Financial Risks in Self-Managed Super Funds

Financial abuse within self-managed super funds is a growing concern, with a recent parliamentary inquiry revealing significant vulnerabilities. While these funds offer greater control and flexibility, they also allow one member to manipulate finances, leaving the other financially trapped. Regulators are concerned about the lack of oversight, making it easier for financial abuse to go undetected.

Most self-managed super funds are controlled by couples, which means financial control can be misused by one partner against the other. A parliamentary committee, consisting of representatives from different political parties, acknowledged this issue and proposed 61 recommendations to address financial abuse in the sector. Their report highlights that financial abuse is widespread, costing victims an estimated $5.7 billion annually - nearly double the amount lost to scammers.

The inquiry found that when one partner gains control of a self-managed super fund, they can manipulate finances in damaging ways. Victims often struggle to reclaim their assets due to complex legal and financial barriers. In one case, a woman’s former partner secretly redirected her superannuation, leaving her with limited legal options to recover her funds. Financial experts agree that many trustees remain passive, unknowingly exposing themselves to financial risks.

Another issue raised in the report relates to superannuation death benefits. The current legal framework can unintentionally reward perpetrators of financial abuse instead of prioritising genuine dependents. The committee reviewed cases where deceased individuals’ super went to abusive former partners, leaving rightful beneficiaries empty-handed. Proposed reforms aim to amend legislation to prevent abusers from benefitting from superannuation death payouts.

These recommendations signal a potential shift in the management of self-managed super funds and superannuation laws. If implemented, they could close legal loopholes that allow financial abuse to continue unchecked. While the proposed changes are expected to gain public support, their effectiveness will depend on how regulators enforce them.

Source: The Australian, SMFS Adviser, Super Consumers