Superannuation is a long-term savings and investment vehicle that provides tax-advantaged retirement benefits for members and their dependents in the form of lump sums, income or both.
Compulsory superannuation was introduced in 1992 under the Superannuation Guarantee (Administration) Act 1992 which requires employers to provide minimum levels of superannuation support (superannuation guarantee contributions) for most of their employees. The importance of superannuation has grown with the realisation of successive federal governments that the age pension cannot provide an adequate retirement income for many Australians and that superannuation is an essential part of the retirement incomes framework.
Superannuation is not well understood by many people despite the fact that most Australians have superannuation policies. It is important to seek expert legal advice about superannuation, disability and death claims, access applications and ifnormaiton about rights and entitlements.
The main purpose of the compulsory superannuation regime is to provide retirement benefits to members and their dependants. The Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulations 1994 therefore require certain superannuation benefits to be preserved until members retire from the workforce.
Benefits that must be preserved
Under the main preservation rules, the following must be preserved:
- all contributions made from 1 July 1999
- investment earnings accruing in a regulated superannuation fund
- most compulsory employer contributions and related investment earnings paid into a superannuation fund after 1 July 1992
- some award superannuation contributions paid into a fund for the benefit of employees, at least until the termination of their employment with a contributing employer.
When can preserved benefits be paid?
The preserved benefits are usually paid only when a member retires from the workforce on or after reaching the preservation age.
The preservation age
For members born before 1 July 1960, the preservation age is 55.
For members born after 30 June 1960, the preservation age rises progressively to age 60 for those born after 30 June 1964.
Benefits that need not be preserved
Most undeducted employee contributions (that is, voluntary contributions by the employee on which no tax deduction has been claimed) paid into a fund before 1 July 1999 need not be preserved.
Members can access some or all of their preserved benefits before they reach the preservation age in limited circumstances.
The criteria, which are set out in the Act and regulations, have changed a number of times over the years. Currently, early access may be possible if:
- the member is suffering severe financial hardship;
- a payment is warranted on compassionate grounds;
- the member is permanently incapacitated (in which case all preserved benefits are payable);
- the member is temporarily incapacitated (in which case a payment may be made under some conditions for the period of incapacity);
- the member has died (in which case all preserved benefits are payable);
- the preserved balance is under $200;
- the member is a temporary resident of Australia and permanently leaves Australia.
Severe financial hardship grounds
A member may be paid up to $10,000 a year from their preserved benefits if they:
- have received Commonwealth income support for at least 26 consecutive weeks, and
- cannot meet reasonable and immediate family living expenses.
A member over the minimum preservation age may be paid all their preserved benefits whether or not they can meet their living expenses if they:
- have received Commonwealth income support for at least 39 weeks since reaching that age, and
- are not working at the date of the application.
Payment may be made on compassionate grounds if the money is required for:
- the cost of medical treatment for a life-threatening or chronic condition that is not ordinarily available in the public health system for the fund member or a dependant;
- medical transportation costs for treatment required for a life-threatening or chronic condition for the fund member or a dependant;
- loan repayments to prevent a mortgagee sale or foreclosure (only the equivalent of three months mortgage repayments plus twelve months interest on the outstanding mortgage can be paid in any twelve month period);
- the cost of modifications to the home or motor vehicle of a severely disabled member or dependant to accommodate their special needs;
- palliative care expenses of a member;
- palliative care or funeral expenses of a dependant.
Applications on compassionate grounds
These are made to the Australian Prudential Regulation Authority by lodging a standard application form, with certain prescribed documentation.
The authority must be satisfied that the applicant does not have the financial resources to meet the expenses claimed.
Temporary residents who leave
When a temporary resident of Australia leaves the country permanently, all preserved benefits are payable, but usually the concessional tax rate for superannuation payments does not apply.
Any early access is subject to the rules of the relevant superannuation fund, which may restrict such access. For example, some superannuation funds do not allow access on grounds of financial hardship.
How to apply
With the exception of compassionate grounds applications (see above), all early release applications must be made to the relevant superannuation fund and are subject to the evidentiary requirements of the fund.
