News & Updates

SMSF Investment Strategy and Insurance

  • Thursday, July 11, 2013

IMPORTANT INFORMATION FOR SMSF TRUSTEES. Recently, the Federal Government has introduced rules which require the trustee of a Self-Managed Super Fund (SMSF) to consider the need to hold insurances for members as part of the investment strategy for a SMSF.

This means SMSF trustees and their advisers will now need to consider members’ insurance requirements and determine whether the fund should hold life insurances for its members when formulating or reviewing the fund’s investment strategy.

Investment strategy change Under the Superannuation Industry Supervision Act and Regulations (SIS), the trustee of a superannuation fund must formulate, regularly review and give effect to an investment strategy that has regard to the whole of the circumstances of the fund, including:

  • the members’ circumstances and needs
  • the risk and likely return from investments
  • the level of diversification of the fund’s assets
  • the liquidity of the fund’s assets, and
  • the fund’s ability to meet its liabilities when they fall due

Do all SMSF trustees now need to hold insurances for members?
It is important to note that this new rule only requires trustees to consider the need to hold insurances for members and does not require a trustee of an SMSF to provide a minimum or default level of insurance for each member. For example, a trustee may decide not to hold any insurance policies for a range of reasons, such as:

  • Members have adequate insurances in place elsewhere, ie outside of super or held via another super fund
  • Members have significant assets that are well in excess of liabilities (if any) and do not require insurance
  • Members are happy to accept the risk of being uninsured and don’t want the insurance premiums impacting their retirement savings
  • The trustee would be unable to obtain affordable life insurances due to the members’ health or age.

As long as the fund’s investment strategy specifies that the trustee of the fund has considered the need to hold insurances for members and that the trustees can show they considered the issue and made an informed decision they will have complied with their obligations under the new requirement.

It is also worth noting that as part of the SMSF’s audit process, the auditor is required not only to verify that the fund has formulated and implemented an investment strategy but also to confirm whether the investment strategy addresses all the prescribed issues. This would encompass the new requirement to consider holding insurance for its members.

Stiff penalties will apply for failing to comply with the new requirements.
Crest Accountants has a Financial Planner – Nicky Weber in the office, who will be available to review your investment strategy and insurance requirements.

Please call our office and we will arrange an appointment with Nicky to ensure that your fund is up to date and complying with the new requirements.

PARTNERS for Generations.

Contact Us