THE Cooper Review, outlining the future direction for superannuation in Australia was recently handed down. Among the recommendations, were several interesting talking points for Self Managed Super Funds (SMSF).

The panel behind the review proposed the creation of a SMSF resource centre, for easy access to information and advice about starting up your own super fund, simplifying legislation and trustee requirements, registering approved auditors and ensuring their ongoing training and competence and improving the registration process.

The panel hopes that these measures will make it easier for people to set up and run their own funds while restoring faith that the regulatory framework will be in place to stop fraud and allow the ATO to deal “appropriately and proportionately with non-compliance.”

Handing down the penalties

They recommended that the ATO should be given powers to hand down administrative penalties to trustees on a scale depending on the nature and seriousness of the breach. Interestingly, they believe the penalties shouldn’t be drawn from the fund itself.

More than four?

The review also dealt with calls from several submissions to lift the current four member limit on funds. However, the panel said that any moves to lift the limit would subvert the original spirit of the SMSF model. They fear that allowing more members into a fund would add another layer of complexity to the model, and increase the likelihood that disputes could break out between members.

Going back to school

The panel fielded submissions that called for compulsory trustee education across the whole sector; however they believe it’s probably not possible to apply this. Instead, they think education can be important in the case of low-level non-compliance with SIS legislation. They recommend a body be set up to deal with such education, to be paid for by the trustee but not the fund.

The KISS principle

Several submissions to the review pointed out that the current legislation around super investment can be a bit tricky to comprehend, with several points of the current legislation not applicable to SMSFs.

Subsequently, the panel thinks that a separate act or division is in order. This would remove inapplicable provisions which just serve to confuse those concerned with only SMSFs.

They also recommend that the ATO be able to make binding rulings so people are given more certainty, and small technical issues are dealt with clearly and quickly, removing ambiguities. They acknowledge the problem with this is the binding rulings could end up applying to other superannuation sectors instead of just the SMSF sector.

Applying the microscope

One of the big things the review looked at was the qualifications and the education of SMSF service providers. Submissions expressed concerns that service providers were only educated in APRA-super funds, and had very little training when it came to SMSFs. To that end, the panel recommended that all services should maintain a minimum level of SMSF competency to avoid bad advice.

At the moment, the ASIC recommends that advisors held both generic and specialist knowledge pertaining to their field. The problem is, that among the specialist knowledge is the altogether roundabout ‘superannuation’.

The panel recognised that plans were already underway to require better knowledge of the SMSF sector from industry, in the form of the Financial Planning Association and the Self Managed Super Funds Professional Association of Australia requiring advisors to complete specialized SMSF training before offering advice.

The panel also fielded submissions about the training of approved SMSF auditors, saying that ASIC should be set up as the registration body for approved auditors. The body would be given powers to determine the qualifications required for eligibility to be registered, set competency standards, develop and apply a penalty regime including the ability to deregister approved auditors.

The registration of approved auditors would also ideally be linked to ongoing minimum competency and knowledge requirement.

The paper has now been handed up to government, who will review it before moving to legislate any of the recommendations (if it chooses to do so).

More Resources

The panel also recognised the need for reliable data of the SMSF sector to be made available to those who need it. If the review’s recommendation was to be adopted by the government, the ATO would be tasked with collecting firm data on the sector and although this would cost time and money, the panel “believes the long-term benefits to public policy making and to the industry would outweigh these costs”

Valuing assets at net market value is something on the agenda, according to the review. Although a majority of submissions pointed out that most trustees already value their assets according to net market value in order to give a clear and accurate picture of their position, the review called for legislation to make the practice a requirement of SMSF. The panel also called upon the ATO to publish guidelines for SMSF members to help them in the accurate and standardised valuation practices.

An online resource centre will also be set up if the panel gets its way. The online centre would allow trustees access to information such as statistics and educational material which would help build their competency and knowledge base.

They outlined their grand plan for the resource centre, saying it could potentially be “provided as part of a central government website on superannuation, which could be a ‘one stop shop’ for SMSF trustees and include all information and tools needed by trustees when carrying out their SMSF duties”

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