The SMSF : a mechanism for self-directed member investment

Retirement savings in Australia held through regulated superannuation are substantial and projected to exceed a staggering $9 trillion by 2040. The sheer magnitude of assets held in this custody underscores the need for scrutiny of its governing laws. As superannuation law is derived from a number of sources, it is an unwieldly task to address all aspects in a single piece of research. The concern of this thesis is the legal framework adopted by the selfmanaged superannuation fund (SMSF), a particular type of regulated superannuation fund operating in Australia. In addressing the subject matter, significant attention is given to context, seeking to capture the substance of the SMSF, from which the suitability of its adopted trust structure is evaluated. In this regard, at a most foundational level the essence of the SMSF is a vehicle to hold superannuation savings. Accordingly, to truly understand the nature of the SMSF it is instructive to trace its roots through broader historical analysis of superannuation in Australia. Along with a gradual development to form a component of retirement incomes policy, this thesis reveals a theme that beyond the element of compulsion, the existence of regulated superannuation is tied to the co-dependencies of taxation concessions and regulatory constraint. For the SMSF this co-dependency is particularly significant, with regulation adopting more of a compliance, rather than prudential flavour consistent with high levels of member engagement and involvement in fund decision making. The existence of taxation concessions to encourage participation, combined with the fact that superannuation was initially regulated through the taxation power vested in the Commonwealth, suggests that predecessors of the SMSF are identifiable in historic taxation legislation. Beyond the influence of taxation, however, the ultimate driver for their separate recognition has proven to be the introduction of prudential regulation. This reflected a one-size-fits-all‚ÄövÑvp legislative approach, despite the limited role that member assurance plays for the SMSF, or its roots as a tax structure operating subject to statutory constraint. Adopting a member-focussed regulatory approach, this thesis ultimately captures the substance of the SMSF as a mechanism for self-directed member investment, encouraged through taxation concessions but limited by restrictions prescribed by the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA). From this springboard, it is possible to judiciously consider the suitability of its legal framework, albeit one that is reliant on a trust in need of stretching‚ÄövÑvp to achieve what has been asked of it. The thesis accordingly deconstructs the trust in this context, targeting difficulties in translating fiduciary and other trust law duties to the substance of the SMSF. The analysis reveals a need for positive steps to resolve the strain between form and substance. This thesis contains primary and secondary alternatives to redress the unsuitability of the trust, implementation of which will be hostage to the capacity and willingness of the legislature to embrace reform. As a compromise of tinkering‚ÄövÑvp around the edges, the secondary alternative seeks to retain the trust, but to improve alignment with the SMSF's substance through further legislative intervention. There is a sense of resignation with this recommendation, to do the best with a framework that is fundamentally inappropriate for its purpose. The preferred approach is to fully endorse the SMSF's substance through the adoption of a purely legislative-based existence. Such a significant change would need extensive consultation and open-mindedness, enabling the issue to ascend beyond the tendency for superannuation reform to be stalled in a quagmire of competing ideologies, with different interest groups merely seeking to further their own position.