I understand I can apply for hardship, however it is such a tedious process. Is there a more simple way to access my super? It’s only worth around $90,000 in total.

I’m sorry to read about your financial situation, and your personal circumstances.

If you’re over the age of 55 (preservation age) and retire you can access your super benefits, subject to supplying a retirement declaration to your super fund.

The severe financial hardship rules require you to be on a social security benefit (you apply via your super fund). The ‘compassionate grounds’ rules for early release of super generally relate to mortgage stress or medical need.

An individual suffering mortgage stress may be able to access super benefits on compassionate grounds, subject to satisfying certain conditions.

In some circumstances, a medical condition may also warrant early release on compassionate grounds. You apply on compassionate grounds via the Department of Human Services and here is the link for further information on the Centrelink website (part of Department of Human Services).

I explain these rules in the following SuperGuide articles:

• Super for beginners, part 10: Can I use my super to reduce my mortgage?
• Accessing super early: Serious illness or surgery
• Accessing super early: Unemployed and in financial hardship
• Accessing super early: Not for business debts

It may also be possible to access super benefits due to permanent disability. You can access your preserved super if you become permanently incapacitated, that is, the trustee is satisfied that, due to ill health, you’re unlikely ever to be able to work in a job for which you’re qualified by education, training or experience. You will need to discuss this with your doctor and your super fund, to see if you satisfy the conditions.

You can access free financial counselling to help you manage your day-to-day finances from a financial counsellor. The Australian Securities and Investments Commission has a list of the main services across the country. Click here to access the list.

I hope things turn out okay for you.

Related posts:

1. Accessing super to be a carer and work part-time
2. Accessing super early on compassionate grounds
3. Accessing super early: Serious illness or surgery

The new contact details are set out below for Australians applying for early access to super benefits on compassionate grounds:

Telephone: 1300 131 060

Fax: 1800 228 455

Web: www.humanservices.gov.au

Email: ERSBenquiries@humanservices.gov.au

Early Release of Superannuation Branch

PO Box 1001

Tuggeranong DC ACT 2901

Note: For those readers with applications currently being considered, you don’t have to do anything extra. Any correspondence that you receive on the matter will now have the DHS logo rather than the APRA logo. The conditions for satisfying ‘compassionate grounds’ have not changed, just the organisation that administers the applications has changed.

What is ‘compassionate grounds’?

The general rule is that you can only access your superannuation benefits when you reach your preservation age (ranging from age 55 to 60) and you retire. Retirement, on or after preservation age, is considered a condition of release. Another condition of release is ‘compassionate grounds’ and such circumstances include expenses that cover specific:

• medical treatment (see later in article)
• medical transport (see later in article)
• mortgage assistance (see later in article)
• modifications to home and/or vehicle where a fund member or fund member’s dependant suffers a severe disability
• funeral expenses related to the death of a dependant, that is, the deceased person was financially, domestically or personally reliant on you
• palliative care for a terminal condition suffered by you or one of your dependants

Tip: DHS is also authorised to allow early access to super benefits where the circumstances are consistent with, or directly relate to, one of the specified grounds listed above.

Important: Before making an application to DHS, check that your super fund does permit early access to super benefits. Some super funds have special rules that stop you from withdrawing your super benefit early, even when you satisfy the ‘compassionate grounds’ condition of release.

Note: The super rules also permit other conditions of release which you can read about in the SuperGuide article Accessing super early: 12 legal ways to cash your super.

Medical treatment

You have medical costs for you or your dependant that relate to

• treating a life-threatening illness or injury; and/or
• alleviating acute or chronic physical pain; and/or
• alleviating an acute or chronic mental condition

Note: The treatment must not be readily available through the public health system, and must not be covered by private health insurance or by workers’ compensation.

Medical transport

You have costs related to transporting you or your dependant to or from medical treatment, and that treatment relates to

• treating a life-threatening illness or injury; and/or
• alleviating acute or chronic physical pain; and/or
• alleviating an acute or chronic mental condition

Note: The treatment must not be readily available through the public health system, and must not be covered by private health insurance or by workers’ compensation.

Mortgage assistance

Your home is going to be forcibly sold by the bank or financial organisation that lent you the money for your home mortgage, or the bank is going to foreclose on your mortgage, and you need your super benefits to prevent this from happening.

In addition to completing a special form you must give DHS a written statement from your bank or financial organisation that states the following

• payment of an amount is overdue and if the person fails to pay this amount, the mortgagee (lender) will foreclose the mortgage on the person’s principal place of residence; or exercise its express, or statutory, power of sale over the person’s principal place of residence.
• the amount that equates to 3 months of repayments under the mortgage; and
• the amount that is 12 months of interest on the outstanding balance of the loan at the time the statement is made.

Note: The ground of ‘mortgage assistance’ does not include circumstances where an applicant expects to have difficulty in making mortgage payments in the future, or for mortgage payments in arrears where the lender has not yet decided to sell, or for other people’s mortgage payment arrears (such as family members), or for a second property or investment property.

