Superannuation

Based on the contribution of Paul Bingham for The Law Handbook 2016 published by Fitzroy Legal Service, as amended by JoanneLau, Elizabeth Thomson and PhillipMoney and current to 1 May 2016

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. Essentially, superannuation is a way to save money for retirement.

Since the introduction of compulsory employment superannuation in 1992, superannuation is now likely to be the single most valuable asset accumulated by ordinary Australians during their working life. This has major implications for wills and estate law, family law and bankruptcy law.

Total superannuation assets in Australia reached $2 trillion in December 2015.

This section explains how the superannuation industry is structured and regulated, types of benefits and when they are payable, and other issues such as death and disability benefit claims, dispute resolution and family law.

Superannuation law and practice is likely to continue to change, particularly the superannuation guarantee contribution rate, tax concessions, and tax rates, so it is important to consult relevant agencies including the Australian Taxation Office and others listed in the Useful Contacts section below for the most up to date and accurate information. It is also important to consider obtaining independent financial advice, as opposed to, and perhaps in addition to legal advice, when making decisions about superannuation.

The History of Superannuation

Superannuation has existed in Australia since the 19th century. Federal, State and Territory governments have long offered statutory benefits to public servants, although for many years access was limited to full-time employees, and some schemes had restrictions on access for women, particularly married women.

Similarly, large corporations have offered their employees loyalty superannuation schemes for decades. Many such employer-sponsored schemes were heavily biased towards long-term employees by vesting rules. These had the effect of discriminating against women, who often had broken work patterns. Life insurance companies have been selling agent-driven personal superannuation policies for many years.

Award superannuation

The first of two major developments in superannuation in Australia occurred in the mid-1980s when the Federal Government negotiated a 3% occupational superannuation contribution to be paid by employers on behalf of their employees as a trade-off for a national wage increase. The superannuation contribution was to be delivered through the award system.

By the late 1980s occupational superannuation covered a substantial proportion of the workplace. Employers were obliged to pay minimum levels of contributions, usually into nominated industry funds set up by unions and industry associations. However, not all workers were covered by awards, and not all employers complied with their superannuation obligations.

The superannuation guarantee

In the late 1980s, the Federal Labor Government developed a retirement incomes strategy in recognition that the ageing of the 'baby boomer' generation would compromise the ability of future governments to fund the age pension. The strategy had three components:

1. compulsory superannuation;
2. voluntary superannuation; and
3. means-tested age pensions.

Generally, voluntary superannuation was to be encouraged by tax incentives, while reliance on the age pension as the main provider of retirement income was to be discouraged.

The centrepiece of the policy was the introduction of compulsory employment-based superannuation under the Superannuation Guarantee (Administration) Act 1992 (Cth). From July 1992 employers were required to provide minimum levels of superannuation support for most of their employees.

Contributions

Superannuation guarantee

The Superannuation Guarantee (Administration) Act 1992 (Cth) sets the superannuation guarantee contribution rate which has progressively increased and has now reached a minimum of 9.5%.

Superannuation guarantee contributions are based on an employee's 'ordinary time earnings', which usually includes wages, salary, commissions, shift loadings and bonuses, but not overtime, leave loadings and workers compensation payments.

The Superannuation Guarantee (Administration) Act 1992 (Cth) has the practical effect that an employer must contribute 9.5% of ordinary time earnings as superannuation for its employees into a superannuation fund unless the employee:

• is paid less than $450 a month;
• is not a resident of Australia and the work is done outside Australia; or
• is under 18 and working part time.

Contributions are made to complying superannuation funds or retirement savings accounts and should be made within 28 days of the end of the relevant calendar quarter.

The 9.5% is calculated against ordinary time earnings up to a quarterly limit. In the 2015/2016 financial year, this limit is $50,810. This equates to a total maximum contribution of $203,240 annually.

The ATO has provided guidance about what ordinary time earnings means in Superannuation Guarantee Ruling SGR 2009/2, which is available on its website (at www.ato.gov.au/super). ATO rulings provide guidance only and do not have the force of law.

In relation to an employer and employee for the purposes of employer superannuation guarantee contributions, the Superannuation Guarantee (Administration) Act 1992 (Cth) contains broad definitions similar to the common law definitions and extending them in some cases. A number of court decisions have adopted a narrow view of the status of some independent contractors.

Different rules apply to defined benefits superannuation schemes. For an explanation of defined benefits superannuation funds (see Types of superannuation funds below).

Superannuation guarantee levy

If an employer does not pay the super guarantee contribution to an employee's superannuation fund by the due date, the employer may have to pay the superannuation guarantee charge. This charge is made up of a contribution amount calculated on the employee's salary or wages (that may be more than ordinary time earnings), interest on these amounts, and an administration fee.

