Government bonds arrive for retail investors but may not jump out of the gate


Legislation passed through parliament yesterday that followed through on a promise by “the world’s greatest treasurer” Wayne Swan that Government bonds will be listed for the retail market (I nearly said the ASX but now we have to be generic as we have Chi-X as well). the Treasurer took his time getting the legislation together but now we have it in place.

Click the link below to read more of this article

http://www.smh.com.au/business/government-bonds-set-to-fail-with-retail-investors-20121102-28nqj.html

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

What information do I need to provide for my SMSF Audit


At the end of each financial year your Self-Managed Super Fund will need to be audited by an independent third-party SMSF auditor. 

Having your SMSF audited isn’t exactly exciting, but it is an essential part of the compliance process. Looking to save money on the audit by going for a cheap service may come back to bite so I always recommend paying a decent fee to an experienced auditor is worthwhile. If they are not doing at least 25 audits a year then don’t use them as experience is crucial and it is necessary to have knowledge of what to look for and how to guide you the ultimate client.

The SMSF audit involves a review of your fund and the strategies and transactions during the year to ensure it remains a ‘complying fund’ in line with the ATO’s definition.

Who can audit my SMSF?

Your SMSF can only be audited by an approved SMSF auditor.  SMSF auditors are most commonly qualified accountants; however there are some additional requirements.

Members of the following organisations are qualified SMSF auditors:

  • SMSF Specialist Auditors, accredited by the SMSF Professionals’ Association of Australia (My personal preference)
  • CPA Australia
  • The Institute of Chartered Accountants Australia
  • National Institute of Accountants
  • Association of Taxation and Management Accountants
  • Fellows of the National Tax and Accountants Association Ltd

SMSF Specialist Auditors, as appointed by the SMSF Professionals’ Association of Australia, are also qualified to complete this important SMSF function.

SMSF Audit Check-list

The person performing the SMSF audit will require a number of documents and may seek these from your Administrator, accountant or directly from you the Trustees.  The auditor will generally have a standard SMSF audit check-list, however the following will give you some guidance on what you are generally asked to provide:

  • Financial statements of the fund.
  • Cash Management and Bank statements for all fund accounts including Cheque, Savings and Term Deposits.
  • Managed fund /Wrap annual transaction and income report.
  • Share Broker’s statement showing all transactions.
  • Holding statements for all shares held during the year and the end of year balance.
  • Buy & sell contracts for all shares held during the year including Off Market Transfers and any corporate actions.
  • Statements showing clearly the ownership of all fixed interest securities like bonds, hybrids and notes.
  • Contracts for any property purchased or sold
  • Copy of the Title deed showing evidence of ownership for any property in the correct name.
  • Property valuations and updated if starting a new pension.
  • Building & Liability insurance certificates of currency
  • Lease agreements and rental income statements
  • Documentation for any art or collectables including evidence of Insurance in the name of the SMSF.
  • Details of any debts owed by the SMSF including loan statements showing repayments
  • Documentation of any related party loans or investments
  • Confirmation of any contributions or withdrawals
  • Confirmation that the member is eligible for contributions or meets a condition of release for withdrawals
  • Pension or lump sum benefits payment details including copies of Pension Agreements and minutes.
  • Information on any  other investments not mentioned.
  • Completed SMSF Investment Strategy in writing including consideration of members’ insurance needs.

This is not an exhaustive list and your SMSF auditor may require additional documentation.

For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office. While we are not auditors we can point you in the right direction of people you can trust.

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page if you found information helpful.

Liam Shorte B.Bus SSA™ AdvDipFS AMC

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St, Castle Hill NSW 2154

308 George St, Windsor NSW 2756

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in VERANTE, Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information :

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

Superannuation — tax certainty for deceased estates – Government MYEFO announcement good for SMSFs


The release of draft taxation ruling TR 2011/D3 in July last year caused much concern when it suggested that the pension exemption ceases automatically upon death (unless a reversionary pension was in place).

Under those proposed rules if an SMSF member died with assets carrying unrealised Capital Gains, even if the deceased were receiving a pension, upon death the pension would cease (unless the pension qualified as an auto-reversionary pension). If SMSF assets were then sold/transferred, the SMSF would have CGT implications.  (more…)

Are SMSF Investors really comparing Hybrids vs. Company Shares?


 

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Every article I  read at the moment the commentators are more and more sceptical about the recent issues of Australian listed hybrids and notes. They constantly compare the hybrid against the equity in the actual shares of the issuer.

