Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

‘On the flight deck’ of your SMSF

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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