The benefits of lost or inactive members are protected by:
- the regulations, and
- the Superannuation (Unclaimed Money and Lost Members) Act 1999.
Who is a lost member?
Members are considered lost if:
- a fund has never had an address for them, or
- at least two letters have been returned unclaimed.
Who is an inactive member?
Members are considered inactive if no contributions or rollovers have been received for them for at least two years.
What protection is available?
The full account balance of lost members must be protected whether the account balance exceeds $1000 or not. Protection begins 90 days after a member is determined to be lost.
Paying the benefits into a rollover fund
A fund trustee may choose to roll a lost member’s benefits into an eligible rollover fund rather than maintain the accounts.
Reporting lost members to the Tax Office
Superannuation funds (including eligible rollover funds) must report lost members to the Commissioner for Taxation and provide details, including the members’ withdrawal benefits, every six months.
Finding lost superannuation
The Australian Tax Office maintains a register of lost members with a view to re-uniting people with their superannuation benefits. Members of the public can see details from the register on the Australian Tax Office’s website free of charge. The register is also published annually, and it is a popular resource for members of the public searching for lost superannuation.
A number of companies have sprung up offering to recover lost superannuation on a fee-for-service basis.
The distribution of death benefits under a regulated superannuation fund is generally at the discretion of the trustee, applied in accordance with the terms of the trust deed and subject to the Superannuation Industry (Supervision) Act.
The general principle is that benefits from a regulated superannuation fund are paid to a deceased member’s legal personal representative and/or one or more dependants. If no such person can be found after reasonable enquiries, the trustee may distribute the benefits to other persons in accordance with the trust deed.
Who is a dependant?
Dependants of a fund member include:
- a legally married spouse
- an oppostite-sex or same-sex de facto spouse
- the member’s children, including step-, adopted and ex-nuptial children, and any child of a member's (legal or de facto) spouse (this covers children under 18)
- anyone who was financially dependent on the member at the time of death
- any person who was in an interdependency relationship with the deceased at the time of death.
What is financial dependency?
Financial dependency is defined to include total and partial financial dependency. Although a trustee must be satisfied that the financial dependency is reasonable and not illusory, relatively small financial support has been found to constitute partial financial dependency for the purpose of superannuation death benefit distributions (see Faull v Superannuation Complaints Tribunal (1999) NSW SC 1137).
Children 18 or over who were not in an interdependancy relationship with the deceased at the time of death must be financially dependent on the deceased to qualify as dependants.
An interdependency relationship includes a close personal relationship between two people who live together, where one or both provides for the financial and domestic support and personal care of the other. Children over 18 may be covered by this.
What is taken into account in distribution?
When distributing superannuation death benefits, a trustee usually takes into account a range of factors including:
- the claimant’s degree of financial dependency
- the strength of the claimant’s relationships with the member
- the claimant’s other entitlements to the member’s estate
- the claimant’s age, health, employment and financial circumstances
- the terms of the member’s will
- any non-binding nominations.
No eligible dependant has an absolute right to a superannuation death benefit.
A trustee properly exercising a discretion may distribute the whole of the death benefit to one dependant over others (see Pope & Ors. v Lawler & Ors (1996) WAG 84).
The Superannuation Legislation Amendment Act 1999 allowed superannuation funds to offer members the opportunity to make binding death benefit nominations. If a member completes a binding death benefit nomination in the correct form, the trustee must distribute the death benefits to the nominated beneficiary or beneficiaries in the proportions specified and has no discretion to vary or override the allocation.
Witnessing, renewal and reporting requirements must be met for the nomination to be valid.
Funds are not obliged to offer binding nominations. To date, very few have done so.
Who may be nominated beneficiaries?
A nominated beneficiary must be the member’s legal personal representative or dependant at least at the time of death. There is some doubt as to whether this extends to the date of nomination.
Most superannuation funds offer their members the opportunity to nominate their preferred beneficiaries. Contrary to general perception, trustees are not bound by such nominations.
Is there a valid binding nomination?
Anyone intending to make a claim for a superannuation death benefit should find out whether there is a binding nomination and, if there is, whether the strict pre- conditions for a valid nomination have been met.
