Australian Superannuation Funds

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The superannuation is the retirement plan to provide the benefit to people at the time when they will not be able to earn as much as they used to earn before. To secure them from the risk of retirement age, the fund has been accumulated. These are non-profit funds established by the industry to provide the superannuation benefits to their workers. The trade unions of the industry promote the funds. There are two types of superannuation funds in Australia, i.e. Industry superannuation fund and retail superannuation funds. The industry funds are managed by the financial institutions for the public, the members of the funds accumulate their surplus amounts in the fund, and the financial institution invests such funds in the investment avenues and the profits generated by such funds are distributable to the members. Whereas, in the retail funds, the profits generated from the funds are distributed to the investors or the shareholders of the financial institutions named as trustees of funds. The superannuation funds are encouraged by the government of Australia to accumulate funds to face the contingencies of old age, the source of income after retirement. The contribution rates have been decided by the government. The member of the funds and the management of the financial institution handling the funds have to contribute their parts towards funds. Thus, the contribution part of the member will be deducted from the salary or wage of the member, so it is the responsibility of the employer to deduct such amount add their contribution and deposit it with the financial institution, where the funds have been accumulated.

The rate of contribution of the employer since July 1, 2014 is 9.5% of the basic salary of the employee, and the contribution rate of the employee is 9%, which will be increased to 12% from July 1, 2019. The superannuation arrangement plans are also known as salary sacrifice arrangements.

People of Australia have the considerable sense of responsibility towards themselves as on June 30, 2018, Australian economy had the superannuation fund asset of $2.7 trillion, which enable the economy to stand at the 4th position in the world holding pension fund assets. But the main problem faced in the Australian superannuation system is that employees have multiple accounts from their different jobs, thus the fees are also charged multiply on different accounts. The Australian superannuation fund system has the 15 million members out of which, approximately 40% of members have multiple accounts. And the additional cost incurred by them is of $2.6 billion each year, which decreases the disposable income of the economy and affects it.

Access to superannuation: The contributions accumulated in the superannuation fund are the income of the member of the fund, the member which they invest over a period of working life, the voluntary and compulsory contributions, taxes and fees for the fund. The benefit of the fund can be received in three manners which are as follows:

  • Preserved benefits
  • Restricted benefits
  • Unrestricted non- preserved benefits

Preserved benefits: the benefits that can be accessed only at the age of superannuation. Thus the member has to maintain a certain balance in the fund for the age of retirement. The time period for the preservation of funds depends upon the age of the member.

Restricted non-preserved benefits: the benefits under the restricted non-preserved superannuation scheme can be accessed only when the employee will meet the condition of release of employment. Which means the member can access the fund if he has been terminated from the employment. 

Unrestricted non- preserved benefits: under this scheme of superannuation, the employee does not have to meet any condition, he can access the amount of the fund at any time, he requires.

The benefit of the superannuation funds can be claimed in two forms:

In lump sum amount: all the accumulated funds will be provided to the employee. For example, if the accumulated amount is $ 100,000, the employee will be provided with $1,00,000 at the time of his retirement or as the case may be.

In Instalment: under this, the employee will get the part payment of fund every month after his retirement. For example, the accumulated fund of $100,000, payable in equal instalments of $1000 every month. The member will receive the instalment of $1000 for 100 months consistently, which is also known as pension.

When the amount of the fund can be withdrawn: the member of the fund can withdraw their part of superannuation fund in case of three situations. Which are as follows:

  • At the time of retirement of the employee
  • At the time of terminal medical condition.
  • Or in case of permanent disablement of the employee.

Taxation on superannuation funds:

The biggest advantage of superannuation to the employer as well as the employee is that the contribution made by the employer in the fund is tax free. Thus the part of the salary of the employee is non-taxable if he invests in the funds and the contribution of the employee is taxed on the concessional rates of 15% only.

Regulatory bodies of superannuation funds are as follows:

  • The Australian Prudential Regulatory Authority.
  • The Australian Securities and investments commission.
  • The Australian taxation Office.
  • The Superannuation Complaints Tribunal.

Conclusion: the superannuation fund is the retirement benefit provided to the employees. the government of Australia promotes the investment in such funds to secure the economy from the certainties of old age, after the working life. The legal authorities of government ensure the proper functioning of funds in the country.

References:

[15]"Industry superannuation fund", En.wikipedia.org, 2019. [Online]. Available: https://en.wikipedia.org/wiki/Industry_superannuation_fund. [Accessed: 07- Feb- 2019].
Superannuation. (2019). Retrieved from https://www.investopedia.com/terms/s/superannuation.asp
Superannuation in Australia. (2019). Retrieved from https://en.wikipedia.org/wiki/Superannuation_in_Australia

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