Author: Jason Roccasalvo, Partner, TAG Financial Services
The Government announced in their 2018 Budget that it intends to amend the trustee covenants under section 52B of the SIS Act, to include a requirement that all superannuation fund trustees must formulate, review regularly and give effect to a retirement income strategy for the fund’s members.
The ATO recently updated their guidelines around what constitutes a satisfactory investment strategy. Self-managed superannuation fund trustees are required to formulate, review regularly and give effect to an investment strategy, that considers the whole circumstance of the fund. The investment strategy should consider:
- The risk vs return profile of the asset classes
- Diversification
- Liquidity needs (how easily and quickly the assets can be converted to cash)
- Ability to discharge liabilities as they fall due
- Insurance needs of the members
A Fund’s ability to discharge liabilities as they fall due includes its liabilities to the Fund members – and so it is clear that be improving the quality of investment strategies runs together with a retirement income strategy.
Simply providing investment ranges of 0 – 100% on various asset classes is not appropriate in the ATO eyes. The reality is that it implies the trustees have not given any consideration to how the strategy will help achieve retirement goals for the fund’s members. As auditors or advisers, we should not accept this.
Beware – If a fund has a large portion of its investments held in cash or term deposits – beware! Unless you can justify this is for a strategic short term purpose, the fund is likely to attract the attention of the tax office. The ATO will be assessing whether the fund is actively managing the investments of the fund with the objective of providing for the long term interests of members and their beneficiaries.
How should we engage our SMSF clients?
As advisers, we should ensure that, among other items, our clients can clearly identify:
- Their retirement goals?
- How much of a role super will play and how will it help achieve their goals?
- What needs to be considered now to provide the best chance of meeting your clients retirement objectives?
If your clients can’t articulate the answers to the above questions to you, then they have not given it enough thought. Advisers should be engaging their clients around their investment strategy so that the trustees can show a considered and formed strategy, designed to reach to retirement needs of the fund’s members.
If you have any questions, please contact us on 03 9886 0800 or via email.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.