Latest Super Fiddle Won’t Be the Last

Ideally, a major investment structure like superannuation would stay unchanged to give everyone confidence that the rules aren’t constantly shifting.

Unfortunately, that is far from what is happening with super changing – at times dramatically – ever since it became compulsory in 1992.

The latest changes have come as a reaction to the disastrous Shield and First Guardian managed investment scheme collapses which came at a cost of $1.2 billion of losses for hapless Australian super investors.

There have already been a swag of administrative and regulatory changes that are trying to bolt the door after these particular horses had bolted but Assistant Treasurer Daniel Mulino also recently revealed a swag of other changes.

Under the changes the Australian Tax Office will be given the power to veto people from moving money from a large super fund into a self-managed superannuation fund if there is suspicion of fraud.

The changes also require Self Managed Superannuation Fund (SMSF) trustees to pass “basic knowledge requirements”, maintain a “uniquely identifiable bank account”, pre-write their investment strategy, and force newly established SMSF’s to disclose whether a financial adviser was involved in their establishment and what fees were charged.

Higher Costs from ATO Regulation

The new regulatory role for the ATO will be funded by an increase in the supervisory levy – the first since 2013 – from $253 a year to $295.

Mr Mulino told the National Press Club that the ATO powers would “prevent rollovers into SMSFs where there is a well-founded suspicion of consumer harm.”

“These reforms are targeted at preventing harm, not creating red tape for Australians who choose to manage their retirement savings through an SMSF.

“For the vast majority of trustees, they reflect practices already in place, allowing us to better identify at-risk consumers and interrupt harmful practices.”

Most people who work in the superannuation industry thought the changes seemed well targeted, although there is still very little detail about exactly how the ATO powers will be exercised and how detailed the investigations into investment policies will be.

Indeed, even the timing of when the changes will be introduced remain vague.

Compensation Levy Charges

More controversial was Mulino’s confirmation that SMSFs would be required to contribute to future special levies to support the funding of the Compensation Scheme of Last Resort, along with larger super funds that are regulated by the Australian Prudential Regulation Authority.

The issue here is that the cost of the Compensation Scheme of Last Resort is now being spread wider that the groups that are covered by it.

While the original idea of funding it through levies on financial planners was far from ideal and turned out to be unsustainable as collapses mounted, spreading the costs so widely that super fund members who have no chance of ever being covered by the last resort funding seems unfair.

According to Mr Mulino,“Individual SMSFs are likely to contribute no more than $20 per leviable period, which is an overall sector levy scaled according to the relative size of SMSF population assets compared to APRA-regulated sector assets”

“They are also part of the financial services ecosystem that benefits from the existence of a compensation framework.”

The fee will apply to all SMSFs, regardless of whether they have a financial adviser, meaning many SMSFs will pay the fee even though they cannot access the CSLR.

“Alternative models, including excluding SMSFs from the scheme altogether, would have created significant gaps in consumer protection while adding complexity and administrative costs,” Mr Mulino said.

It should be remembered that the Banking Royal Commission was largely about unjustified fees and it really does seem hard to justify people who are not covered by a compensation scheme to be forced to help pay for it.

Super Getting Unwieldy

Of course, the other issue is that continually changing rules and regulations for superannuation by definition makes the entire system more complex and unwieldy.

Just as the tax system gets more complicated and difficult to navigate with every change, so the superannuation system has grown from being a fairly simple design into something that is more difficult to understand and navigate.

That is a pity because the complications and fine details mean that average workers need to do a tremendous amount of reading to understand decisions that they need to make to choose between funds and investment options.

One thing is for sure, you can absolutely guarantee that this won’t be the last change to the super system.

Even these latest changes that have been made remain light on detail and timing.