when replying to enquiries on how the `current annual rate of return' is calculated for `Accruing Return Investments'.

2.This instruction is intended to supplement Departmental Instruction B45/92 of 16 October 1992.

FORMAT OF SAMPLES

3.Two different sample formats have been provided as follows;

a)Sample 1 at Attachment A is in the form of a word processing letter that requires client specific details to be entered.

b)Sample 2 at Attachment B is in the form of a handout to satisfy telephone or counter enquiries, or can be used as an attachment to a personally tailored letter.

BRANCH OFFICE ENQUIRIES

4.The information now available in Departmental Instruction B45/92 and in this supplementary instruction should be used as a basis to answer telephone and/or written enquiries on this issue.

5.These sample responses are to be used only in response to specific enquiries on `Accruing Return Investments' and the calculation of the `current annual rate of return'.

6.If a pensioner has a more complex enquiry that also involves

Market-Linked Investments or investments that are assessed on realisation, then a personally tailored letter specifically addressing all of the issues raised by the pensioner should be sent.

7.If you have any enquiries in relation to these issues, please contact your local investment Policy Officer.

MURRAY HARRISON

A/g NATIONAL PROGRAM DIRECTOR

BENEFITS

2 December 1992

SAMPLE 1:ATTACHMENT A

Reference     {VET or SPS REFERENCE}

Contact          {CONTACT NAME}

Telephone     {CONTACT PHONE}

(DATE.........................)

{VET or SPS FIRST NAME} {VET or SPS INITIAL} {VET or SPS SURNAME}

{VET or SPS STREET}

{VET or SPS CITY}   {VET or SPS STATE}   {VET or SPS POSTCODE}

Dear Mr/Mrs {VET or SPS SURNAME},

Thank you for your letter, of  {DATE OF RECEIPT}, about the rate of return on your Accruing Return Investment in the {INVESTMENT NAME}.

The way the rate of return is worked out for managed investments can cause confusion.  Hopefully the following explanation will clarify how the rate of return is calculated for service pension purposes.

Both the Department of Veterans' Affairs and Social Security assess the return on your investment by working out the current annual rate of return based on the performance of the investment product over the last 12 months.

The calculation of the rate of return takes into account two factors:

(1)any rise or fall in the value of the investment over the last 12 months

added to

(2)income distributions (if any) received or reinvested during the same period. These distributions may be in the form of cash, bonuses or bonus units.

It appears that the rate of return that you have quoted may not relate to the way both Veterans' Affairs and Social Security work out the rate used in your service pension assessment.

I have enclosed the formulae used for you information.

Many companies quote rates of return which are not based on the performance of the investment over the last 12 months.  The rates of return quoted may be based solely on income distributions or the latest declared rate based on only part of the year such as on a daily, weekly or quarterly basis.

Previously some rates applied by this Department were assessed using the latest declared rate of return method.  However,  the Department is now in the process of standardising  the method of calculating the current annual rate of return based on the performance of the investment product over the previous

12 months.

If you still believe that the rate of return used by this Department is wrong you should contact the relevant investment company and ask for confirmation of the "current annual rate of return"  over the last 12 months.  Please note that written information would be preferable.  It may help if you give the company a copy of the attached formulae when making your request.  This will ensure that the figure supplied will relate to the Department's method of working out the return.

If upon reply the rate used by the Department appears to be wrong, please let us know and we will investigate further.

It may be of interest to know that the rates of return on your managed investments will be automatically updated once every six months to reflect the latest rates supplied by the investment companies concerned.

If you notice you may be eligible in the interim 6 months period for an increase in pension due to a drop in the current annual rate of return, you can write or phone to ask for the latest rates held by the Department.  If necessary we will review your pension. If you have any queries about this letter please let me know on the above phone number.

Yours sincerely

{SIGNATORY}

for DEPUTY  COMMISSIONER

ACCRUING RETURN INVESTMENTS

CURRENT ANNUAL RATE OF RETURN

Formulae used in determining the current annual rate of return on Accruing Return Investments for pension purposes:-

METHOD A

Unit Based Investments

change in unit price (if any)      +    income distributions & bonus units

over the previous 12 months          (if any) over the previous 12 months     x  100

divided by the unit price 12 months ago

Cash Based Investments

change in value (if any)      +    income distributions & bonuses

over the previous 12 months          (if any) over the previous 12 months    x  100

divided by the value 12 months ago

METHOD B

Cash based investments that declare an annual rate of return only once each year in arrears.

The exception to the above formulae are investments which are cash based  and declare a rate of return once each year.  In this instance the declared rate, not the interim rate, will be accepted by the Department and updated once a year.  This rate will only be updated when the figure has been officially declared.

SAMPLE 2:ATTACHMENT B

ACCRUING RETURN INVESTMENTS

CURRENT ANNUAL RATE OF RETURN

Both Veterans' Affairs and Social Security assess the return on Accruing Return Investments based upon application of the "current annual rate of return"  principle.  This involves calculating the current annual rate of return based on the performance of the investment product over the immediately preceding

12 months.

The calculation of the assessed rate of return takes into account two factors:

(1) any rise or fall in the investment value over the last 12 months added to

(2) income distributions (if any) received or reinvested during the same  period.  These distributions may be in the form of cash, bonuses or bonus units.

Many companies quote rates of return which are not based upon the performance of the investment over the last 12 months.  The rates of return quoted may be based solely on income distributions or the latest declared rate based on only part of the year such as on a daily, weekly or quarterly basis.

Previously some rates applied by this Department were assessed using the latest declared rate of return method.  However,  the Department is now in the process of standardising  the method of calculating the current annual rate of return based on the performance of the investment product over the previous

12 months.

The formulae used in assessing the current annual rate of return are attached.

If a pensioner notices that the rate of return used by this Department is wrong, they can contact the relevant investment company and request confirmation of the "current annual rate of return" over the last 12 months.  Please note that it would be preferable for information to be provided in writing.  It may be of benefit for the pensioner to supply the company concerned with a copy of the attached formulae when making such a request.  This would ensure that the figure supplied will relate to the Department's method of calculating the return.

If upon reply the figure used by the Department appears to be incorrect,  the pensioner can contact this Department and the current annual rate of return will be investigated.

It may be of interest to know that the rates of return held in the pension assessment will be automatically updated once every six months to reflect the latest rates supplied by the investment companies concerned.

If a pensioner notices they may be eligible in the interim 6 month period for an increase due to a drop in the current annual rate of return,  they can write or phone to check on the latest rates held by the Department.  A request for a review could then be processed to update the assessment to reflect the most current annual rate of return.

If pensioners have any queries regarding the contents of this advice they can contact the Department for clarification.

Formulae used in determining the current annual rate of return on Accruing Return Investments for pension purposes:-

METHOD A

Unit Based Investments

change in unit price (if any)      +    income distributions & bonus units

over the previous 12 months          (if any) over the previous 12 months     x  100

divided by the unit price 12 months ago

Cash Based Investments

change in value (if any)      +    income distributions & bonuses

over the previous 12 months          (if any) over the previous 12 months     x 100

divided by the value 12 months ago

METHOD B

Cash based investments that declare an annual rate of return only once each year in arrears.

The exception to the above formulae are investments which are cash based  and declare a rate of return once each year.  In this instance the declared rate, not the interim rate, will be accepted by the Department and updated once a year.  This rate will only be updated when the figure has been officially declared.