Superannuation is a long-term savings and investment vehicle that provides tax-advantaged retirement benefits for members and their dependents in the form of lump sums, income or both.
Compulsory superannuation was introduced in 1992 under the Superannuation Guarantee (Administration) Act 1992 (Cth) which requires employers to provide minimum levels of superannuation support (superannuation guarantee contributions) for most of their employees. The importance of superannuation has grown with the realisation of successive federal governments that the age pension cannot provide an adequate retirement income for many Australians and that superannuation is an essential part of the retirement incomes framework.
Superannuation is not well understood by many people despite the fact that most Australians have superannuation policies. It is important to seek expert legal advice about superannuation, disability and death claims, access applications and rights and entitlements.
The main purpose of the compulsory superannuation regime is to provide retirement benefits to members and their dependants. The Superannuation Industry (Supervision) Act 1993 (Cth) and Superannuation Industry (Supervision) Regulations 1994 (Cth) therefore require certain superannuation benefits to be preserved until members retire from the workforce.
Benefits that must be preserved
Under the main preservation rules, the following must be preserved:
- all contributions made from 1 July 1999
- investment earnings accruing in a regulated superannuation fund
- most compulsory employer contributions and related investment earnings paid into a superannuation fund after 1 July 1992
- some award superannuation contributions paid into a fund for the benefit of employees, at least until the termination of their employment with a contributing employer.
When can preserved benefits be paid?
The preserved benefits are usually paid only when a member retires from the workforce on or after reaching the preservation age.
The preservation age
For members born before 1 July 1960, the preservation age is 55.
For members born after 30 June 1960, the preservation age rises progressively to age 60 for those born after 30 June 1964.
Benefits that need not be preserved
Most undeducted employee contributions (that is, voluntary contributions by the employee on which no tax deduction has been claimed) paid into a fund before 1 July 1999 need not be preserved.
Members can access some or all of their preserved benefits before they reach the preservation age in very limited circumstances. The aim of superannuation is to ensure that funds are preserved for a person’s retirement, but it is recognised that there may be overriding situations.
There are a number of ways that superannuation funds can be accessed prior to a person’s preservation age, and the grounds for early access overlap somewhat. It is therefore essential to read the information carefully, and be aware that not all superannuation funds permit early release.
Superannuation schemes established for members of the public service are established under their own rules, and application should be made direct to the fund.
The rules for the early access to superannuation under compassionate grounds are set out in regulation 6.19A of the Superannuation Industry (Supervision) Regulations 1994 (Cth).
The following is a summary only of the process to release funds on compassionate grounds and further information about accessing superannuation early can be found on the Australian Tax Office website.
Compassionate grounds include:
- Making a payment on a mortgage or towards council rates to avoid the forced sale of a home (strict criteria apply)
- Meeting the cost of medical treatment not accessible through the public health system or related transport for an illness or medical condition for the member or member’s dependant
- Paying for home modifications or transport to accommodate a severe disability for a member or member’s dependant
- Meeting the cost of palliative care for a member or member’s dependant
- Paying for the cost of expenses to cover a dependant’s funeral
Not all superannuation funds permit early release of funds on compassionate grounds and it essential to check first with the fund before beginning the process. The fund should also be able to confirm the tax which must be paid if the member is under the preservation age and if there are any fees payable.
Certain information is required to satisfy the fund that all criteria are met. For example, medical reports may be required, or in the case of the release of superannuation to prevent the sale of a home, the lender may need to provide a letter.
The ATO will assist with an application for release and does not charge for the service.
Severe Financial Hardship
Funds may be released early if the member is suffering from severe financial hardship. The member must have been on eligible income support payments continuously for at least 26 weeks, and be unable to meet reasonable and immediate family expenses. A maximum of $10,000 per 12 month period may be accessed.
There may be tax implications of accessing funds early and this may also affect a person’s other entitlements. It is best to get advice first before applying to ensure that there are not unintended consequences.
Further information about accessing superannuation early on the grounds of severe financial hardship may be found on the Department of Human Services website.
