Cooper Review Of Superannuation – Implications For SMSFs

The final report of the Cooper Review into the governance, efficiency, structure and operation of Australia’s superannuation system was released on Monday, 5 July 2010.

The Cooper Review found that the Self Managed Super Fund (SMSF) sector is largely successful and well-functioning and should form an integral part of the choice architecture. However, while not seeing the need for significant changes, the report did make a number of recommendations in relation to service providers and the regulatory framework applying to SMSFs.

Following are the key recommendations:

Regulation

• ATO to have power to issue administrative penalties on a sliding scale to reflect the seriousness of the breach
• ATO to have power to issue enforceable undertakings to require trustees to rectify breaches in reasonable time
• The ATO to have power to enforce mandatory education for trustees who have contravened SIS legislation
• ATO to have power to issue binding rulings on SMSFs

Service providers

• Develop an SMSF specialist component of RG 146
• Legislate to require advisers to hold an AFSL where they provide advice in relation to the establishment of an SMSF. The accountants’ licence exemption should be removed and not be replaced
• Approved auditors should be required to be registered by ASIC, and meet minimum competency, knowledge and independence standards developed by ASIC

Investments

• The Government should review the borrowing rules within SMSFs within two years to ensure borrowing is not becoming a major focus of SMSFs
• SMSFs should be banned from acquiring any in-house assets or collectible or personal use assets. Funds currently holding in-house, collectible or personal use assets should be required to dispose of them within 5 years
• All transactions between an SMSF and a related party to be conducted through an underlying market, or where that does not exist, require that all transactions must be supported by a valuation from a suitably qualified independent valuer

Asset valuation

• SMSFs to value all assets at market value with the ATO to publish valuation guidelines

Improving integrity

• Proof of identity checks should be required for all people joining an SMSF
• SMSF registration process should capture details of relevant service providers
• Similar naming rules applicable to bodies corporate should be applied to SMSFs
• Government to provide information to large APRA funds to enable them to verify the details of SMSF membership before processing rollover requests to SMSFs
• Criminal and civil sanctions to enable the ATO to penalise and discourage illegal early release scheme promoters
• Amounts illegally withdrawn from super taxed at 45%

Other

• Amend the SIS Act to automatically deem anything permitted by the SIS Act or a tax act to be permitted by SMSF trust deeds
• Amend the rules relating to investment strategies so that SMSF trustees are required to consider life and TPD insurance for members as part of their investment strategy

Future posts will consider the recommendations in more detail.

For advice on any matters concerning your superannuation, contact us at Peter H. Hunt & Associates here.