The global financial crisis (GFC) presents a golden opportunity for the self-managed superannuation industry to address some of the anomalies and shortcomings of how self-managed funds are regulated, according to Professor Gordon Cooper.

Cooper, a visiting professorial fellow at the university of NSW’s Australian School of Taxation (ATAX), and principal of Cooper & Co, has identified 18 ways in which regulations could be cleaned up, amended or refined, to make the operation of SMSFs smoother and to bring how they are regulated into line with other areas of tax and law.

“After so many years of a bull market, the superannuation sector has experienced horrendous negative returns over the last year,” Cooper said, in a paper presented to the Self-Managed Superannuation Professionals’ Association of Australia (SPAA) 2009 convention in Adelaide.

“One impact of the GFC on SMSFs may be that it presents an appropriate opportunity to consider the elephants in the living room. There are a significant number of issues faced by SMSFs which, for whatever reasons, largely have been ignored.

“Often the reason for ignoring a problem is that it is controversial. Alternatively it may be ignored because to confront it may result in unpleasant consequences. Consistent with the title of this conference, this paper will take the GFC as providing an opportunity to put the spotlight on some of the SMSF elephants.”

Cooper’s proposals address four main areas of SMSF operation: contributions, death benefits, investments and pensions.

“I think the GFC gives us an opportunity to look at some of these issues, to tackle some of these issues, and a reason to tackle some of these issues,” Cooper told the conference.

Cooper said he had identified “18 things that should be changed”.

“Some are fairly technical changes that are long overdue, in my view. They are my own ideas; they are in no way endorsed by SPAA.”

Cooper said some of his ideas would not be popular with the SMSF industry, particularly a proposal to abolish the limit the tax-exempt amount a fund member can take as a pension form a fund after they reach age 60.

Cooper said the tax-exempt amount should be “capped with reference to average weekly ordinary-time earnings (AWOTE).

While this would be significantly less than an individual could receive tax-exempt now, it was still “4.5 times the maximum Age Pension”.

“Such a cap would have no adverse consequences for the majority of members of an SMSF,” Cooper’s paper said.

“This is because, based on figures for the year ended 30 June, 2008, it would apply to a pensioner aged between 60 and 65 taking the minimum pension only where the pension exceeded about $1.3million.

“However, it would mean that those receiving a pension above the capped amount would be making a contribution towards the growing problem of funding Australia’s ageing population – a problem made worse by the GFC causing the Budget to move from surplus to deficit.”

Join the discussion