1 / 26

Pensions & Retirement incomes

Pensions & Retirement incomes .

kaden
Download Presentation

Pensions & Retirement incomes

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Pensions & Retirement incomes Pension funds are important shareholders of listed and private companies. They are especially important to the stock market where large institutional investors dominate. The largest 300 pension funds collectively hold about $6 trillion in assets. [1] In January 2008, The Economist reported that Morgan Stanley estimates that pension funds worldwide hold over US$20 trillion in assets, the largest for any category of investor ahead of mutual funds, insurance companies, currency reserves, sovereign wealth funds, hedge funds, or private equity

  2. In Australia, funds organised to provide for retirement incomes are usually called Superannuation Funds • Superannuation is compulsory by national law for all employees • Contributions are made by employers at a rate of 9% of employees pay. • There is also a national means tested “aged pension”, paid to all citizens, from consolidated revenue – currently $749 fortnight (single )

  3. 1. Industry funds An industry fund usually caters for workers from a certain industry. However many industry superannuation funds are now available to anyone. Industry superannuation funds often claim ‘low fees’ and better transparency . 2. Retail funds Retail superannuation funds are often run by banks and fund managers, such as Colonial First State (FirstChoice & FirstWrap) or BT. 3. Employer funds or Corporate funds An employer funds or corporate fund is generally a superannuation fund with membership open only to employees working for that company.. Generally speaking, when employees leave their employer they may choose to remain in the corporate superannuation fund. Some corporate funds will also allow relatives of existing members to join. 4. Public sector funds A public sector superannuation fund is only available to public sector employees (i.e. government employees) and, in some cases, ex-public sector employees. Just like the corporate superannuation fund, some funds allow individuals to remain a member when they leave their employer, however this depends on the individual public sector superannuation fund. 5. SMSF – Self Managed Superannuation Funds Self Managed Superannuation Funds, SMSF’s, or DIY Superannuation As the name states, SMSF are owned and managed by individuals or small groups of no bigger than 4 members. The individual decides when and where to invest.

  4. Total estimated assets • over 12 months to 30 June 2011, ( including assets of self-managed superannuation funds and balances of life office statutory funds), rose by $131.5 billion (10.9 per cent) to $1.34 trillion. Over the June quarter 2011, • the assets of public sector funds increased by 5.7 per cent ($11.0 billion) to $202.9 billion. • Retail funds’ assets decreased by 0.1 per cent ($0.4 billion) to $369.0 billion, • industry funds by 2.9 per cent ($7.6 billion) to $249.7 billion and. • corporate funds by 4.2 per cent ($2.7 billion) to $60.0 billion.

  5. Estimate of Contributions During the June quarter, 2011 • retail funds received 37.8 per cent ($9.0 billion) of total contributions, • industry funds 33.7 per cent ($8.0 billion), • public sector funds 24.1 per cent ($5.8 billion) and • corporate funds 4.4 per cent ($1.1 billion).

  6. Australian Superannuation Funds assets are at $1.3 trillion • 4th largest pool of retirement Savings in the World • Of 300 largest funds in World 15 are Australian Funds

  7. Recent Developments “Award” Superannuation While superannuation as a form of savings has existed for more than a century in Australia, for most of the time it applied to a minority of employees, generally higher paid white collar staff in large corporations, employees in the finance sector, public servants and members of the Defence Force. However, from the 1970s superannuation started to become more widely available as a result of claims lodged in the industrial relations arena.

  8. Recent History The advent of institutionalised employee superannuation began in September 1985 when the Australian Council of Trade Unions (ACTU), as part of its National Wage Case claim with the Conciliation and Arbitration Commission, sought a 3% employer superannuation contribution to be paid into an industry fund. The Government supported the claim in pursuit of its inflation control objectives and, in February 1986, the Commission announced that it would approve industrial agreements that provided for contributions of up to three per cent to approved superannuation funds.

  9. Supervision and Governance Superannuation Industry (Supervision) Act 1993 (SIS) • The SIS Act replaced the Occupational Superannuation Standards Act (OSSA) from 1 July 1994. The SIS legislation included measures which: • required superannuation trustees electing to be regulated to be subject to the Commonwealth’s corporations or age pensions powers under the Constitution; • set out the basic duties and responsibilities of trustees and ensured that they had adequate powers to carry out these responsibilities; • improved disclosure and regulatory reporting requirements; • enlarged the roles performed by auditors and actuaries; and • introduced more direct enforcement powers and improved audit resources for the Insurance and Superannuation Commission.

  10. Supervision and Governance SIS Act Continued ... • improved disclosure and regulatory reporting requirements; • enlarged the roles performed by auditors and actuaries; and • introduced more direct enforcement powers and improved audit resources for the Insurance and Superannuation Commission.

  11. The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. • It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. • APRA is funded largely by the industries that it supervises. • It was established on 1 July 1998. APRA currently supervises institutions holding approximately $3.7 trillion in assets for 22 million Australian depositors, policyholders and superannuation fund members.

