Jordan George

It is imperative that Government puts the process of legislating the objective of superannuation back on the agenda in 2019.

The push to resuscitate this recommendation that emanated from the Financial System Inquiry (FSI) came today at the SMSF Association’s 2019 National Conference where an expert panel all concurred that superannuation urgently needed an objective to ensure a more holistic policymaking approach to the retirement incomes system.

SMSF Association Head of Policy Jordan George, Mercer Senior Partner David Knox and BT Financial Group Chief Executive Officer Brad Cooper, while addressing the topic “Challenges and opportunities facing SMSFs today”, all agreed that the lack of a legislated objective of superannuation is an obstacle to sensible superannuation policy, especially in the current environment.

The panel noted that with policymakers navigating how to implement the Royal Commission and Productivity Commission recommendations, an objective for superannuation would guide them to sensible implementation outcomes.

By legislating the objective of superannuation, it would help drive effective policy and the role of all superannuation funds, industry, retail and SMSFs, especially in anticipation of these legislative recommendations.

The speakers said that legislating the objective of superannuation should also play a role in clarifying and distinguishing the roles of superannuation and the age pension. This would help remove the possibility that the objective of superannuation could be interpreted so that any income provided by superannuation above age pension level is a sign of an overly generous tax concession support for superannuation.

During their discussion, the panel commented on the absence of a concept of adequacy as an objective as one of the key reasons it was not successfully implemented after the FSI recommended it.  It is essential that any objective not only has a focus on providing retirement income but also ensures that retirees are able to build adequate retirement savings through the superannuation system to manage the financial risks of aging and retirement.

The panel noted that an objective for superannuation was a policy that enjoyed broad support across the superannuation sector from a wide range of participants in the sector. The objective of superannuation should have an important role in clarifying policy and the role of superannuation trustees.

For the primary objective and any guiding principles to effectively guide retirement income policy, there needs to be a direct link between new policy and the enshrined objective and principles.  Any new legislation that affects retirement income policy (e.g. superannuation, taxation, age pension, etc.) should be reviewed against the objective and principles.

They concluded that with the policy landscape for superannuation so uncertain given the recommendations from the Royal Commission and Productivity Commission, an objective was needed to define the direction and move away from ad-hoc changes.

Previous and numerous ad-hoc changes and lack of integration between all parts of the sector have degraded this confidence. A move to restart the conversation and make effective changes to improve the system only when necessary is essential to this process.

The need to legislate an objective for superannuation was a key recommendation to Government in the SMSF Association’s 2019-20 Budget submission.

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Jordan George

Self-managed super funds (SMSFs) on a quarterly Transfer Balance Cap (TBC) reporting schedule must make their first lodgment with the Australian Tax Office (ATO) in three weeks, warns SMSF Association Head of Policy Jordan George.

“SMSFs on the quarterly schedule will have to report any TBC events for the first quarter of the 2018-19 financial year by 28 October 2018.

“For the typical pension commencement date on 1 July 2018, this will require the commencement of the pension to be reported by the end of October.”

SMSFs with any members with a total superannuation balance of $1 million or more must report events affecting members’ transfer balances within 28 days after the end of the quarter in which the event occurs. Those funds that do not will continue to report annually.

Even when an SMSF has only one member with an individual total superannuation balance of $1 million or more, it must report all events within 28 days after the end of the relevant quarter, even if the balance of the first member to start a retirement phase income stream is below $1 million.

George says it’s important to remember that once an SMSF is assessed as either annual or quarterly reporting, it remains on that schedule for the life of the SMSF.

“As SMSFs generally align the valuation of their assets with the completion of their end-of-year financial accounts, it’s possible that funds will not know the exact value of their income stream by this date.

“However, the ATO has stated that SMSFs can use its valuation guidelines, and, if the valuation is consistent with these guidelines, it will accept a ‘reasonable estimate’ of the starting value of a retirement superannuation income stream.”

The Association has a Go-To-Guide on TBAR reporting that contains information for advisers on their reporting obligations.

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Jordan George

Draft regulations tabled in Parliament to allow self-managed super funds (SMSFs) to receive digital rollovers through the SuperStream system has been welcomed by the SMSF Association.

SMSF Association Acting CEO Jordan George says the Government’s decision to table the draft regulations will extend the operation of SuperStream to SMSFs from 30 November 2019 and, importantly, clarifies when SMSFs are required to enter the system.

