The SMSF sector has failed to provide the appropriate regulation, support structure, products and services for trustees facing cognitive decline, according to research house Investment Trends.
Investment Trends chief executive Michael Blomfield told a recent panel discussion, hosted by the SMSF Association and ATO as part of the inaugural SMSF Week, that his organisation’s research shows one of the most significant concerns SMSF members express is around what will happen to the fund upon their death.
“I think we as a nation got suckered because we got into the superannuation guarantee about a generation ago,” Blomfield said.
“And we’ve not as a country started to regulate, provide products, services and the assistance that recognises we’re now at the optimal point of turning into retirement.
“Sadly all of us, as we get older and older, we become less able to manage certain things. But we’ve not regulated for this. We’ve not provided the right support structure to it and I think it’s a very risky thing we’re allowing to happen.”
A research paper the SMSF Association and Investment Trends released as part of SMSF Week revealed 60.7 per cent of SMSF members were aged over 55, while 47 per cent or 267,000 funds were in retirement phase as at June 2016.
During the session SMSF Association chief executive John Maroney asked Australian Securities and Investments Commission (ASIC) acting senior executive leader and fellow panellist Kate Metz if the corporate regulator has concerns about the ageing demographic of SMSF members and how it affects the suitability of an SMSF for individuals as they age.
Metz expressed ASIC’s concern about what will happen in the event of the cognitive decline of an SMSF trustee, which she said could potentially occur over the next five to 10 years and beyond.
“That will be a particular issue where, for instance, the more active member of the fund may go through cognitive decline and leave the passive member of the fund to run the fund,” she said.
“That passive member may be quite vulnerable I think to a range of things, including receiving poor advice.”
The second issue she flagged was the risk of an increase in incidents of elder abuse as the number of multigenerational funds grows.
“That’s something that I think as a regulator we may not necessarily hear of first-hand because I think family issues tend to remain family issues,” she noted.
“But I do think that’s something we all need to be thinking about. So I do think there is quite a big thought piece that needs to occur in relation to what does happen to SMSFs as people age.”