And yes I have been saying to younger clients who wanted to invest that I personally would buy the shares of the blue chip issuers, not the hybrid, because the successful hybrid issue shifts risk from equity investors to the hybrid investors and if you are going to take long-term risk then get recompensed for it from the  issuer.

Yet the majority of people buying these hybrids are not my younger clients and they probably don’t look at the case for hybrids vs. shares. They are my SMSF Retiree and Pre Retiree clients. They look at the investment case of hybrids vs. their HISA (High Interest Savings Accounts) rates and term deposit rates. I know from these clients the majority of the demand for Australian hybrids has come from maturing term deposits and falling interest rates as the RBA cuts.

The banks and their advisers have worked out these “yield plays” seem to be in favour and hybrid issuance is increasing as term deposit and cash rates fall. They are tempting clients to put some of their “defensive portfolio” in to this sector rather than trying to grab some of the Share portfolio allocation.

Commentators say that the banks who are the main issuers are getting the best deal and yes their ratings have been improving when they finalise these issues.

They recommend that you buy the Shares in these companies rather than the “mutton dressed up as lamb” hybrids.

Christopher Joye in the SMH provided the following as an example where he compared the results using CBA PERLS IV vs. CBA Shares themselves over the period July 2007 to July 2012. Yes, with hindsight, you would be far better off owning the shares but they miss the point. Regardless of the outcome many SMSF trustees have a lower risk tolerance and they would be content with the returns from the PERLS IV (25.4% over 5 tumultuous years) during that period while they may have had a meltdown if in the CBA shares during the highlighted volatile period July 07-Mar ’09.

The other point I should make is that clients are making much smaller risk adjusted plays in these hybrids by quality issuers only and are willing to hold to maturity. When they have  a $100K Term Deposit maturing they are placing 10K-30K in to one or two of these hybrids and putting the rest back on Term Deposits. It is recognition that these hybrids do carry more risk and that they understand that risk.

Their aim is not to attain equity like returns but an average portfolio income in the 5.5-6% mark and that can no longer be achieved by cash and TDs alone. So yes they are taking on more risk to achieve their objectives but they are not being silly and getting over exposed. That is why we have avoided Crown, Caltex, Bendigo & Adelaide and even SunCorp issuances.

So yes the Banks get the benefit of cheaper finance but SMSF investors get access to that yield, in bite sized manageable chunks that they require with less volatility than the underlying share. The risks in hybrids are not to be scoffed at but if you do your home work, understand the risk, keep the allocations small and think long term, then they may have a place in your portfolio.

If you want to read more about hybrids generally, the ASX has produced a guide – Understanding hybrid securities – that you can download here.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

2 Hits to Retirees On The Cards – Term Deposit Rates down & Swanny On The Pillage


Danger to Retirement IncomeWait until you see the news reports this week talking about how great it is for mortgage holders and first home buyers rejoicing at the drop in interest rates by the RBA on Tuesday. In reality only 1/3 of the population has a mortgage but they get the headlines.

However the self-funded retiree or those in pre-retirement looking to save for a decent income in retirement will not be rejoicing as they have to get used to a 4 in front of their Term Deposit rates and worry about the possibility of a 3 within 12 months. These are the people who often don’t have the ability to work a little extra overtime or take on part-time job to supplement their income as older workers aren’t exactly swamped with employment offers.

It may be time to bite the bullet and lock some of your funds in for 2-5 years for the best rate you can get as anything around the 5% mark is looking very attractive and not a big risk in terms of exposure to rising rates as the USA has guaranteed they will keep their rates at or near 0% until 2015. I can’t see Australia getting to far out of step with them in the coming years and it is more likely we will have to lower rates further to weaken our dollar for the economy’s sake.

Other governments are buying our Dollar to invest in what they consider stable Australian Government Bonds and Companies. A blog by my friends at Macro Business lists new countries targeting Aussie assets as reported by various media including the AFR is scary including:

Czech Republic, Kazakhstan, Switzerland, Brazil, Poland, Hong Kong Vietnam, Abu Dhabi, Kuwait,  Qatar , South Korea and of course China with possibly Peru, Malaysia and Singapore as well. All their interest means demand for our currency rises and the exchange rate goes up which the RBA has to try to manage through Interest rate strategies. All that does not bode well for your average Aussie SMSF investor seeking yield or in more simple terms income.