“This is a positive development for the SMSF sector and one the Association has long advocated. It will make it easier for individuals choosing to manage their own superannuation to rollover existing superannuation funds into an SMSF, or, conversely out of an SMSF and into an APRA-regulated fund.

“These changes will reduce compliance costs by removing manual processes, decreasing rollover transaction times and improve the integrity of the superannuation system.”

SMSFs will now only be required to obtain a digital address and provide it to the Australian Tax Office (ATO) if it receives a contribution (other than a contribution from a member or a related party employer), a rollover, or transfer of a member’s withdrawal benefit. This carve-out was proposed by the Association in its submission to Treasury on the draft regulations in early August.

George says: “The Association appreciates that the Government took note of its submission and clarified its operation with regards to non-concessional and member-related contributions.

“As a consequence, SMSFs no longer receiving rollovers or employer contributions will not have to enter the SuperStream system just because they receive a once-off, non-concessional or member-related contribution.

“If non-concessional contributions did fall into the remit of the SuperStream regulations, it had the potential to create a compliance burden for SMSF trustees, especially for older and established SMSFs that don’t receive employer contributions and have no real need for SuperStream. Typically, these SMSFs just receive contributions directly from the member.”

“SMSF trustees who are older, either in retirement or transitioning to retirement and only receiving non-concessional contributions, will not need to transition until a further appropriate time is identified. Not only will this reduce the burden on the trustee, it will also reduce the burden on professionals and the regulator who will need to implement the transition.”

The Association will continue to work with the ATO to design an effective SuperStream process for all SMSF trustees.

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Jordan George

The Productivity Commission’s recommendation to rename “General advice” in its report into Competition in the Australian Financial System has the full support of the SMSF Association.

This recommendation, if accepted, would give consumers a clearer understanding of the type of advice they were receiving, and particularly whether it considered their personal circumstances and financial goals or whether it was simply factual or sales information.

SMSF Association acting CEO Jordan George says: “The Association has long argued that the term ‘General Advice’ is misleading, and that there is a pressing need for an alternative definition to ensure consumers better understand what type of advice they are receiving.

“Consumers are now getting information from some advisers that cannot be considered ‘advice’ in the sense it does not consider the totality of their financial situation.

“What needs to be achieved is a situation where ‘advice’ is clearly differentiated from factual or product information. As the Association has argued since 2014, ensuring that there is transparency between what is ‘advice’ and ‘information’ is essential to give consumers greater clarity around the status of the advice.”

George says the Association also supports the recommendation that provides greater transparency about products on the approved product lists of Australian financial service licensees.

“This aim of this recommendation is to ensure consumers understand how the advice they are receiving, and the financial products recommended to them, are related. Better transparency will give consumers more information and choice about who they wish to deal with.”

The Association will also consider more closely the recommendation that financial advisers would not require a separate Australian credit licence.

George says that “one-stop property shops” are of grave concern in the SMSF environment, and as such any recommendation that may make it easier to offer “unscrupulous property advice” must be carefully considered.

“It’s the Association’s firm view that all SMSF advice should only be provided by individuals who have completed specific SMSF education and we are therefore concerned that this recommendation will undercut this push to greater professionalism in the sector.”

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Jordan George

The Productivity Commission’s draft findings about the cost effectiveness of self-managed super funds (SMSFs) uses evidence that is “fundamentally flawed” and does not consider broader motivations on why individuals set up SMSFs, says SMSF Association Acting CEO Jordan George.

“Factors such as data problems, investment return calculation methodology and the retirement demographics of SMSFs compared with APRA-regulated funds make it unreasonable for the Commission to conclude from the data they used that SMSFs are not cost-effective with a balance below $1 million.

“In addition, ATO cost and return calculations include SMSF establishment and advice costs that vary considerably to the costs incurred by APRA-regulated funds, in the process distorting SMSF returns, especially for new and lower balance funds.

“The Commission acknowledges in the Draft Report that there are issues with comparing APRA-regulated funds and SMSFs, and our analysis of the data issues leads us to the conclusion that it should reassess its draft findings that SMSFs with balances under $1 million are not cost-effective and underperform.”

As part of its 42-page submission to the Commission’s Draft Report, the Association has provided alternative data on SMSF investment returns and costs.

George says: “It’s our belief that this data is more accurate than the ATO data that the Commission used in its Draft Report. Significantly, this data shows that SMSFs can be cost-effective below the $1 million balance.”