Related posts:

1. Accessing super early: Terminally ill receive tax break
2. Accessing super early: Is it possible to withdraw super to pay overdue rent?
3. Accessing super early: Serious illness or surgery

Trish’s response: Many thanks for your words of support for SuperGuide. We believe there is a need for a free and independent site for consumers on superannuation, and the many emails that we receive and the exciting growth in the number of new and regular visitors to the website, has confirmed that a website such as SuperGuide is necessary.

SuperGuide provides independent information on superannuation for consumers. In keeping with the independence of the website, we do not operate a financial advisory business, and we do not recommend particular advisers or financial products or organisations. We do however operate the SuperGuide Directory which allows advisers and other super-related service providers to list for free, and serves as a starting point for our readers seeking expert assistance.

I cannot provide you with specific financial advice about your investment options, or whether AustralianSuper is a secure option, or whether there are better cash options available in the market place. What I can do is provide some general information for anyone hoping to compare their super fund’s investment returns with other super funds in the market.

Checking the reputation of a super fund

For example, if a reader is seeking information on whether a super fund is secure and strong you can visit the particular super fund’s site or phone the super fund and ask them this question. For an outsider’s view, many of the large super funds, including AustralianSuper, are reviewed by rating companies such as SuperRatings, SelectingSuper and ChantWest, which, depending on the rating a super fund receives, generally indicates the super fund is going to be around for awhile. You can visit any of these rating company websites to find out what ranking a super fund has received. I also provide a periodic summary of the top-performing super funds in the article Investment performance: We’re the best super fund. No we’re the best…

Reviewing a super fund’s investment performance

If you’re seeking information on assessing your fund’s investment performance, then you need to be mindful of at least three factors that determine a fund’s investment performance – asset allocation, level of fees (after tax) and quality of investment management over the longer term. For example, a cash option is going to deliver a lower return over the longer term than shares or property, even though for the previous two years or so, cash was king.

You can find out the performance of AustralianSuper’s cash option, and other investment options on its website (www.australiansuper.com) and the performance history page is here. This particular page on the website may be a useful reference for anyone interested in comparing the returns of super funds because along with the specific returns delivered by AustralianSuper, at the bottom of the webpage you can click on a spreadsheet that provides the benchmark returns for the different investment options, which you can measure against your own fund’s returns. Many super funds present the investment performance data in a similar format.

You may also be interested in some of the following free or low-cost information services.

1. Check out APRA whole-of-fund performance tables. The Australian Prudential Regulation Authority releases league tables listing the investment performance of the 200 largest APRA-regulated super funds. Note that the APRA tables don’t report investments returns on pension accounts (see Point 4), or returns on the different investment options available within a super fund. Find out more about the APRA tables by reading the SuperGuide article Exposing the performance history of Australia’s largest 200 super funds or access the APRA tables directly by clicking here.
2. Follow the daily newspapers. Monthly, or quarterly, many of the major daily newspapers publish tables containing the top performing super funds and what the benchmark returns are for the different investment options. If your fund is missing from the top 10 or 20, that doesn’t necessarily mean your super fund is a dud performer because often the periodic tables are measuring the top performer for that month, or that quarter. What matters is whether a super fund is delivering a strong return over a long period of time. Some of the daily newspapers (usually on a Wednesday) also provide data on many of the retail superannuation funds. Retail super funds are generally offered by banks and other similar financial organisations.
3. Ask your super fund for advice. In July 2009, the Australian Securities and Investments Commission (ASIC) announced that super funds can now provide a limited form of financial advice to its fund members, provided the super fund holds an Australian Financial Services licence. The motivation for introducing this cheaper advice service is to give Australians some guidance when making decisions about increasing super contributions, changing investment options, or taking out life insurance within a person’s existing super fund. This cheaper advice option does not allow your super fund to give you more complex retirement planning advice, or to give advice about switching funds. The new option is explained in my interview with ASIC’s former head of superannuation, the chief architect of this new low-cost advice concept, and what it means for consumers, in THE SOAPBOX EXCLUSIVE: Cheap financial advice now available – what does it mean for consumers? Many super funds are now offering intra-fund advice, and in many cases this advice is provided free of charge. Ask your super fund what they can offer you in terms of intra-fund advice.
4. Check out ratings companies. SelectingSuper, ChantWest and SuperRatings provide a consumer service rating funds on different levels. You can compare one or two funds against your existing super fund for a fee. For no cost, you can check out the ratings for most of the large super funds available in the marketplace. SelectingSuper also provides free information on the top-performing pension funds.

Comparing funds: You can find more information on comparing super funds in the special section on the topic by clicking on the tab at the top of this website or by clicking here: ‘comparing funds’.

Financial advice: You can find more information on financial advice, and finding an independent adviser by typing in ‘financial advice’ in our search function at the top right-hand side of SuperGuide website.