So time to either load up with the best long-term interest rate you can get risk free or prepare to re-enter or increase your exposure to the share market and other sources of income. Be careful chasing yield and understand the risk of any investment paying more than 1-2% above the RBA’s 3.25%.

The second possible hit is harder for me to discuss as I tend to be apolitical in my views under normal circumstances but I feel I have to say something as the leaks to the media in the last few weeks seem to be softening up the SMSF sector for some hard hits.

So on top of the interest rate cuts to your income  we have a Treasurer likely to just compound the problem because in his desperation not to give the Liberals ammunition to throw at him over budget deficits appears willing to destroy the confidence in the Australian Superannuation system by dipping his hands in to the “honey pot” that is the retirement savings of everyday Australians. He is being goaded on by the unions and industry fund sector who control a massive position of the retirement pot but mostly those with insufficient savings to fund their retirement. They seem hell-bent on making sure NO ONE can afford a comfortable retirement and all will depend on an Age Pension to some degree. They have Self Managed Super Funds (SMSF) in their sights! It may be more layers of compliance fees or reduction in tax concessions or some similar theft of your savings by stealth but we know something is coming so better to be prepared.

I urge all SMSF investors and self funded retirees in general to get on the front foot before the Half Year Budget update and be prepared to speak up to your local member of parliament and write tot he press now rather than later to try to stop this government pillaging your savings to fund a  meaningless surplus. If the opposition took the pressure off the need to bring in a surplus that would help too but I know I am dreaming with that idea. The short-term gain of accessing funding from our Superannuation will lead to a huge drop in confidence in a system that has already been hammered in the last few years by Government changes and the CFC.

For further information on the issues raised in this blog please contact our Castle Hill SMSF Centre or Windsor Financial Planning Office.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Don’t lose your insurance cover in the haste to rollover to a SMSF.


Just because you are unhappy with your superannuation investment results is no reason to put you or your family’s future at risk by losing your insurance cover in the process of changing.

don't lose your insurance in a rollover to SMSF

A good professional like an SMSF Specialist Advisor™ will always ensure you assess your insurance needs before withdrawing.

This issue is becoming even more relevant now that the new SMSF rules require Trustees to consider the member’s insurance needs regularly. See here for more detail.

Ok, so you have decided to start your own Self Managed Super Fund or move to one that you feel better meets your needs. That is fine, but one of the things you should look at doing is protecting any cover you have in your current fund by either keeping some money in your current fund to pay for ongoing insurance premiums or taking out replacement insurance cover in the name of your new SMSF.  (more…)

Don’t depend on working longer to save for your Retirement Income


Looking to RetirementMany clients believe delaying their retirement is a solution to inadequate savings, but they often find themselves out of the workforce sooner than they’d planned. None of us has that crystal ball!

It is likely that the shortfall in retirement savings here in Australia stems in part from our “she’ll be right” attitude towards life, which leads us to believe that we do not need to start saving early and that somehow it will all work out ok.

Delaying retirement can be a powerful boost to your superannuation nest-egg. But relying on the ability to work for a few extra years to stretch retirement savings out a little longer is fraught with risk and does not reflect personal and family health or other issues that may arise. As an example I have had some clients forced to retire to look after their grandchildren due to the illness of the parent.

If you played with any retirement planning calculator or have spoken to an adviser, the “work a little longer” solution would have been investigated and many put it forward as the solution to the GFC “dip” (read plunge) in savings.

The concept is easy to grasp: By working longer then you originally planned, you get more years of concessionally taxed growth in your superannuation accounts especially if you used a Transition to Retirement Pension from 55 or 60. You can also continue to salary sacrifice and make non-concessional contributions while getting the benefit of the Senior And Pensioners Tax Offset (SAPTO) that I mentioned a few weeks ago here.

The idea is the longer you work and save and more you get into a superannuation income stream then your capital will last longer and you may also benefit from more Age Pension when required.

Back to reality with a jolt!

But there is a huge disconnect between workers’ expectations and retirement reality. Over half of the retirees surveyed in a US study last year said they left the workforce earlier than planned, and just 8% of them said that positive factors — such as the ability to afford early retirement — prompted the move. For the vast majority of early retirees, negative circumstances, such as personal or spouse health problems or company downsizing played a role.

40% of Australians will suffer a critical illness before age 65 (Cologne Life Re study). They will most likely survive but their retirement funding will be devastated.