There are a number of other situations where a superannuation fund may permit early release, including:
- Terminal illness or injury of the member
- A permanent incapacity preventing the member from working again
- A balance of less than $200
- The member of the fund is a temporary resident of Australia
Further information about release on these grounds may be obtained from the ATO website or direct from the superannuation fund.
The benefits of lost or inactive members are protected by:
Who is a lost member?
Members are considered lost if:
- a fund has never had an address for them, or
- at least one or more attempts have been made to contact them at their last known address, and
- the member has not contacted the fund in any way in the last 12 months, and
- the member has not accessed any information about their interest through any electronic facility in the last 12 months, and
- the fund has not received any contribution or rollover into the member's account within the last 12 months.
See Superannuation Industry (Supervision) Regulations 1999 (Cth) reg 1.03A
Who is an inactive member?
Members are considered inactive if:
- they have been members for at least 2 years, and
- when they joined the fund they were a standard employer-sponsored member, and
- the fund has not received any contribution or rollover into the member's account within the last 5 years, or
- in some other circumstances when they joined the fund from another fund as a lost member and the fund has not verified the address in the last 2 years.
See Superannuation Industry (Supervision) Regulations 1999 (Cth) reg 1.03A
What protection is available?
The full account balance of lost members must be protected whether the account balance exceeds $1000 or not. Protection begins 90 days after a member is determined to be lost.
Paying the benefits into a rollover fund
A fund trustee may choose to roll a lost member’s benefits into an eligible rollover fund rather than maintain the accounts.
Reporting lost members to the Tax Office
Superannuation funds (including eligible rollover funds) must report lost members to the Commissioner for Taxation and provide details, including the members’ withdrawal benefits, every six months.
Finding lost superannuation
The Australian Tax Office maintains a register of lost members with a view to re-uniting people with their superannuation benefits. Members of the public can see some details from the register on the Australian Tax Office’s website free of charge. People can log into or register for a MyGov account to see whether any of the lost or unclaimed super in the register is theirs.
The distribution of death benefits under a regulated superannuation fund is generally at the discretion of the trustee, applied in accordance with the terms of the trust deed and subject to the Superannuation Industry (Supervision) Act 1993 (Cth).
The general principle is that benefits from a regulated superannuation fund are paid to a deceased member’s legal personal representative and/or one or more dependants. If no such person can be found after reasonable enquiries, the trustee may distribute the benefits to other persons in accordance with the trust deed.
Who is a dependant?
Dependants of a fund member include:
- a legally married spouse
- an oppostite-sex or same-sex de facto spouse
- the member’s children, including step-, adopted and ex-nuptial children, and any child of a member's (legal or de facto) spouse (this covers children under 18)
- anyone who was financially dependent on the member at the time of death
- any person who was in an interdependency relationship with the deceased at the time of death.
What is financial dependency?
Financial dependency is defined to include total and partial financial dependency. Although a trustee must be satisfied that the financial dependency is reasonable and not illusory, relatively small financial support has been found to constitute partial financial dependency for the purpose of superannuation death benefit distributions (see Faull v Superannuation Complaints Tribunal (1999) NSW SC 1137).
Children 18 or over who were not in an interdependancy relationship with the deceased at the time of death must be financially dependent on the deceased to qualify as dependants.
An interdependency relationship includes a close personal relationship between two people who live together, where one or both provides for the financial and domestic support and personal care of the other. Children over 18 may be covered by this.
What is taken into account in distribution?
When distributing superannuation death benefits, a trustee usually takes into account a range of factors including:
- the claimant’s degree of financial dependency
- the strength of the claimant’s relationships with the member
- the claimant’s other entitlements to the member’s estate
- the claimant’s age, health, employment and financial circumstances
- the terms of the member’s will
- any non-binding nominations.
No eligible dependant has an absolute right to a superannuation death benefit.
A trustee properly exercising a discretion may distribute the whole of the death benefit to one dependant over others (see Pope & Ors. v Lawler & Ors (1996) WAG 84).
