I think this has been addressed in some posts so hear is an article.
Early birds are grounded
Author: By Anne Lampe
Date: February 18 2004
Publication: Sydney Morning Herald (subscribe)However, as the property sector comes under pressure from higher interest rates and investors becoming cautious about borrowing for investment properties, many brokers are looking at other avenues of turning a dollar.
It seems a number are targeting superannuation, offering various schemes that promise early access to your super, illegally.
As in the past, promoters in Queensland seem to be at the forefront of this scam, although regulatory sources say it is also happening on the NSW North Coast. One promoter is even running television ads promising early access.
Four promoters over the past few months have landed in court – all in Queensland – on charges that they made false or misleading statements to induce members of super funds, fund administrators or trustees to roll over preserved benefits into another fund, often a self-managed one, before releasing the money from the scheme.
Sometimes the release is directed at the purchase of house and land packages; sometimes it is to fund a holiday, to pay off an existing mortgage or fund the children’s education.
The pay-off for the promoter varies from a set sum charged to set up the rollover scheme or self-managed fund, to a percentage of the amount “released”, or even a percentage of the entire assets in the fund.
In many cases, the targets are those who can least afford to pay those fees or to suffer penalties as a result of illegal early access.
The Australian Securities and Investments Commission (ASIC) recently tackled one scheme, which involved more than $8 million being released illegally from a self-managed super fund, where the promoter received 20 per cent.
The offers are tantalising. The spiel is plausible. Fund members see a lot of their money tied up in super that they can’t get their hands on until they retire after 55 years of age. In recent years the funds have not performed well and meagre returns have been further eroded by high fees.
As fund members are confronted with redundancy, job loss, illness or rising debt, it is tempting to look at the money tied up in the super fund and say: “why can’t I have access to this money now when I need it?” Or: “what I really need is my own roof over my head – why can’t I use my super to pay a deposit on a home?”
To most people super is like a confusing black box. There are so many rules governing super that most people give up trying to understand the system. So people who sound like they know what they are talking about quote a few sections of the super legislation and offer early access, saying it can be done, others believe it.
The trouble is that when the Australian Taxation Office or the fund regulator finds out about illegal early access, the fund loses its concessional tax status and the money taken out is subject to the fund member’s top marginal tax rate. There may also be other penalties imposed.
But worse, if the promoter decides to take off with any of the money or it is diverted to a place where it can’t be found, it is gone and it is up to the fund member to sue the promoter for it, using their own legal resources. It is mission: impossible.
ASIC does pursue the worst offenders with injunctions if it gets early wind of the scheme or discovers breaches of the promoter’s licence, and will even prosecute fraud charges if a clear case can be made out, but that does not get the fund member’s money back.
The only legitimate ways of getting early access to super is if a fund member is suffering financial hardship and or on compassionate grounds. And what you and I might regard as financial hardship is not what the ATO or the regulator regards as hardship. The criteria are strict, to say the least.
The member must show that he or she has received welfare benefits for a fixed period and is unable to meet day-to-day living expenses. Then super money will be released to cover those every day living expenses, but the release is limited to one payout of no more than $10,000 over 12 months.
Members are required to produce bank statements, family budgets, copies of bills and so forth to prove they are hard-up. It is not a question of not being able to pay the credit card or mobile phone bill for a month or two.
The compassionate grounds include releasing money to pay for medical treatment and associated transport requirements, home or car modifications to cater for those with severe disabilities, palliative or associated expenses or for the purpose of making mortgage payments where the bank is threatening to take the house.
That’s it. Anything outside of these is illegal.Cheers
Stu
Thanks for the interesting article Stuart, [^]
anyones super fund been losing money in the last few years?
…. hate to admit it, but my superfund, which has been allocated by work has been losing badly over last year, problem is i have no control over it and can not have it, invested or rolled into another superfund, without having to quit my job and change…
arghhh…. no good.
Cheers,
sis>>problem is i have no control over it<<
Not quite true S.I.S. as I would think you are able to switch to another fund which may invest in a different medium.
In your case it doesn’t seem to be something to worry about as you haven’t been long in that job and are likely to move anyway (workwise).
Unfortunately a self administed fund has high costs attached to it because of compliance regulations and one would normally appoint a company to take care of that angle.
The end result is that it is commonly said that unless one has at least some $ 100K in one’s fund it isn’t worthwhile to run it yourself.
Switching to another fund ?
I understand that some funds inmvest in bank bills , others in shares, others in specialised real estate etc.
So there is a little choice.Perhaps Stuart can throw some more light on switching
and/or running a superfund oneself ?Pisces
The article seems to be implying that a self administered super fund investing in some properties by rolling over funds from another fund amounts to unauthorised access (if I am reading this correctly), which is rubbish. The adminstrator of the fund (normally yourself) can choose to invest in many things including property but not things like holidays or childrens education. But also remember that the fund must be able to purchase a property outright as no banks will give a mortgage to a super fund over property.
Your own super fund investing in an IP is in fact quite a reasonable thing to do imo, much better than shares or managed funds!
Just to clarify, a superfund should it wish to purchase property must buy it outright as the SIS laws do not allow a superfund to borrow money.
Should a superfund borrow money, then it would be a non complying fund and the assets in your superfund would be taxed at 47%. Very steep penalties.
