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Lecture 2

Week 2

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Queensland University of Technology

1 AYB240 – SUPERANNUATION REGULATION AND PRACTICE LECTURE 2: STRUCTURE OF THE SUPERANNUATION SYSTEM Regulated Super Funds  Comply with SIS Act to be eligible for concessional tax treatment o Subjects itself to regulation under SIS Act  Conditions for “complying superannuation fund” o Resident regulated superannuation fund o No contraventions of ‘regulatory provisions’ OR  Eg comply with SIS and ITAA o Contraventions do not fail ‘culpability test’  Not applicable to SMSF as all members are trustees  Employers MUST contribute to a compliant fund Consequences of Non-Compliance • Loss of tax concessions (15%) • 15% rate provided to give incentive for savings • Pay 45% tax on Income AND Market value of assets (Excluding any non-concessional components) Types of Benefit Structures  Accumulation (defined contribution) funds o Also referred to as defined contribution (DC) funds o Members’ final benefit is an accumulation of contributions and earnings thereon  Most funds are this type  Similar to a bank account  Defined benefit (DB)funds o Final benefit is usually determined by combination of members’ final salary and years of service  These are now closed to new members  No benefit to employers  Popular overseas  Hybrid funds o Fund has members with both DB and DC benefits Types of Super Funds  Corporate o Established by a company (or other private sector entity) for its employees  Eg QANTAS o Single employer-sponsor o Traditionally benefits covered only higher level employees eg management/executives o Coverage expanded with introduction of SG o Rapid decline in numbers – closed or transferred to master trusts  June 1999: 3,332 funds  June 2010: 168 funds - most significant change of all funds  Now managed by large financial institutions  Industry o Established to cover workers in particular industries and in response to award super and SG 2  E.g. HESTA Super Fund o Multiple employer sponsors o Large numbers established with introduction of Award Superannuation o Agreement between employer groups and trade unions o Numbers reduced with mergers  June 1999: 101 funds  June 2010: 65 funds  Public sector o Cover federal, state or local government employees and employees of other government authorities  E.g. QSuper o Traditionally provided defined benefits (DB) to all permanent employees o All (except one ) closed DB section to new members o Future Fund established to address federal govt’s unfunded liability for remaining DB members ($72b at 31/12/2010) o Now provide defined contribution (accumulation) benefits for new employees o No significant change in numbers  June 1999: 41 funds  June 2010: 39 funds  Retail o Established by financial institutions (e.g. banks, insurance companies) as part of wealth management business offering o Personal superannuation products to individuals o Master trusts for employees of corporate entities  E.g. AMP SignatureSuper o Some decline in numbers with mergers and closures  June 1999: 238 funds  June 2010: 154 funds o Assets under management grown with corporate fund closures  Small APRA funds Self-managed super funds o Also known as Do-It-Yourself (DIY) funds o 4 or LESS members o All members are trustees and memebrs o Significant growth in numbers  June 1999: 192,000 funds  June 2010: 430,000 funds MAJOR GROWTH AREA • Pooled superannuation trusts (PST) • Retirement savings accounts • Other Comparison of Fund Types Corporate Industry Public Sector Retail SMSF Not for profit      3 Retain if change employment    ?  Investment choices Fewer Fewer Fewer More More Control of investments    ?  Economies of scale      Fees Lower (or none) Lower Lower Higher Lower Insurance costs Higher Lower Lower Lower Higher Compliance costs Lower Lower Lower Higher ? Time costs for members Lower Lower Lower Higher Very High Member representation   ? ?  Regulation of Superannuation  Multiple pieces of legislation o Direct regulation o Indirect regulation  Administered and enforced by 3 key regulators o Australian Prudential Regulation Authority (APRA) o Australian Securities and Investments Commission (ASIC) o Australian Taxation Office (ATO) 4 Direct Regulation  Superannuation Industry (Supervision) Act 1993 (SIS Act)  Corporations Act 2001  Financial Sector (Collection of Data) Act 2001
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