Superannuation benefits may affect entitlement to Centrelink payments, depending on whether the benefits are paid as a lump sum or a pension.
Superannuation lump sums are generally exempt from the Centrelink income test (but may be included in the assets test — see below).
Superannuation pensions are usually treated as income, and subject to the Centrelink income test for the purposes of assessment for payments.
A superannuation lump sum will be included in the Centrelink assets test when the benefit is received. While the benefits are retained in a superannuation fund, they will not be included in the Centrelink assets test until the member reaches the age pension age.
In the past, the Family Court has had considerable difficulties in dividing matrimonial property because of the lack of flexibility in the superannuation preservation rules.
The court previously dealt with the problem by either offsetting accrued superannuation benefits against other assets of the marriage, or by deferring property distribution until superannuation benefits are paid out.
Since the Family Law Legislation Amendment (Superannuation) Act 2001 was introduced, the superannuation interests of parties to a marriage can be split by agreement or court decision.
Employers are required to provide minimum levels of superannuation support for most of their employees. These payments are called superannuation guarantee contributions. The contribution rate is currently 9% of ordinary time earnings but will gradually increase to 12% from 1 July 2013 to 1 July 2019.
Non-payment and late payment of superannuation guarantee contributions is a common problem. Workers at risk of not being paid their full entitlements are low paid and non-unionised workers, in particular, workers in small businesses with high failure rates.
Enforcement through the Tax Office
If the employer doesn’t pay the contributions
Where employers fail to provide the minimum level of superannuation guarantee, the Australian Tax Office is responsible for collecting the unpaid superannuation (the superannuation guarantee shortfall plus interest) and distributing the money to the employees’ superannuation funds.
The superannuation guarantee charge
Employers who do not pay full superannuation guarantee contributions on behalf of their employees are required to:
- lodge a superannuation guarantee statement
- pay the superannuation guarantee charge (made up of the shortfall, plus interest and charges).
If an employer fails to lodge a superannuation guarantee statement, the Commissioner of Taxation can issue a default assessment.
The superannuation guarantee charge includes a 10% interest component and an administration component. Further interest also applies if the charge is not paid by the due date.
An employer cannot claim a tax deduction for superannuation contributions paid as the superannuation guarantee charge.
Disability and death payments
The payment and enforcement of superannuation contributions is particularly relevant to disability and death benefits. Insurance cover for these benefits usually lapses if superannuation contributions are not paid by an employer. To remedy this, some superannuation funds have moved to account-based premium deductions.
Notifying the Tax Office
An employee who believes that superannuation guarantee contributions have not been paid can notify the ATO by phone or complete a notification form online using the superannuation guarantee calculator.
What the Tax Office may do
The ATO may investigate the matter and, if appropriate, issue a superannuation guarantee charge assessment and seek to recover the charge from the employer. If an employer fails to pay the superannuation guarantee charge, the Commissioner for Taxation can sue for recovery. The Commissioner cannot seek to recover any death or disability benefits lost because of non-payment of superannuation contributions.
For further information refer to the ATO website www.ato.gov.au.
Superannuation fund members and other beneficiaries unhappy with the decisions or the conduct of fund trustees or insurance companies have avenues of redress, including:
- internal dispute resolution procedures;
- external dispute resolution schemes;
- the civil courts.
See also Life insurance, superannuation and investments in the Complaints chapter.
The federal government agency responsible for the prudential supervision of the superannuation industry is the Australian Prudential Regulation Authority.
The Australian Securities and Investments Commission is the agency responsible for consumer protection and disclosure.
The two supervising agencies have wide powers of investigation and review of the operation of superannuation funds, as well as enforcement powers.
The vast majority of superannuation funds (statutory schemes and retirement savings accounts are exceptions) are set up under trusts. A trust is a legal arrangement in which a person or company (called the trustee) holds assets (the trust property) for the exclusive benefit of someone else (the beneficiaries).
The law of trusts developed centuries ago in the England in relation to charitable trusts, and it has progressively applied to other financial products.