Hi All[
]Just a few points to discuss,
anyones super fund been losing money in the last few years?
Returns from balanced funds during last year as managed by AMP-ANZ-AXA-BT-Colonial-IOOF-ING-JB Were-Macquarie-Merrill Lynch-MLC & Perpetual average out at minus 5.99%. The best performing was MLC at + 4.2% whilst the worst was AXA at -15.2%problem is i have no control over it and can not have it, invested or rolled into another superfund, without having to quit my job and change…
True, however by establishing a Self Managed Super Fund you can take control over where the funds are to be invested, this is subject to guidelines as set out by the ATO.Unfortunately a self administed fund has high costs attached to it because of compliance regulations and one would normally appoint a company to take care of that angle.
Costs of setting up a fund are in the order of $500 and annual fees for administration and compliance are in the order of $1000 PA. Again using the companies listed above a entry fee is charged averaging out at 3.42% with the lowest at 0.185 % {Merrill Lynch} & the highest 5% {MLC}. Also a MER {Management Expense Ratio} is charged annually and averages out at 1.94% with the range between1.5%{colonial} & 2.21%{MLC}The end result is that it is commonly said that unless one has at least some $ 100K in one’s fund it isn’t worthwhile to run it yourself.
From the above figures the breakeven point is at a little more than $20,000 with the situation improving as the fund increases in size
.
Just to clarify, a superfund should it wish to purchase property must buy it outright as the SIS laws do not allow a superfund to borrow money.
Correct, However a company or trust structure will allow the super fund to be used to purchase a property jointly as a syndicate or in joint names with the holder of the policy [ who can borrow up to 50%].Now for the actual report itself
The Australian Securities and Investments Commission (ASIC) recently tackled one scheme, which involved more than $8 million being released illegally from a self-managed super fund, where the promoter received 20 per cent[
!
It is illegal to charge the super fund directly, however commission may be obtained on the purchase of investment products used by the fund.green]Fund members see a lot of their money tied up in super that they can’t get their hands on until they retire after 55 years of age.
The SIS rulings apply equally to all types of superannuation.Sometimes the release is directed at the purchase of house and land packages; sometimes it is to fund a holiday, to pay off an existing mortgage or fund the children’s education
The selection of investment product has strict guidelines imposed by the ATO.[green]The article seems to be implying that a self administered super fund investing in some properties by rolling over funds from another fund amounts to unauthorised access (if I am reading this correctly), which is rubbish
I agree, the whole article sounds like a beat up.It seems that with super performing so badly over the past few years there is a lot of interest by the public to change their funds over to a SMSF and this may attract some sharks , diligence to select the best service providers is required for both the costs incurred and compliance issues. The new Financial Reform Act due to be enforced in March will impose penalties on those who give financial advice without being PS 146 Compliant.
A study comparing the Asset Allocation as used by Managed Funds and the change in return when a direct property ratio of 40% is included shows a return increase to 25% in one year. The model chosen had the following asset make up 40% direct property,40% shares,10% cash &10 % managed funds.Regards
Brycehttp://www.ipal.com.au
[email protected]Bryce Inglis
Originally posted by Pisces:Not quite true S.I.S. as I would think you are able to switch to another fund which may invest in a different medium.
Pisces
One of the problems with this is that the Government hasn’t legislated “Superannuation Choice”. That is, if you are employed your employer chooses where your superannuation is invested.
Obviously, if you have a good relationship with your employer you can negotiate where your super goes however in many situations you have no control.
Shushar
“All our dreams can come true, if we have the courage to pursue them.” – Walt Disney
>>Also a MER {Management Expense Ratio} is charged annually and averages out at 1.94% with the range between1.5%{colonial} & 2.21%{MLC}<<
Bryce, 1.94% is quite a charge.
No, I am not saying that it isn’t earned. Just that it is a hefty slug considering what one can earn in a bank deposit or the rental return on a property.
Pisces
>>Obviously, if you have a good relationship with your employer you can negotiate where your super goes however in many situations you have no control.<<
It is understandable that it would be an administrative headache for one’s employer if 200 employees all have got a different fund.
I think one’s employer normally give one a choice between four or five or so different type of funds.
Pisces
Good info Bryce.[
]Rgds.
Lucifer_auHi All[
]Just DavidC Posted – 25/02/2004 : 14:14:38
to clarify, a superfund should it wish to purchase property must buy it outright as the SIS laws do not allow a superfund to borrow money.Should a superfund borrow money, then it would be a non complying fund and the assets in your superfund would be taxed at 47%. Very steep penalties.
Hi David, The Super fund on the title fully owns 50% of the Property, and as such is not a borrower. The other 50% is borrowed by the holder of the policy, in his name [not the superfund].
[/ggreen]Pisces Posted – 26/02/2004 : 10:37:32
>>Also a MER {Management Expense Ratio} is charged annually and averages out at 1.94% with the range between 1.5%{colonial} & 2.21%{MLC}<<Bryce, 1.94% is quite a charge.
No, I am not saying that it isn’t earned. Just that it is a hefty slug considering what one can earn in a bank deposit or the rental return on a property.
Pisces
reen]
Hi Pisces, it becomes even more of a slug when its paid on a scheme which loses money
Regards
Bryce Inglis
http://www.ipal.com.au
[email protected]
]
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