The federal government agency responsible for the prudential supervision of the superannuation industry is the Australian Prudential Regulation Authority (APRA).
The Australian Securities and Investments Commission (ASIC) is the agency responsible for consumer protection and disclosure.
The two supervising agencies have wide powers of investigation and review of the operation of superannuation funds, as well as enforcement powers.
The vast majority of superannuation funds (statutory schemes and retirement savings accounts are exceptions) are set up under trusts. A trust is a legal arrangement in which a person or company (called the trustee) holds assets (the trust property) for the exclusive benefit of someone else (the beneficiaries).
The law of trusts developed centuries ago in the England in relation to charitable trusts, and it has progressively applied to other financial products.
Superannuation funds have been set up under trust arrangements despite concerns that centuries-old trusts principles are a poor fit for schemes that provide benefits in a commercial or employment context.
The rights and obligations of trustees and fund members of private regulated superannuation funds are set out in documents called trust deeds, which can be long and detailed. They specify:
- who can be a trustee or director;
- procedures for appointing and removing trustees or directors;
- employer and member contribution rates;
- investment rules;
- formulas for calculating benefits;
- when payments can be made;
- death benefit payment standards;
- procedures for winding up funds and distributing assets.
Death and disability benefits
If death and disability benefits are underwritten by an insurance company, benefits payable and the circumstances in which they are paid may depend on the terms of the insurance contract.
Public sector schemes
Most public sector schemes were established under Acts of parliament, with rules contained in legislation rather than trust deeds. However, some state superannuation schemes have been privatised, and their governing rules have changed from statutory provisions to trust deeds.
Trustees are responsible for operating a fund in accordance with the terms of the trust deed, the federal prudential regulations and other statutes. The trustee can be one or more persons, or a corporate trustee with a board of directors.
Regulated funds (with five or more members) must have equal numbers of employer and member trustees (or equal numbers of employer and member directors of a corporate trustee).
Large funds can have independent or professional trustees approved by the Australian Prudential Regulation Authority.
Funds must have procedures for electing and replacing member representatives. In practice:
- member representatives are either elected by ballot of members or appointed by related unions or representative organisations
- employer representatives are usually appointed by participating employers or industry associations.
The Act requires that trustees or directors must be replaced in the same way as they are elected. Beyond that, it is a matter for the trust deed to specify the appointment and replacement procedures for trustees or directors.
Duties of trustees
Trustees must act in accordance with the relevant trust deeds and with the provisions of the Act. They have statutory obligations to:
- act honestly
- act in the best interests of beneficiaries
- act with due care, skill and diligence
- act impartially
- not make a profit from the fund unless the trust deed specifically provides for it
- keep their personal investment interests separate from those of the fund
- keep proper records and formulate appropriate investment strategies.
Trustees also have prescribed reporting obligations to members, including:
- providing annual statements with specific information
- notifying exiting members of any death insurance benefits at the date of termination and any continuation options for insurance.
Professional advice and indemnity
Trustees may seek legal, auditing, actuarial and investment advice from appropriate independent and qualified people. However, trustees remain ultimately responsible and accountable for fund management.
Superannuation funds carry professional indemnity insurance for their trustees.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.