WA News Guest Opinion / Editorial Not-So-Super Advice
Not-So-Super Advice
Written by David Huggins
Tuesday, 29 August 2017

25082017-Nest-eggMany doctors who have worked in the WA public health system will have been members of the West State super fund. West State is constitutionally protected, which means that it is taxed differently to other super funds.

A common scenario is that a doctor will work for some time in the public system then leave and become self-employed. These doctors could continue to be members of West State. For these doctors, West State offered an important tax benefit that allowed them to make personal concessional contributions up to an overall cap of $1.415m over their lifetime. These contributions were tax deductible.

A member of a standard super fund could only make a tax deductible contribution to a maximum of $35,000 a year. The tax benefit associated with being a member of West State was therefore valuable and should only have been given up for a very good reason.

Sadly, there have been a number of instances where doctors have been advised by their financial planner to leave West State by rolling their super to another fund. Doctors who have done this have potentially lost the benefit of hundreds of thousands of dollars of tax deductions.

The question arises, why was this advice given? There are three potential reasons.

The first is ignorance. West State was unusual and some financial planners who advised their clients to leave it were unaware that it was taxed differently.

The second is commissions. Financial planners may receive commission when clients switch to another super fund. This switch was often made in the context of re-arranging insurance where the insurance was linked to superannuation. Commission payments with respect to insurance were large. They operated as a powerful incentive for financial planners to advise their doctor clients to change funds to facilitate the rearrangement of their insurance.

The third is ownership. Many financial planners work for or are associated with companies that manage superannuation funds.

For some doctors who have moved, the result will be the loss of hundreds of thousands of dollars of taxation deductions. However, they do have extensive rights to recover their loss through an external dispute resolution scheme such as the Financial Ombudsman Service or through a court.

In the last Budget the Government announced it was going to set up the Australian Financial Complaints Authority, which will be able to award compensation with respect to financial planning complaints and unlike the court system complainants cannot have a costs order made against them.

It will replace the current external dispute resolution schemes and will for most complaints operate as an alternative to the Court system. The new body will make it easier to recover losses suffered as a result of poor financial advice.

By David Huggins