The 2015 Productivity Commission report on post-retirement shows that about 40 per cent of Australians who retire between the age of 60 and 64 do so involuntarily, either because of their own or a family member’s ill health, or redundancy.

For those aged between 65 and 69 who retire involuntarily is not that different, while for younger age groups most people who retire do so involuntarily.

Retirement ages

Clearly, workers relying on delayed retirement are rolling the dice. Yet, most people discount the future so much that they’re willing to take that gamble. May hope that an inheritance will save the day but do not realise that age care costs and parents living longer may eat heavily into any expected inheritance.

Strangely the people most likely to plan on working a few more years to boost their retirement security may actually have the least ability to postpone their retirement. People who suffer an illness or injury  are more likely than those in good health to have pushed back their expected retirement date in recent years, according to  a report from consulting firm Towers Watson. Yet health problems or disabilities were cited by more than half of retirees forced to retire earlier than planned.

Don’t put you head in the sand – start now

As psychologists are quick to point out, we all have that inner voice that loves to procrastinate who loves to put off till tomorrow what we should do today – beause its “all too hard to get your head around”. Saving more today is a sure thing, and extra years in the workforce are anything but. If you know you don’t have enough, you should start saving more today, because that’s by far the less risky alternative.

Let’s look at an example using the Retirement Planner on the MoneySmart.gov.au site for a 55-year-old pre-retiree with just $30K in superannuation. If she earns $80,000, makes $17,500 annual salary sacrifice contributions (in addition to Employers SGC contributions of 9.5%)  and earns a 7.5% return pre retirement and 6.5% after, she could be looking at an Income in retirement of $32,143 by age 67 including the Age Pension. If she’s forced to retire at that point, she’s still in better shape than most Australian’s. And if she can continue working, she  counld improve on this lifestyle with a better retirement income.

Retirement Income

A final don’t is cancelling TPD or Income Protection insurances to save money while in your most productive earning years (read here for more on that subject). The loss of 5-10 years of earnings potential is one guaranteed way to destroy your lifestyle in retirement. Your ability to earn is your biggest asset

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Think twice before cancelling insurances as you get older.


Do you know that the average person cancels their personal insurance about 1-2 years before an claimable illness strikes! The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years. (source TAL)

As mentioned in a previous blog the SMSF regulations now require Self Managed Superannuation Fund Trustees to consider Insurance as part of the SMSF Investment Strategy . TheRisk Management following applies to everyone regardless of the type of investor you are or the structure you use to save for retirement.

I see many clients in our Castle Hill and Windsor offices in their late 50’s who have cancelled their life and income protection insurances before they have come to see me. Usually they say it is because they have paid off their mortgage and are debt free so they didn’t feel they needed cover any longer.

Their focus now was on expense reduction and saving via salary sacrifice to superannuation and even some after tax contributions from savings.

While it is great to see them focus on saving for retirement and budgeting, what they don’t realise is that in cancelling insurances it is their retirement lifestyle or that of their spouse they are no longer insuring and not just their current needs.

With 5-15 years of focused savings towards a retirement nest egg they can substantially improve their lifestyle after retirement. However those dreams of a happy retirement can all be taken away with a diagnosis of cancer or a stroke that inhibits them working for a prolonged period.

You don’t just find yourself financing time off work and medical expenses but also lose out on the employer super contributions and salary sacrifice as well or worse for a small business owner, you face the expense of a getting someone to cover for you to keep the business afloat.

To realistically assess if you need to maintain your Life, Trauma or Income Protection insurance, you need to think through the worst-case scenario. If you were unable to work for 3 years due to an illness today, how would you and your loved ones cope financially?

  • Would you be able to meet ongoing living expenses like food, clothing, changing the car, pay for private health insurance premiums, etc? (this assumes mortgage paid off)
  • Would you have the liquid funds to cover additional expenses or loss in income (e.g., gap in your medical fees, time off work for your spouse to take care of you,
  • What would happen to your retirement plans and would you be able to save enough money to see the kids through the final college years or fund your retirement comfortably?
  • What if you were actually permanently disabled and they had all the costs of rearranging the home, medical care and transport options for you.

In all honesty, it is always a struggle when you lose your earning capacity. The last thing you need compounding the situation are financial concerns. Insurance helps make sure that you and the people you care about will be provided for financially, even if you’re not around to care for them yourself.

