The introduction of the new electronic processing system and performance standard for transfers of superannuation from one fund to another was originally due to start from July 1, 2013. Instead, because of perceived risks associated with rollovers to self-managed superannuation funds, it is now being introduced in stages. The original start date will now only apply to rollovers between Australian Prudential Regulation Authority-regulated industry and commercial funds.
Under the current system some super funds hold on to members' money longer by delaying the process under the anti-money-laundering regulations demanding proof of identity documents. Currently a rollover from one super fund to another can take up to more than a month.
Under the new system the old proof of identity requirements will no longer apply and super funds must use the new electronic rollover system. This will enable a fund to establish the identity of a member through the ATO's tax file number integrity checking system. This system allows a fund to establish electronically that it is dealing with the right person and enables it to complete a rollover request under the new time limit of three days.
The reason rollovers to SMSFs are not part of the new system from July 1, 2013 is because the regulators believe people could fraudulently access their super by rolling it into a personal bank account rather than an SMSF bank account.
Before the rollover standard can apply to SMSFs, a system must be developed that enables super funds to validate electronically that the SMSF bank account nominated to receive the rollover is legitimate. The ATO is currently working with financial institutions to create an electronic SMSF bank account validation service.
Once in place APRA funds must first establish the identity of a member using the TFN validation register and then verify the nominated bank account with the SMSF bank validation register. This will mean, as long as the two registers are in place by January 1, 2015, APRA-regulated funds must meet the three-day processing standard for superannuation transfers to SMSFs.
In addition to the rollover standard, all super funds must have systems in place to receive employer funds and contribution information electronically. The start date for this is staggered. Where funds, including SMSFs, receive contributions from large and medium-sized employers, the electronic systems must be in place by July 1, 2014.
Large APRA funds should have the electronic systems they have been developing in place before the deadline. SMSFs will more than likely have the choice of three options. If an SMSF currently uses an external service provider for administration service this electronic transfer facility should be incorporated into their systems.
Where an SMSF doesn't use an administration service, and instead uses a bank account or cash management account, these financial institutions are currently looking at developing the service. This will mean as well as receiving the funds electronically from employers, as happens now, the information identifying the makeup of the contribution will also be received electronically.
A third option for trustees of SMSFs will be the computer accounting service providers. These accounting systems are primarily used by accountants to produce the annual accounts and other documentation required of trustees. These accounting packages are currently working on improving their systems so that they can receive contribution information electronically.
SMSF trustees should not think they can ignore the new system. The ATO will start off by educating trustees of their obligations under the new system. Once this education phase finishes the ATO will move into a penalty phase to ensure compliance for trustees that do not use the new technology.