Australia: Can You Charge Negative Interest On Super Fund Benefits?

Last Updated: 3 October 2006

By Zein El Hassan and Jennifer Teh

Key Point

  • A recent decision warns that a trustee of a superannuation trust is not entitled to reduce the retirement benefits it is due to pay by deducting interest.

The decision of Justice Young of the Federal Court in Vision Super Pty Ltd v Poulter [2006] FCA 849, handed down in July 2006, has important implications for all trustees, not just trustees of super funds. Where trustees intend the word "interest" to capture an investment return that can be positive or negative, clear words should be used in any documents governing the entitlements of fund members. Otherwise, the trustee may be guaranteeing a positive return and, if so, this should be factored into the investment strategy for the fund.

He also held that the application of a broad trustee decision to an individual is not a decision that relates to the management of the fund as a whole. Therefore, it is not excluded from the jurisdiction of the Superannuation Complaints Tribunal by section 14(6) of the Superannuation (Resolution of Complaints) Act 1993 (Cth) ("ROC Act"). The effect of the decision is that most decisions by super fund trustees can be heard before the Tribunal.


Vision Super Pty Ltd, was the corporate trustee of the Local Authorities Superannuation Fund. The trustee appealed to the Federal Court against the determinations made by the Tribunal in favour of three members of the fund. Upon leaving their employer, each member elected to remain in the fund and accept a deferred retirement benefit rather than leave the fund and receive a lower resignation benefit.

Under the trust deed, the trustee was required to pay interest on the amount of the retirement benefit payable from the time the member elected to remain in the fund until the date when the benefit is paid.

The trustee debited an amount to the members' deferred benefit accounts which reflected a negative investment return. Two of the members argued that under the terms of the trust deed, the trustee could only credit interest to the deferred benefit account and could not debit interest. The third member argued that she had relied on the "Guide to your Resignation Benefit", which stated that the benefit would be "credited to an interest-bearing account" and would "continue to grow with interest".

Each member then lodged a complaint with the Tribunal on the basis that the decision made by the trustee to debit the deferred benefit account was unfair or unreasonable.

The Tribunal's determinations

Having determined that the complaints were within its jurisdiction, the Tribunal held that the decision was unfair and unreasonable in its operation in relation to the members. The trustee was to repay to the members' deferred benefit accounts all amounts of "negative interest" deducted and interest from the date of the deduction to the date of repayment.

Relying on the dictionary meaning of the word "interest", the Tribunal also held that a trustee acting fairly and reasonably would have concluded that "interest" does not include negative interest.

Did the Tribunal have jurisdiction to deal with the complaints?

A person can make a complaint to the Tribunal that a decision made by a trustee is or was unfair or unreasonable, but only if the decision is one made "in relation to a particular member" (section 14(1)(a)) and the complaint does not "relate to the management of a fund as a whole" (section 14(6)).

Justice Young held that the Tribunal did have jurisdiction to make the determinations. Even though the trustee made a broad decision to "set a negative crediting rate for deferred benefit members", the calculation of interest and the debiting of a specific amount to the members' accounts required a separate decision in relation to each member. It was the latter decision that was "in relation to a particular member" for the purposes of section 14(1).

Justice Young rejected the argument that the complaints could be likened to a complaint in relation to an investment policy adopted by a trustee and held that the complaints did not relate to the management of the fund as a whole. Thus, the exclusion in section 14(6) did not apply. Each complaint related only to debits made to the member's own deferred benefit account. None of them referred to the management of the fund as a whole. Even if the complaints related to the treatment of a particular class of members, deferred benefit members do not comprise the whole of the members of the fund. Therefore, a complaint in relation to a decision that adversely affects their entitlements does not necessarily relate to the management of the fund as a whole.

He also found section 14(6) to be inapplicable because a complaint that the trust deed has been contravened "in a way that directly and adversely affects the financial position of the particular member lodging the complaint cannot be described as a complaint about the 'management of the fund as a whole'".

Was the Tribunal correct in its interpretation of the word "interest"?

Justice Young took a practical and purposive approach to the construction of the trust deed and the meaning of the word "interest". He held that on its proper construction, clause 4.10 of the trust deed did not permit or authorise the trustee to reduce the deferred retirement benefits of the members by negative interest. Justice Young also held that the word "interest" is not a reference to investment returns or earnings which can be either positive or negative. Rather, the term "interest" should be given its ordinary meaning as 'the return or compensation for the use or retention by one person of a sum of money belonging to or owing to another': Adams v Paul's Properties Ltd [1965] NZLR 161.

Under the trust deed, a member is entitled to a benefit equal to "the sum of" the amount of the retirement benefit and "interest" on the amount. In Justice Young's view, this language suggested that the interest was intended to be a positive amount. The language of the provision also treats the amount of the retirement benefit as a fixed and ascertained sum on which interest is payable, rather than an amount that can be reduced by interest.

There were no general powers in the trust deed which authorised the trustee to determine that interest should be a negative amount. Justice Young cautiously pointed out that it was open to the drafters of the trust deed to have included a provision permitting the trustee to deduct negative interest from the members' deferred benefit account.

He added that the fact that the trustee may have previously credited the benefits with amounts that exceeded the rate of interest which it might otherwise have determined does not mean that the trustee can lawfully debit negative interest to the members or that it is fair and reasonable to do so.

Justice Young dismissed the trustee's appeal and held that the Tribunal's determination that the trustee acted unfairly and unreasonably towards the members in debiting negative interest in contravention of the trust deed was correct.


Given this decision, trustees should review their trust deeds and disclosure documents to ensure that they use clear words to evince an intention that the word "interest" captures positive and negative investment returns. Alternatively, it may be preferable to change those documents to replace the word "interest" with a reference to investment earnings or returns, which may be positive or negative.

Before this decision, it was generally thought that the jurisdiction of the Tribunal was excluded if the complaint related to a trustee decision that affected the entire fund. By holding that the application of a broad trustee decision to an individual is not a decision that relates to the management of the fund as a whole, the effect of the case is that most decisions by super fund trustees can be heard before the Tribunal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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