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10.4.1 Overview of Superannuation Funds

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What is superannuation?

The primary purpose of a superannuation scheme is to provide its beneficiaries with financial resources and other benefits during their retirement.    

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What is meant by superannuation

10.4.2/What is Superannuation?

 

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To provide eventual retirement benefits, both employer-sponsored and personal superannuation schemes:

Types of superannuation funds

The two main types of superannuation funds are:

  • accumulation or defined contribution funds, where contributions are defined for employers and employees such as a percentage of salary, and
  • defined benefit funds, where the employee's contributions are defined and the employer contributes whatever additional amounts are needed to meet the fund's obligations to its beneficiaries.    
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    Different types of superannuation funds

    10.4.2/Types of Superannuation Funds

     

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Eligible termination payments

An eligible termination payment is a lump sum payment, made by an employer or a superannuation fund when a person leaves employment, by:

  • retiring,
  • taking voluntary or involuntary retrenchment, or
  • resigning
Roll-over funds

Roll-over funds are approved investment funds for eligible termination payments, some of which must be preserved.

Preserved amounts generally cannot be accessed until the beneficiary:

Early release of superannuation benefits

The superannuation legislation allows early release of preserved superannuation benefits in limited circumstances. Circumstances include severe financial hardship, specified grounds such as medical treatment or permanent incapacity, and in special circumstances where a person has permanently departed Australia.     

 

Assessing superannuation assets

The following factors govern the assessment of a pensioner's superannuation assets by DVA

  • whether the superannuation assets are in the accumulation or draw down phase,
  • the person's age, and
  • the person's history of income support.    
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    Income and Assets Assessment of Superannuation

    Section 10.4.3

     

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Compulsory Superannuation Guarantee payments

Prior to 1 July 2013, the compulsory superannuation guarantee contributions paid by employers are limited to employees under 70 years of age, and are paid at a minimum of 9% of the employee's ordinary time earnings.  This applies whether the person is in full time, part time or casual employment.  Employers are required to pay these amounts into a complying superannuation fund.

From 1 July 2013, the compulsory superannuation guarantee contributions will be extended to people aged 70 years and over.  It is intended that the 9% rate will progressively increase by variable annual increments, reaching 12% in 2019-20.

For a person who has attained pension age, the superannuation fund money (including the compulsory employer contributions) may be held in accumulation mode, with the current value being assessed as a financial asset and deemed.  At the time of converting the superannuation fund money to pension, the income stream rules apply.

It is not necessary for pensioners to notify the Department of their compulsory superannuation guarantee contributions, as they are not assessed as income.  Increases in the value of the superannuation fund investment held in accumulation mode are reportable.

Pensioners also need to notify the commencement of a pension payment by providing an income stream schedule.  The income support assessment depends on the commencement date of the income stream and whether the owner has continuously received an income support payment since 31 December 2014.  The income stream will be assessed by either:

 


 

 

The accumulation phase is the period during a person's working life in which superannuation contributions are paid into a superannuation fund, with the aim of maximising the sum available for retirement through investment and tax concessions.

A superannuation fund is defined in the VEA as being:

  • a fund that is or has been a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993 in relation to any tax year; or
  • an Australian superannuation fund (within the meaning of the Income Tax Assessment Act 1997) that is not a complying superannuation fund mentioned in paragraph (a) in relation to any tax year; or
  • a scheme for the payment of benefits upon retirement or death that is constituted by or under a law of the Commonwealth or of a State or Territory; or
  • an RSA within the meaning of the Retirement Savings Accounts Act 1997; or
  • any of the following funds (unless the fund is a foreign superannuation fund):
  • a fund to which paragraph 23(jaa), or section 23FC, 121CC or 121DAB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989) has applied in relation to any tax year;
  • a fund to which paragraph 23(ja), or section 23F or 23FB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of paragraph (a) of the definition of superannuation fund in former subsection 27A(1) of the Income Tax Assessment Act 1936) has applied in relation to the tax year that started on 1 July 1985 or an earlier tax year;
  • a fund to which section 79 of the Income Tax Assessment Act 1936 (as in force at any time before 25 June 1984) has applied in relation to the tax year that started on 1 July 1983 or an earlier tax year.

The draw down phase is the period, after retirement from the workforce, when a person receives regular payments of superannuation benefits from their superannuation fund or an income stream product.

An employee is someone who is:

  •       under a contract OF service to an employer, and
  •       a salary or wage earner, and
  •       subject to PAYE tax deductions.

An ETP is a payment (usually on retirement or termination of employment) which receives concessional tax treatment according to a specified set of rules. It can be transferred to funds which have been granted similar tax concessions by the government.

To roll-over, in relation to an eligible termination payment, means to invest all or part of the payment in an approved superannuation or roll-over fund, according to the requirements of section 27D of the Income Tax Assessment Act, 1936.

Preservation age is the age at which a person may be able to gain access to preserved benefits held in approved deposit funds, deferred annuities and superannuation. For most people, the preservation age is currently 55.

To access preserved benefits on reaching preservation age, a person must:

  •       be retired from gainful employment;
  •       have reached age 55;
  •       be permanently incapacitated;
  •       be in severe financial hardship; or
  •       obtain release on compassionate grounds.

The person must also meet the conditions of the particular fund's governing rules.

From 2015 to 2025, the preservation age will gradually increase to sixty years for people born after 1 July 1960. The preservation age for people born after 30 June 1964 will be sixty years.

 

 

Section 5J(1) of the VEA defines a superannuation benefit, in relation to a person, as a benefit arising directly or indirectly from amounts contributed (whether by the person or by any other person) to a superannuation fund in respect of the person.

 

 

The Department of Veterans' Affairs.

A superannuation fund is defined in the VEA as being:

  • a fund that is or has been a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993 in relation to any tax year; or
  • an Australian superannuation fund (within the meaning of the Income Tax Assessment Act 1997) that is not a complying superannuation fund mentioned in paragraph (a) in relation to any tax year; or
  • a scheme for the payment of benefits upon retirement or death that is constituted by or under a law of the Commonwealth or of a State or Territory; or
  • an RSA within the meaning of the Retirement Savings Accounts Act 1997; or
  • any of the following funds (unless the fund is a foreign superannuation fund):
  • a fund to which paragraph 23(jaa), or section 23FC, 121CC or 121DAB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989) has applied in relation to any tax year;
  • a fund to which paragraph 23(ja), or section 23F or 23FB, of the Income Tax Assessment Act 1936 (as in force at any time before the commencement of paragraph (a) of the definition of superannuation fund in former subsection 27A(1) of the Income Tax Assessment Act 1936) has applied in relation to the tax year that started on 1 July 1985 or an earlier tax year;
  • a fund to which section 79 of the Income Tax Assessment Act 1936 (as in force at any time before 25 June 1984) has applied in relation to the tax year that started on 1 July 1983 or an earlier tax year.

Currently, the pension age for a veteran is 60 years of age (VEA 5QA).

The pension age for a non-veteran is determined by the table below:

Date of birth (both dates inclusive)

Age Pension age

1 July 1952 to 31 December 1953

65 years and 6 months

1 January 1954 to 30 June 1955

66 years

1 July 1955 to 31 December 1956

66 years and 6 months

On or after 1 January 1957

67 years

 

According to section 5H of the VEA income is:

  • an amount earned, derived or received by a person for the person's own use or benefit;
  • a periodical payment by way of gift or allowance; or
  • a periodical benefit by way of gift or allowance.