Australian Convenience Store News - Legal - Employer funded superannuation

mployer funded superannuation means add on costs to the business. Tom Williams, Solicitor, checks out the details.

Those who have been in the workforce many years will remember that superannuation was granted to senior executives or those in management. Commonly referred to as Company Superannuation, it was usually part of a salary package. In such cases when you left your job, the full benefits of the superannuation fund were not necessarily paid over. Many funds were structured so that a person was required to have been in the company fund for a certain number of years before full benefits were accredited to the employee. Since 1989, this has changed dramatically and all employees, with some exceptions, are entitled to superannuation.

The present position
Commonwealth Government legislation now makes it mandatory for employers to pay into a superannuation fund 9% of the employee's ordinary time earnings. This 9% is in addition to the employee's weekly wage. A wage earner under 18 years of age and working less than 30 hours per week is not entitled to occupational superannuation, nor is one whose earnings are less than $450 a month.

From July 1 this year, the superannuation payment will increase to 9% of ordinary time earnings. Ordinary time earnings refers to the wages an employee receives for working ordinary hours. Loadings and overtime payments are not included in the ordinary time earnings.

Unless the Commonwealth Government amends the Superannuation Legislation, the 9% Superannuation will remain. Beginning in 1989 at 3% of ordinary time earnings, the payment has increased incrementally to 9% as from 1 July 2002. The current legislation provides for no further increases.

The introduction of occupational superannuation in the late 1980's involved workers forfeiting a general 3% wage increase granted by the Federal Industrial Relations Commission. This was not money provided by employers but rather all eligible wage earners kick-starting universal occupation superannuation. As noted earlier, this 3% has gradually increased to 9% of ordinary time earnings.

Clearly, the then Federal Labour Government was making a public policy aimed at encouraging people to fund their own retirement. Reducing the Government's contribution to future pension payments was a welcomed development due to an increasingly aging population. An aging population - and less people in the paid workforce - means fewer tax payers to fund a growing demand on Government services. The compulsory superannuation policy allows younger members of the workforce a longer time to save for a larger retirement fund.

The other important factor is that the occupation superannuation is fully vested. This means that contributions paid into a superannuation fund on behalf of the employee remains the property of the employee, less, of course, the administrative and management fee charged by the fund managers.

If an employee moves to another job, the superannuation money contributed by the previous employer may be moved to another fund if necessary. That is, the superannuation is fully vested in the beneficiary.

There are many institutions that have superannuation portfolios. These are usually management schemes that decide on investment matters. Some industries have established their own funds and have trustees appointed from the industry. These trustees decide investment matters based on advice obtained from experts in the investment field. There are many investment choices and employees have a right to decide into which of several investment portfolios the contributions paid on their behalf should be invested.

Normally, an employee would agree to belong to the industry fund and then decide the preferred area of investment. The fund managers attend to the investment and declare the performance of the fund annually.

Many small employers, particularly family run businesses, decide to manage and operate their own superannuation fund. In this way investment decisions are controlled and can be determined with minimal delay.

An employee cannot draw upon their superannuation fund until fully retired from work and aged 55. The Government has announced its intention to lift - over time - the preservation age to 60 before an employee can draw from his or her superannuation money.

The accumulated superannuation money is clearly linked to retirement and will act like a self-funded pension. The other option for a retired eligible person is to roll over the superannuation fund into an annuity. This way, the retiree will continue to enjoy taxation benefits while receiving regular payments from the fund.

In conclusion, occupation superannuation does place an add-on to overheads for small business - a cost over and above wages and salaries but associated directly to employment. It is therefore a taxable matter for the employer.

Occupation superannuation serves many good policy considerations and works in the interest of Australia. It provides a discipline for an imposed savings and ultimately alleviates pressure on the public purse to fund fully aged pension.

As a general rule, an employee on workers' compensation is not entitled to receive superannuation payments for the period spent on workers compensation time. For instance, an employee on restricted hours of work would only receive the superannuation payment for the time worked.