Super changes to cause super headaches

The Federal Government has run into strong industry concern about its legislative changes to superannuation arrangements for temporary residents, with warnings that it will add considerable administrative costs and make it more difficult and expensive to recruit skilled temporary residents.

The problems have been revealed in a series of industry submissions to the Senate Standing Committee on Economics, with the Association of Superannuation Funds of Australia (ASFA) even expressing concerns that the changes might generate liquidity issues for some eligible rollover funds (ERFs).

Under the changes being pursued by the Government, temporary resident superannuation balances would be transferred to and held by the Australian Taxation Office (ATO).

ASFA has pointed out that ERFs are designed as low cost products for administering lost and inactive accounts and, in keeping with this, administration systems are simple.

It said there was a concern that, should a single ERF find a large proportion of its members identified as temporary residents, “there may be significant issues associated with the need to redeem investments in a compressed timeframe in order to pay the identified account balances to the ATO”.

“Should a ‘fire sale’ of assets be required, this will adversely impact the value of the remaining members’ accounts,” the ASFA submission said. “Additionally, the sudden loss of a significant amount of money may ultimately affect the financial viability of the ERF.”

For its part, financial planning dealer group Hillross warned that the measures being proposed by the Government make it inappropriate for nearly all temporary residents to invest in any growth asset exposure, which includes most superannuation fund default options, due to the short-term volatility and there being no control of exit timing.

It warned that this would result in more red tape and complexity for funds to ensure the default investment option for temporary resident members was of a cash type rather than of a balanced type.

The Hillross submission said the retrospective nature of the measures would also disadvantage existing and past temporary residents, as they were mostly invested in funds with significant exposure to growth assets that were now at low values due to the global financial crisis.

Hillross suggested that most or all of the disadvantages to its clients could be avoided by making the transfer of funds to the ATO optional if requested by an employer sponsor of the fund.