The Association also told the Commission that the SMSF cost-effectiveness debate must be extended beyond a mere analysis of net returns and costs and consider the cost of running an SMSF over the long-term, as well as the varied motivations that SMSF members have in setting up their own funds, such as increased control and their individual retirement goals.

“SMSFs give members the responsibility of managing their own retirement savings, as well as the ability to respond to other motivations such as transparency, engagement, investment choice, tax planning, flexibility, estate planning and achieving better returns and lower costs.

“Simply comparing investment returns between SMSFs and other superannuation funds does not acknowledge or account for the other benefits that SMSF members receive from their funds.”

George says the Association strongly opposes an establishment limit that would reduce choice and competition in the super system, paternalistically implying that only the wealthy know how to and are able to invest responsibly.

“Many SMSFs are small business people, professionals, or farmers, who take risks every day in their business lives, but are now being implicitly told they lack the experience and knowledge to handle their retirement savings. We don’t accept that proposition.”

The SMSFA also uses its submission to acknowledge the questions regarding the quality of advice to SMSFs and recommends that any financial adviser who wants to advise SMSF members should undertake specialist SMSF advice education to improve the quality of that advice.

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Kelly O’Dwyer

The Federal Government’s decision to release draft regulations to extend SuperStream to self-managed superannuation fund (SMSF) rollovers has the strong backing of the SMSF Association.

The announcement, by the Minister for Revenue and Financial Services, Kelly O’Dwyer, will make it easier for SMSFs to roll superannuation monies into their individual funds. Previously, only rollovers between APRA funds could use SuperStream.

SMSF Association Head of Policy Jordan George says: “These draft regulations will make it easier for individuals who choose to manage their own superannuation to roll over their existing superannuation funds into an SMSF.

“Electronic rollovers between APRA-regulated funds and SMSFs is something the Association has long called for so it’s gratifying to see the Government make this announcement.

“For SMSFs, it will reduce compliance costs by removing manual processes, improve establishment processes, decrease rollover transaction times and improve the integrity of the system.

“Currently, SMSFs can experience lengthy delays in receiving rollovers from large superannuation funds, so this change will ensure rollovers are made in a timely manner, enhancing choice and efficiency in the superannuation system.”

The Association will be further assessing how the broader inclusion of SMSFs in SuperStream will affect the sector and SMSF trustees.

George adds the Association looks forward to consulting on the draft regulations that will begin on or after 30 November 2019.

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Jordan George

The SMSF Association is urging the Financial Adviser Standards and Ethics Authority (FASEA) to provide more guidance and certainty about how recognised prior learning for existing financial advisers will be implemented as they transition to the new education standards.

SMSF Association Head of Policy Jordan George says introducing higher education standards for financial advisers has always been a key policy goal for the organisation, but it is essential that advisers have greater clarity and certainty as to how their existing qualifications will count under the new education standards being proposed by FASEA.

In its submission to FASEA “on proposed guidance on education pathways for existing advisers”, the Association says advisers who have made every effort to be educated and have completed high quality education and accreditations should have their efforts to be professional recognised under the FASEA framework.

“Currently, the proposed FASEA education standards for existing advisors do not provide enough recognition for prior learning.

“A more meaningful recognition of advisers’ prior education should help them in the transition to the new regime with less cost and effort while maintaining the high standards that must be achieved to ensure consumer trust.”

George says the Association also strongly recommended in its submission that financial advisers who service SMSF trustees should be required to have completed specialised SMSF education.

“This has been a long-term position of the Association that was recently echoed by ASIC who recommended that specific SMSF education requirements for advisers be introduced to raise standards of advice in response to the advice failings documented in ASIC’s Report 575 ‘SMSFs: Improving the quality of advice and member experiences’.

“We also recommended greater flexibility for new entrants to undertake university study and still be able to enter the financial advice profession. The proposed FASEA pathway for new entrants is too rigid and may starve the industry of future advisers.”

George says the Association also raised concerns about accountants giving SMSF advice under a limited license not being adequately considered under the existing pathways framework.

“We are advocating a specific pathway designed for the services they provide rather than having them spend considerable time and money studying subjects that are not relevant to the advice they provide,” he says.

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Jordan George

Federal Treasury’s decision to release a discussion paper on the proposed three-yearly audit cycle for some self-managed superannuation funds (SMSFs) has been welcomed by the SMSF Association.

The proposal to have three-yearly audits, which was announced in the May Budget, is an important policy change that raised some genuine concerns among Association members, especially as it related to the integrity of the SMSF sector.

