08 - Superannuation Lecture 8 BM Ch 13; TJHM Ch 15; CCH Ch...

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1 Superannuation Lecture 8 BM Ch 13; TJHM Ch 15; CCH Ch 4; Day et al Ch 7, 12 2 • Federal Government has identified superannuation as preferred retirement savings method • Super a key investment decision for individuals and an essential element of financial planning • Ageing population will have to provide more for own retirement • Gov’t wants to reduce burden on social security system: • compulsory saving under Superannuation Guarantee (Administration) Act 1992 (SGAA) system • tax incentives to encourage voluntary contributions • Superannuation intended to supplement – not replace - Age Pension Retirement Savings via Super 3 • Indefinitely continuing fund (trust structure) • Provides benefits to members on retirement, or death benefits to dependants on death of member • Governing rules: • trust deed (private sector fund) • Act of parliament or ordinance (public sector fund) • Trust deed specifies: • who may make contributions • who is to receive benefits • circumstances in which benefits are to be paid • how benefits (lump sum, lifetime pension, or mix) are calculated General Characteristics of Super
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4 • Final benefit is accumulated contributions plus earnings, less taxes and charges, over the period invested. Simple investment type of account. • Contributions may be made by employer and/or employee (including the self-employed). • May be set at a % of annual salary or a fixed $ amount • Member bears investment risk - final benefit is ultimately dependent upon fund investment performance • Benefit can be taken as a lump sum or pension • Most super funds and all retirement savings accounts (RSAs) are this type Accumulation Fund 5 • Generally, the employee (member) will contribute a percentage of salary to the fund, as will the employer (private; government schemes are often unfunded) • Benefit is paid at the end of a specified period • Benefit is usually calculated by a fixed formula based on years of service (membership) and final average salary (FAS) • Formula variations exist for resignation, redundancy or early retirement benefits • Sometimes vesting provisions exist • Formula will appear in fund’s trust deed or governing rules Defined Benefit Scheme 6 Benefit Formula Factor of 0.15 x Yrs of service x final average salary Benefit Entitlement 0.15 x 30 x $90,000 = $405,000 • Benefit can be taken as lump sum or sometimes a lifetime pension • Fund contributor (usually employer) bears investment risk. Member benefit ‘guaranteed’. Employee retires after 30 yrs service. Avg salary (FAS) over last three years $90,000
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7 • Concessional tax treatment applies to regulated funds • Regulated fund is one which is: o bound by the Superannuation Industry (Supervision) Act 1993 (SIS) o a resident regulated super fund that is complying under SIS • Must have either: o a corporate trustee o individual trustees and trust deed (primary purpose to provide retirement pensions, option to commute to lump
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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08 - Superannuation Lecture 8 BM Ch 13; TJHM Ch 15; CCH Ch...

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