Safeguarding SMSF Members in an Aging Demographic

Navigating Incapacity

The rising number of older individuals managing their own Self-Managed Superannuation Funds (SMSFs) highlights the importance to address potential issues related to incapacity within this demographic.

The Auditors Institute has stressed the likelihood of an increase in conversations about capacity issues, in particular about establishing processes to address scenarios proactively such as:

  • SMSF members expressing concerns about their own or their spouse’s ability to comprehend complex superannuation concepts should prompt advisers to consider incapacity safeguards
  • The importance of having mechanisms such as a well-defined trust deed, enduring powers of attorney (EPOA) and legal representatives in place to mitigate risks associated with potential incapacity among SMSF members.

The substantial size of SMSF portfolios, with an average balance of approximately $1.39 million, and the collective responsibility held by over a million SMSF members, with an average balance of $745,000, underscores the necessity for proactive discussions surrounding incapacity.

ATO data has shown that approximately 42% of all SMSF members are aged 65 or older, with almost equal representation between males and females.

The need to consider incapacity issues in SMSF management, especially with nearly half of SMSF members being over the age of 65, was emphasised by the ATO’s SMSF statistics for the 2021-22 financial year.