Cooper review - Super reform
In March we reported that the Government’s Cooper review was assessing Australia’s superannuation system. The Cooper Review was engaged by the Government to review the superannuation industry with the aim of making superannuation simpler, safer and more efficient. We can now report the key recommendations of this review:
My Super – A new default fund
As part of the review the committee recognised that a significant majority of Australians do not engage with their super due to a number of factors including lack of financial knowledge and interest. To address this, the report has recommended for existing funds to establish a default fund, referred to as My Super. This product will see the trustee of the fund made responsible for making investment decisions on behalf of members. The report recommends that no commissions be paid to advisors on these accounts. Overall the Committee cites the My Super default fund will provide for lower fees to members, greater retirement benefits, greater efficiency and enhanced security for members.
SuperStream
Super stream has been recommended to counter the inconsistency in the industry of maintaining data standards and management and processes. SuperStream encompasses three separate initiatives:
- The use of technology and uniform data standards
- Electronics contributions and submission of data from employers
- Using the tax file numbers of member as the uniform method of identification.
Employers should be aware that they will be a primary target of SuperStream. They will be required to provide tax file numbers for all employee members and be required that all super transactions (e.g., contributions) be done electronically.
Self Managed Super Funds (SMSF)
Notwithstanding the committees acknowledgement that SMSF’s are the right vehicle for individuals who want to control their super, the report makes a number of recommendations with regard to the SMSF sector:
- Borrowing – the committee recommends that a review of fund borrowing patterns be reviewed in two years time to ensure funds are not being abused through relaxed borrowing rules.
- Assets – the 5% in house asset rule be repealed with funds prohibited from holding in house asset investments. A five year transitional rule would apply to this allowing the fund to liquidate in house assets from the fund over five years. Non-arms length transactions are to be conducted at market value, determined through the price established in an active market or by an independent valuer. Investment in collectables and personal use assets is to be prohibited. A five year transitional period will also apply here.
Whilst the government appears to favour many of the initiatives of the review, it is difficult to determine how many recommendations will proceed, especially given the upcoming election.