Heffron's Blog is a collection of comments related to the latest superannuation comings and goings.
Superstream for SMSFs – do we need it and do we want it?
by Meg Heffron
A personal view? You bet.
The Government released Superannuation Legislation Amendment (Stronger Super and Other Measures) Bill (No 2) 2012 last week as a draft for comment. It is the first step in the process to implementing the Cooper Review’s Superstream recommendations. These are designed to streamline the way in which information and money is passed around the superannuation system. (Imagine, for example, a world with no cheques just electronic transfers, no paper rollover forms, contribution schedules from employers that were in an identical format regardless of the employer from whom they came or the fund to which they were being paid. This gives you some feel for what Superstream is aiming for.)
At this stage, it remains to be seen how much this will impact on SMSFs. The Cooper recommendation was to largely leave SMSFs untouched but we will obviously need to deal with the changes at some level (certainly on those occasions when SMSFs interact with large funds and employers). However, we won’t know the detail until we see the Regulations and Legislative Instruments that will be used to spell it out. The changes proposed in the current Bill simply set a framework – ie, they define “superannuation data and payment matters”, give the Commissioner (and where relevant APRA) the power to set standards in relation to those matters and then finally provide for penalties where the standards aren’t met.
However, should SMSF trustees and practitioners see this as something that will help or hinder business as usual?
I believe it will help.
Anything that encourages (or even forces) entities to interact with each other electronically pushes change in a positive direction. I suspect that these changes will also have an impact on cutting down some of the unreasonable delays by large funds in making rollovers to SMSFs.
In fact, I think the changes should go further and had very much hoped to include something along the following lines in the Cooper recommendations (but hey, you can’t get your own way all the time).
SMSFs are quite often referred to as a cottage industry. Certainly, there are a huge number of SMSFs where work is still fairly manual and where imposing data and payment standards would add very little value. Equally, SMSFs rarely interact with other funds more than once (when the fund is established) and are usually very “close” to employers making contributions – meaning that data transfer is rarely an issue. So where is the relevance of Superstream for us?
In fact, I think a Superstream equivalent for SMSFs would look at efficiencies from a totally different angle : imposing data and payment standards on the financial institutions (including banks, brokers, wraps, managed funds etc) that deal with SMSFs.
At first glance, that may appear to impose more work on the SMSFs themselves than the financial institutions – surely some SMSF trustees would not want to bother setting up complicated processes to interpret electronic data when writing journals with a thumbnail dipped in tar is working just fine? And given that there are well over 400,000 SMSFs in the country already, wouldn’t something like this impose a massive (potentially unnecessary) cost on the industry?
I’d agree with that but there’s a key leap of logic missing. There may be well over 400,000 individual SMSFs but there are relatively few providers of software to those SMSFs. Imagine a world where all providers of financial data to superannuation funds (including SMSFs) were required to provide that data in a set format. Obviously the major software providers would quickly ensure they could capture that data effectively. That surely changes the equation and would result in a massive win for not just groups with large administration client bases - even trustees who ran their own fund’s accounting records could benefit just as long as they purchased some specialised software to do it.
Even better – imagine how much easier it would be for not only clients but also accountants, financial planners, administrators and many other service providers if there was a centralised system of delegated authorities for clients? In other words, the client authorises their accountant to access financial information and that authority is stored via a central registry. All financial institutions with whom that client deals then rely on that central registry – if the client opens a new bank account, it’s not necessary for their service providers to jump through yet another set of hoops to ensure that the new bank is able to provide information necessary for the accountant to do his or her job. Industry funds would be required to actually communicate with advisers on the basis of this registry.
Is that a missed opportunity I just felt fly by?