APRA acts on super
The Australian Prudential Regulation Authority (APRA) will appoint a statutory approved trustees (SAT) to thousands of DIY super funds as new regulations come into force.
Managing director of Australian Superannuation Nominees, Ben Smythe, says up to 7000 small DIY funds will have a SAT appointed as they failed to reply to an earlier APRA demand.
"APRA has estimated the first SAT will be appointed in a week," Smythe says.
However, all SAT appointments will have to meet with ministerial approval, which may make the process drawn out.
Close to ten per cent of all small superannuation funds failed to make the choice to become either a Self-Managed Superannuation Fund (SMSF) or a Small APRA Fund (SAF) by the cut off date.
Small superannuation funds had until June 30 this year to make the decision to be a SAF or a SMSF following legislation introduced last year to tighten regulation of the small super funds.
Under the new rules all members of an SMSF become trustees while an independent trustee is appointed to a SAF to handle all compliance issues.
Smythe says 20,000 small funds initially failed to make the choice but many of them replied to the demand from APRA to show just cause.
"Letters were sent out to the non-complying funds early this month and the funds had 10 days to show just cause or an SAT would be appointed who could wind up the fund or put the fund's assets into a more appropriate vehicle such as a master trust," Smythe says.
He says 95 per cent of the small super funds that have complied with the legislation have elected to be an SMSF.
"Most people wanted their fund to become an SMSF either because they were unaware that there was a choice or they wanted the status quo to continue," Smythe says.
However, he says it is likely that more funds will move to an SAF set-up over time as the ATO crack down harder on the SMSFs.
"The ATO has a special unit dedicated to SMSFs and is becoming very diligent at looking into them," Smythe says.
"Financial planners and accountants who advise small super funds will soon realise it is no joke and will need to make their clients understand the role of a trustee."
Smythe says financial planners appear to be reacting faster than accountants in seeking the best solution for their clients who run small super funds.
"We're getting lots of calls from financial planners asking what are the benefits of a SAF compared to a SMSF," Smythe says.
"While there is an extra cost with a SAF and members may lose control of the purse strings the benefit is that it releases them from all trustee liabilities."
He says financial planners and accountants who advise small super funds should divide clients into those who understand their responsibilities as a trustee and those who would be better served by a SAF set up.
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