Now I am showing my age, well I like to call it experience here, but I remember when the Superannuation Industry Supervision Bill was in its drafting stages way back in 1992. It followed a constitutional challenge to the Occupational Superannuation Standards Act 1986 (“OSSA”) and was the way forward for Australia’s soon-to-be-unstoppable superannuation scheme. As we all know, it regulates the actions of SMSF Trustees and their advisers and has plenty of firepower enabling the Commissioner of Taxation to criminally charge and get convictions of wrong-doers like the early-release scheme promoters.
Now tucked inside that SIS Bill was a political move to appease the small business community – the exempt super fund. You see under OSSA there were more than 100,000 small “Mum and Dad” super funds running with little regulation. To impose full-scale prospectus requirements and other detailed reporting would have seen them cease come the start of the SIS Act on 1 July 1994. As these funds were small business and the Government wanted to keep on side with small business owners, it was decided to ‘carve out’ an exemption for reporting, prospectus and other requirements under the banner and definition of “exempt super funds” with less than four members. And with that one political act, the modern day SMSF was born. If only they knew!
Along the way there have been so, so many political decisions made in relation to SMSFs including the decision to change their name from excluded super funds to SMSFs in 1999 and limiting membership to non-employees, essentially making them family super funds. I lived, breathed, complained and strategised through every change and won’t bore you to death with all of them. But I can tell you the same thing that I tell everyone – that I have trained to be a SMSF adviser, every change brings opportunity – you may not see it at the time and sometimes it takes years to rear its head but when it does, watch out.
For example, the advent of the LRBA rules in 2007 has seen a huge property industry targeting SMSFs. One that the banks embraced and now find too hot to handle. Likewise, the use of the unit trust in the early days of SMSFs saw excluded super funds using wholly-owned unit trusts to invest in a wide array of investments using borrowed money. Until May 1998 when the Government decided to shut them down, causing great furore amongst accountants.
The biggest political change by far was in 2006 when Peter Costello, targeting the Baby Boomers and earlier generations, decided to make superannuation withdrawals, both pension and lump-sum tax-free for over 60’s. Coupled with refundable franking credits and the extinction of reasonable benefit limits and the tide was well and truly in for SMSFs. Of course, there was the limitation on non-concessional contributions but until 30 June 2007 super fund members could contribute up to $1 million and more than $50 Billion rolled into SMSFs. That saw SMSFs grow faster and beyond industry and retail super funds for the first time. They moved from quaint to mainstream and “must- have” super items. The Labor government did all it could to reduce their influence when Rudd and Gillard were in, preferring to look after industry super funds.
And now we have another PM in the revolving platform that is opinion poll politics. I don’t understand why they keep on turning the wheel and the more they do, the more it impacts SMSFs. And by early 2019 we will be going to another election with a former Treasurer who chose to ignore the commitment of the Government to retain stability in superannuation and introduced a whole lot of administration and compliance nightmares with the Pension and General Transfer Balance Accounts. Not good for SMSFs as it increased costs and administration but good for the Budget bottom line. It’s the tip of the iceberg methinks, with super now a grab-bag for budget repairs. SCOMO then increased the numbers of members in SMSFs to enable Family SMSFs, a trojan horse to take away members in industry-based super funds and reduced audit requirements but I can tell you there is more budget repair to come.
And in the red corner we have Bill Shorten and the Labor Party seeking to curry favour with the industry-based super funds and looking to deny refundable franking credits for SMSFs! And it is for SMSFs as industry-based super funds can use them. But Labor figures there’s no votes to be lost in the SMSF demographic so it will be a key election plank. Not sure about negative gearing as this was tried by Keating in 1990’s and smashed the housing investment market only to be reinstated two years later.
So, there is a lot to do now to protect the current wealth in client and our own SMSFs. That ranges from franking credit plays, to putting in place related-party LRBAs using the new NALI laws and of course keeping an eye on the Family SMSF section of the SMSF community. But here is what I can guarantee. There will be significant changes to SMSFs and SMSF advising over the next decade and those that remain as advisers will reap the rewards but will have to be able to move quickly on changes and seek out opportunity. The one good thing is that SMSFs are now so hard, a large section of the SMSF advising community are now leaving it due to increased adviser requirements (thanks SCOMO) and there is no way a Trustee can even begin to grasp the superannuation and tax laws applying to their core retirement income vehicle (thanks again SCOMO).
Are Politics and SMSF related – absolutely.