Related posts:

1. Investment performance: We’re the best super fund. No, we’re the best…
2. Super for beginners, part 20: Comparing your super fund’s performance
3. Exposing the performance history of Australia’s largest 200 super funds

Yes, a self-managed super fund (SMSF) can purchase life insurance cover on behalf of members (see our article SMSFs and life insurance), but life insurance policies held outside a super fund cannot be transferred within a SMSF.

No transfers of personal life insurance policies

In the past, the ATO has specifically stated that you cannot transfer an existing life policy held by a member outside a SMSF, into the SMSF. The rules are clear on this position: a SMSF cannot purchase/transfer a life insurance policy held by a member. If such a transaction took place, the SMSF trustee would be in breach of subsection 66 (2A) of the Superannuation Industry (Supervision) Act 1993.

If, however, the SMSF buys the policy from a related party of the SMSF (other than a fund member or relative of the fund member), then it appears such a transaction is within the rules. You will need to confirm this view with the ATO.

The question regarding transferring personal life insurance policies into a SMSF has caused a lot of confusion over the years. In some cases, the ATO has retrospectively permitted transfers of life insurance policies when discovered during ATO audits. According to the ATO, such a transfer was only permitted when the SMSF was the original purchaser of the policy (on behalf of the fund member) and the life insurance company mistakenly placed the policy in the individual’s name.

Mistakenly in name of fund member, rather than in name of SMSF

A couple of years ago, I requested an official ATO response to the question about transferring personal life insurance policies, and set out below is an extract from the ATO’s response:

The ATO said:

… where a fund has purchased a life insurance policy from a life insurance company, but for some reason or other the policy was issued in the name of the member, the fund is required to do all it can to ensure the name of the holder of the policy is changed to that of the fund. This is because self-managed superannuation funds are required under section 52 of the SISA [SIS Act] to keep assets of the fund separate from assets of the trustee (often the member) and also to exercise care and diligence when dealing with the property of the fund. Care and diligence requires that the fund ensure third parties are aware of its interest in all its assets.

Where the tax office encounters a life insurance policy that was purchased by a self-managed superannuation fund, but incorrectly issued in the name of a member, the tax office works with the trustee to get the name on the policy changed to the fund’s name where possible. If this is not possible the tax office works with the trustee to find some other way to reflect the fund’s interest, such as drawing up a declaration of trust over the policy.

The above situation is not a transfer of ownership of the policy. It is a different situation entirely where a member purchases a life insurance policy and then at some later stage wants to transfer that policy to the fund. This is the transfer of ownership of an asset, and … is specifically prohibited by the SISA.

Claiming tax deductions for life insurance premiums

Life insurance premiums are deductible within a superannuation fund. Note that if a SMSF claims a deduction for such premiums, and then you are unlucky enough to die and leave your benefits to a non-dependant, then some or all of your insurance payout may be subject to 31.5% tax. Life insurance payouts to dependants via super funds are tax-free regardless of whether a tax deduction has been claimed for the life insurance premium. I suggest you discuss the tax implications, and the estate planning implications of any life insurance decisions with your adviser.

Related posts:

1. SMSFs and life insurance
2. SMSFs: Can I purchase health insurance within my DIY super fund?
3. SMSF: If I die young, will my wife pay super tax on the life insurance payout?

A popular question from SuperGuide readers is: what is the best-performing super fund in Australia?

Using the term ‘best’ is dangerous in any field because it involves some level of personal judgement, and the answer can change frequently depending on what you’re measuring, and when you’re making the assessment, especially when we’re considering the current volatile markets. Usually, there are a bunch of top-performing super funds over time rather than one particular super fund.

The answer to this popular question also depends on what timeframe you’re looking at, what type of returns you’re comparing (after fees and taxes, or gross), and what type of investment option (or asset allocation) you have chosen for your super money.

A more relevant question is: what super fund is the most appropriate super fund (or investment option) for my retirement needs?

The original question then needs to be divided into two parts:

• how does the super world measure the best-performing super fund?
• how do you measure fund performance in relation to your own circumstances?

The first part of the question I answer in the article below, and the second part of the question I answer in another SuperGuide article Super for beginners, part 11: Is my super fund good enough?

The award for the best super fund, according to…

The following sections within this article list selected performance rankings from 4 organisations:

1. SuperRatings
2. SelectingSuper
3. Chant West
4. Australian Prudential Regulation Authority (APRA)

Every month, quarter or 12 months, you’re likely to read about the best-performing super funds, the best value super funds or the best super fund over the long term (‘long term’ meaning anything from 3, 5 7 or 10 years) in the daily newspapers, and also on SuperGuide.

