THE Cooper review into Australia's superannuation system has entered its third stage. This 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.
A paper released in December gives an indication of what issues the committee regards as needing to be tackled. Questions raised include:
■ Should the responsibilities of SMSF trustees be less onerous than they are for trustees of industry and commercial funds?
■ Should SMSF members undergo some form of ongoing education about their trustee obligations and how to invest?
■ Is the penalty regime that applies to SMSFs appropriate?
■ Would it assist SMSF members if more information was available to help them understand asset allocation and diversification?
The paper also provides background information about the make-up 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 than $500,000 increased between 2006 and 2008.
The rise is directly attributable to the increasingly harder stance that the Australian Taxation Office is taking regarding the regulation of such funds. This increase in the administration and compliance cost burden could be tackled by taking a commonsense attitude, rather than the overly bureaucratic approach we have now.
Trustees of SMSFs must comply with all the Australian Prudential Regulation Authority superannuation regulations and the regulations imposed by the Tax Office.
Many of the regulations imposed by APRA are designed to protect members of super funds from the actions of trustees.
With an SMSF, the members are the trustees and therefore they have ultimate control over their own superannuation. This dual regulation results in members 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 Tax Office. This way documentation requirements and regulation could concentrate on controlling early access to super and other critical areas such as contributions and investments.
By redesigning super 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 an 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 the accumulation and the pension stage, and then there is when all members are over 65 and in the 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.
To satisfy the current work test, a person must work 40 hours in paid employment or a business for a continuous 30-day period.
This test does not recognise - and devalues - the important volunteer work done by many older Australians. It should be modified to include volunteer work done with recognised charitable organisations.
Questions can be emailed to max@taxbiz.com.au
Self Managed Superannuation Funds, A Survival Guide, by Max Newnham, is available in book stores.
