Interact
Member access
Browse
SuperInvestor TV
Share
» Articles - Cooper review into the Australian superannuation system
Cooper review into Australia’s superannuation system
The Cooper review into Australia’s superannuation system has commenced its third stage. This stage concentrates on the structure of superannuation with self managed super funds being specifically included. Members and trustees of SMSFs have until February 19 to lodge submissions on how they believe their sector can be improved.
An indication of the SMSF issues that need to be addressed are contained in a paper released in early December 2009. The questions raised provide an indication of what issues the committee regards as needing to be addressed. These include:
• Should the responsibilities of SMSF trustees be less onerous than it is for trustees of industry and commercial funs?
• Should SMSF members undergo some form of ongoing education on their trustee obligations and how to invest?
• Is the penalty regime that applies to SMSFs appropriate?
• Would it assist SMSF members if there was more information available to help them understand asset allocation and diversification?
The paper also provided background information into the makeup of the SMSF sector and the cost of maintaining SMSF funds. It is not surprising that the administration and compliance costs of SMSFs with less $500,000 have increased from 2006 to 2008. The increase in costs is directly attributable to the increasingly harder stand that the ATO is taking to the regulation of SMSFs.
This increase in the administration and compliance cost burden of SMSFs could be addressed by taking a common sense attitude, rather than the historic and overly bureaucratic approach we have now. Currently trustees of SMSFs must comply with all of the APRA superannuation regulations and the regulations imposed by the ATO.
Many of the regulations imposed by APRA are designed to protect members of super funds from the actions of trustees. With a SMSF the members are the trustees and therefore they have ultimate control over their own superannuation. This dual regulation results in members of SMSFs producing piles of useless paperwork that proves they are not cheating themselves, thus adding to the compliance burden and cost.
It would make sense to give total control of SMSFs to the ATO. This way documentation requirements and regulation could concentrate on controlling early access to superannuation and the other critical areas such as contributions and investments. By redesigning the superannuation regulations, removing the controls and administration designed to protect members, a more efficient and cost effective compliance system for SMSFs would result.
The Cooper review in handing down its recommendations should recognise that a SMSF goes through various stages. The first is when all members are in accumulation mode and all members are under 65, the second is when there is a mix of members in both accumulation and pension stage, and then there is when all of the members are over 65 and in pension phase.
In the first two stages compliance and regulation should concentrate on detecting and preventing early access to superannuation and the investments made by the trustees of the fund. Once all members of a fund are 65 or older, and they have no restrictions on when or how much they can withdraw, the focus should shift to detecting and preventing unauthorised super contributions.
The ability for a person to make super contributions once they are 65 or older is determined by the work test. Currently to satisfy the work test a person must work 40 hours in paid employment or a business for a continuous 30 day period.
This work test does not recognise and devalues the important volunteer work done by many older Australians. The work test should be modified to include volunteer work done over a longer period with recognised charitable organisations.
For more information, or to discuss your specific situation, please contact me directly.
My book: "Self Managed Superannuation Funds, A survival Guide" by Max Newnham, is available in book stores.
Max Newnham
TaxBiz Australia
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or discussion form) and/or request professional member(s) to contact you directly.