Around 80% of all Australians with superannuation accounts have their money invested in the default investment option of super funds. The default investment option is usually a ‘balanced’ or a ‘growth’ investment option (typically 60 to 80% invested in growth assets such as shares and property). The lists that you see in the newspapers usually rank the ‘balanced’ or ‘growth’ investment options of super funds because that is where most Australians have their super money. Most of the lists in this article rank the ‘balanced’ or ‘growth’ options.

Note: According to SuperRatings, the median annual return for the default investment option for the four previous financial years were:

• 2010/2011 financial year: 8.7% (gain)
• 2009/2010 financial year: 9.8% (gain)
• 2008/2009 financial year: negative 12.7% (investment loss)
• 2007/2008 financial year: negative 6.4% (investment loss)

1. SuperRatings performance tables

When assessing the investment returns of super funds, the process is more effective if you have a benchmark available to compare how well the top super funds have performed against the average, and to compare the average and the top-performing funds, against your own super fund’s returns.

SuperRatings regularly provides median returns for the different asset allocations – High Growth, Growth, Balanced, Conservative Balanced, Capital Stable, Secure, Australian Shares, International Shares. The returns are based on the median returns of the largest 50 (SR50 Index) or largest 25 (SR25 Index) super funds under review by SuperRatings. A median is simply choosing the return for the fund in the middle of the list. According to SuperRatings, the SR50 Index and the SR25 Index are a “good guide to the actual return of the ‘average’ fund over the same time frames”.

Past performance is not a reliable indicator of future performance. Negative returns appear as follows: -3.2% means a loss of 3.2%

Source: SuperRatings. Visit the website for more information on the different indices.

SuperRatings –Top 10 ‘balanced’ super funds over 5 years

According to SuperRatings, the top 10 super funds based on the ‘balanced’ option (investment options with between 60% and 76% in growth-style assets) over the 5-year period ending 30 June 2011 are:

All results are net of fees and tax and are for the 5 years ended 30 June 2011. Past performance is not a reliable indicator of future performance. Negative returns appear as follows: -2.7% means a loss of 2.7%

**Interim results

Source: SuperRatings

Note: If you have actively chosen an investment option, then your super money may not be in a balanced investment option. You will need to do a little more research to uncover the performance data for super funds that have invested in a similar asset allocation to yourself.

SuperRatings provide performance data (free of charge) on super funds and pension funds. The latest reports cover performance over 1, 3, 5 and 7 years as at 30 June 2011, and SuperRatings updates these performance tables monthly. You can access the SuperRatings Super Performance List and the Pension Performance List by visiting the SuperRatings website.

2. SelectingSuper performance tables

SelectingSuper also produces benchmark indices that you can use to compare how well the top super funds have performed against the average, and to compare the average and the top-performing funds, against your own super fund’s returns. At the time of writing, the latest returns reported by SelectingSuper for the different asset allocations – 5 investment options and 8 asset classes – were as at 30 June 2011 click here.

SelectingSuper provides benchmark returns for both superannuation funds and retirement funds.

You can learn more about SelectingSuper’s top 50 default investment options (usually balanced or growth) over a 3-year period, as at 30 June 2011 by clicking here. Note that the actual ranking is based on the 3-year performance of the super funds listed, although you can track the performance of each of the 50 super options over 1, 3, 5, 7 or 10 years as well.

SelectingSuper provides the top 50 super funds for other investment options as well. Click here to access the SelectingSuper performance tables.

3. Chant West performance tables

Rating company, Chant West, produces slightly different benchmark indices compared with SelectingSuper and SuperRatings. Chant West provides benchmark median returns for five investment options -All Growth, High Growth, Growth, Balanced, Conservative.

Chant West – median performance for main investment options

Note: Table compares the median performance for each category in Chant West’s multi-manager performance survey, ranging from All Growth to Conservative. Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions. Negative returns appear as follows: -1.4% means a loss of 1.4%

Source: Chant West (www.chantwest.com.au)

4. APRA takes whole-of-fund approach

The performance tables issued by the Australian Prudential Regulation Authority (APRA) have had mixed reviews, with particular criticism coming from the retail fund sector. I believe the APRA tables are still an excellent resource for consumers (for background on the APRA tables and how you can best use the tables, refer to article Ten handy uses for the APRA 200 Performance list).

The latest APRA tables (released on 27 January 2011) summarise the performance of Australia’s 200 largest super funds for the 12 months ending 30 June 2010, for the 3-year period ending 30 June 2010, and for the 5-year and 7-year periods ending 30 June 2010, and for each of the previous seven years. The APRA tables also include super funds paying pensions.

You can check out the tables yourself by clicking on this link to access the Superannuation Fund-level Rates of Return publication. The next edition of this publication will be released in 2012.

Related posts:

1. Investment performance: Benchmarking super fund returns
2. Super for beginners, part 20: Comparing your super fund’s performance
3. Mirror, mirror… what super fund is the best-performing fund of all?

The Global Financial Crisis, and the financial carnage that followed, devastated the value of many Australian retirement portfolios. For some retirees and prospective retirees, the risk of another sharemarket crash has redirected attention to the possibility of a guaranteed income in retirement, taking the form of an annuity.

