Opinions

SMSFA

A good balance for elderly trustees

John Maroney

John Moroney

The good news is most Australians are living longer and healthier lives. For once, the adage, “lies, damned lies and statistics”, doesn’t ring true. Figures from the Australian Institute of Health and Wealth show that in 1964 only 8 per cent of the population (950,000) were aged 65 and over, and a miniscule 0.4 per cent (50,000) were aged 85 or over.

Fast forward 50 years to 2014 and the number of people aged 65 and over had more than tripled to 3.4 million and, as a percentage of the population, had nearly doubled to 15 per cent. In the 85 and over bracket, the number was nearly half a million or 1.9 per cent of the population.

These trends are set to continue as the baby boomers leave the workforce and enter retirement. Looking further out, and based on estimates from the Australian Bureau of Statistics, by 2064 there will be 9.6 million people aged 65 and over and 1.9 million aged 85 and over, constituting 23 per cent and 5 per cent, respectively, of a projected population of 42 million.

It’s in this context of an ageing population that the recently released Australian Law Reform Commission’s (ALRC) final report on abuse of the elderly, “Elder Abuse – A National Legal Response”, assumes such importance. The SMSF Association made a detailed submission to the ALRC, as well as having lengthy discussions with it on the issues.

As the report rightly notes, elder abuse is not a critical issue now, but has the potential to become one as the population ages. “As Australia faces the inescapable demographic destiny of an ageing population, elder abuse may grow. In this context, this report and its 43 recommendations are timely,” it says.

The association could not agree more.

From our perspective, this report takes on even greater significance because of the demographics of SMSF members, with 55 per cent of the more than 1.1 million aged between 55 and 75 – and the ALRC is acutely aware of the potential implications. In its discussion about elder abuse and how it relates to superannuation, it says: “A significant proportion of the wealth of older people is held in superannuation funds. Elder abuse may include using deception, threats or violence to coerce someone to contribute, withdraw or transfer superannuation funds, for the benefit of the abuser. Improperly influencing superannuation investment decisions might also be abuse.”

More specifically on SMSFs, the report says they are subject to limited regulation and “this may present problems when a fund comes under the control of someone with impaired decision-making ability”. So, the report’s key recommendations about SMSFs are designed to:
•  better facilitate the process for appointing a person’s enduring attorney as trustee/director of their SMSF in the event of a legal disability,
improve planning for a potential legal disability as part of the operating standards of an SMSF, and

•  ensure the ATO is notified when an enduring attorney has taken over as trustee/director of the SMSF following the principal suffering a legal disability.

These recommendations are largely in accord with the SMSF Association’s submission to the ALRC, achieving, in our opinion, the right balance between mitigating this potential risk without placing overly draconian restrictions on the regulation of the SMSF sector. It’s easy for government reports on contentious social issues to attempt to cover off every eventuality without considering the practical effect, or the cost, but the ALRC has wisely refrained from going down this path.

Instead, it has opted for a pragmatic approach in its recommendations as they relate to SMSFs that should, if implemented, afford ageing fund members more protection at a minimal additional cost to the overseeing of their fund.

As such, it seems good policy to amend the superannuation laws to ensure trustees consider planning for the loss of capacity of an SMSF member and for estate planning to be part of a fund’s investment strategy. This will ensure members and their specialist advisers give more consideration to planning for loss of capacity, as well as ensure the right people are assisting members with their fund as they get older.

As the regulator of the SMSF sector, it makes eminent sense to require the ATO to be notified when an individual becomes a trustee of an SMSF because of an enduring power of attorney (EPOA), as does the recommendation to increase oversight of the use of EPOAs.

Another area of concern raised by the ALRC is binding death benefit nominations for superannuation fund members. It wants a review of the law in this area, tacitly acknowledging the increase in the number of disputes among a deceased’s beneficiaries and relatives. The association can only concur.

It’s encouraging to encounter a report that not only identifies a social issue before it becomes a scourge on society, but provides practical recommendations to ensure it doesn’t happen, and the association congratulates the ALRC on this publication.

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