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Lack of super consolidation a conscious decision

SMSF trustees choosing not to consolidate their multiple super accounts were doing so for deliberate reasons, with the primary purpose of maintaining the accounts for insurance, according to a technical expert.

In December, the ATO said on its website that its records showed more than one-quarter of SMSF trustees had multiple super accounts.

However, AMP SMSF administration head of technical services Philip La Greca said there was no reason to panic over the figure.

“You’ve got lack of consolidation for two reasons – you’ve got it because of people consciously having multiple accounts and you’ve got those that don’t know they have multiple accounts,” La Greca told selfmanagedsuper.

“In the SMSF space, they know they have multiple accounts. It’s a conscious decision.

“We’ve clearly got a lot of duplicate super accounts in Australia, but if you put that into the greater context of population, there are only a million people in SMSFs, so the bulk of that duplication is not SMSFs.

“Also the number of duplicates is not being caused by SMSFs, it’s being caused elsewhere, which I think is a worthwhile point.”

He pointed out there were three reasons why SMSF trustees would have multiple super accounts, but insurance would be the primary reason.

“It’s interesting because ASIC (Australian Securities and Investments Commission) released guidance notes in July, which more or less effectively endorsed that process, where it said if you’re going to give advice in this space, then you really need to consider insurance,” he said.

“It talked exactly about that strategy, which is, for want of a better term, a partial rollout out of a public offer fund to an SMSF while leaving a balance behind so you can maintain the insurance cover.

“That’s a fair chunk of why there is the case of a lack of consolidation.”

Another reason for favouring multiple super accounts was for commercial incentives, he revealed.

“For instance, there are some employers that will have, particularly with their staff or certain staff, a situation where you still have choice of fund, but if you’re in the corporate fund, you get 12 per cent compared to 9 per cent if you’re in any other fund, so there’s a commercial incentive there,” he said.

“Then of course you’ve got the other reason that’s been flagged by the government recently where you have mandated funds for SG (superannuation guarantee) where, yes, you can put your personal money into your SMSF, but your employer funds are covered by an EBA (enterprise bargaining agreement) and therefore you’ve got no choice about where it goes, or you’ve got very limited capacity to do it.”

He added that considering all the issues on group life cover versus individual policies, plus the mechanics of getting a personal policy in an SMSF, which meant having to go through underwriting, multiple super accounts made sense.

“You’ve also got to remember the general rule that these people are not young in the SMSF space, so underwriting could lead to a higher-cost premium as well, even if you can get the new policy at the same level,” he said.

“So again, the economics say keep the money in the other one.

“Now some of the funds are starting to attack that process as we know – they’re talking about putting in minimum amounts that have to be in an account to keep the insurance going or they’re talking about having to maintain regular contributions.”

He said the problem was simply that insurance could not be moved from a public offer fund into an SMSF.

“If insurance was portable, then we wouldn’t have this issue and that’s interesting because it’s been a dilemma for a long time and it’s because the super laws don’t allow the insurance to be portable,” he said.

“The groups that would benefit are not the groups who would be doing the lobbying because it would be beneficial for SMSFs to have portability in the insurance, but it’s not going to be beneficial to the public offer environment, to be blunt.

“Why would they want to make SMSFs more attractive?”

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