The sole purpose test should be more exactingly applied to self-managed superannuation funds (SMSFs), according to the Association of Superannuation Funds of Australia (ASFA).
The organisation has reacted to reports of SMSF members being offered luxury international holidays in return for buying property within their funds by not only calling for a stronger regulatory approach but also reinforcing the need for the sole purpose test within the Superannuation Industry Supervision Act to be properly applied.
The ASFA statement pointed out that any individual or firm providing advice on the purchase of a financial product is required to hold an Australian Financial Services License, which requires those giving advice to be suitably qualified and also to give advice that is appropriate for their client.
Furthermore, ASFA said that it considered such requirements should extend to those who are marketing residential and other property to those with a SMSF or who, as part of their marketing, suggest that individuals establish a SMSF to purchase a property.
According to ASFA chief executive Pauline Vamos, it is essential that consumers have adequate protection in order to be confident that they are receiving quality advice regarding their superannuation investments.
"For some time now, ASFA has been concerned about the growing number of people being targeted by schemes which offer attractive incentives up-front at the expense of good retirement outcomes down the track," she said.
"Such schemes run the risk of falling foul of the sole purpose test that applies to all SMSFs.
"As well, provision of large incentives indicates that a property is not being sold at a fair market price," Vamos added.
"With more and more people entering the SMSF sector each day, it's critical the regulators address the growing concern the community has around its governance, and ensure professionals working in this area are licensed appropriately."
Vamos said that it was also in the best interests of the Australian community that balances in SMSFs were invested with the sole purpose of generating the best retirement outcomes.
"Prudent management of concessionally-taxed superannuation contributions is essential to ensuring we have a system that is sustainable now and into the future," she said.
"It's essential that the investment decisions SMSF holders make are based on good quality advice and with a long-term strategic approach.
"Don't exchange a luxury holiday today for the lifestyle you want to have in future when you retire."
Originally published on SMSF Essentials.