In the past, annuities were expensive and rigid, and very few companies offered this type of product. At one stage, only one company in Australia offered lifetime annuities. The lack of interest in annuities was cemented with the abolition of the Age Pension assets-test exemption for certain lifetime income streams (including annuities) in 2004, and then in 2007. The rising investment markets from 2003 to 2007 were also a contributing factor in the death of the traditional lifetime annuity: many investors compared the double-digit returns on the sharemarket available at the time against the 4% return (approximate) on annuities, and decided to take their chances on the investment markets.

Some investors are reconsidering their options and wondering whether peace of mind is worth more than the potential for higher returns, despite the extra costs associated with accepting a guaranteed income stream.

As a starting point for those exploring a guaranteed income stream as an option, I have set out at least 10 things you should be aware of when considering annuities.

1. What is an annuity? An annuity is a financial product that guarantees a fixed annual income, usually in the form of a series of payments throughout the year, in return for a lump sum payment. The term ‘annuity’ is usually associated with lifetime annuities, although an annuity can also be a guaranteed income stream for a fixed term, such as 20 years or 15 years, and even 10 or 5 years. Note that any income stream paid by a life insurance company is called an ‘annuity’, such as an account-based annuity (similar to an account-based pension) but the industry usually uses the term ‘annuity’ to mean a guaranteed income stream, typically a lifetime annuity.
2. Age Pension is like an annuity. The taxpayer-funded Age Pension operates like a lifetime annuity. Each fortnight you receive a guaranteed income payment, which is indexed in line with inflation or the cost of living. You receive this income whether the investment markets are booming or collapsing, and whether you’re sick or well, subject to meeting the eligibility tests, including the income and assets test. If you’re receiving a part Age Pension, or a full Age Pension, then you already have a form of lifetime annuity as part of your retirement portfolio.
3. What type of company offers annuities? Annuities can only be provided by life insurance companies, and such companies are regulated by the Australian Prudential Regulation Authority. The companies offering such products don’t generally call themselves ‘life insurance companies’ but they hold a life insurance licence. Typically, the annuities are marketed by a broader financial organisation holding the life insurance licence. Examples of some of the companies offering annuities include AXA, BT Challenger and CommInsure. Note that listing these companies in this article is not a recommendation of the companies or an endorsement of the products offered by these companies.
4. How do annuities work? In exchange for a lump sum amount, typically a payout from a super fund account, a financial organisation promises (guarantees) to pay you a fixed amount for your lifetime, or for a fixed term. You can arrange that you have no money left at the end of the fixed term, or a certain amount that is repaid to you at the end of the term. If you buy a lifetime annuity, you may have the option to negotiate a minimum fixed term of payments, in case you die early, which would then be paid to your spouse or dependants. You can purchase an indexed annuity to ensure that your income is indexed with inflation.
5. How does the guarantee work? The guarantee is that the company supplying the annuity will pay you the promised income. The guarantee is not an absolute guarantee of payment. The guarantee is provided by the financial organisation providing the annuity, and although rare, the annuity is still subject to the risk of the company collapsing. The guarantee is different to the current guarantee that the Government has given to bank deposits. Note that life insurance companies are highly regulated and monitored and it is not in the interests of the Federal Government of Australian economy for such a company to fail, although the risk of company failure still exists.
6. How much do they cost? Good question. It can be difficult to unpack the cost of an annuity because the annual income you receive is based on a formula taking into account investment costs, investment risk, profit for the operator and administration and marketing costs. The annuity providers can promise a certain return on your lump sum, which is usually after deduction of costs so you will not see costs deducted from the payment. For example, one provider explains the product as carrying no ongoing management fees and that the earnings rate quoted at the start of the annuity will be the return for the life of the annuity. The provider invests in a mix of assets to generate sufficient returns to pay you an income, cover costs and pocket some profits as well. If the provider makes more than the promised earning rate on your lump sum, then good luck to the provider. If the provider makes less than what they promised to pay you, then bad luck to the provider because you still get paid and they will have to make up the difference.
7. Why should I opt for an annuity rather than an account-based pension? I cannot answer this question for you. If peace of mind is paramount, then an annuity may be the way to go, but it can come at a greater financial cost than an account-based pension, and it generally means you can no longer access your lump sum. The lack of access to your capital is often the major deterrent to taking out an annuity. The providers of annuities are now trying to offer more flexible products to entice retirees, but you will have to make your own decision whether they are right for you. Many of the providers are suggesting retirees put some of their money into an annuity, while retaining the rest of your money in non-annuity savings, so that you can maintain flexibility over your savings. For some Australians, removal of income uncertainty is worth more than higher returns on more flexible account-based pensions. In recent years, account-based pensions with significant money invested in the sharemarket and listed property market have struggled to recover from the GFC and the economic fallout from the world’s love affair with packaged debt instruments (such as CDOs and other synthetic instruments).
8. What are some of the disadvantages of an annuity? I have referred to some of the disadvantages already but briefly, for the same asset allocation, you can expect a lower return than what you could receive in an account-based pension due to the cost of payment risk that the annuity provider must cover. What this means in practical terms is that the money from annuities is often predominantly invested in fixed interest products with a percentage in growth assets to supply the annuity provider with the profit necessary to make it worthwhile from a business perspective, while typically, account-based pensions generally have a higher percentage of money invested in growth assets such as shares and property. In return for the guaranteed return/income of an annuity, you have less transparency over what happens to your money because, in effect, it is no longer your money – unless you have an annuity that provides a lump sum at the end (residual capital value), or you have signed up for a fixed term annuity with a return of capital or part-return of capital.
9. If I die young, will my family get any money? This is the stumbling block for many Australians. If you purchase a lifetime annuity and you die young, then your money goes to the annuity provider, unless you have a minimum payment term as part of the annuity contract. If you have a minimum payment term, then your spouse or dependants can continue to receive payments for the rest of the term, or they may be paid a lump sum. You can also purchase a reversionary annuity which means your spouse gets income payments if you die, but you can expect to pay a lot more for this type of product. Note that annuities can sometimes be advantageous when being assessed for aged care fees (see an adviser familiar with the aged care rules for more information), which means you and your family will need to weigh up the comforts and peace of mind of today, with the benefits passed onto the family tomorrow.
10. Can my super fund offer an annuity? No, but you may be a member of a super fund that pays lifetime income streams — about 10% of the working population belong to such super funds. Long-term public servants and teachers are usually the lucky recipients of this retirement option. Many defined benefit funds, including some public sector funds, may automatically pay super benefits on retirement in the form of a lifetime indexed income stream. An indexed pension is an income stream that increases in line with inflation or increases in average weekly earnings. Many lifetime pensions from the older super funds also pay the member’s spouse a pension after the member dies (a reversionary pension). The downside of belonging to such a fund is that you don’t have any choice about what you do with your super in retirement, and if you and your spouse die not long after you retire, your children may not receive any money from your super fund.

