Richard Weatherhead assesses the likely impact of the Government’s review of the governance, efficiency, structure and operation of Australia’s superannuation system
The Super System Review (the “Cooper Review”) has delivered to the Government its final report into the governance, efficiency, structure and operation of Australia’s superannuation system.
Given the scope of the Cooper Review, the potential ramifications for the superannuation industry are enormous. However, the recom- mended changes for the self-managed super fund (SMSF) segment are relatively benign. The most significant changes are contained in the April 29, 2010 report, Self Managed Super Solutions; but other reports, particularly the March 22, 2010 report, SuperStream, will also impact on self-managed superannuation funds.
At first glance, the changes for the SMSF market are modest, with most headlines focusing on the recommended ban on investments in collectables and personal use assets. However, there are a number of other preliminary recommendations which are also important. These include:
• Permitting the ATO to apply a range of graduated penalties for breaches of the SIS Act, rather then relying on the extreme measure of declaring the fund non-compliant. These would include the power to enforce mandatory education for trustees who have contravened the SIS Act;
• Extending the jurisdiction of the Superannuation Complaints Tribunal to resolve death benefit disputes between an SMSF and a beneficiary who is not a member and to resolve disputes involving external insurance;
• Further consultation on potential changes to the AFSL regime to ensure financial advisers are subject to a comparable level of regulatory supervision in relation to the provision of tax services as would apply if they registered with the Tax Practitioners Board – or to bring financial advisers permanently within the tax agents services regime itself;
• A possible requirement for prospective SMSF members to complete an online module on a government website which would evaluate their suitability to participate as a member and trustee of an SMSF;
• Compulsory registration of approved auditors, with auditors being independent of any firm providing any service in connection with the SMSF or its trustees;
• Removal of the 5 per cent in-house assets investment limit so that no in-house assets would be allowed (with grandfathering of existing in-house assets until June 30, 2020);
• Increasing disclosure to members of key information relating to the fund, such as the binding death nominations in place, whether pension arrangements are provided to any member, the amount of insurance cover provided, and investment returns over the previous financial year;
• Improved fund and member identification data to improve security of rollovers to SMSFs;
• Changes to the SIS Act to reduce the frequency of trust deed updates for essentially administrative and compulsory compliance reasons;
• Development of standard online forms for all funds, including SMSFs, covering com- mon processes such as rollovers;
• The exchange of tax file numbers between funds, including SMSFs, enabling the trustee of the fund to which contributions are currently being made to invite the member to consolidate their accounts.
Clearly these changes, if put into effect, would have a profound impact on the SMSF industry. This would be particularly the case for those holding collectables or in-house assets.
One theme running though all proposed changes is the increased use of technology and online data collection and transmission.
This would continue a trend that has been occurring for a number of years, with more and more sophisticated functionality being provided online. A growing number of superannuation products enable online application.
The general level of functionality available within online superannuation products is strong and many of the preliminary recommendations of the Cooper Review, if implemented, would facilitate further improvements, particularly driven by the use of the tax file number as an identifier.
Overall, the potential impact of the Cooper Review could be to significantly increase the use of online superannuation products and functionality, and the SMSF sector is presented with both opportunities and some threats in this new e-commerce world.
Richard Weatherhead is a director of Rice Warner Actuaries.