Salary sacrifice

If the employer and the fund agree, an employee may make further contributions in addition to compulsory employer contributions under the superannuation guarantee scheme, within strict limits, under salary sacrifice arrangements. This can mean that instead of paying tax at the individual's marginal tax rate on the amount sacrificed, tax is paid at a concessional rate of 15%. This will still usually be a lower tax rate than the marginal rate that would otherwise apply. See Tax Concessions below.

Personal contributions

An individual can voluntarily make additional contributions to their superannuation fund. These are contributions made from an individual's after tax income. These contributions are capped and specific rules apply to persons under 65 years of age and persons 65 years of age and over.

Generally, no tax benefit is obtained by a voluntary contribution by an individual, although the income and capital gain later obtained on that contribution is taxed at concessional rates. Self-employed persons may obtain tax deductions depending on earnings and age. See Tax Concessions section below.

Co-contribution

In certain circumstances, persons may be eligible for a superannuation co-contribution paid by the government. This generally applies to low-income earners. Where an eligible low-income earner makes a personal contribution (see Personal Contributions ), the government will also make a contribution to their superannuation fund, up to a maximum amount of $500.

Spouse contributions

A person can make a spouse contribution or arrange contribution splitting for a low earning spouse who is not accumulating significant employer superannuation guarantee contributions. Tax offsets are available for the contributing spouse.

Tax Concessions

The federal government encourages people to save for retirement by providing superannuation tax concessions. There are three points at which tax is important to your superannuation: when money goes into the fund, while it is there, and when it comes out.

Money contributed to superannuation can be taxed at 15%. If a person earns $37,000 or less, they effectively pay 0% tax on their contributions. If a person earns over $300,000, additional tax needs to be paid. When compared to the tax rates for personal income tax, the superannuation tax rates provide a tax saving. Caps on concessional contributions, including employers' compulsory contributions, salary sacrifice contributions, and any contributions claimed as a tax deduction apply.

Money in a superannuation fund can make income and capital gains that are taxed at concessional rates while the fund has not yet started to pay a benefit, but are not taxed after the fund has started to pay a benefit.

Money that comes out of the fund is not taxed, unless the money comes out before the beneficiary has turned 60 years of age. There may also be tax free components of a lump sum and a low rate cap concession that reduce tax on lump sums taken below age 60. Superannuation income is not treated as income for tax purposes, meaning that other earned income benefits from a lower marginal rate. Public sector superannuation is treated differently. Disability income streams are also treated differently.

Small accounts

The member protection rule that prohibited the reduction of superannuation accounts of $1,000 or less by a fund's administrative fees was abolished from 1 July 2013. There are specific instances where a small amount of superannuation can be considered to be part of a small and insoluble lost member account and transferred to the ATO, thereby not being reduced by fees. See Lost Superannuation below.

Lost superannuation

When a worker goes from one job to another, they may to join a different fund. It is important that the money in any previous fund is not forgotten. The money can be moved or rolled over to one fund.

An alternative for people who have many small jobs is to start a retirement savings account with a financial institution, into which all employers can pay small amounts of superannuation.

All superannuation providers must report lost superannuation members to the ATO. A lost member can be (amongst other things) an inactive member (deemed inactive if no contributions have been made in the last five years) or cannot be contacted. The ATO keeps a register of lost money or members.

Types of superannuation funds

Accumulated benefits funds and defined benefits funds

There are two different methods used for calculating superannuation benefits:

1. accumulated contributions; and
2. defined benefit payouts.

Accumulation fund

Accumulated contributions funds are the most common. They work by a member and/or their employer paying superannuation contributions into the member's own account in the fund, then the fund's assets are pooled and invested, and then the investment earnings are credited to members' accounts. Administration costs, insurance premiums and taxes are deducted from the accounts, although in some employer-sponsored funds the employer pays some or all of the administration or insurance costs.

The individual, rather than the employer, takes the risk of any poor investment performance that would affect accumulation and payout.

Accumulated contributions funds often include insurance benefits for death and disability, funded through premiums deducted from contributions paid or from the account balance. Most of the larger funds offer death and disability cover at cheap premium rates and without evidence of health up to automatic acceptance levels of cover.

Defined benefits

In defined benefit funds, the benefits are determined by a formula set out in the trust deed. They are usually based on a member's final salary (or average salary over a specified number of years), years of service and rate of member contributions. While member contribution rates are usually fixed, employer contribution rates are not. The employer pays whatever is necessary to finance the benefits after taking into account the fund's assets.

Members are paid a defined amount regardless of the investment performance of the fund. Under some schemes, if members leave before retirement, they may be entitled to a benefit based on a reduced formula, or accumulation-style benefits.