Related posts:

1. Pensions: Is there an upper limit to how much we can withdraw?
2. What a relief! Minimum pension payments reduced by 25% for 2011/2012 and 2012/2013 years
3. Accessing super early: 12 legal reasons to cash your super

Unless you work in the superannuation industry, how the world of super works can be bamboozling (sometimes it can be confusing even when you know the industry well). This article, on the different types of super funds, helps explains the main players in the Australian super world.

This article should really be titled ‘The what’s what in the super zoo’ because I’m explaining the different types of super funds available, rather than the people involved.

You may find this difficult to believe but there are only five types of super funds in Australia, and most Australians can only choose from three of these fund types. You can expect to find the following five broad types of super funds:

• Company (or corporate) funds
• Industry funds
• Retail funds (although you may be offered a series of funds via a ‘wrap’)
• Public sector funds
• Small funds (two-types: self-managed super funds or small APRA funds. APRA stands for the Australian Prudential Regulation Authority, the main super regulator)

Let’s deal with the big numbers first. Based on statistics released in June 2011, there were 451,530 super funds in Australia as at 31 March 2011, and 451,141 of these super funds were small funds (super funds with fewer than 5 members). Nearly all small funds are self-managed super funds (SMSFs) (447,620, commonly known as DIY super funds, and 3,521 of small funds are small APRA funds).

What this means is that if you considering one of the remaining four categories of super fund – corporate, industry, retail, public sector – then you have only 389 super funds to consider. Okay, that is still a lot of super funds, but if we break it down into the individual categories (see table below), the super world looks a little less daunting.

*This grand total excludes pooled superannuation trusts and single-member ADFs

Source: Extracted from Statistics, Quarterly Superannuation Performance, March 2011 (issued 9 June 2011), Australian Prudential Regulation Authority.

Briefly, the following are the four types of managed superannuation fund:

• Industry fund. An industry fund usually caters for workers from a particular industry but many of them are now available to anyone.
• Company/corporate fund. A company or corporate fund is generally a super fund with membership only open to employees working for that company. You can’t choose a company fund but you may choose to remain in a company fund, if you’re an employee of the company and an existing fund member. Some company funds permit relatives of existing members to join too.
• Public sector fund. A public sector fund is only available to public sector employees and, in some cases, ex-public sector employees. You can’t choose a public sector fund although some of them let you choose to remain a contributing member when you leave the public sector – in these circumstances you may be able to arrange for your new employer to contribute to your public sector fund.
• Retail fund or master trust. Financial institutions such as banks, financial planning groups and fund managers run retail super funds. Anyone can join these types of funds. You may be a member of a retail fund if your employer pays your Superannuation Guarantee (SG) contributions into a corporate master trust. A corporate master trust is just like a master trust for individuals but on a much larger scale.

