Superannuation funds delaying after-tax investment compliance should not be neglecting implementation of solutions in the lead-up to the July-1 deadline for Stronger Super, says Raewyn Williams, head of tax consulting at Russell Investments.
From July 1 it will be compulsory for superannuation trustees to focus on post-tax outcomes as part of the new Stronger Super reforms. Williams says funds will have to demonstrate to the Australian Prudential Regulation Authority (APRA) that they’re making adequate changes in their investment approach to meet after-tax obligations, despite an absence of prescriptive guidance from the regulator.
“My view is that once these things become law, the next visit after that from APRA is likely to contain questions around what you’re doing to implement this after-tax focus, and every fund will need to point to something that they’re doing,” said Williams.
Horses for courses
However, Williams says it’s a matter of “horses for courses”, with numerous options available to super funds.
“There’s no black and white or clear right and wrong, it’s very much a question on best fit for the fund,” she told Investment Magazine online.
Williams believes APRA is unlikely to be prescriptive given its lack of guidance, saying the legal obligation is “really formulated as an enunciation of principle”, meaning funds need to demonstrate that their investment thinking is based on after-tax outcomes rather than pre-tax outcomes.
“But how exactly you interpret that and how you implement that will be different from fund to fund,” she said.
“I think there’s a learning curve for APRA as well, and that’s a good thing for the industry – everyone’s going to take some time.”
Know your options
Williams said super funds are aware of the obligations, but its priority isn’t high amid other “big picture issues” such as MySuper, auto-consolidation and Super Stream. She further points to the drive for scale and rationalisation in the industry, leakage to SMSFs and the impact of retirees cashing out lump-sum balances.
There is also a “little bit of change fatigue”, Williams said.
“All of those big issues are occupying a lot of attention in the superannuation space. So you put something like this also on the radar of the super fund trustees, and they’re all telling me that they are aware of it. It’s just that they can’t quite get to it and they’re looking for a reasons to buy themselves a bit more time before they can focus on it.”
Williams said there are some sophisticated approaches available, but cautions funds not to be hasty in adapting solutions. She said funds have the option of going to providers that can provide after-tax investing solutions or they can seek advice on the different solutions that are available to get a sense of the range of ways a fund can embed an after-tax focus.
“I’d certainly be encouraging funds not to sign up to the first thing that comes along without thinking about the different options that they have available to them.”
Raewyn Williams will participate in a panel discussion on tax-efficient portfolio management at Conexus Financial’s Fiduciary Investors Symposium from May 19-21, 2013 at Katoomba in the Blue Mountains.