Defined benefit funds usually include death benefits and total and permanent disability benefits, often calculated on the same basis as normal retirement benefits. Many also include salary continuance benefits paid as fortnightly or monthly pensions, calculated as a percentage of a member's salary (for example, 70% or 75%) and payable for up to two years, or sometimes to retirement or death.

The death and disability benefits may be offered without evidence of good health, although they are sometimes subject to exclusions for pre-existing conditions. The benefits are often underwritten under a group life insurance policy.

Industry funds

Industry superannuation funds arose out of occupational award superannuation from the mid-1980s. When awards were amended to make occupational superannuation compulsory, most specified that contributions were to be paid into an employer-sponsored fund or nominated industry fund. This is less likely today. Industry funds were created from scratch under arrangements between unions and industry associations. They quickly grew in membership, with many participating employers in particular industries.

Industry funds have equal employee and employer representation on trust boards, with employee representatives from unions and employer representatives from industry associations. Some now offer membership to the public.

Industry funds are invariably accumulated contributions schemes, with very low levels of fees and charges, disability and death benefits at heavily discounted rates and no entry or exit fees. Most have earned reasonable investment returns for their members over the years. Some have become very large, with hundreds of thousands of members and growing asset bases.

Industry superannuation funds include:

• the Retail Employees Superannuation Trust (known as REST);
• the Construction and Building Unions Superannuation Scheme (CBUS); and
• Australian Super (the result of a merger between the Superannuation Trust of Australia and the Australian Retirement Fund).

The size of the larger funds has provided economies of scale in administration and investment and in insurance product advantages. Some funds also offer other fringe benefits such as discounted home loans, health insurance and financial advice.

Corporate superannuation funds

Employer-sponsored corporate superannuation funds known as 'company schemes' have traditionally been generous defined benefit funds with compulsory member contributions, and death and disability benefits often calculated in the same way as full retirement benefits. Fees and charges are often subsidised by the sponsoring employer or fund surpluses.

The old-style vesting rules which restrict access to benefits for early retirees have gradually disappeared from corporate superannuation funds, and there has been a shift towards accumulated contributions funds as government prudential requirements and taxation formulas have become more complex.

Public sector funds

Federal

The Federal Government set up statutory superannuation funds for its public servants in the early 20th century. Commonwealth schemes such as the Commonwealth Superannuation Scheme, the Public Sector Superannuation Scheme and the Military Superannuation and Benefits Scheme are generous defined benefits funds with compulsory member contributions and pension/lump sum benefits based on periods of membership, salary rates and the member's status on retirement.

The scheme also provides generous death and invalidity benefits, although under the Military Superannuation and Benefits Scheme the rate of an invalidity pension depends on the classification of the seriousness of the invalidity.

The dispute resolution mechanisms for Commonwealth public sector funds are the same as for private regulated funds.

Northern Territory

On 9 August 1999 the Northern Territory Government closed access to the generous public service superannuation schemes known as the Northern Territory Government and Public Authorities Superannuation Scheme (NTGPASS) and the Northern Territory Supplementary Superannuation Scheme (NTSSS).

Public sector employees who commence employment after this date must join an external superannuation fund. Newly employed public servants can choose any complying superannuation fund into which their public sector employer will pay the minimum superannuation guarantee contributions. If no fund is nominated, the NT Government will pay the superannuation guarantee contributions into Australiansuper, the default fund selected by the NT Government.

NTGPASS covers permanent and fixed term employees who started working in the public service after 1 October 1986. NTSSS, which started on 1 January 1989 and also closed in 1999, covers most public servants including permanent, full-time, part-time, temporary or casual employees, contractors, board members and office holders.

The NT Superannuation Office, a branch of the NT Treasury, administers NTGPASS, NTSSS and certain other NT public sector funds, namely the Legislative Assembly Members Superannuation Scheme (closed 2005), the NT Police Supplementary Benefit Scheme (closed 1986) and the NT Administrators Pension Scheme (closed 2006).

NTGPASS is a lump sum or defined benefit scheme with compulsory member contributions. NTGPASS's lump sum benefits consist of the accrued accumulation account balance and the accrued employer component determined by a formula based on salary, years of service and status on retirement. Death and invalidity benefits, which may be payable even if a member is on leave without pay, are supplemented by an additional employer financed benefit if a member has dependants at time of death or invalidity. This benefit is equivalent to 17.5% of benefit salary foregone to maximum retirement age.

'Benefit salary' is arrived at by a formula set out in the NT Government and Public Authorities Superannuation Scheme Rules. Subject to certain adjustments, benefit salary is the average of the last three contribution salaries before the exit date. 'Contribution salary' means the actual annual rate of salary and approved allowances.