If you visit a financial adviser you may also hear the terms ‘super wrap’ and ‘master trust’. These two categories generally offer you access to lots of managed fund investments, and fall under the category of ‘retail funds’.

You can also consider opening a Retirement Savings Account (RSA): you can choose from 9 RSAs. An RSA is a low-risk and low-return superannuation account provided by banks and other financial organisations. RSAs, however, are more a parking vehicle rather than a long-term investment option. RSAs represent less than two-tenths of 1 per cent of all money invested in the superannuation market.

Note: Unless you’re already a member of a company fund (although some company super funds permit relatives of employees to become members) or a public sector fund, an employee can generally only choose from three types of super funds:

• Industry funds
• Retail funds
• DIY super funds.

I explain the different types of superannuation funds, and how to choose a super fund, in my book Superannuation For Dummies 2nd edition (Wiley).

Related posts:

1. Comparing super funds: Check out the cheapest funds
2. Fund choice: Comparing super funds in 8 steps
3. SMSFs lead the super pack, again

Individuals running DIY super funds control 32% ($432.4 billion) of the $1.36 trillion invested via Australian superannuation funds. Ten years ago, DIY super funds represented one-tenth (10%) of all superannuation money.

SMSFs lead in market share

The money held in DIY super funds, officially called self-managed super funds (SMSFs) exceeds the super money invested via retail funds (27.3%, $370 billion), industry funds (19%, $257 billion), public sector funds (14.1%, $192 billion) and corporate super funds (4.6%, $63 billion) according to figures released by APRA on 9 June 2011, representing fund assets as at 31 March 2011. APRA stands for the Australian Prudential Regulation Authority, the prudential regulator of all super funds, with the exception of DIY super funds, which are regulated by the Australian Tax Office.

Increase in value of assets for 3 months to 31 March 2011

All superannuation sectors grew in terms of total assets during the 3 months to March 2011, although the SMSF sector retained its leading market share.

According to APRA, over the entire superannuation sector, total fund asset values increased by 3.3% for the March 2011 quarter to $1.36 trillion. Over the 12-month period to March 2011, total fund assets increased by 8.6%.

I explain the five main super fund sectors in the article, Comparing super funds: Who’s who in the super zoo. The article is updated quarterly with the latest statistics on the types of funds and how many super funds of each type are available.

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Although the administrators of Ansett continued certain flight routes for several months, the employees of Ansett were accepting redundancy agreements from October 2001. Since that time, administrators have been sorting out the Ansett financial mess paying staff redundancy entitlements in dribs and drabs.

A little-known issue relating to the Ansett collapse is the fact that around 11,000 ex-Ansett workers have been waiting nearly 10 years for superannuation entitlements to be paid out. I understand that the super fund in question is looking after outstanding insurance claims and any remaining money is surplus benefits rather than vested employee benefits. Vested employee super benefits were paid out or transferred to other super funds about 6 years ago.

According to a media release from the office of Assistant Treasurer and Minister for Superannuation, Bill Shorten, the Trustees have advised: “the Government they will issue an interim distribution statement to members of the Ansett Residual Superannuation Fund in the next six to eight weeks.”

Mr Shorten is quoted as saying: “The statement, from trustees Mercer Investment Nominees Limited, will provide clarity to members by giving them an indication of the distribution amount they are likely to receive and inform them about the winding-up process and the timing of this process.”

“Finally, Ansett workers will know how much they can expect and when they can expect it… I have their assurance that Mercer Investment Nominees Limited will keep members, as well as the Australian Prudential Regulatory Authority, informed throughout the wind up process,” Mr Shorten said.

According to the media release, the Ansett Residual Superannuation Fund holds at least $17.5 million, and the 11,000 fund members will receive this money once outstanding member disablement claims and costs have been met.

Background: The former trustees of the Ansett Australia Ground Staff Superannuation Plan and the Ansett Australia Flight Attendants Superannuation Plan established the Ansett Residual Superannuation Fund (ARSF) in 2004 to pay outstanding death and disablement claims before distributing the remaining assets to members. The ARSF was established to protect members of the previous 2 super funds (for ground staff and flight attendants) who had outstanding death or disability claims, and who would have been disadvantaged by the winding up of the former funds. There were 5 Ansett super plans at the time the airline collapsed in 2001.

Want to know more?

If you were a member of the Ansett Australia Ground Staff Superannuation Plan or a member of the Ansett Australia Flight Attendants Superannuation Plan, then you’re likely to be entitled to some of this super cash. You can find out more information by contacting the Ansett Residual Superannuation Fund Helpline on 1800 815 903.

Related posts:

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2. Exposing the performance history of Australia’s largest 200 super funds
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• Astarra Superannuation Plan
• Astarra Personal Pension Plan
• My Retirement Plan, including subplans – Seagrims Retirement Plan, TIC Super, and Titanium Retirement Fund
• Employers Federation of NSW Superannuation Plan.

