The future for SMSF auditors

The die is now cast – following the government’s response to the Cooper Review, ASIC will be appointed as the registration body for self-managed super fund (SMSF) auditors. Having a registration body for SMSF auditors is good for the industry and consumers, although I believe the ATO is better placed to undertake this function by building on and improving the existing reporting framework. Despite who the registrar is, a formal registration will enhance the integrity of the audit function and, regardless of registration requirements for individuals, will encourage auditors to evaluate their own suitability to undertake SMSF audits, (i.e. ‘Is it worth registering when I only undertake a few audits per year?’)

A lot of SMSF service providers will be wondering if they will have to change the way they do business, so the million dollar question is: ‘How did the government respond to Jeremy Cooper’s view on mandatory outsourcing of all SMSF audit services to address auditor independence issues?’

The answer is that the government didn’t specifically address mandatory outsourcing. What it did say was that approved auditors would need to meet independence standards as part of their ongoing registration and directed ASIC to examine existing auditor independence standards that may be applied.

As I have been saying for a long time (and to everyone that will listen), mandatory outsourcing of audits will NOT ensure independence. In fact, it may even facilitate attempts to circumvent independence! Robust professional and ethical standards, which cover independence issues, already apply to 95% of SMSF auditors - those who are members of one of the three professional accounting bodies. ASIC now needs to make sure those standards apply to 100% of SMSF auditors.

The journey into super reform is just beginning...

After nearly six months of anticipation, this morning, Assistant Treasurer Bill Shorten responded to the recommendations of the Super System (Cooper) Review.

While there were no surprises in the government’s response, the overall announcement on super reform is momentous in its implications, and this morning I had a chat to Carson Scott on Sky Business News on some of the highlights.

I mentioned that people are reluctant to commit to super because they are concerned the rules surrounding it won’t be the same when they retire. There have been so many changes to the super system in the last 20 years that many Australians either lack confidence in the system or are simply disengaged from it.

The reforms – designed to reduce fees, address lost super, provide a simple, cost-effective default fund product, and deliver access to meaningful and comparable information on super accounts – will be a great first step in ensuring Australians regain their confidence in super.

But despite the positive start to super reform, there are still some loose ends if you look at the bigger reform picture. Choosing to link the super guarantee (SG) increase with the package of reforms that includes Minerals Resource Rent Tax (MRRT) is one example. Because the process around implementation of the MRRT is far from certain, there is a risk of the whole thing falling through.

However, there are other ways of achieving the same objectives of an SG increase. You might remember that the Henry tax review report suggested leaving the SG rate at 9%, and instead adopting a number of other reforms which would have the same net effect on retirement savings as raising the SG rate to 12%.

One real win in today’s announcement, though, is the consultative approach the government is taking by involving industry experts in the technical detail of the changes.

While there is still a lot of work to be done, the government’s commitment to superannuation reform in the best interests of working Australians will go a long way to boosting and protecting retirement savings. The journey into superannuation reform will not be short, but it is a worthy initiative – I believe we are taking steps in the right direction.

If you’re interested, our media release has more information.

2011: A year for ‘decision and delivery’

I attended a Committee for Economic Development of Australia (CEDA) breakfast recently at which Prime Minister Julia Gillard was presenting.

Ms Gillard said 2011 would be a year of ‘decision and delivery’ for the government. Certainly, with the number of reviews and enquiries the government has launched over the last two years, ‘decision and delivery’ will be a welcome approach in the new year, if only to provide clarity around where certain industries are heading, and allowing industry participants to prepare accordingly.

Interestingly, Ms Gillard only noted two action items for superannuation in her speech: increasing super guarantee levels and addressing government contributions for low income earners. Given the super industry is eagerly anticipating the government’s response to the Cooper Review – due out before Christmas – I thought that was a rather minimalist inclusion by the Prime Minister.

With that in mind, I thought I would outline a few items on my own wish-list for ‘decision and delivery’ in superannuation for 2011:

1) Respond to the Cooper Review report decisively – strive to set the right policy settings by applying practical solutions to identified issues. Open and honest consultation will be imperative, and remember: more rules and greater regulation will not necessarily solve the problems.

2) Abolish the extreme penalties from the excess contributions tax – Australians should not be punished for trying to do the right thing and save adequately for their retirement.

3) Raise the concessional contributions caps to a more realistic level that will enable Australians to save more for their retirement.

4) Allow all Australians to top up super guarantee amounts by claiming a tax deduction for personal super contributions (not all employers let their employees salary sacrifice to top up super guarantee contributions). Then, address the anomalies in super guarantee payments that allow an employer to satisfy their obligations with an employee’s own salary sacrifice amounts.

5) Resolve to stop tinkering with super – fix it and then leave it alone! (See my last blog). This alone will do wonders for engagement with super in Australia.

The decisions the government is about to make in superannuation will be momentous for the industry and for Australians striving to save for a comfortable retirement. And they are decisions that will be felt for years to come. The government, charged with the critical task of making the right decisions, is about to create its legacy in policy-making, not just around super, but around tax and financial services too.

It’s a big task, but with open and honest consultation, effective decisions and delivery are within reach.