18/08/2008

Recently, the Joint Parliamentary Committee on Corporations and Financial Services released a report investigating the structure and operation of the Superannuation Industry.

Anyone new to the Superannuation Industry will quickly find themselves completely perplexed by the sheer complexity of the Superannuation Laws. The Committee identifies this problem, stating that “[a] common thread running through evidence from peak industry associations and other stakeholders is that the laws and regulations governing superannuation have become too complex, onerous and conflicting in some instances and have not kept pace with industry developments.” In addressing this problem the Committee recommends that the Treasury “conduct a review of the laws and regulations governing superannuation and identify how they may be rationalized and simplified”.

Notwithstanding this, with continuous growth in Superannuation savings over the past decade – reaching $1 trillion mark early this year, a figure that has quadrupled since 1995 – it comes as no surprise that politicians’ interest and drafting of super laws is only expected to grow further. The only way out of this would seem that the legislation be drafted to accommodate for the ever-changing marketplace but such a step is unlikely to be materialised in the near future for the obvious reason that Regulators simply don’t like grey areas.

The Committee also highlighted that the lack of any internationally agreed benchmarks will make it difficult to “shed any light on Australia’s superannuation industry” and thus recommended that APRA should work with peak superannuation bodies and academics to conduct empirical research “in order to develop a framework for benchmarking Australia’s superannuation system against international best practice.”

On the more contentious issue of unclear dividing line between the trustee’s and member’s responsibility in a member investment choice situation, the Committee was not able to give a clear view except by suggesting that APRA should work closely with industry to clarify the duties of trustees that offer member investment choice.

In relation to the regulation of SMSFs, the Committee noted that the motives behind setting up an SMSF are not solely attributable to cost-benefit decisions and rejected the idea of imposing a minimum balance on the operation of SMSFs.

The Committee stated that the reasons for individuals choosing SMSF over other forms of superannuation funds are a particular area of interest given that these reasons are based on mere subjective speculations. It was therefore suggested that the ATO should “compile a representative sample of data that would enable a more useful comparison across the industry.”

The active member test is a particular problem for non-resident members/trustees and the Committee suggested that it should be abolished.

The Committee took the view that, contrary to APRA and ATO’s position, in-specie payments should be authorised because a member should have the freedom to draw securities such as shares, in lieu of cash, depending of their circumstances.

The Committee recommended that the ATO should raise the maximum number of trustees for SMSFs from 4 to 10, following the arguments put by AIR, SPAA and others that the current limit of 4 members doesn’t facilitate for “funds seeking to operate across multiple generations, as well as for co-owners of small businesses seeking to invest together.” However, the ALP members of the Committee disagreed with this view arguing that “this would see their operation use expand significantly beyond the traditional family.”