Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
‘Not a honeypot’: ATO flags increase in illegal early access to super via SMSFs
A combination of misuse from consumers and abuse from fraudsters has contributed to a recent increase in illegal access to superannuation, with the Australian Tax Office warning consumers against treating SMSF accounts like savings accounts and highlighting the danger of nefarious promoters of early access schemes.
The proliferation of SMSF accounts in Australia – there are now over 600,000 individual funds with almost $1 trillion worth of capital invested – has given more people a direct line of access to their retirement savings, which the tax office believes has opened the door to more frequent misuse of the concessionally taxed funds.
“The most common compliance issues that we see relates to individuals taking advantage of direct access to their SMSF bank account and accessing their retirement savings before they should,” said Emma Rosenzweig, the ATO’s deputy commissioner of superannuation, at the SMSF Association’s National Conference in Melbourne last week. “This behaviour appears to be on the rise and is a key area of concern.”
Superannuation generally cannot be accessed until a person reaches preservation age and has retired, or has reached 65 years of age.
APRA-regulated funds have typically acted as a natural bulwark against early access breaches, with industry and retail funds adding a historical layer of trustee security to early access avenues. But the success and popularity of SMSFs has brought with it a larger cohort that act as trustees and have direct access to funds earmarked for preservation.
The ATO’s concern is not new; Rosenzweig (pictured) voiced the same concern exactly 12 months ago at the conference, telling the audience she didn’t want the SMSF sector to become known as a vehicle for people to illegally access superannuation.
“Superannuation is not a honeypot that can be traded just like another bank account,” she said.
In less than 2 months, the ATO has already disqualified 318 trustees while raising additional taxes and penalties of over $10 million on individuals who have accessed their super early for 2023, Rosenzweig revealed.
Double the worry
According to Meg Heffron, managing director of SMSF consulting and administration group Heffron Consulting, the ATO’s concerns are justified.
“We’ve observed early access breaches on the rise for some time now – in fact, they’ve probably doubled over the last five years,” Heffron said on the sidelines of the SMSF conference.
“The concern, when clients have access to their superannuation cash accounts, is that often you’ll see withdrawals that aren’t instantly identifiable. They could be legitimate superannuation investments, but if we’re not aware of the nature of those withdrawals it does become a concern,” she continued. “And it’s particularly problematic when the client then goes completely silent and doesn’t respond to questions about those transactions and requests for paperwork.”
Major SMSF administrators like Heffron, as well as BGL and SuperConcepts, are at the front line in terms of educating fund trustees on their responsibilities and the dangers of early access breaches.
“We’re in a position where we have to trust the client, and assume they’ve stayed the course as SMSF trustees,” Heffron said. “But we certainly encourage them to observe the preservation laws and to keep their adviser and administrator abreast of any account withdrawals.”
Financial impacts
This year the ATO has scaled up its compliance program to deal with both individuals who ignore the program and promotors of early access schemes. The tax office also recently published an illegal early access factsheet, which warned people of the consequences of withdrawing on their own super, and also what to do if they’re approached by a provider.
The ATO has also been reviewing the activities of a cohort of promoters suspected of taking advantage of people by coercing them into creating SMSFs and then either encouraging them to invest for their own benefit or engaging in identity theft.
“I’d like to take this opportunity to encourage any of you who come across any promoters of these types of schemes, and to please let us know,” Rosenzweig said. “These people target vulnerable people, vulnerable communities and the financial impacts of their behaviours can be devastating.”