By definition NTGPASS members are also members of NTSSS. NTSSS is a non-contributory lump sum or defined benefit scheme which provides an employer-financed benefit based on 3% of salary for each year of service since 1 October 1988. The NTSS was altered in 1992 to take account of the introduction of the Commonwealth superannuation guarantee contribution legislation. NTSS is not a fund and therefore there are no member contributions or rollover provisions. Benefits are paid to a member when they leave the job.

NT public sector funds are governed by the Superannuation Act ,the Northern Territory Superannuation Regulations, the Northern Territory Superannuation Rules, the Northern Territory Superannuation Guarantee (Safety Net) Act and the Northern Territory Supplementary Superannuation Scheme in the form of an Instrument. The SA establishes a Superannuation Commissioner and an appeal process from decisions of the Commissioner to the Northern Territory Civil and Administrative Tribunal.

NT public sector funds are specified under the Superannuation Industry (Supervision) Act 1993 (SISA) and its regulations as being an exempt public sector superannuation schemes and therefore not subject to the degree of regulation under the Federal Government regime as are private sector superannuation funds. The NT public sector superannuation funds are managed within the NT Treasury office and subject to the transparent accounting, auditing, budgeting and reporting requirements of government. The political accountability of government and the effective government guarantee attaching to these funds means that they are far less risk adverse and more transparent than private sector funds.

Master trusts

Master trust superannuation funds are created by life insurance companies, trust companies, trustee companies and other financial services providers and are usually offered to employers. They have a single corporate trustee and a trust deed and allow many companies to participate, although employers often have their own subplan. They pool contributions for investment, with returns credited to members' accounts after the deduction of fees, charges and taxes. Many also offer death and disability benefits, often provided by related life insurance companies.

Master trusts are regulated superannuation funds and are subject to the federal prudential requirements, including preservation and dispute resolution standards.

Retirement savings accounts

Retirement savings accounts commenced in 1997 as an initiative of the Federal Government. Mainly offered by the banks, they provide a simplified superannuation product without some of the prudential requirements of trust-based schemes.

Retirement savings accounts must be capital guaranteed, and each account is credited with a set percentage of interest each year. They are low risk products with low rates of return, and many have low levels of fees and charges. They may also have death and disability insurance benefits.

Retirement savings accounts are designed to be short-term investments for people in casual or short-term employment. An account provider is required to notify account holders of alternative products once their account balance reaches $10,000.

They are subject to the same preservation, payment, member protection and dispute resolution rules as other regulated superannuation funds.

Self-managed Funds

Self-managed funds must have no more than five members, involve a family and/or business relationship between members, and have no external trustees. They have a different prudential regime from regulated funds. Self-managed funds differ in relation, among other things, to reporting, investment and dispute resolution. The Superannuation Complaints Tribunal has no jurisdiction over self-managed funds.

Self-managed funds must comply with the Superannuation Industry (Supervision) Act 1993 (Cth) to obtain tax concessions.

Accessing superannuation

Remembering that superannuation is considered to be money for a person's retirement, generally, a person can access their superannuation:

• when they turn 65 years of age (even if not retired);
• when they reach preservation age and retire; or
• under the transition to retirement rules while continuing to work.

Outside of these circumstances, a person can seek early access to their superannuation. Early access is limited to very specific circumstances, broadly described as compassionate grounds, severe financial hardship, terminal illness, permanent incapacity, temporary incapacity, and super of less than $200. Very specific factors need to be met in these circumstances for early access to superannuation to be granted.

Superannuation may be accessed as a pension (income stream) or lump sum, depending on eligibility of access.

Tax on super withdrawals

Different tax rules and rates apply to superannuation withdrawals depending on a person's age at the time of the withdrawal, type of withdrawal (pension or lump sum), and type of fund (for example, from an untaxed government super fund). Generally, if a person is aged 60 years or over, withdrawing superannuation either as a pension or lump sum, this income will be tax free.

Regulation of funds

Almost all private sector superannuation funds are regulated by the Superannuation Industry (Supervision) Act 1993 (Cth). These are called regulated funds. Funds operated by Commonwealth, state and local government bodies, and by public sector bodies established by statute, are often not regulated.

The Australian Prudential Regulation Authority (APRA) supervises most regulated superannuation funds, with the notable exception of self managed funds, which are supervised by the ATO.

Information from funds

A member of a regulated fund is entitled to certain information to be provided automatically by the fund. This includes:

• an annual member statement showing the amount of the benefit at the start and end of the year (generally 1 July to the next 30 June), the preserved amount and fund contact details, and the value of the benefit on resignation or retirement, including death and disability benefits;
• an annual fund report showing the fund's financial position and performance; and
• notice of any changes that affect the member, such as any change to the fund rules.

A member is also entitled to other information on request.

