Small Australian-Prudential-Regualtion-Authority funds (SAFs) are a “flexible”, and in some instances superior, alternative to self-managed superannuation funds. However, the majority of accountants, and many financial advisers, aren’t aware that they exist, according to Julie Steed, technical services manager at IOOF-owned Australian Executor Trustees.
A small APRA fund has a similar structure to an SMSF, however responsibility for all the compliance risk, administration and production of accounts is outsourced to a professional licensed trustee rather than the members of the fund.
Investments are still member-directed.
SMSFs are regulated by the Australian Taxation Office, while SAFs are regulated by APRA.
There were over 503,00 SMSFs as at June 30, 2013, compared to approximately 3,250 SAFs, based on APRA’s Quarterly Superannuation Performance statistics.
According to Steed, who presented at the Institute of Chartered Accountants of Australia’s annual SMSF conference in mid-September, awareness of small APRA funds is low particularly among accountants yet small APRA funds can be cheaper to run and have unique features, such as the ability to pay secure and tax-effective death benefits to disabled dependents.
“We look after a lot of families with disabled adult children in their 50s and 60s who can’t be a trustee member of a SMSF because under the law they lack the mental capacity,” Steed said.
“They, therefore, can’t appoint an enduring power of attorney unless they go through the state guardianship board or equivalent, which is a complex process. But, with a small APRA fund, when a parent dies, death benefits can be paid to them.”
Steed said appointing a professional trustee typically cost around 1 per cent for funds with account balances over $500,000, and less than 1 per cent for funds with in excess of $1 million.
She added that Australian Executor Trustees, which is one of Australia’s largest providers of estate and trustee services, discouraged people with low superannuation balances to set up an SMSF or SAF. Read Steed’s full presentation here.