  12. Award Superannuation 1986 -91 • The superannuation funds approved by the Commission were generally multi-employer industry funds jointly sponsored by trade unions and employer associations. • New industrial awards were progressively negotiated under the guidelines established by the 1986 National Wage Case. • Consequently, superannuation coverage rapidly increased from around 40 % of employees to 79% in the four years following the Commission’s decision. • Coverage in the private sector grew from 32% in 1987 to 68 % in 1991.

  13. Problems with Award Super In spite of the rapid growth in superannuation coverage, award-based superannuation had a number of problems: • nearly one third of private sector employees remained uncovered by 1991; • not all employees who were entitled to award superannuation received it, • compliance could only be enforced through a laborious case mounted with the Conciliation and Arbitration Commission; • award superannuation as a universal entitlement did not effectively take into account the significant number of employees who already had some superannuation rights as part of their employment; and • the 3 % award was too small to provide a significant improvement in retirement incomes for many employees.

  14. Superannuation Guarantee 1992 - • The Government announced that from 1 July 1992, a new system to be known as the superannuation guarantee, • employers would be required to make tax-deductible superannuation contributions on behalf of their employees. • Employers who did not provide the required amount of superannuation support would be liable for a non-deductible Superannuation Guarantee Charge, equivalent to the individual employee shortfall in contributions, an interest component and an administrative charge.

  15. Superannuation Guarantee • enforceable through the Commonwealth’s taxation powers, provided • a major extension of superannuation coverage to employees not already covered by superannuation; • an efficient method of encouraging employers to comply with the obligation to make contributions on behalf of their employees; and • a mechanism by which the level of employer superannuation support could be increased over time

  16. Superannuation Guarantee The superannuation guarantee • commenced in 1992/93 with employer contributions of 3% of salary • 4% for employers with an annual payroll greater than $1 million). • Higher levels of contributions were phased-in over a ten-year period and reached the maximum of 9 % in 2002/03. • Initially contributions were required to be paid annually in arrears; this was changed to quarterly in arrears from 1 July 2003.

  17. Few Exemptions The superannuation guarantee used broad definitions of employer and employee and provided very few exemptions, • earning less than $450 per month, • part-time employees under 18 years of age and • employees aged 65 or over. From 1 July 1997 the Government extended the upper age limit for superannuation guarantee contributions from 65 to 70 years

  18. Public Sector Schemes Government did not seek to directly regulate the superannuation schemes of the States and Territories but entered into a Heads of Government Agreement in 1996 whereby it was agreed that the public sector schemes covered by the agreement would be operated in accordance with the Government policy. • These schemes, known as Exempt Public Sector Superannuation Schemes, were treated as complying superannuation funds for superannuation guarantee and taxation purposes.

  19. Superannuation Guarantee and Public Sector Funds • Historically retirement benefits for public employees were delivered through unfunded or partially funded schemes - generally “Defined Benefit” schemes • Most schemes required an employee contribution • Ratio of employee contribution 6% to employer 12% • Costs of benefits emerged at time benefits were paid, as opposed to “as accrued” • Super guarantee set standard for employer funded schemes in public sector as well

  20. Public Funds – Government response • Growing concern with unfunded liabilities • Projected aging of workforce • Governments closed the unfunded or partly funded defined benefit schemes • Established fully funded accumulation schemes • New employees entered schemes that provided equivalent of Superannuation Guarantee

  21. Developments in Public Sector Funds • Public Sector Funds are merging • Public Sector Funds are reducing in number • Mainly through closure of occupation specific funds ieHealthSuper merges with StateSuper • Consolidation, rationalisation of Governance and Administration • Many of public sector funds are still partially funded , still “owned” by government or largely public employer “shareholders • Find right balance between Public “niche”, and inherited “Scale”, and operate within “competition”

  22. Challenges for Public Sector Funds • Introduction of “Choice of Funds “ legislation • Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2004 took effect on 1 July 2005 • Whether to be an “open offer” fund, and • Whether to compete, with other funds to attract, or, retain members • Funding the declining “tail” of beneficiaries in former, but, closed “defined benefit” or “defined contribution” schemes • Competition on “Performance” and Service, exacerbated by Govt decisions to continue to remove historical “advantages “

  23. Challenges? ....continued • After 100 + years? • Existence is not an issue • Mode of operation could be, a matter for governance • Little different to Industry Funds, or Corporate Funds, competition from SMSF, portability etc. • Will benefit from blending of regulation for all funds • State and Federal Funds now essentially treated same as all others

  24. Public sector v. Private funds facing same issues • All members of funds are facing the issue of delivering “adequacy” and managing “Longevity Risk” • The need to raise employer contributions to 12 % minimum- see next slide • Maintenance of “member” trustees role and influence • Merged Governance and Prudential standards • Except for closed D B Funds, all now compete with each other, but also with SMSF

More Related