Superannuation funds have been set up under trust arrangements despite concerns that centuries-old trusts principles are a poor fit for schemes that provide benefits in a commercial or employment context.
The rights and obligations of trustees and fund members of private regulated superannuation funds are set out in documents called trust deeds, which can be long and detailed. They specify:
- who can be a trustee or director
- procedures for appointing and removing trustees or directors
- employer and member contribution rates
- investment rules
- formulas for calculating benefits
- when payments can be made
- death benefit payment standards
- procedures for winding up funds and distributing assets.
Death and disability benefits
If death and disability benefits are underwritten by an insurance company, benefits payable and the circumstances in which they are paid may depend on the terms of the insurance contract.
Public sector schemes
Most public sector schemes were established under Acts of parliament, with rules contained in legislation rather than trust deeds. However, some state superannuation schemes have been privatised, and their governing rules have changed from statutory provisions to trust deeds.
Trustees are responsible for operating a fund in accordance with the terms of the trust deed, the federal prudential regulations and other statutes. The trustee can be one or more persons, or a corporate trustee with a board of directors.
Regulated funds (with five or more members) must have equal numbers of employer and member trustees (or equal numbers of employer and member directors of a corporate trustee).
Large funds can have independent or professional trustees approved by the Australian Prudential Regulation Authority.
Funds must have procedures for electing and replacing member representatives. In practice:
- member representatives are either elected by ballot of members or appointed by related unions or representative organisations
- employer representatives are usually appointed by participating employers or industry associations.
The Act requires that trustees or directors must be replaced in the same way as they are elected. Beyond that, it is a matter for the trust deed to specify the appointment and replacement procedures for trustees or directors.
Duties of trustees
Trustees must act in accordance with the relevant trust deeds and with the provisions of the Act. They have statutory obligations to:
- act honestly
- act in the best interests of beneficiaries
- act with due care, skill and diligence
- act impartially
- not make a profit from the fund unless the trust deed specifically provides for it
- keep their personal investment interests separate from those of the fund
- keep proper records and formulate appropriate investment strategies.
Trustees also have prescribed reporting obligations to members, including:
- providing annual statements with specific information
- notifying exiting members of any death insurance benefits at the date of termination and any continuation options for insurance.
Professional advice and indemnity
Trustees may seek legal, auditing, actuarial and investment advice from appropriate independent and qualified people. However, trustees remain ultimately responsible and accountable for fund management.
Superannuation funds carry professional indemnity insurance for their trustees.
Under the Superannuation Industry (Supervision) Act, regulated superannuation funds must establish internal dispute resolution mechanisms to deal properly with enquiries and complaints by members and other beneficiaries.
Regulated superannuation funds are required to inform their members of their internal dispute resolution procedures.
How to complain
Members or beneficiaries who want to complain about a decision made by a superannuation fund trustee should write to the trustee requesting a reconsideration under s.101 of the Act.
The person should:
- explain in detail why they believe the decision was wrong
- enclose copies of relevant documents, such as medical reports for disability benefit claims or documents showing financial dependency for death benefit claims.
It is very important to get expert advice and to make sure that submissions and documentation support the complaint being made and deal with the relevant issues.
A complaint to the Superannuation Complaints Tribunal must be in writing and accompanied by copies of all relevant documents. Complaint forms, which must be completed and signed by the complainant, are available from the tribunal.
Tribunal staff can assist with completing the form and provide information about how the process works, but the tribunal does not provide legal advice on how complainants should pursue or present their complaints.
If the tribunal is satisfied that it can deal with a complaint, a case officer will require the respondents to provide all relevant information and documentation, including:
- trust deeds
- insurance contracts
- internal memoranda
- minutes of trustee meetings
- medical reports
- surveillance material.
Copies of all documentation sent to the tribunal are forwarded to the other parties.
If the tribunal believes that any parties should provide further documentation, it can require them to do so.
If the tribunal determines that third parties, such as life insurance companies in disability claims, should be joined to the complaint, it may determine to do so and notify the parties.
Complainants are not entitled to legal representation unless the tribunal agrees that legal representation is appropriate, because:
- the complainant is suffering a disability
- the complaint is complex
- other parties will be represented
- for other reasons.
