AllianceBernstein’s head of pension strategies, multi-asset solutions, David Hutchins said at a Sydney event last week that the industry needs to think about what safeguards can be introduced to deal with any risks associated with older trustees managing their super in their 80s.
“Are we seriously thinking that people who sign up at 60 or 65 into some kind of self-managed arrangement are still self-managing when they get into their 80s?” said Mr Hutchins.
“There is a danger of having older people ripped off either unintentionally or intentionally. There’s a danger that they become easy prey for financial ‘conmen’ essentially, and we need to think about how we put safeguards in the system.”
Mr Hutchins said one solution might be to adopt a similar system to the auto-roll system in the UK whereby individuals are rolled back into the main pension system every three years but have the option of opting out.
“There should [perhaps] be a requirement with these self-managed arrangements where you must continuously opt in once every three years, so [you would need to] continuously sign up,” he said.
“If you stop doing that, then you get dragged back into the main [superannuation] system.”
This would mean a rollover of the trustees’ superannuation assets to an APRA-regulated super fund, if the trustee didn’t opt in to the SMSF, he explained. Mr Hutchins said this would provide a safeguard to ensure there is ongoing engagement from the SMSF trustee.
“We’ve talked about this with financial products as well, in order to overcome the inertia issue,” he said.
“The view we’ve come to is that unless we’re really wealthy and have people we can trust to look after our money, then we probably ought to be putting our financial affairs in order by our late 70s and having them in a place whereby if you never touched them again it’s all working.”
I wonder what you do Ramani? Obviously not a “rent seeker” perhaps you are just a hapless taxpayer…
Just because one of the members may lose their competence, doesn’t mean that all members have. It also doesn’t mean that the non-competent member hasn’t discussed their wishes with the other members/EPOA such that the SMSF can continue to run.
A core and ancillary purpose of super is to make payments in the event of death to members, member’s dependants or member’s LPR. This payment would be classed as an inheritance by most people so i’m not sure what youre banging on about.
Brian assumes it is appropriate to keep the SMSF for as long as possible; it is okay to use super to provide inheritance.
SMSFs are there for a purpose – if the controlling members lose competence, the rationale for members in charge of their own destiny disappears. The difficulties of having to liquidate should have been foreseen while acquiring illiquid lumpy assets such as property.
Facilitating inheritance is not listed under sole purpose or other permitted ancillaries. Given absence of estate duty, the invisible shareholder (taxpayer) funding tax concessions and age pension (unfunded) is having a bum ride here.
Retaining SMSFs – whatever it takes! – may suit the rent-seeking advisory fraternity, but not members or the hapless taxpayer.
Interesting, however potential drawbacks include: (1) this may require the sale of SMSF assets to fund a rollover – what if the assets include real estate (eg business real property) and other fund members use it, but due to liquidity issues the property must be sold? (2) this can seriously impact on the member’s estate planning if they have a conditional non-lapsing BDBN in place that is not offered by the recipient public offer fund. Plus, if the member has lost capacity then the public offer fund trustee now has total discretion to pay a death benefit to an unintended recipient?
Perhaps another solution is that if the member fails to opt-in, then their own appointed enduring attorney steps into their shoes as trustee / director under s 17A SISA, or failing this then the relevant State / Territory Public Trustee can appoint someone into that role. This way the SMSF structure is not upset, and the member’s estate planning remains intact.
Michael, wish what you say is true.
Age-related disability does not spare SMSF trustees. With dominant trustee syndrome, adviser and accountant-spruiked spike in SMSFs (sexy to boast one at the barbecue!, complexity and changing rules, SMSF crisis is a looming prospect.
Unlike car driving, there is no capacity test over a certain age. There is no requirement to talk to professional advisers whose fortunes are anyway linked to continuation, rather than wind up or roll over.
It is the sheer self-interest of the suggestion that riles. Happy for it to be across all wealth management.
Let Finance emulate transport!
What about older people with all their $ outside super. Who protects them? It feels like the idea is aimed at driving $ from SMSFs back into larger funds.
The trustee of a SMSF must sign off on Financial Statements, Minutes and various other documents every year. Sorely this is an opt-in system already and the trustee should be talking to the professional adviser at this point. It has been my experience that people are still self managing their SMSF’s well into their 80’s and will know when it is time to make a decision to stop.
Sensible at face value, will this Fund manager or the lobby groups explain why this should not apply to all investments in and out of super beyond a certain age, and sooner if cognitive impairment is evident? Thus all industry, retail and corporate funds as well as discretionary holdings such as broader wealth management would be caught.
If you think this would happen, you are an ideal recruit in the Porcine Aviation Academy!
Should we just give up and go communist? You can have any colour you like as long as it’s black!
What a ridiculous idea, more regulation, more compliance costs more nanny state.
No thanks