Corporations and Trusts Law Chapter 11 Superannuation Obligations

Corporations and Trusts Law Chapter 11 Superannuation Obligations: The Basics www. learnnowbiz. com Corporations and Trusts Law

11. 1 Useful Terms Accumulation Period of time during which a member of a superannuation fund is amassing retirement savings. Australian Prudential Regulation Authority (APRA) APRA supervises most superannuation funds and Approved Deposit Funds and Pooled superannuation trusts. Approved deposit funds (ADF) A fund that is regulated by APRA - it can receive eligible termination payments rolled-over from a previous employer, superannuation fund or ADF. Pooled superannuation trust A unit trust used only for investing assets of regulated superannuation funds, approved deposit funds and other pooled superannuation trusts which is regulated by APRA. www. learnnowbiz. com Corporations and Trusts Law

Useful Terms Preserved Superannuation savings which cannot be withdrawn until a person has reached a certain age and has retired. Self-managed superannuation fund A superannuation fund to save for retirement, but unlike other fund types the members are the trustees and therefore are running the fund for their own benefit. Superannuation Regulated and low taxed savings scheme designed to encourage taxpayers to save for their retirement. Superannuation guarantee payment Compulsory superannuation contribution by employers on behalf of their employees – currently 9. 5% of ordinary time earnings. www. learnnowbiz. com Corporations and Trusts Law

11. 2 Philosophy and Purpose of Superannuation in Australia Superannuation can be defined as a “regulated and low -taxed savings scheme that is designed to encourage taxpayers to save for their retirement”. The superannuation guarantee refers to employers compulsory obligation to input superannuation contributions on behalf of their employees. www. learnnowbiz. com Corporations and Trusts Law

11. 3 Regulation of Superannuation is regulated by an enormous tangle of tax and compliance rules governing superannuation trust funds, superannuation fund trustees, contributors, employers and employees. Such legislation includes: • Superannuation Industry (Superannuation) Act 1993 (Cth) (SIS Act) • Superannuation Industry (Superannuation) Regulation 1994 (Cth) (SIS Regulation) • Income Tax Assessment Acts 1936 and 1997 (Cth) • Corporations Tax 2001 (Cth) www. learnnowbiz. com Corporations and Trusts Law

Regulation of Superannuation The governing bodies responsible for ensuring the compliance and enforcement of the Acts (displayed in the previous slide) include: • Australian Prudential and Regulation Authority (APRA) • Australian Taxation Office (ATO) • Australian Securities and Investment Commission (ASIC) www. learnnowbiz. com Corporations and Trusts Law

11. 4 Types of Superannuation Fund Accumulation Fund The most common form of superannuation fund available in Australia. A member’s investment grows or accumulates over time. Accumulation funds provide greater control over the selection of investment options as well as greater transparency of the funds administration but it is important to note that the fund may increase when investment profits are added in, but decrease when investment losses are taken out. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Defined Benefit Fund Defined benefit funds are no longer very common and those that still exist are frequently closed to new members. Most defined benefit funds are corporate of public sector funds and essentially the employer or the funds take on the investment risk. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Retail funds are normally run by banks or investment companies such as Banks. Trust, Colonial Mutual, AMP, National Australia Bank, Commonwealth Bank etc. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Industry super funds concentrate on providing non-for-profit, low fee superannuation products to workers in particular industries. Some superannuation funds allow anyone to join while others restrict membership who work within a particular industy. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Public Sector Fund Public sector funds were created for the employees of Federal and State government departments and most are only open to government employees. It is not uncommon for many employers to contribute up to 15%, more than the standard 9. 5%. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Corporate Fund A corporate fund is arranged by an employer for its employees. A large corporate fund may be ‘employer sponsored’ where the employer also operates the fund under a board of trustees appointed by the employer and employees. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Eligible Rollover Fund An eligible rollover fund (ERF) is a holding account for lost members of inactive members with a low account balance. These funds often have low investment returns and high fees so from a members’ perspective it is better to consolidate monies in an ERF with their active superannuation fund. www. learnnowbiz. com Corporations and Trusts Law

Types of Superannuation Fund Self-Managed Superannuation Fund (SMSF) A self managed superannuation fund is another way of saving for retirement with the difference being that the members of a SMSF are its trustees and run it for their own benefit. A trustee of the fund is responsible for managing the SMF according to its trust deed and the laws which apply to it. www. learnnowbiz. com Corporations and Trusts Law

11. 5 Regulatory Framework of Superannuation Funds A registrable superannuation entity (RSE) is a regulated superannuation fund, an approved deposit fund or a pooled superannuation trust, but does not include a self managed superannuation fund. www. learnnowbiz. com Corporations and Trusts Law

Trustees A trustee of a RSE must hold a RSE licence. The trustee is bound by law to act, honestly, prudently, and to make decisions soley for the benefit of members and in the best interests of all members. Trustees must demonstrate to APRA that they have fir and proper people to do this. Trustees must act with the rules of the fund, set out in the Trust Deed as well as the legislation. If they fail in their duties, courts or government agencies such as APRA can penalise or potentially remove them as a trustee. www. learnnowbiz. com Corporations and Trusts Law

The Cooper Review or Super System Review In 2009, then Labor Government set up the Cooper Review to review the governance, efficiency, structure and operations of Australia’s superannuation system. The review included recommendations on how to provide a simpler, safer and more efficient system of superannuation. (recommendations can be found on page 438 -439 of ‘ Corporations and Trusts Law’ by Penelope Mc. Cann) www. learnnowbiz. com Corporations and Trusts Law

My. Super Default superannuation funds are those funds to which employers make compulsory contributions for employees who do not choose a fund to receive those contributions. For those employees a default fund is selected by their employer, or nominated through an industrial award or enterprise agreement. Of almost 12 million Australians who currently hold a superannuation account, 80% of those have their compulsory superannuation contributions paid into a default superannuation fund. www. learnnowbiz. com Corporations and Trusts Law

Super. Stream The Cooper Review identified significant costs imposed by the lack of efficiency of existing administrative processes. These included excessive costs and complexity arising from manual processing of money transfers and data, the lack of standardised formats and poor, complete data. Consequently, Super. Stream was developed and introduced to improve the productivity of the superannuation system and make it easier to use. Super. Stream is a standard for processing superannuation data and payments electronically in a standard format so I can be transmitted consistently across the superannuation system. www. learnnowbiz. com Corporations and Trusts Law

11. 6 Proposed Changes In September 2015, the government introduced into the House of Representatives the Superannuation Legislation Amendment (Governance) Bill 2015. Essentially the bill was designed to enforce that trustees of registrable superannuation entity licensees to have a minimum of one-third independent directors and an independent chair to make consequential; amendments. www. learnnowbiz. com Corporations and Trusts Law