Now that the dust is beginning to settle on the superannuation reforms, where do you think the problem areas and misconceptions still exist?
In terms of the dust settling — it kind of hasn’t. It’s calming down, but there are clumps of dust blowing up from new problems that are happening.
I mean the big one for us is events-based reporting, which is looming on the horizon. That’s just going to be huge as you’re going forward.
I think accounting firms are really going to suffer from that. Their way of doing things just doesn’t lend itself to this event-based reporting. I think it’s going to be quite a shock. I think it’s going to force accounting firms to go on board with this more daily or monthly reporting.
Even with the software, the actual processes they’re going to have to have… their internal systems don’t lend itself to that for an accounting firm. They’re designed to do stuff at the end of the year. Even if they’re receiving data fees and receiving documentation throughout the year, they don’t actually do much with it until towards the end of the year.
Do you think where we’re at now – where events-based reporting has not been universally welcomed – is this a result of firms being out of date, or a result of the government being out of step with industry practice? I sense it’s the latter.
It’s very much that the government is out of step. The government is very out of step with what happens in the real world.
There’s this tremendous disconnect between what a couple of, almost academics, within Treasury think about how the superannuation system works or how SMSFs work. What happens in the real world is quite different.
Now they’re going to be forced into it, and I do expect that costs will significantly go up. Even with good software, because there is this time element, they need a staff member to actually crunch the work and be on top of it. I don’t believe that the efficiencies of the software will be enough to counteract that.
Pensions strategies are also a hot topic on SMSF Adviser, particularly post-reform. Are there any particular ongoing red flags you’re seeing in that area?
I wouldn’t actually say that there’s been issues with people understanding pensions and whatnot. I think there’s just been a lot of confusion. As a result, it seems like that there is a much greater need or demand for advice.
They want simple advice, but that’s another thing — it’s very difficult to provide it in this environment. There’s all these sorts of quirks coming out after the reforms. So from our point of view, whilst things haven’t changed too drastically in terms of the benefits in account-based pension or the rest of it, the sort of tailoring of pensions for people’s specific circumstances has become a lot more difficult. And that’s not just in terms of complexity, but in terms of actually what we can say.
Away from the reform items, it always surprises me to read that the ATO finds the same mistakes, year in and year out, on income tax returns. Some of them have heavy penalties attached. Do you see similar issues in the SMSF world at lodgement time?
It does happen. For example, we pick up the fund and the trust had changed four years ago but they’ve still got the name of the old trustee, which doesn’t exist anymore. It’s annoying and it sort of feels like a minor or admin thing, but it actually raises some quite serious issues. So yeah, look. That is a bit annoying when it does come up with some degree of regularity.
We’ve had issues here recently where the incorrect name was put on a land title. Basically, the stamp duty office hit these people up for additional stamp duties to change it over to the correct name. The government actually refused to accept that it was purchased by the fund. This was like $50,000.
The previous entity didn’t exist anymore, so [the client] actually couldn’t hold this property. It was a real problem and very expensive as well.
As a silver lining here, do you feel these reforms have prompted more client and adviser engagement? I sense they have.
I completely agree.
We were so busy leading up to June just giving this very tailored advice. I’d have to say that last year it was easily the most disruptive… nine months in at least 10 years, probably even 20 years of me actually doing this. It wasn’t like the old $1 million into super that happened in 2007. I mean, that was pretty easy. This sort of stuff was very, very tailored. It was very much not one-size-fits-all. So you needed to really sit down with your thinking cap for every single client and go okay, what’s the best outcome for them?
That’s going to continue as well. Having that higher level of knowledge I think is going to be critical. The whole way that we manage SMSF is going to look better, but I do worry that it’s going to be more expensive. And definitely, there is going to be higher demand for SMSF specialists. Definitely.
Well said – There’s this tremendous disconnect between what a couple of, almost academics, within Treasury think about how the superannuation system works or how SMSFs work. What happens in the real world is quite different.