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Government begins process to reform financial system

Government begins process to reform financial system

Australia’s financial system and superannuation system are to be the subject of two separate reviews by the Productivity Commission.

The federal government has asked the Productivity Commission to undertake an inquiry into competition in Australia’s financial system, with submissions due by 15 September.

This broad inquiry will look into products and services provided to households, small businesses and large corporations, as well as financial system infrastructure.

The scope of the inquiry (excluding the segments in grey)

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The times they are a-changin’

New technologies are creating rapid evolution in the financial system, according to the Productivity Commission.

This can deliver better value to consumers but can also make it harder for new companies to enter a market and challenge the incumbents.

The Productivity Commission said a balance needs to be struck on regulation – too much might stifle business but too little might threaten consumers’ rights.

“For consumers, a competitive financial system should deliver products that fit individual needs, and are accessible and flexible,” it said.

“Competition in the financial system should work in concert with stability and the smooth operation of financial markets. This is particularly the case in times of global uncertainty, given the interconnected nature of global financial markets.”

World-first superannuation review

The Productivity Commission will also review the competitiveness and efficiency of the superannuation system, with submissions due by 21 August.

No other country has ever taken such a comprehensive look at the competitiveness and efficiency of a superannuation or pension system, according to the Productivity Commission.

“The sheer size of the superannuation system, with more than $2 trillion of Australian assets, combined with its compulsory nature, highlights the importance of this inquiry,” it said.

“There could be very large gains to the community from increasing the system’s efficiency. And competition is often the impetus to promote efficiency and members’ best interests – an important means to a wellbeing end.”

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Learn more about superannuation

When did superannuation start in Australia?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

When did superannuation start?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

How do you access superannuation?

Accessing your superannuation is a simple administrative procedure – you just ask your fund to pay it. You can access your superannuation in three different ways:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

However, please note that your superannuation fund will only be able to make a payout if you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age has six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia