The Australian superannuation system is a pension fund scheme in which an employer receives an incentive for contributing to an employee’s long-term retirement income plan. The superannuation must comply with a number of statutory requirements that will help employees maintain a liveable income following their retirement. This system, which was made compulsory by the Australian Government during the 1990s, was implemented with the goal of reliving some of the pressure the social welfare system was under as it attempted to fund retiree pensions during a period in which the nation’s aged population was dramatically rising. The government mandated that employers must contribute a percentage of their employee’s salary into the superannuation system.
The Australian Federal government maintains the constitutional responsibility for legislating on matters relating to superannuation. Federal statutes and common law (case law) govern superannuation with an overlay of taxation legislation the Federal government enacts. The law requires that all employers in Australia support a superannuation fund on behalf of their employees by making a prescribed 9% contribution annually. It’s a good system overall, but things do go wrong from time to time, in which case lawyers in Sydney are called in to sort things out! Investments are made by the superannuation fund to build up retirement savings on the behalf of the employees. The scheme’s large scale gives the superannuation fund plenty of capital for making investments in the international market as well as Australia’s domestic market.
The Superannuation Industry Supervision Act of 1993, called the “SIS Act” for short, is the main Federal enactment used to govern superannuation funds. The entities operating superannuation funds are regulated by legislation that specifies certain requirements pertaining to how the monies under their control are invested. One excellent example is Australia’s second biggest superannuation fund, the Commonwealth Superannuation Scheme/Public Sector Superannuation Scheme, which had accrued 5.4 billion Australian Dollars in net assets by June of 2002!
Under the SIS Act a trust structure must be used for all operations conducted by superannuation entities. In Australia, trusts are a common method employed to protect the assets of an individual, and in some circumstances to provide tax transparency. All trusts, including superannuation funds, fall under the umbrella of trust law, in both legislation and case law forms.
The trustee is the entity that retains legal ownership of contributed funds under a trust structure, but they only manage the funds they are holding, while the beneficiary, in this case the employee, holds the beneficial, or economic interests. The trustee is entitled to invest those funds for the benefit of the beneficiary at its own discretion. It is the strict duty of the trustee to deal with those funds in a prudent and timely manner, and always for the beneficiary’s eventual benefit. It is in the best interests of the trustee to manage the funds wisely because they will be held personally liable for losses resulting from investments deemed imprudent, or that are unauthorised!
The Australian Government Taxation Office has further information regarding the superannuation scheme. We hope we have helped provide a better understanding of this highly valuable program that is helping Australia’s retirees maintain a higher quality of life!