In fact, many complainants are represented. Complainants often need to be represented or assisted by a lawyer with relevant expertise; for example, in disability or death benefit claims.
Some lawyers will act for complainants on a ‘no-win, no-charge’ basis.
Once relevant information and documentation has been exchanged, the tribunal will enquire as to whether the parties are prepared to participate in conciliation to attempt to resolve the complaint.
If all parties agree, conciliation will take place in a face-to-face meeting, telephone hook-up or, perhaps, video link.
The review meeting
If conciliation fails to resolve a complaint, the tribunal will conduct a review meeting to consider the complaint and determine the matter.
The tribunal generally only considers written evidence, though it can also hold hearings. All parties are invited to lodge written submissions before the meeting. The submissions are exchanged, and each party can file a written reply.
It is very important to make detailed submissions and replies that identify and deal concisely with the issues in dispute. Supporting documentation, such as medical evidence in disability benefit complaints, should address the requirements and help establish an entitlement.
The tribunal decision
The tribunal must produce a written decision, with reasons, and send a copy to all parties. If a complaint is upheld, the tribunal will specify what the remedy is to be.
If the decision was not unfair or unreasonable
If the tribunal determines that the decision complained of was not unfair or unreasonable in the circumstances, it must affirm the decision.
If the decision was unfair or unreasonable
If the tribunal determines that the decision complained of was unfair or unreasonable, it may:
- require the trustee or insurer to reconsider the matter
- vary the decision
- set aside the decision and substitute its own decision.
If a matter is to be sent back to the trustee, the parties may be given the opportunity to return to the tribunal if the matter is still not resolved.
In superannuation disability claims, the tribunal may determine to pay the disability benefit together with interest, which may be calculated under the superannuation fund’s relevant crediting rates or under s.57 of the Insurance Contracts Act.
Limits on the tribunal’s powers
The Federal Court has consistently found that the tribunal’s role is not to decide for itself the correct or preferable decision, but whether a decision is unfair or unreasonable in the circumstances.
This is particularly relevant to disability benefit complaints, which usually involve a contest between competing medical opinions.
If a superannuation dispute is about the payment of a disability benefit that is an insurance benefit under a group life insurance policy, it may be possible to lodge a complaint to the Financial Ombudsman Service, which can deal with complaints from persons claiming a beneficial interest under a life insurance policy.
Accordingly, the service has the power to deal with complaints about superannuation disability insurance benefit claims even though the complainant is not the policy-holder.
The service can only review the decision or conduct of a life insurance company that is one of its members, and has no power to review the decisions or conduct of superannuation fund trustees. There are limits on its review powers, including limits of:
- $250,000 for insurance lump sums
- $6000 per month for insurance income protection policies.
The Financial Ombudsman Service does not have the time limit restrictions on reviewing total and permanent disability claim decisions that apply to the Superannuation Complaints Tribunal, but there is a general six year limitation period for lodging complaints.
The powers and procedures of the service are dealt with in Insurance.
Appeals against Superannuation Complaints Tribunal decisions, on questions of law only, can be lodged with the Federal Court.
The tribunal may also refer questions of law directly to the Federal Court.
In practice, there are few appeals, and most are lodged by trustees or insurers.
Appeals must be lodged within 28 days of receiving written notice of the decision. The Federal Court may extend this time.
A significant number of superannuation disputes are outside the jurisdiction of the Superannuation Complaints Tribunal and the Financial Ombudsman Service. In such cases, it may be necessary to consider civil court action.
For other superannuation claims, civil court action may be preferred for other reasons. For example, dispute resolution schemes have poor settlement rates compared with most civil courts.
Attitude of the courts
Most superannuation trust deeds give trustees broad discretionary powers, and the courts have traditionally been reluctant to interfere with the exercise of trustee discretions. A court will not set aside a trustee’s decision simply because it would have reached a different decision on the evidence.
When the court will review a trustee’s decision
Generally speaking, the courts will only review a trustee’s exercise of a discretion if the trustee:
- acted in bad faith
- acted for an improper purpose
- did not give genuine consideration to the exercise of the discretion
- gave reasons for a decision and the reasons were not sound
- acted in a manner or made a decision that no no reasonable trustee would have done.