Superannuation and bankruptcy

Superannuation entitlements are usually protected if a person goes bankrupt, meaning that the creditors cannot take the superannuation savings. The bankrupt retains the benefit of monies in a regulated (and certain other types of) superannuation fund subject to some exceptions.

However, a payment to a superannuation fund may be caught by the relation back or avoidance provisions of the Bankruptcy Act 1966 (Cth), even though that payment gives rise to the interest in the fund, which is protected (see Official Trustee in Bankruptcy v Trevor Newton Small Superannuation Fund Pty Ltd [2001] FCA 1267).

Death benefit distribution

Distribution of a deceased member's superannuation, including insurance benefits (known together as death benefit), is at the discretion of the trustee in accordance with the terms of the trust deed and subject to the Superannuation Industry (Supervision) Act 1993 (Cth). The general principle is that benefits from a regulated fund are paid to the member's legal personal representative and/or one or more dependants. If none can be found, the trustee distributes the benefits to other people in accordance with the trust deed.

A dependent is the deceased's spouse or de facto spouse, child (any age), or person who was in a interdependency relationship. An interdependency relationship is a close personal relationship between two people who live together, where one or both provides financial, domestic, and personal support of the other. Different definitions of dependency apply under taxation law regarding how the death benefit will be taxed. The Superannuation Industry (Supervision) Regulations 1994 (Cth) sets out factors to be considered in determining an interdependency relationship.

Binding death benefit nominations

Superannuation funds are able to offer members the opportunity to make binding death benefit nominations. If the trust deed provides for binding nominations and if a member completes a written nomination in the correct form, the trustee must distribute the death benefits to the nominated beneficiaries in the proportions specified and has no discretion to vary or override the allocation.

Trustees prefer to distribute death benefits to individuals rather than the estate because of the risk that an estate may be subject to litigation or insolvent. If payment to the estate is desirable, the legal personal representative should provide evidence of solvency and assurances that the estate is not subject to actual or threatened litigation.

The nominated beneficiaries must be the member's legal personal representative or dependants at least at the time of death, though there is some doubt as to whether this extends to the date of nomination. There are also certain witnessing, renewal and reporting requirements which if not met would invalidate a nomination. A common requirement is that a binding nomination be provided/updated every three years.

If a person dies having made a binding nomination but before Family Court orders are made regarding superannuation splitting (see below), the binding nomination may prevail.

Same-sex couples

Significant legislative changes from about 2008 have resulted in all superannuation related laws applying equally for same-sex couples. This includes practice relating to contributions, contribution splitting, tax offsets, and death benefits.

Superannuation benefit disputes

Death benefit disputes

Disputes about death benefits are common. In addition to the benefits which have accumulated in the fund at the date of death, many funds provide substantial life insurance benefits, which are added to the accumulated benefit.

Disputes can arise between possible beneficiaries about whether, for example, a particular person is wholly or partially dependent on the deceased; or, if more than one person satisfies the description of the class of beneficiaries, whether the trustee should exercise its discretion to determine how the benefit should be divided between the claimants. These problems become acute when the deceased was involved in more than one family during life.

Factors taken into account by trustees include:

• whether the deceased nominated a preferred beneficiary and, if so, whether any event has occurred since the nomination which might have invalidated the nomination;
• the comparative financial need of the claimants;
• any amount to which a claimant is entitled from the estate of the deceased;
• the extent of the financial dependency of the competing claimants on the deceased; and
• the closeness of the relationship between the competing claimants and the deceased.

Superannuation and Family Law

In the context of Family Law, superannuation interests both of spouses and parties in a de-facto relationship, in the Northern Territory and all states except Western Australian, are subject to the provisions of the Family Law Act (Cth) 1975 (the Act) so that property orders may be made in relation to such interests. Western Australia is subject to the provisions of the Family Law Act (Cth) 1975 and Family Court Act 1997 (Western Australia).

Specifically, the Act enables a valuation of the true worth of a superannuation interest and empowers the court to make a splitting order requiring payments under a superannuation policy to be allocated between the member and non-member spouse (whether married or de-facto) on separation. The Family Law Regulations set out the methods of valuing superannuation interests.

A court may also make an order called a flagging order, where appropriate. A flagging order directs the trustee of the Superannuation Fund not to make a splitting payment in respect to an interest, without leave of the court, and requires the trustee to notify the court within a defined period, of the next occasion when a splittable payment becomes payable in respect to an interest.

The Act also allows an eligible person (such as a spouse) to apply to the trustee for information about the superannuation interest where the information is required to assist the applicant to properly negotiate a superannuation agreement or to assist in connection with property proceedings. Valuing a person's superannuation account is a required step when a party is seeking to split that interest. The method for valuing superannuation will be dependent on the type of account, however the first step with all funds is completing a Superannuation Information Request Form. It may be necessary to then value the fund using an applicable formula and is often done by a forensic accountant or law firm who specializes in valuation of super.