So whether you’re in retail, industry or a Self Managed Super Fund, take a moment to consider how insurance might fit into your retirement plans. We can look at ways to reduce the cover and costs to keep them affordable and provide that protection for you and your family.

If you think you may need to review your Insurances then you can contact us to offer you advice on your options. As well as offering advice on Insurances, Superannuation and SMSF’s our advisers can also offer you help in many other area’s you may be experiencing problems such as:

  • Financial Planning,
  • Tax Planning,
  • Debt Consolidation,
  • Investment Portfolios,
  • Estate Planning,
  • SMSF Trustee queries.

Have you found this blog helpful? Pass it on. Social media buttons beneath the article.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Self Managed Super Funds must include an Insurance Needs Analysis as part of the fund’s SMSF Investment Strategy.


Amendments to the SIS Regulations in place from August 2012 require trustees of SMSFs by law:

  1.  to consider whether insurance cover should be held by the fund on the lives of the members;
  2. to review that decision as SMSF trustees regularly as part of the review the investment strategy of the fund.

The obligation (which is set out in SIS Reg 4.09(2)(e)) requires the trustees to apply their minds to whether  “for a self managed superannuation fund – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.”

This is a major step up in terms of duties from the old regulations and I believe has been prompted by the June 2010 Super System Review Panel report noting that less than 13% of SMSFs have insurance. Now in reality the major factor to consider is probably that this low figure is a result of most SMSF members being over 55 with higher super balances and low personal debt so the need for any insurance may be negligible.

Insurance protection

Image courtesy of iosphere at FreeDigitalPhotos.net

So what insurance covers are we talking about?  Well it is not simply life insurance, and could include total permanent disability cover and income protection cover that insurers make available via superannuation.

This is not an obligation on the fund to take out each of these insurance covers – the trustees must merely consider the issue.

To prove for the purpose of the annual audit that the trustees have considered the issue, the trustees will have to prepare minutes/resolutions which:

  • acknowledges that the trustees are aware of the obligation to consider insurance cover;
  • shows that the trustees have considered the need for insurance cover for each of the members of the fund;
  • documents that they have implemented cover where possible to meet those needs of the individual members and of the fund itself (in the case of LRBA) or
  • acknowledges that the trustees have determined that insurance is or is not required for a particular member(s)

As is the case with many clients that I take care of the trustees may conclude that no insurance cover is required in respect of a particular member for a variety of reasons such as:

  • when the member has indicated that they have no need for cover as their debts are low and needs are fully funded;
  • the member has sufficient insurance cover in other super funds (we often keep employer or industry funds open to avail of lower group rates);
  • the member has other insurance arrangements outside of the super;
  • that due to illness or injury the cost of premium is too high for the cover provided;
  • when the member has actually been declined for cover due to occupation or pre-existing conditions;
  • that the member does not believe in insurance or is unwilling to pay the cost of the premium.

So how far do you go as a Trustee in documenting your reasons for their decision? Is a full-blown explanation required or a simple statement that they have considered the issue and have come to a set conclusion either way for each member?

Whilst going into detail may sound the correct option to show the trustees have fully discharged their duty, those reasons set down in writing could be questioned later and the process found negligent which may expose the trustees to claims that they have breached their duties.  You may think that an SMSF most often consisting of mum and dad and maybe a few children in a family group like this may be unlikely to end in conflict but potential Beneficiaries of Estates, with the advantage of perfect hindsight, may seek redress to put pressure on trustees to consider their claims.

A possible solution may be for the trustees to discharge their duty by requesting from each member to indicate whether the member wishes to have cover for any or all risks identified in the fund.  If a member said that they do not wish to have or do not need, and will not submit to any underwriting requirements, then the trustees would be in a position to claim that they either have discharged their duty to the member.

As the new requirement has been attached to the investment strategy operating standard of SIS Reg 4.09, it seems that the trustees will also have to reconsider the issue of insurance each time the investment strategy is reviewed and on the occurrence of any significant change to the circumstances of a member or the fund such as a large contribution or withdrawal.

It is time to decide how you will comply with the new rules so please contact us if you need assistance or want to explore your options. Our risk specialists can review existing insurances and provide quotes on a range of covers from suitable insurance companies.

Want to do some preliminary investigations yourself? Why not try this decent Insurance Needs Calculator by clicking here, and then make an appointment to discuss the results with us.

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc to make sure Trustees are aware of the changes.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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