Introduction
Ladies and Gentlemen, it is a pleasure to be here today to launch the Australian Taxpayers' Association's new information service dealing with Do It Yourself Superannuation, which is a manual for people who are setting up and running an excluded superannuation fund. I understand that the bulk of the work in preparing the DIY guide has been done by Barbara Smith, so I would like to make particular mention of her efforts in putting this guide together.
Groups such as the Australian Taxpayers' Association play a valuable role in educating taxpayers about the practical aspects of legislation. The ATA is clearly aware of the dynamic growth and interest in Do It Yourself Superannuation.
I believe this guide will be an important and valuable information source for the market. It is, I believe, the first independent guide to the pros and cons of DIY funds and as such should be of assistance to many Australians who are wondering whether they should set up their own superannuation fund. However, As this guide is an independent, non-government document, the relevant agencies will work closely with Barbara Smith to ensure its accuracy in relation to its technical explanation of relevant legislation. People who have queries about matters covered by this guide should feel free to contact the government agencies concerned.
Today I would like to talk about how the Government views self-managed superannuation funds, the Financial System Inquiry recommendations on self-managed funds and the future for this form of investment.
The number of self-managed or DIY funds has been growing quickly over recent years. For example, in 1991 there were about 60,000 of these superannuation funds. At the 30 June last year this number had grown to 156,000, and in the last quarter of 1997 5,000 new DIY funds registered with the ISC.
Such funds represent over $35 billion dollars or about 12 per cent of total industry assets. Interestingly, while self-managed funds represent around 97 per cent of all superannuation funds they contain less than 2 per cent of all superannuation fund members.
Of course, the superannuation sector as a whole has also been growing rapidly . Superannuation assets continued to grow strongly. In the year to December 1997, the overall value of assets increased by 17% to $325.7 billion. Strong growth was recorded in member contributions; they increased by 27% over the previous year to $11.5 billion.[figures]. The Government very much welcomes this growth as it shows that the Government's objective of encouraging retirement savings is being achieved.
[Under the existing legislation, funds with less than five members, known as excluded funds, are the main vehicle for DIY superannuation.
While every fund operates under its own trust deed or governing rules, the Commonwealth's regulatory requirements provide certain exceptions to the requirements for excluded funds which allow members to effectively manage and control such funds.
Excluded funds are subject to most of the rules in the legislation that affect other superannuation funds, including important provisions such as the sole purpose test, restrictions on fund lending, borrowing and investing in employer sponsors and preservation. However, they are exempt from a number of prudential requirements. This is because members of such funds are normally in a position to control or significantly influence trustee decision making. That is, they do not need the added protection of these provisions.]
Self-managed superannuation funds provide an important competitive option for superannuation members in attempting to achieve this goal as they encourage people to take responsibility for provision of their own retirement income and allow them to actively participate in the management of their fund.
This approach will come into a sharper focus in light of the Government's choice of fund arrangements.
As announced in the 1997-98 Budget, Choice of Fund will give employees greater choice as to the fund or Retirement Savings Account (RSA) into which their compulsory Superannuation Guarantee and award contributions are paid.
Although I announced last week that the date of introduction of choice of fund for new employees is to be deferred, the Government remains strongly committed to introducing this initiative.
The Government believes substantial national benefits will flow from the introduction of its 'choice of fund' policy.
The choice arrangements will give workers a greater degree of control of their superannuation, which in turn will give them a greater sense of ownership of these savings. This will have a positive effect on attitudes in the community and, along with the taxation rebate for savings announced in the Budget, will help promote a savings culture in Australia. The Government considers that these measures will lead to an improvement in Australia's national savings performance.
Also, the choice of fund arrangements will allow a more flexible and responsive approach to the retirement income needs of all Australians. The initiative will increase competition and efficiency in the superannuation industry, leading to improved returns on superannuation savings and placing downward pressure on fund administration charges.
Importantly, the implementation of Choice of Fund will allow a person to choose a allow many employees to direct such contributions to their own self-managed fund to superannuation.receive their superannuation contributions.
The issue of Do It Yourself Superannuation was considered by the Financial System Inquiry, the Wallis Inquiry, and it made various recommendations to the Government concerning self-managed funds.
The Inquiry argued that self-managed funds were a worthwhile competitive option for superannuation investors. But it argued that such funds should not be subject to prudential regulation, as such funds should be conducted entirely at the risk of members.
To ensure this, the inquiry recommended that the members of a self-managed fund should also be the trustees the fund. This recommendation was aimed at protecting any members who are at an arm's length from the trustees. The inquiry was concerned that there may be little protection of such member's interest as there was minimal practical scope for the effective prudential regulation of such funds.
The other major recommendation of the inquiry was that self-managed funds should be regulated by the Australian Taxation Office. The rationale for this was that as self-managed funds would not be subject to prudential regulation there was no need for a prudential regulator such as the Insurance and Superannuation Commission or the new Australian Prudential Regulatory Authority to monitor and regulate these funds.
As has been previously announced, the Government has accepted, in principle, the recommendations of the Financial System Inquiry that self-managed superannuation funds be regulated by the ATO rather than the prudential regulator. However, this decision is subject to further consideration of the definition of self-managed funds for this purpose and other administrative issues. It is intended that the Australian Prudential Regulation Authority will initially take responsibility for all superannuation funds while the Government continues to give further consideration to matters surrounding self managed funds.
Some people argue that the ATO should not be the organisation charged with the responsibility for regulating self-managed funds. They argue that this approach may undermine the ability of self-managed funds to achieve retirement income goals.
The Government is confident that this will not be the case. In considering the proposed changes to the regulation of self-managed funds, the Government has no agenda to diminish the role played by such funds in achieving retirement income objectives. Indeed, the Government believes such funds provide a worthwhile and competitive option for superannuation investors and this should be maintained. Nevertheless, the Government believes it has the right to ensure the tax concessions provided to self-managed funds are used for retirement income purposes.
For people who are thinking about establishing a self-managed superannuation fund I would suggest that they give careful consideration to the costs, workload, and their responsibilities and weigh them against the potential benefits of managing their own fund. As noted in the Wallis Committee Report, Tthey should also be aware that [the definition of excluded fund is currently subject to review by the Government. However, they should be assured that the Government sees an important role for such funds in the future.
In conclusion, I would like to wish the Australian Taxpayers' Association well with the launch of their new service on DIY funds which I see as providing a valuable service to this segment of the industry.