How a court will treat superannuation interests in a property settlement will depend on various factors. The court has a discretion as to how superannuation interests will be treated and will look to how other cases with similar factual circumstances were decided. In many instances the superannuation interests are included in the list of all the property forming the subject matter of division between the parties. In other instances, the superannuation is made the subject to a separate pool.

In deciding if a superannuation interest should be split and in deciding property orders in general at Family Law, the court must consider various provisions of the Act. For instance some of the matters the court will consider are set out below (noting this list is not exhaustive):

• the value of the superannuation interest or interests;
• the types of contributions the parties have made to the superannuation interests ( and other assets of the relationship);
• the relationship between years of fund membership and cohabitation;
• actual contributions made by the fund member at pivotal times such as the commencement of cohabitation, separation and at the date of the hearing;
• any other factors peculiar to the fund or to the spouse's present and/or future entitlements under the fund; and
• any other factors relevant to ensuring the order in relation to the parties' property, including as to any superannuation interests, are just and equitable.

An alternative to seeking a property order (whether by consent or an order of the Court) at Family Law is to enter into a binding financial agreement. Legal advice and assistance is necessary if considering this option.

It is important to note that before splitting any superannuation, the consent of the trustee of the fund must be obtained. The Trustee can object to the proposed order being made, if the fund simply cannot comply with the terms. This may be because there is insufficient funds or the way the fund is structured.

Indeed, the above provides a general summary only about Superannuation and Family Law. It is strongly recommended that you obtain independent legal advice when seeking to divide property upon separation and depending on the type of superannuation fund, it may be beneficial for specific financial advice ought be obtained.

Disability benefit and insurance disputes

Disputes about total and permanent disability benefits are also common, since a determination of whether the member is disabled as defined by the trust deed must be made. Such benefits are often provided by way of an insurance policy between the trustee and an insurance company. So, a dispute can also arise as to whether the person is disabled as defined in the insurance contract.

Other disputes can arise as to whether a person is covered by insurance at a particular time, and by which insurance company. These occur because the trustee may from time to time change insurer. The question of when incapacity occurs and which insurer is liable at that time can also arise.

Reviewing a trustee's decision

How trustees should make decisions

Trustees are required by law to make decisions solely with the interests of the beneficiaries in mind. They must exercise any powers and discretions under the trust deed in good faith, and for the purpose for which the powers were granted.

Trustees must also give real and genuine consideration to the exercise of their discretion. They must not simply rely on the opinion of another person; for example, the opinion of the insurer or of the insurer's medical practitioner.

Even where the trust deed gives the trustee the power to delegate the making of decisions, the decision has to be made within the delegation given. It may be possible to argue, depending on the terms of the trust deed, that a decision has been improperly delegated.

A trustee will also fail to give a matter real and genuine consideration if the trustee asks itself the wrong question. One example would be a trustee refusing to pay a total and permanent disability benefit on the ground that the member could be retrained for a different job, when the definition required the trustee to ask itself whether the member was capable of carrying on their usual occupation. In some circumstances, there may be a duty to make further enquiries (see Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; (2010) 271 ALR 236; (2010) 84 ALJR 726; [2010] HCA 36).

However, in many cases judges have stated that trustees' decisions are not required to be correct, in accordance with the weight of the evidence, or even fair. Trustees are not required to give reasons for their decisions. However, if a trustee's conduct is sufficiently unreasonable or unfair, it may suggest that they are not acting in good faith.

Although trustees cannot be required to give reasons for their decisions, if they do so voluntarily the reasons must be sound. If they are not, a court may set aside the decision.

Trustees and insurers ought to provide a claimant with information about material adverse to the claim and with an opportunity of addressing those matters before dismissing a claim. If this is not done, a court may set aside the decision (see Hannover Life Re of Australasia Limited v Sayseng [2005] NSWCA 214).

Internal review

The first step in challenging a trustee's decision concerning a benefit is to request reconsideration of the decision. Section 101 of the SISA requires regulated funds to ensure that enquiries or complaints made by beneficiaries are properly dealt with within 90 days. Before requesting reconsideration, it is a good idea to ask the trustee to provide:

• a copy of the trust deed;
• a copy of any relevant insurance policy;
• an up-to-date statement of benefits;
• reasons for its decision; and
• copies of any documents it used in making its decision.

A member or other beneficiary is entitled to copies of the first three documents, according to both the law of trusts and the Superannuation Industry (Supervision) Regulations 1994 (Cth), but cannot force the trustee to provide the last two.

