The superannuation rules, including for SMSFs, should be tweaked, not overhauled, to help prevent elder financial abuse, says the SMSF Association.
“We are aware of the current dangers emerging from the ageing population and cognitive decline that may make elderly superannuation fund members more vulnerable to financial risk, but it’s important to acknowledge that SMSFs are, in the vast majority of cases, an effective and efficient retirement savings vehicle for Australians – even where an SMSF member may have lost capacity to be a trustee,” said SMSF Association Head of Policy Jordan George.
He was responding to an elder abuse discussion paper released by the Australian Law Reform Commission (ALRC), which had raised concerns about SMSFs.
“We are not convinced that additional and stronger legislation will result in increased protections against elder financial abuse. Rather, we suggest that education for trustees and advisors on planning for the loss of capacity is the first step to reducing the risk of elder abuse occurring in the SMSF sector,” said Mr George.
He said that prescribing the steps to be taken if a trustee lost capacity would be “would be an unnecessary and exhaustive process” that wouldn’t solve the issues raised by the ALRC.
However the SMSF Association does believe that these issues should be more carefully considered and planned for by SMSF trustees and advisors.
“Accordingly, the Association proposes that the SIS Regulation 4.09 is amended to include that the trustees of the fund should formulate and review regularly the consideration and planning of the loss of capacity and SMSF exit strategy as part of their investment strategy.”
This is similar to the addition of considering insurance to the investment strategy requirements.
“Furthermore, it then becomes a legal requirement that trustees consider estate planning and this becomes part of the audit standards that SMSF auditors must see evidence of when auditing funds each year.”
Binding Death Benefit Nominations (BDBNs) are also an area requiring “greater awareness and education”.
“The Association believes that the ongoing uncertainty around the application of the BDBN provisions is an emerging risk for the SMSF and broader superannuation sector as the system matures and Australia’s population ages.”
Reforms supported by the SMSF Association include preventing an interested party from witnessing a BDBN and restrictions on making a BDBN using a power of attorney.