The Law Handbook 2024

Chapter 5.6: Superannuation 411 superannuation fund or the ATO. In United Super Pty Ltd v Built Environs Pty Ltd [2001] SASC 339, it was held that a super fund was in breach of trust and in breach of contract when it did not inform a member that payments by the employer had ceased. However, the ATO is not active in enforcing payment; the charge is paid only if the employer is still solvent and the employee misses out on benefits. There may be a cause of action against the employer if insurance benefits have been lost. First-home Super Saver Scheme First-home buyers can make voluntary super- annuation contributions of up to $15000 a year – and a maximum of $50000 over more than one year – to their superannuation account for the purpose of purchasing a first home to live in. This provides the taxation advantage that investment returns on such amounts are taxed on a concessional basis. Choice of superannuation fund About half of Australia’s employees can choose the superannuation fund into which their contributions are paid. The choice made could have a big effect on the type and amount of benefit available, and it is worthwhile considering the benefits available before a choice is made. The first thing to consider is the type of benefit you currently have and the varieties of fund available. If the employee does not nominate a fund, the employer will pay the benefit into a default fund. All default funds (except ‘retirement savings account’ funds) have to offer minimum age-based death insurance and many funds provide some level of disablement insurance. Types of benefits There are two basic types of benefits: • defined benefits; and • accumulation benefits. Defined benefits The defined benefit fund pays a set benefit, usually a multiple of the worker’s annual salary, perhaps averaged over the three years before retirement on ceasing work. The worker has to have a considerable number of years of service before the full benefit is paid. If the worker leaves before the minimum number of years for a full benefit, the benefit is usually calculated on years of service and salary. This has the effect that the higher paid and longer serving employees benefit the most. The investment performance of the fund does not affect the benefit paid. The employer takes the risk of the investment performance of the fund. Public service schemes and company schemes are often of this sort. The benefits are generous in comparison to the accumulation funds discussed below, and these schemes are becoming rarer. Advice should be taken before moving funds out of this sort of scheme. Accumulation benefits The other sort of scheme, the accumulation fund, repays contributions together with whatever investment income has been obtained. This means that the final benefit paid depends on the amount originally contributed (less tax and administration fees) and whatever return the investment of that amount has produced, for the time it has been in the fund. Obviously, the contributor (rather than the employer) takes the risk of poor investment performance, or that (for example) the share market is depressed at the time of retirement. Varieties of superannuation funds There is a variety of superannuation providers. For many employees, their award or other agreement used to (but in many cases no longer does) require contributions to a particular fund. Often, this fund is controlled jointly by employers and unions, a so-called ‘industry fund’ covering many employees in a particular industry. For example, the Construction and Building Unions Super fund covers workers in the building industry, although most funds are now trying to attract members outside their traditional base. These funds are generally run on a not-for- profit basis, so administration fees are usually low. Employers and unions are represented on the board of the trustee, which makes decisions about where the contributions are invested and what benefits are available to members. In other cases, the employer sets up or arranges a particular fund for its employees, and the employer