The government recently introduced the Superannuation Industry (Supervision) Amendment Regulation 2012 (No. 2). The new rules are probably the result of the Super System Review panel noting that less than 13% of SMSFs have insurance. The new Regulations amend Superannuation industry Regulations (SIS 1994) and require Self Managed Super Funds (SMSFs) trustee to:
- regularly review the SMSF’s investment strategy;
- consider whether the fund should hold a contract of insurance for members of the fund; and
- value fund assets at ‘market value’.
SIS regulation 4.09 requires that the trustee of a superannuation fund must formulate, regularly review and give effect to an investment strategy that has regard to the whole of the circumstances of the fund, including:
- the members’ circumstances and needs
- the risk and likely return from investments
- the level of diversification of the fund’s assets
- the liquidity of the fund’s assets, and
- the fund’s ability to meet its liabilities when they fall due.
The new rules require that in additional to the above, trustees of SMSFs are also required to consider whether it should hold a contract of insurance that provides insurance cover for one or more members of the fund. This new requirement will apply both when the trustees are establishing a new investment strategy as well as when they review an existing strategy.
In making a decision, the trustee will have to consider a range of issues including:
- The impact of the member’s death or disability on the member and dependents.
- each member’s existing insurance arrangements both inside and outside the SMSF
- the member’s income as well as their disposable assets at the time of review
- impact of premium funding on member’s final retirement benefits
Even though the trustees are not obligated to take out an insurance policy for all members, considerations bearing on their decision must be minuted in their investment strategy. If you need assistance in reviewing your SMSF investment strategy, you can call us on 1300 155 459 or call our director Sekou Seasay on 0432. READ MORE ABOUT OUR SMSF SERVICE.
