Superannuation Funds: Benefits, Regulations, and Limitations

CORPORATE FINANCE

Finance
Q.1
(A)
A super fund is nothing but a kind of trust. It is managed by individuals who regulate the trust
fund that is trustees. A super fund is regulated by its trust deed.
A super fund is designed with a purpose of allowing an individual to remain financially
independent in his retirement phase and as well as providing financial support to the
beneficiaries of an individual in case if he cease to exist.
(B)
The sole purpose of key legislation governing superannuation in Australia is to make sure
that super funds function efficiently and systematically and for this very purpose, the same
has confirmed various guidelines, rules and regulations (Hein &Chamarstrw, 2018).
(C)
Australian Securities & Investments Commission (ASIC), Australian Taxation Office (ATO),
and Australian Prudential Regulation Authority (APRA) are the bodies that are entirely
responsible for the regulation of superannuation in Australia.
The role of Australian Securities & Investments Commission (ASIC) is to enhance the
functioning of the financial system and all the companies operating in it.
The role of Australian Taxation Office (ATO) is to direct the taxation of all the
superannuation funds and control the self-managed superannuation funds (SMSF).
APRA is responsible for systematic functioning of super funds and ensures that the super
investments are safeguarded by means of necessary disclosures and compliance with the
independent requirements. (Davies, T. and Crawford, 2018)
(D)
There are a lot of benefits arising out of investing in superannuation funds. The benefits
derived by Australian’s from investing in superannuation funds with respect to wealth
accumulation and living the retirement years with dignity includes-
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Finance
• Offering a tax efficient income stream in retirement years as the superannuation
offers tax exempted withdraws once the member crosses 60 years of age and above.
• The interest accumulated and earnings made from the investments in
superannuation funds as well as concessional contributions shall not be taxed at
marginal tax rate rather the same shall be taxed at mere 15 percent.
• As it is a compulsion on the citizens to make investment in superannuation
funds, therefore, it is of great help for such individuals who are not well versed with
saving money. This forced saving practice shall help the individuals in their
retirement phase by keeping them financially independent (Leow & Murphy, 2017).
(E)
The shortcomings of superannuation funds are listed below-
• The benefits from these funds cannot be used by the respective account holder
prior to his retirement.
• If the account holder wishes to retire before the age of 65 then he shall not be
allowed to derive benefits from his super funds.
• An individual cannot annually contribute more than $25,000 to his or her super
fund as he is confined to the concessional contributions cap.
• People falling below 65 years of age can only make contributions or participate
in the superannuation funds.
(F)
There are ample reasons to back up the recommendation in investment in super fund. By
making concessional contributions, Robert can easily lower the amount of tax that he shall
have to pay otherwise. Robert makes $1,80,000 annually and is not eligible for a low income
superannuation tax offset. (Douma & Hein, 2011).
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