JEREMY Cooper, chairman of the Government’s review into the superannuation system, colourfully describes SMSF trustees as being “on the flight deck” – making the decisions about their retirement savings.
Cooper’s point – made at last month’s national conference of the Self-managed Super Fund Professionals’ Association of Australia (SPAA) – effectively summarises how SMSF trustee/members only need to be concerned about their own interests because they are the only members in their fund.
But this extreme self-interest factor can act as something of a curse at times for a minority of trustees. These are trustees who don’t make a distinction between their perceived immediate best interests and what is really the sole purpose of their super fund – to provide retirement benefits.
Another of the key speakers at the SPAA conference, tax commissioner Michael D’Ascenzo, gave a rather startling statistic that highlights the failure of some trustees to make this fundamental distinction.
Some 19% of SMSF contraventions reported to the ATO by approved auditors involved the lending of fund money to members or their relatives. Often, the loans provided extra cash-flow to prop up family businesses.
Superannuation law clearly bars a fund from giving direct or indirect financial assistance to a member or a member’s relative. And members cannot provide guarantees for private loans of members and their relatives.
SMSF trustees are in a position to take advantage of investment opportunities that are generally unavailable to members of large APRA-regulated funds such as investing, where appropriate, in unlisted shares and direct property.
As Jeremy Cooper observed: SMSFs can adopt long-term investment horizons that are not “driven” by efforts to gain higher short-term rankings on fund league tables. And SMSFs could be operated in a tax-efficient way, particularly, Cooper said, in relation to transition-to-retirement pensions and the management of assets supporting a pension in retirement.
Yet one of the biggest challenges facing some self-managed fund trustees is in understanding the fundamental difference between their interests before and after retirement.
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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.
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