More than 5,000 Australians lost superannuation savings as a result of fraud from the collapse of trustee Trio Capital Limited (Trio) (formerly Astarra Capital Limited), according to a  media release issued by the office of Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten.

The Federal Government is set to compensate these Australians for losses suffered, by providing a grant “of approximately $55 million in financial assistance to benefit the members of four superannuation funds that were formerly under the trusteeship of Trio.” [Media Release of 13/04/2011, No.051]

The Federal Government intends to provide compensation for 100% of losses suffered by affected superannuation investors due to fraud or other malfeasance by fund trustees. Historically, the level of Government compensation has usually been set at 90% of losses suffered.

In the media release, Mr. Shorten is quoted as follows:

“Investors in APRA regulated funds deserve to be compensated by the Government when they lose their investments through fraud or other malfeasance by super fund trustees. I’m very pleased to be able to offer Trio investors this compensation.

“Based on the application from the Australian Prudential Regulation Authority (APRA)-appointed acting trustee of the four superannuation funds, ACT Super Management Pty Limited, and advice from APRA, I am satisfied the four superannuation funds have suffered an eligible loss under the Act and the public interest requires a grant of financial assistance be made.

“The events surrounding Trio have cemented my belief that conflicted remuneration structures have no place in financial advice and underscore the need for our Future of Financial Advice reforms, which will be announced soon,” said Mr Shorten

According to the media release, the assistance to the trustee, granted under Part 23 of the Superannuation Industry (Supervision) Act 1993, is for the following super funds:

• Astarra Superannuation Plan
• Astarra Personal Pension Plan,
• My Retirement Plan
• Employers Federation of NSW Superannuation Plan.

All superannuation fund members end up paying for the fraud of superannuation trustees because the Government finances this grant by imposing a levy on all APRA-regulated superannuation funds under the Superannuation (Financial Assistance Funding) Levy Act 1993.

The Australian Securities and Investments Commission (ASIC) and APRA are continuing to investigate Trio, and you can obtain further information about Trio and the four superannuation funds by visiting the Trio website: www.triocapital.com.au

Note: This compensation doesn’t cover money invested by self-managed super fund trustees. Any SMSF trustees suffering losses from investments in Trio-related entities will need to pursue other avenues, such as considering whether the financial advice they received was appropriate, or whether there is a case to be answered against the fund manager.

Related posts:

1. Warning: APRA suspends trustee of 4 super funds
2. SMSF fraud: a case of mistaken identity
3. Investment performance: We’re the best super fund. No, we’re the best…

A: I’m sorry to read about your tenant.

I’m not aware of the full circumstances of your tenant’s situation but if he is receiving Centrelink benefits he may be able to access super benefits due to severe financial hardship. Rent is considered living expenses. He will need to check with his super fund about the rules, and whether his super fund permits early release.

Note: The rules for severe financial hardship are quite strict and require the applicant to be a recipient of Commonwealth income support payments, typically Centrelink benefits but can be income support benefits.

Another condition of release, based on ‘compassionate grounds’, covers Australians who may lose their home due to mortgage default. The rules for ‘compassionate grounds’ make no mention of a tenant being at risk of eviction.

If your tenant doesn’t satisfy the rules for ‘severe financial hardship’ then your tenant might consider contacting the Australian Prudential Regulation Authority (APRA), to find out if there any scope to access super benefits early for this purpose. APRA has some discretion to release super benefits where circumstances are consistent with the specified compassionate grounds (see sub-regulation 6.19A (1) (f) of the Superannuation Industry (Supervision) Regulations 1994)

I have set out the sub-regulation below, but I strongly recommend that you contact APRA for more information.

6.19A Release of benefits on compassionate grounds

(1) A person may apply to the Regulator for a determination that an amount of the person’s preserved benefits, or restricted non-preserved benefits, in a superannuation entity may be released on the ground that it is required:

(a) to pay for medical treatment or medical transport for the person or a dependant; or

(b) to enable the person to make a payment on a loan, to prevent:

(i) foreclosure of a mortgage on the person’s principal place of residence; or

(ii) exercise by the mortgagee of an express, or statutory, power of sale over the person’s principal place of residence; or

(c) to modify the person’s principal place of residence, or vehicle, to accommodate the special needs of the person, or a dependant, arising from severe disability; or

(d)  to pay for expenses associated with the person’s palliative care, in the case of impending death; or

(e) to pay for expenses associated with a dependant’s:

(i) palliative care, in the case of impending death; or

(ii) death; or

(iii) funeral; or

(iv) burial; or

(f) to meet expenses in other cases where the release is consistent with a ground mentioned in paragraphs (a) to (e), as the Regulator determines.

Related posts:

1. Accessing super early: Unemployed and in financial hardship
2. No early super access for business debts or tax bills
3. Accessing super early: Serious illness or surgery