Self-managed super funds received a pre-Christmas gift with the final report of the Financial System Inquiry (FSI) making no recommendations on imposing controls over expenses for the set up and administration of SMSFs, minimum balance requirements or any restrictions on establishing SMSFs.
In addition, the FSI’s recommendation to seek clear objectives on the superannuation system and obtain bipartisan support to take it out of the budgetary cycle – something SPAA has advocated for many years – is an enormous positive to come out of the report.
The only potential downside for SMSFs is the prospective prohibition on limited recourse borrowing arrangements (LRBAs), although all current arrangements will remain in place. No date has been set for the proposal to begin.
Graeme Colley, the SMSF Professionals’ Association of Australia’s (SPAA) Director of Technical and Professional Standards, says the FSI report is a “ringing endorsement” of the SMSF sector.
“Like the Cooper inquiry (2010) it has given the SMSF sector a clean bill of health with no moves to limit the setting up of SMSFs, whether it be minimum balances, educational qualifications or any other impediments. This was the position SPAA strongly advocated to the Inquiry and it’s pleasing to see that it saw the merit in our arguments.
“The fact SMSFs are barely mentioned in the report and then it’s only about not requiring them to meet CIPRs (comprehensive income products for retirement) and a recommendation that they not be prudentially supervised is evidence of this.”
Colley says SPAA also endorses the report’s proposals to continue the ongoing push to improve the education and qualifications for financial advisors who are providing Tier 1 advice as part of the move towards greater professionalism in the financial planning space.
“The report recommends a tertiary degree that is relevant, competence in specialised areas such as superannuation where it is relevant and ongoing CPD requirements. SPAA is well placed to assist those advisors who wish to gain expertise in SMSFs.
“It also proposes that ASIC should complete the establishment of an enhanced public register of all financial advisers, which includes those who are employees. The Inquiry considers that the register should include licence status, work history, education, qualifications and credentials, areas of advice, employer, business structure and years of experience – a position that SPAA totally endorses.”
In terms of the FSI’s recommendations across the broader superannuation sector, Colley says the proposal to limit the non-concessional contributions will mean that those who are nearing retirement for some years to come will be discriminated against as they currently have significant shortfalls in the amount they have available to fund their retirement.
“The age bracket of 50 plus is also the time when people are able to save for retirement as non-concessional contributions come from after-tax savings unlike tax deductible concessional contributions that are strictly controlled and capped.
“For those under age 50 the ability to create a savings pool that can be set aside for retirement is severely hampered by paying off the home mortgage and raising children with all the expense that entails. In addition, those who have broken work patterns for various reasons need to have the opportunity to fund for their retirement which varies according to the individual.”
Colley says the proposal to ban LRBAs in SMSFs had been widely mooted in the wake of the interim report, and as such this announcement came as no surprise.
“SPAA remains firmly of the view that there is scant evidence of abuse of LRBAs to date, but can appreciate the FSI’s position if leverage in superannuation did grow to a level where it could be a threat to people’s retirement savings.”
The SMSF Professionals’ Association of Australia (SPAA) is the authoritative voice for the self-managed superannuation fund (SMSF) sector. SPAA, which represents professionals providing a range of services across various disciplines in the complex area of SMSFs, is an advocate for the highest professional standards and competence to ensure SMSF trustees always receive the best possible advice.