This article discusses what is a super fund, the complexities involved with Superannuation, how an individual’s rights are protected, and the taxation impact on the super funds.
Superannuation is a contribution to an individual’s super account by their employer which is generally left untouched until retirement. The concept of superannuation as a mandatory form of saving for the future is significant, as the more money an employee saves in the super fund will mean they are better supported financially once retirement period begins.
The super fund chosen is entirely the decision of the individual, with a range of funds available for employees to designate their savings to. Moreover, the funds are quite flexible as they can be combined (placed into one fund). If one has changed jobs and thus, changed funds in accordance with their employer’s designated super, they can simply merge (put into one fund) the money from the accounts regardless of which fund they originate from.
This latest update to superannuation laws received Royal Assent on 26 June 2013. Its primary aim is to reinforce the various, existing legislation addressing superannuation including the Corporations Act 2001 (Cth) and the Superannuation Industry (Supervision) Act 1993 (Cth), and further the governance of the superannuation system put in place by the Federal government.
It includes reforms that work to help the superannuation industry and all those within it, primarily members and employers, to ensure their rights are protected and enhance the integrity of the system overall.
Keeping track of the super funds in one’s account is simple to do through the government and involves three important steps.
Through these steps, one is able to remain updated about how much super they have which helps in viewing the details of all super accounts, particularly ones that may have been forgotten due to multiple switches. This also provides an opportunity to compare the performance and fees of the chosen super account against others, utilising the ‘YourSuper’ comparison tool implemented within the government site.
By keeping track of the super account, individuals can additionally discover super held by the Australian Taxation Office (ATO). This occurs when the chosen super fund or employer are unable to hold the super money due to a lack of a super account and hence, the ATO hold it on behalf of the employee. Further, it allows one to combine a myriad of super accounts by transferring their super savings into one preferred account. If this is a fund-to-fund transfer, it will generally be actioned within three business days.
If someone wishes to add more money into their super account, they can ‘salary sacrifice’. This is when an individual adds their own money into the fund in addition to their employer’s contribution, increasing their retirement savings and potentially reducing tax. The amount that can be deposited is limited however and one should always seek financial advice before contributing their own money, particularly if the amount they wish to deposit is high.
The super paid when someone passes away is known as super death benefit. This involves payment of the deceased’s remaining funds in their super account to their nominated beneficiary but is not considered inheritance.
The nomination for the beneficiary can be legally binding or non-binding.
This is largely dependent on the type of nomination the deceased made and the super fund they invested in prior to their death.
If the nomination is binding, the deceased can nominate one or more of their dependents or alternatively, their legal personal representative to receive their super.
If the nomination is non-binding, the trustee of the provider may use their discretion to pay the fund to the non-binding, nominated dependent. They can also make a payment to the executor of the deceased’s estate, to be distributed according to the instructions in the deceased’s will.
In regard to the super death benefit, tax applies differently due to different factors including the type of fund payment (whether it is paid as a lump sum or as an income stream), whether the provider already paid the due tax on the taxable component, age of the beneficiary, and age of the deceased person when they passed.
The death benefits tax can apply to the deceased’s super balance at a rate of 30%, 15% or 0%. If there is tax, medicare levy is also imposed. If there is material super in the deceased’s fund, and they have made a death benefit nomination in favour of one or more of their adult children, tax is payable.
The recommendation about superannuation death benefits tax is that the owner of the super account should appoint a trusted person their enduring power of attorney (EPOA), and also appoint the same person or another trusted person, the executor of their Will, to ensure the appropriate beneficiaries receive the super death benefits with the lowest tax payable on their passing.
Therefore, superannuation is a complex area of law, with many elements designed to help individuals monitor their super and ensure they are being adequately paid by their employer. The tax component is further monitored by the government and legislation, acting to regulate super funds as a whole to ensure financial security for citizens after retirement.
Comasters can advise clients on superannuation issues, including after the super account owner has passed away.
© Comasters June 2022.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this paper. Our formal advice should be sought before acting on any aspect of the above information.
Comasters Law Firm and Notary Public is a commercial legal practice in Sydney. We conduct matters in a range of legal areas. Whilst based in Sydney, Comasters maintains close links with business people across the Asia Pacific region.