The next step is to write to the trustee requesting reconsideration, setting out the reasons why you believe the original decision is wrong. In the case of a total and permanent disability benefit, you should mention any factors that limit your employment prospects, including your age, extent of educational and vocational qualifications, and your experience and ability to speak and write English. You should include copies of any supportive medical reports. It would be prudent to obtain legal advice at this stage.

Review by the courts

If internal review is unsuccessful, the next step to consider is legal action. It is essential to obtain advice from a solicitor experienced in acting for members of superannuation funds before undertaking this step. Some firms of solicitors will act in these matters without payment until the matter is resolved. Nevertheless, substantial costs may be incurred and, if unsuccessful, a member may have to pay the legal costs of both parties to the dispute.

A court will only review a decision of a trustee on the basis of the principles set out in the section How trustees should make decisions, above. This means that if the trustee has not voluntarily given reasons for its decision, you will have to show that the trustee failed to give the matter real and genuine consideration, acted in bad faith or acted for an improper purpose. If the trustee gave reasons for its decision, it will be set aside if the court accepts that the reasons were not sound.

Statements by trustees that the medical evidence does not establish that you are disabled within the meaning of the trust deed, or that in our opinion you are not disabled within the meaning of the trust deed have been held to be reasons by the courts. However, a court will not set aside a trustee's decision simply because the judge would have made a different decision. Even if the court does set aside the decision, it may not always substitute its own decision for that of the trustee. It may instead allow the trustee to make the decision again.

In practice, very few of these cases go as far as a court hearing. Almost all are settled by agreement before trial. An experienced solicitor can advise you on the likelihood of your case being settled.

Review in the Superannuation Complaints Tribunal

The Superannuation Complaints Tribunal is a free and independent dispute resolution body to assist people resolve disputes with their superannuation provider. The Tribunal is impartial and does not act for the complainant or the superannuation provider. No costs can be awarded against an unsuccessful complainant; nor can a successful complainant recover costs against other parties to the complaint. Most complaints to the Tribunal are about decisions made by the trustee of a super fund that a person is or was a member of. More information about the Tribunal's coverage is available at www.sct.gov.au.

Complainants must have tried to resolve their dispute with their superannuation provider before they can bring a complaint to the Tribunal. Super fund trustees have 90 days to respond to a complaint.

What kinds of disputes can be heard?

The most common types of complaints are about:

• the distribution of death benefits
• the rejection of disability benefit claims
• the miscalculation of benefits
• failure to provide information or documentation.

Matters the Tribunal cannot consider include complaints:

• about a super fund's fees or charges or investment performance
• about self-managed superannuation funds and some public sector schemes
• an employer's failure to pay super contributions (the ATO may be able to assist)
• where the matter is being dealt with elsewhere, such as in court.

Time limits

A complaint about the payment of a death benefit cannot be made to the Tribunal if the person claiming the benefit did not lodge an objection against the super provider's decision within 28 days, if they were notified in writing of that time limit.

A complaint about a decision about the payment of a total and permanent disability (TPD) benefit cannot be made to the Tribunal if the claim for benefit was not made within two years of the member permanently ceasing employment for disability reasons. Also, a TPD complaint cannot be made if the complaint to the Tribunal was not made within 4 years of the first decision of the provider to reject the claim, or 6 years if no permanent cessation of employment was involved.

The Tribunal has no discretion to extent the time limits.

The Tribunals

A complaint must be about a decision or conduct that the complainant believes was unfair or unreasonable. Although the complaint is made against the super fund, other parties may be joined to it such as insurance companies in TPD complaints or spouses and family members in death benefit complaints.

The Tribunal inquires into complaints, tries to resolve them by conciliation and reviews those that cannot be resolved. If it determines that a decision was not unfair or unreasonable in the circumstances, it must affirm the super fund's decision. If it determines that a decision was unfair or unreasonable, it may:

• require the super fund trustee or insurer to reconsider the decision
• vary the decision
• set aside the decision and substitute its own decision.

The complaints processes

A complaint must be in writing and should be accompanied by copies of all relevant documents. Complaint forms can be requested by mail, are available on the Tribunal's website and complaints may be lodged online at www.sct.gov.au. Tribunal staff can help with completing the form and provide advice about how the process works. The Tribunal does not give legal advice about how complaints should pursue or present their complaints. Complainants may seek help from a family member, union official, friend, adviser or a lawyer to bring a complaint to the Tribunal. Any costs incurred are the responsibility of the complainant.

If the Tribunal determines that a complaint is outside its jurisdiction, it will notify the complainant in writing, usually giving the complainant an opportunity to make submissions as to why the complaint should be found to be within jurisdiction.

If the Tribunal can deal with the complaint, the super fund trustee will be required to provide all relevant information and documents. The Tribunal may also ask the complainant for further information or documents. Copies of the documents will be sent to the other parties.