SMSF Association Head of Policy Jordan George says: “The fact Treasury has listened to our concerns and agreed to have extended consultations on the policy detail instead of moving straight to consultation on draft legislation is very pleasing.

“This eight-week consultation period will provide an excellent opportunity for the SMSF sector to provide Treasury with detailed feedback on this important policy shift.”

“It will allow the Association to carefully consult with its members to get their feedback on how they think the proposal will affect the sector and formulate a comprehensive and informed submission to help steer Treasury’s policy making on this issue.”

George says among the key issues that need to be examined include what are the appropriate eligibility criteria for SMSFs to be included in the three-year audit cycle and what events will trigger SMSFs to have an annual audit.

“Our audit members have also conveyed their strong concerns regarding the proposal’s potential negative impact on the integrity of the SMSF sector, which is always of paramount concern to the Association, how it will affect audit workflows, and whether it will reduce costs for SMSFs. These are all important issues to work through during this consultation process.

“We look forward to consulting with our members and Treasury on this critical issue to ensure the end result is the best policy outcome for the SMSF sector.”

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Jordan George

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services will place ongoing scrutiny on the financial advice industry, Jordan George, SMSF Association, Head of Policy, told its National Conference yesterday.

He said that although the SMSF sector had been “specifically excluded” from the terms of reference, the Association would keep a careful eye on proceedings.
“Royal commissions have a habit of going where they are not expected to, and as such it’s imperative we remain vigilant throughout the course of an inquiry that has the potential to have a lasting impact on the financial advice industry.”

George told the delegates that the integration of the social security and superannuation was a priority issue for the Association in 2018 and beyond.

“It’s important that Government get the settings right to ensure the proper incentives are in place to encourage people to save for retirement.

“As we have seen for home-owning couples with between $500,000 and $800,000 in superannuation are potentially no better off in terms of initial retirement income under the current Age Pension settings than couples with smaller superannuation balances.

“This potential pitfall has come about because the lack of integration of superannuation and the Age Pension – the two key pillars of retirement savings in Australia.”

George also expanded on the broader issues facing the industry in the future, including an ageing SMSF population and asset allocation.

“With around 40 per cent trustees currently aged between 55 and 70, over the next 10 to 15 years dealing with issues of declining cognitive ability and SMSF exit strategies will be imperative for the SMSF sector to continue delivering the right outcomes for trustees.

“To ensure that trustees begin planning for these issues the Association has supported the Australian Law Reform Commission’s recommendations on preventing elder abuse.”

On asset allocation, he said it was essential that product development ensured that trustees in either the transition to retirement or pension phases had access to assets that ensured income and capital security.

“As the past several years of low interest rates have highlighted, having an asset allocation that provides income and capital security is imperative.”

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Liz Ward

The SMSF Association Technical Day will be one of the first superannuation conference offerings in the post 1 July super landscape, giving members the opportunity to discuss the new measures that took effect on that date and share with fellow professionals what the practical consequences have been for their clients and businesses.

SMSF Association Head of Education and Technical Day organiser Liz Ward says: “With the most significant changes to superannuation for a decade taking effect on 1 July, we want this year’s Technical Day to support delegates by providing time to reflect on, work through and resolve the key technical challenges they are experiencing day to day.”

To ensure the Technical Day achieves these goals, the format has shifted to a more in-depth, hands-on program to better allow delegates to come to grips with the key technical issues most concerning them.

The Association has used extensive member feedback and meetings to determine the issues that are “top of mind” with members, and has structured the five SMSF Association Technical Days accordingly. The first event is in Sydney on 18 July, followed by Brisbane (19 July), Melbourne (20 July), Adelaide (25 July) and Perth (27 July).

Ward says there will two innovations at this year’s conference that will enhance delegate engagement.

“A conference workbook that delegates will use during the event will become a ready ‘how-to’ reference document after the conference, continuing the technical support available back at the office.

“The ‘SMSF Family’ concept, which helps illustrate how technical content plays out in a real-life situation that can be related to clients, will be used at the Technical Days following the positive feedback about this presentation approach after this year’s National Conference.”

The four sessions will cover the total super balance rules, the transfer balance cap, CGT relief for funds affected by the 1 July 2017 changes and estate planning under the new rules.

The key speakers will be the Association’s Head of Policy, Jordan George, Head of Technical, Peter Hogan, Colonial First State Executive Manager Craig Day and ATO representatives from its Tax Counsel Network who manage its most significant and complex technical issues.

SMSF Association Technical Day Series is open for registrations

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