The Superannuation Legislation Amendment Act 1999 allowed superannuation funds to offer members the opportunity to make binding death benefit nominations. If a member completes a binding death benefit nomination in the correct form, the trustee must distribute the death benefits to the nominated beneficiary or beneficiaries in the proportions specified and has no discretion to vary or override the allocation.
Witnessing, renewal and reporting requirements must be met for the nomination to be valid.
Funds are not obliged to offer binding nominations. To date, very few have done so.
Who may be nominated beneficiaries?
A nominated beneficiary must be the member’s legal personal representative or dependant at least at the time of death. There is some doubt as to whether this extends to the date of nomination.
Preferred nominations(i.e. non-binding nominations)
Most superannuation funds offer their members the opportunity to nominate their preferred beneficiaries. Contrary to general perception, trustees are not bound by such nominations.
Is there a valid binding nomination?
Anyone intending to make a claim for a superannuation death benefit should find out whether there is a binding nomination and, if there is, whether the strict pre- conditions for a valid nomination have been met.
Superannuation benefits may affect entitlement to Centrelink payments, depending on whether the benefits are paid as a lump sum or a pension.
Superannuation lump sums are generally exempt from the Centrelink income test (but may be included in the assets test — see below).
Superannuation pensions are usually treated as income, and subject to the Centrelink income test for the purposes of assessment for payments.
A superannuation lump sum will be included in the Centrelink assets test when the benefit is received. While the benefits are retained in a superannuation fund, they will not be included in the Centrelink assets test until the member reaches the age pension age.
In the past, the Family Court has had considerable difficulties in dividing matrimonial property because of the lack of flexibility in the superannuation preservation rules.
The court previously dealt with the problem by either offsetting accrued superannuation benefits against other assets of the marriage, or by deferring property distribution until superannuation benefits are paid out.
Since the Family Law Legislation Amendment (Superannuation) Act 2001 was introduced, the superannuation interests of parties to a marriage can be split by agreement or court decision. See 'How is superannuation dealt with?'
Employers are required to provide minimum levels of superannuation support for most of their employees. These payments are called superannuation guarantee contributions. The contribution rate is currently 9.5% (as at July 2014 with the next increase on 1 July 2019) of ordinary time earnings.
Non-payment and late payment of superannuation guarantee contributions is a common problem. Workers at risk of not being paid their full entitlements are low paid and non-unionised workers, in particular, workers in small businesses with high failure rates.
Enforcement through the Tax Office
Where employers fail to provide the minimum level of superannuation guarantee, the Australian Tax Office is responsible for collecting the unpaid superannuation (the superannuation guarantee shortfall plus interest) and distributing the money to the employees’ superannuation funds.
The superannuation guarantee charge
Employers who do not pay full superannuation guarantee contributions on behalf of their employees are required to:
- lodge a superannuation guarantee statement
- pay the superannuation guarantee charge (made up of the shortfall, plus interest and charges).
If an employer fails to lodge a superannuation guarantee statement, the Commissioner of Taxation can issue a default assessment.
The superannuation guarantee charge includes a 10% interest component and an administration component. Further interest also applies if the charge is not paid by the due date.
An employer cannot claim a tax deduction for superannuation contributions paid as the superannuation guarantee charge.
Disability and death payments
The payment and enforcement of superannuation contributions is particularly relevant to disability and death benefits. Insurance cover for these benefits usually lapses if superannuation contributions are not paid by an employer. To remedy this, some superannuation funds have moved to account-based premium deductions.
Notifying the Tax Office
An employee who believes that superannuation guarantee contributions have not been paid can notify the ATO by phone or complete a notification form online using the superannuation guarantee calculator.
What the Tax Office may do
The ATO may investigate the matter and, if appropriate, issue a superannuation guarantee charge assessment and seek to recover the charge from the employer. If an employer fails to pay the superannuation guarantee charge, the Commissioner for Taxation can sue for recovery. The Commissioner cannot seek to recover any death or disability benefits lost because of non-payment of superannuation contributions.
For further information refer to the ATO website: www.ato.gov.au.
For information about the resolution of disputes with superannuation funds, see Complaints against banking, financial services, insurance companies and super funds.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.