Complainants may withdraw their complaints at any time in writing. The Tribunal may also withdraw a complaint for a variety of reasons including the complainant's failure to respond to the Tribunal and where the dispute has already been considered by a court. More information about when the Tribunal may withdraw a complaint is available at www.sct.gov.au.

The Tribunal must attempt to conciliate the complaint. Conciliation is designed to narrow the issues in dispute and to reach a resolution. Conciliation sessions with the complainant, the super fund trustee and any joined party are run by experienced conciliators and mostly take place by telephone. If conciliation fails, the Tribunal conducts a review meeting and makes a formal decision or determination.

The Tribunal invites the parties to make written submissions before the review meeting. These are exchanged and each party may file written replies. It is very important to make detailed submissions and replies that deal concisely with the issues in dispute and to provide appropriate supporting documentation, such as medical evidence in disability benefit complaints that address the requirements and assist in establishing an entitlement.

The Tribunal considers the complaint at the review meeting, later publishing a written decision with reasons and sending a copy to all parties. It may refer questions of law to the Federal Court before making a decision on a particular complaint.

Appeals

Appeals against Tribunal decisions can be made to the Federal Court, but on questions of law only, within 28 days of receiving written notice of the decision. The court has discretion to extend the time.

Enforcement of Tribunal decisions

The Tribunal's power to make decisions was found to be constitutional by the High Court in 1999. A super fund that does not appeal must implement the Tribunal's decision or face sanctions under the Superannuation Industry (Supervision) Act 1993 (Cth).

Reviewing an insurer's decision

Some funds provide insured benefits to members. Whether a member is entitled to the insured benefit depends both on the terms of the trust deed and on the terms of the insurance policy.

The trustee is under an obligation to consider whether an insurer that has rejected a claim has acted properly and, if it has not, to take action, including suing the insurer, if necessary, in order to protect the rights of the member. In practice, trustees rarely, if ever, sue insurers.

The member may sue the insurer on the ground that it has failed to act in good faith, reasonably and with due regard to the interests of the member or, if the insurance contract does not require the payment of benefits only if the insurer considers or is satisfied that benefits ought to be paid, on the simple ground that the member is disabled as defined in the insurance contract. The member can do this, even though not a party to the contract of insurance, because the trustee (which is a party) holds its rights under the contract on trust for the members. It is also necessary for the trustee to be party to the legal action. The trustee may agree to join the member in suing the insurer or, more usually, may be sued by the member for failing to act against the insurer to protect the member's rights.

Trustees and insurers ought to provide a claimant with information about material adverse to the claim and with an opportunity of addressing those matters before dismissing a claim. If this is not done, a court may set aside the decision (see Hannover Life Re of Australasia Limited v Sayseng [2005] NSWCA 214).

If the court decides the insurer breached its duty to act honestly and reasonably, it will usually not allow the insurer to make the decision again, but will substitute the court's decision.

Alternatively, the member can complain to the SCT about the insurer's decision. The SCT has the same powers to review the decisions of insurers concerning payment of disability benefits under superannuation trusts as it has to review the decisions of trustees. In particular, the SCT is not limited to looking at the process whereby the insurer made its decision, and can look at whether the decision was fair and reasonable. The restrictions in the SRCA (ss 14(6A), 14(6B)) (see Review in the Superannuation Complaints Tribunal, above) apply to claims against insurers and to claims against trustees.

From 1 July 2008, the member may also complain about the decisions of life insurers to the Financial Ombudsman Service (FOS). FOS is an independent national dispute resolution service incorporating the Banking and Financial Services Ombudsman, the Financial Industry Complaints Service and the Insurance Ombudsman Service. FOS is free of charge for members of the public.

Useful Contacts

Australian Taxation Office (ATO)
Telephone (superannuation hot line): 13 10 20
Website: www.ato.gov.au/super

Australian Securities and Investment Commission (ASIC)
Website: https://www.moneysmart.gov.au/superannuation-and-retirement

Northern Territory Revenue Office
Website: http://www.treasury.nt.gov.au/SuperannuationOffice/Pages/default.aspx

Centrelink
Telephone: 13 23 00
Website: www.humanservices.gov.au/earlysuper

Australian Prudential Regulatory Authority
Website: http://www.apra.gov.au/Super/Pages/default.aspx

Financial Ombudsman Service (FOS)
GPO Box 3, Melbourne Vic 3001
Telephone: 1800 367 287
Email: info@fos.org.au
Website: www.fos.org.au

Superannuation Complaints Tribunal (SCT)
Level 7, 120 Collins Street, Melbourne Vic 3000
Locked Bag 3060, Melbourne Vic 3001
Telephone: 1300 884 114
Email: info@sct.gov.au
Website: www.sct.gov.au