Superannuation: Australia braces SMSF member limit increase

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In late April 2018, then federal minister for revenue and financial services Kelly O’Dwyer issued an announcement [1] declaring an expansion of the limit on the maximum number of members that are able to comprise a self-managed superannuation fund (SMSF).

The raise – from four to six – was implemented by the then Turnbull Government so as to make SMSFs more accessible for Australians wanting to self-manage their retirement savings.

Upon her announcement, O’Dwyer explained that “the change will allow for greater flexibility,” an element she believed would help to “ensure SMSFs remain compelling retirement savings vehicles into the future.”

 

Big families the big winners

The decision to increase the maximum membership number of SMSF members to six is a win for everyday Australians. Generally, enhanced consumer discretion begets improved market competition, resulting in more value for the end customer.

Large families, though, appear to be the most directly impacted gainers from the Government’s SMSF membership limit increase – which comes into effect on 1 July 2019.

Ever since SMSFs became legislatively valid under the Keating Government in 1994, large families have been precluded from being a part of the same SMSF. This has resulted in burdensome workarounds, as pointed out by Michael Lorimer – the managing director of the Self-managed Independent Superannuation Funds Association (SISFA) – in a recent AFR article [2] covering the SMSF member increase:

“There are certainly a number of instances I’ve come across as a practitioner where people have had to look at having multiple super funds to accommodate larger families.”

 

Can change to SMSF help change worrying trend?

Extending the allowable SMSF membership total from four to six may prove a useful counter-measure against a problem becoming increasingly relevant with each passing year, the financial abuse of elders.

Australia’s subpopulation of citizens aged 65 and over is projected to rise significantly in the coming decades. Elder financial abuse is a topic of concern gaining increasing amounts of media coverage in recent times, most notably vis-à-vis the banking royal commission. [3]

SMSFs, unfortunately, have become one such mechanism through which incidents of elder financial abuse have appeared. With SMSFs now able to hold six members, it welcomes a more rigid accountability structure.

Incidents of so-called ‘inheritance impatience’ by one bad actor will hopefully become less likely now that more individuals are able to contribute to an SMSF’s decision-making process and overall governance.

 

A matter of trust

An unresolved narrative that one can expect to cause some teething problems once the permitted SMSF membership total officially increases in 2019 is the apparent lack of congruence these changes will have with regards to State law.

You see, SMSFs are classified as trusts. However, the respective Trustee Acts of most – if not all – of the country’s States permits a maximum of four trustees in a trust.

So, should individual trustees wish to admit a fifth and/or sixth member to their SMSF, they will first need to update their SMSF’s trust deed.

For those wanting to learn more about the implications of the SMSF member limit expansion – or any other SMSF-related change recently introduced by the Federal Government [4], for that matter – we encourage you to seek out professional advice from Ashfords’ dedicated Superannuation Services team.

 

[1] Greater flexibility for self-managed super funds (27/04/18)

[2] Self-managed super fund quarterly statistical report – June 2018 (25/10/18)

[3] Australian Banking Royal Commission – What To Know (27/04/18)

[4] Extending Superstream to SMSF rollovers (17/07/18)

 

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