Even if a civil court does review a trustee’s decision, it will not always substitute its own decision. Rather, it may refer the matter back to the trustee for reconsideration.
For superannuation disability claims that include an insurance benefit, it may be possible to join the relevant life insurance company as a defendant to any civil court proceedings. However, the courts’ powers of review of any insurance company decision may also be limited.
The NSW Statute of Limitations Act 1969 imposes time limits on civil court action against a superannuation fund trustee or an insurer.
It is very important to seek expert legal advice before commencing civil proceedings.
If a complaint to a regulated superannuation fund is not satisfactorily resolved within 90 days, the person can lodge a complaint with an external dispute resolution scheme, the Superannuation Complaints Tribunal. Regulated funds must inform members of the right to take a complaint to the tribunal.
The Superannuation Complaints Tribunal was set up under the Superannuation (Resolution of Complaints) Act 1993 to resolve complaints against regulated superannuation funds.
The tribunal’s aim is to be fair, economical, informal and quick in dealing with complaints. There are no filing fees or charges. No costs can be awarded against an unsuccessful complainant, and successful complainants cannot recover costs against other parties to the complaint.
The tribunal deals with thousands of enquiries and hundreds of complaints each year.
What can be complained about?
A complaint must be about a decision or conduct that a fund member or beneficiary alleges was unfair or unreasonable.
Who can be complained about?
Complaints can be lodged against the superannuation fund trustee. Other parties, such as insurance companies and claims assessors, can be joined to the complaint.
What the tribunal cannot consider
The tribunal cannot consider some types of complaints, including:
- a complaint that has not been first raised through the fund’s internal complaints process – a person must receive an unsatisfactory response or no response within 90 days before loding a complaint with the Superannuation Complaints Tribunal;
- complaints about the management of a fund as a whole, such as investment performance;
- complaints about non-regulated superannuation funds, such as those with less than five members and some public sector funds;
- a complaint that has been or is being dealt with elsewhere, such as in a civil court;
- complaints about a decision relating to the payment of a total and permanent disability benefit if the claim was not made within two years of the member permanently ceasing work, or the complaint to the tribunal was not made within two years of the first decision of the trustee to refuse payment;
- complaints that the tribunal regards as trivial, vexatious, misconceived or lacking in substance;
- complaints against an employer’s failure to pay contributions (complaints about unpaid superannuation can be directed to the Australian Taxation Office);
- a complaint about a life insurance product that is not an annuity or superannutaion product e.g. life insurance (these complaints should be directed to the Financial Ombudsman Service).
The most common complaints to the tribunal are about:
- decisions on the distribution of superannuation death benefits;
- the rejection of superannuation disability benefit claims;
- the miscalculation of benefits;
- failure to provide information or documentation;
- the imposition of fees and charges by trustees;
- unreasonable delay in payment and miscalculation of a benefit payment, or contribution.
Complaints outside the tribunal’s jurisdiction
Nearly half the complaints the tribunal receives are outside its jurisdiction, primarily because:
- complaints have not been through the internal review process of the superannuation fund, or
- complaints about decisions on total and permanent disability claims are lodged outside the 12 month time limits.
If the tribunal determines that a complaint is outside its jurisdiction, it will notify the parties in writing, usually after giving the complainant the opportunity to make submissions as to why the complaint should be found to be within its jurisdiction.
In addition to the time limits on total and permanent disability claims, complaints generally must be lodged with the tribunal within 12 months of the relevant decision. If in doubt a complaint should be made as soon as possible and the Tribunal will advise whether they can deal with it.
Extensions of time
The tribunal can extend the time limit if it thinks it is reasonable in the circumstances, although it currently has no discretion to extend the time limits on total and permanent disability claim decisions.
Complaints about death benefits
A complaint about the payment of a superannuation death benefit cannot be made to the tribunal if the person claiming the benefit:
- was notified in writing that any complaint against the trustee’s decision must be lodged within 28 days, and
- did not lodge the complaint within that time.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.