Superannuation – is your deposit guaranteed?

With murmurings of a financial crisis gaining momentum, it may be worthwhile asking your super fund just how safe is your super.

Many people with money invested in superannuation assume there is some kind of deposit guarantee, such as that offered under the Financial Claim Scheme (FCS). However, the means by which superannuation is invested, may mean that your deposit into super is not covered.

Firstly, you need to understand the scope of the FCS. In the instance of an Australian Approved Deposit Institute (ADI) being unable to honour its financial obligations, deposits made by an individual up to the value of $250,000 are covered by the FCS and will be refunded by the government.

Next, you should be aware of how deposits into public (i.e. open for anyone to join) superannuation funds are invested. Money in a public superannuation fund must be invested by a trustee on the investors’ behalf, and herein lies the problem. This means that any contract entered into, in regards to investment, is between the trustee as a single entity and the bank, not the actual customer and the bank.

The FCS is applied per customer (or entity) per account, therefore the guarantee is actually applied to the trustee, which may have billions of dollars of money invested, making the $250,000 guarantee irrelevant when it comes to trying to get your money back.

Although all ADIs are regulated by the Australian Prudential Regulation Authority (APRA), this does not exclude them from running into financial difficulties. In fact, if you take a look at APRA’s list of ADIs, you may be surprised to find the reach is far and wide, and therefore the risk is also spread.

If you’re unsure how your superannuation fund invests your deposit, or whether or not you are covered by the FCS, you should ask your financial advisor for written clarification.

You can find out more about the scheme and who and what is covered at APRA.gov.au 

All information provided in the article above is general in nature and does not form the basis of any financial advice.

Other articles:

Superannuation advocacy group 

Super fund risk versus reward

Written by Debbie McTaggart



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