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Self Managed Super Fund (SMSF) Article
Review to being changes to super in the new year

By Tony Negline.

This article may be out of date.

10th December 2008

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Geoffrey Newman, Wealth's editor, has asked that the final DIY Super article for 2008 be about "what we can expect in the year ahead for super (law changes, industry developments etc)".

In the least turbulent of times actuality can quickly make a pundit's predictions seem very foolish.  In volatile times a pundit can also be made to look callow.

Anyway the government currently has a number of matters in train and only time will tell how big or small some changes end up being and what the real start dates might be.

* Self Managed Super Funds – Nick Sherry, the Minister responsible for superannuation, has been conducting a review of small super funds.  The depth and scope of this review is unclear but introducing some form of mandatory education for small fund trustees has been mentioned.

If mandatory education standards are adopted it is will interesting to see how long existing trustees will have to comply, who will create the assessment material and what will be the pass mark?  Will the trustees of newly established small funds have to comply before the fund is created or will they have a period of time in which to pass?  What would happen if a trustee continually failed the test?

Small super funds are often said to have too much money in cash assets and Senator Sherry has suggested that enforcing diversification might be necessary.

Sherry might make some policy announcements about small super funds before the end of 2008 or early 2009.  He might also be tempted to announce that all new small funds established after a particular date must have a minimum level of assets.

* Borrowing by super funds – this is often incorrectly seen as exclusively being another small super fund issue.  Super law changes introduced by the Howard Government in 2007 have allowed all super funds to borrow money.

There is the perception that these new rules, which are only now becoming widely known, may need some fine-tuning.  For example if structured properly, including on a genuine arm's length basis, it is possible for a member of a super fund to loan money to the fund so the fund can purchase an asset.  Hopefully, "the baby is not thrown out with the water", if changes are deemed necessary.

The timetable for any policy announcement is again later 2008 or early 2009.

* Fees and charges – Senator Sherry has been quite vocal in his desire to cut the average fees across the whole superannuation industry to 1.25% per annum instead of a current average of 2% p.a.  Ideally he would like a total fee of 1% p.a.  Sherry believes that this average fee should cover all costs including trusteeship, administration, reporting, custodianship and financial advice.

Given the most efficient Industry Funds charge 0.9% per annum on account balances of more than $500,000 it is difficult to know how Senator Sherry's dream will be realized.

We may have an announcement about this before Parliament resumes in early February 2009.

* Disclosure documents

This project has been a work in progress since the Rudd Government came to power and will continue to be worked on throughout 2009.  The objective is to try to reduce the size of disclosure documents for many different product types.

It's a worthy cause and Minister Sherry might have temporary victories.  However over the longer term his dream might go unrequited because of the massive legal liabilities financial services companies assume when they make products available to retail investors.  Some aspects of financial products cannot be described simply or briefly.

* Clearing house for super contributions

Recent research has shown that employers spend considerable amounts of money administering their employees' superannuation arrangements.  As employees increasingly exercise their option to select their own super fund, these costs are expected to continue rising.

The ALP promised during the 2007 election to introduce a scheme, called a clearing house, which provides employers with a mechanism to more easily and cheaply deal with this problem.  The government also promised that such a system would be made freely available to businesses with less than 20 employees.

Treasury recently called for input into how the government might be able to establish such a scheme sometime in 2009 or 2010.

* ATO chasing up late lodging small super funds

A reasonable number of small super funds have not lodged their regulatory returns.  In some cases the returns have not been lodged for many years.

The reason for no lodgement are many and varied.  Often funds will not lodge because they have broken the super rules and they don't know how to fix the breach.  They are reluctant to dob themselves into the ATO because of the wide range of potential penalties that could be imposed.

I have found from my experience in fixing up many problem small super funds that the best approach is often to fix the super law breaches before approaching the ATO.  It is important to know how to repair the problems and also ensure a small fund has no future breaches.

It appears that the ATO is in the middle of a major project to demand these super funds and lodge their outstanding regulatory returns.  This project will continue throughout 2009 and probably 2010.

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