What is superannuation?
The primary purpose of a superannuation scheme is to provide its beneficiaries with financial resources and other benefits during their retirement.
To provide eventual retirement benefits, both employer-sponsored and personal superannuation schemes:
- receive contributions during the accumulation phase,
- manage the invested contributions, and
- distribute benefits to beneficiaries of the superannuation fund during the draw down phase.
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.
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:
- reaches preservation age, and
- retires from the workforce.
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.
Early release of superannuation benefits - hardship
10.4.3/Early Release of Superannuation Benefits
Chapter 3.10 Financial Hardship
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.
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:
- deeming the current account balance, or
- including the gross annual payments (less a deduction for the return of the original purchase price).