By Mark Silvester

The Government has recently made further amendments to the superannuation Regulations as a result of the Stronger Super reforms that were announced in December 2010.

One of these three amendments relates to insurance for SMSF members, and is operative from 7 August 2012. The amendment clarifies the Regulations to ensure that SMSF trustees specifically consider whether their SMSF should take out insurance cover (such as life insurance) for the members of the fund.

Why all the fuss? Our interpretation is that the Government’s stance is that SMSF trustees are all aware that they need to have a documented investment strategy for their superannuation fund. For many years, the Regulations have required many things of investment strategies, but in particular that (a) they are regularly reviewed, and (b) that they consider the “whole circumstances” of the fund. The changes to the Regulations tell us that one of these “circumstances” is whether trustees should hold member insurance.

Following from this, it would also appear that the change responds to compiled data which indicates that less than 13 percent of SMSFs have some form of insurance for members.

At first glance this might seem to be a measure designed to boost the life insurance industry. However on further examination, this is not really the case. What is required is that members’ personal circumstances be considered. The Super System Review panel members noted that SMSF members are often more likely to hold insurance outside their superannuation (as compared to members of other types of superannuation funds).

So is there any need to panic? We consider that the answer to this question is “probably not”. Instead, SMSF trustees should be aware of what they need to do to prove their compliance with the new Regulation:

• Consider all the circumstances of each fund member, and whether they need insurance (such as life insurance). Relevant factors here might include values of other assets held (personal wealth) that might negate a desire for insurance; age/stage of life (life insurance tends to get more expensive as you get older); estate planning considerations and so on.

• Where there is no member insurance (or levels now considered insufficient), take the appropriate action to obtain ownership of relevant policies, if this is what the SMSF trustees decide is needed. This may be inside or outside superannuation. Seek professional advice on which insurance may be more beneficial to hold inside superannuation.

• Document any decisions made. This is particularly important. Any decisions that are made can be documented in the fund’s investment strategy and/or in minutes of trustee meetings held during the year. This may be subject to scrutiny by the fund’s independent auditor as part of their report on the fund’s compliance with superannuation legislation and regulations.

If you would like to learn more about how to get the most out of your SMSF contact us at Power Tynan Superannuation Solutions.

Details of key changes to the Regulations have been sourced from the Explanatory Statement to Select Legislative Instrument 2012 No. 183: available at http://www.comlaw.gov.au/Details/F2012L01654/93342b14-2794-4a25-b2b0-371e9a97bdbd