- SMSF Association Media Release
The critically important issue of preventing elder financial abuse requires current policy to be tweaked, not overhauled, says SMSF Association Head of Policy Jordan George.
“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.
“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.”
George was responding to the elder abuse discussion paper by the Australian Law Reform Commission (ALRC), which has requested comment on policy recommendations it has made on this important issue.
He says the arrangements if a trustee loses capacity are, in fact, prescribed by law by nature of its application.
“The Association is wary that prescribing them step by step in the legislation would be an unnecessary and exhaustive process that would not solve the issues the paper discusses. Therefore, we believe education of trustees and advisors is a more effective approach.”
Although the Association does not believe in prescribing arrangements for loss of capacity, George says it does believe this issue, and all its ramifications, should be more carefully considered and planned for by trustees and their 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.
“Our proposed amendment is similar to the recent addition to the SIS regulation 4.09 (2)(e) that requires trustees to consider whether they hold insurance. This has had great success in putting insurance to the front of every trustee’s mind and will have the same effect with estate and succession planning.
“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.”
George says there needs to be “greater awareness and education” as to the legal risks surrounding poorly constructed and executed binding death benefit nominations (BDBNs) to encourage trustees and their advisors to get legal advice on BDBNs. “The Association would be supportive of a proposal that refuses an interested party from witnessing a BDBN.”
He adds that people appointed under an enduring power of attorney should only be able to make or renew a BDBN for a member if expressly authorised to do so by the enduring power of
attorney, and the same rule should apply for reversionary pensions.
“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.”
The SMSF Association looks forward to working with the ALRC on this important issue for SMSFs and the broader financial services industry.