Why is superannuation so complex?

Totally agree, Superannuation is so complicated. I know many Qualified Accountants who wont touch Super.

It gets worse when you get to near-retirement and retirement age. There are so many things you can, should, will do, but they each have repercussions, and most are non-repairable. There is no one piece of paper that can summarise this for you.

It is so bad that despite our dislike for change, we had changed Accountants/Administrator/Auditor three times in the past 6 years!

 

3 times? Must have been a pain. Is it incompetence on their part or is your case simply a lot complex than the average SMSF?

 

Indeed, it's a total pain. Even thinking about it makes me spew!
The first one was when we bought the business and needed someone with more knowledge in the industry. The previous guy just told us he was retiring and not interested in learning new thing.
The second guy is a one-man band. Was very impressed with him initially but then he had some life-changing events (medical, divorce ....) and lost the plot. We hang-on for him for 4 years and probably should have moved on immediately.
The current one is a smallish suburban practice. Seem to be well-versed with everything but soooo slow. Still waiting for our FY18 to be finalised since last September!

 

I will agree its quite complex and unless a practitioner stays on top of things they can create a nightmare.

My best test for whether an accountant knows much about super is to ask for a sample of the type of reports they produce. I have attached a 2015 sample here.

SMSF reports should NEVER EVER be prepared using basic accounting reporting software. If your old school account does this its time to find a new accountant. In the long run it will cost someone a significant sum. Tens of thousands of dollars !! I will explain further.

Good SMSF reporting will include:
- Multiple member accounts. An accumulation account per member and also scope for multiple pension accounts for each member. And dont fall for the trap of accumulating into just one account. That can create huge tax concerns for adult kids
- Allow the software to individually account for fund income and expenses and/or generate a fair & reasonable allocation to each members account/s based on average daily balances. And also allow for member specific allocations for things like contribution taxes, life premiums etc
- Record key dates eg Eligible Service Period, Date the SMSF was formed (This will help when the ALP franking credit policy is made law) and many other key dates.
- Track caps avoiding huge mistakes
- Record death benefit entitlements eg from life insurance v's vested member account benefits
- Include Preservation elements
- Include tax elements

The final two are really important. I often find old-school accountants SMSF reports that are non-compliant with the final two elements. And they are the most important bit. Why ?

Lets says Mary Jones in this example report dies and her surviving children inherit her estate.
- How much is subject to tax ?? 100% of the taxable element. So strategies to avoid that need to be planned. Early. And if you dont know the ATO will assume it is all taxable. The kids will pay 17% tax on $422K. or it could be worse if John dies first and leaves his benefits to Mary. . But lets say I saw that. I would be mentioning to John & Mary that they need financial advice BEFORE they get a day older. The strategies could include :
1. Consider a $300K withdrawal and recontribution to convert the taxable elements into tax free elements. That could save $51-$102K in tax for the kids.
2. Starting new pensions so that tax on earnings can be avoided - including CGT !! Often when tax on capital gains is turned OFF it creates a whole different portfolio since members arent afraid to switch investments because of a mistaken belief they will trigger tax.
3. Each member consider a reversionary pension to avoid death benefits being cashed out and leaving the super system
4. Reconsider life cover
5. Encourage both to revisit their wills with their solicitor knowing one of their kids has a marriage on the skids. John & Mary wont want the inheritance to benefit the problem spouse.
and so on.

All of a sudden good SMSF reports provide very useful information and makes the process a discussion about long term benefits and less about tax compliance.

We do it often. And we have found some terrible mistakes. Only a month back we found a member who had their rollovers mixed up with their spouse. And in some cases we have identified unreported tax free elements that would be lost. I recall one which involved review of almost 20 years of records to find member untaxed contributions worth $500K+. This will have saved that members family $85K in tax for a few hours work.

 

My SMSF accountant uses ClassSuper, I think. I personally use the trustee edition of BGL SF360. Costs me(my SMSF) about $200/year but I like to stay on top of things and understand (at least at a high level what is happening on the accounting/tax side of my SMSF). When my accountant sends the yearly financial reports, I compare them with my reports from SF360.

 

If you are ever in the market for a good accountant, @Paul@PFI is fantastic.

 

That sounds expensive to duplicate things.
I have a client that uses the trustee edition of 360 and I have access (they invited me) that includes tax and we can lodge using their copy. They do all the work / allocations and I make a few minor changes etc. Our customised badges (eg logos etc) dont carry over but thats no drama. They also had to invite our preferred auditor.

 

It is for my own interest and a way to see if there are any mistakes (usually on my part). Last year, I changed the tax deductible contribution amounts but forgot to send him the form the second time. The amount was the same but the split between concessional/non-concessional changed. Sure enough, his reports and mine didn't match and was rectified quickly.

I see the extra $200/year as my SMSF education and forces me to really look into things and has the side benefit of double checking for errors. May seem redundant but it works for me.

 

I was having a very nice Easter Sunday munching on a couple of chocolate Easter eggs, hot cross buns and other junk over a cup of coffee until I read this.

https://www.smh.com.au/money/super-...ender-gap-is-42-per-cent-20190416-p51ejn.html

Not about the gender gap but describing the couple as if their sad situation is the result of superannuation. It isn't in my view.

The superannuation provider administers superannuation. It isn't responsible for life events, including medical issues, which impact on individuals, for whatever personal decisions they may take or for their progression or lack of it in the workforce . Yet one impression which can be inferred from the article is superannuation has let them down.

Yes, it would be good if society is able to assist those who are doing it tough. The question for me is How and How much is society prepared to cough up to fund it? I've got no answer to those questions.

 

They had super, they accessed it early and don't have any more. Success. Had they not had super, they would have been in a pickle much earlier.

 

Yup. No written contract with life so the "It ain't fair" clause doesn't exist.

 

This article doesnt mention the biggest problem. Both of them probably had almost no super balances until Keating forced the choice on them. And old mate didnt have TPD insurance either.
Many people in their 60s have very low super balances.