Editorial - Superannuation e-news April 2010

The Cooper Review made public another preliminary report in which it proposed a shake-up of the 'back office' arrangements for public superannuation. We fully endorse this as it should drag the ‘back office' function into the 21st century! In our view what's proposed is a dose of common sense and nothing too extreme. They're flagging an issue that hasn't been adequately addressed for a long time, but to be fair, complexities and legislative uncertainties may have influenced the industry's previous lack of initiative however the need for improvement ought to have been recognised and acted upon earlier. We understand much of what is sought is comparable to what other industries were moving to over a decade ago. One might therefore conclude that the superannuation industry has just been slow to move.

The report flagged a need for the systems and administrative support to be greatly enhanced in terms of the quality of data held. The data needs to be accurate and maintained intact within the industry without the re-insertion of data using subsequent manual interventions. This will also inevitably require existing data to be ‘cleansed' and suitable techniques adapted to source and maintain accurate data. Tax file numbers would be the primary identifiers for relatively easy consolidations of multiple accounts by individuals. With adequate standards, users would rely on the accuracy of the data in the system and redundant processes could be eliminated, yielding simpler rollovers and consolidations where allowed. Overall it would reduce costs and enhance functionality for members.

The committee also recommended that contributions by employers be made with less delay in order to increase the duration that funds are held within super to improve members' returns. Greater accuracy, flexibility and systems improvement would have the other benefit of ensuring the industry is better able to look after the interests of its members. We believe for example that inherent limitations posed by the current systems may have influenced the attitude of major industry groups in their dealings with government over Better Super leading to outcomes which disadvantage members in respect of excess contributions.

According to this preliminary report the annual benefit is likely to run into billions of dollars. We suggest an overall system improvement might also go a long way to address the root cause of the various industry groups' objections to the low cost default solution- proposed earlier by Cooper- that's been claimed by them to be unworkable. Given these benefits, the proposal seems compelling even if some benefits were not fully achieved.

On a slightly different but still important note, members are reminded to manage their contribution strategies carefully to avoid excess contributions tax, given the lower caps. SMSF trustees must be sensible and not make amendments that are at complete odds with their previous advice to the Commissioner, if they're to maintain any credibility. The Commissioner is concerned about this and has also alerted trustees to trust deeds being marketed that purport to capture excess contributions into a separate trust, often at the end of a financial year and credited in the following financial year- avoiding breaches to the caps. Despite some protests, the Commissioner finds such arrangements to be unacceptable and his prompt and clear response is welcomed. Taxpayer Alert 2010/2 refers. However we wonder what his position would be if the trust deed simply prevented excess amounts from being accepted by the fund via an immediate return, without retention for future allocations? Would this be acceptable as it wouldn't violate the policy objective behind the caps?