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BEWARE - Illegal early release of superannuation schemes

By APRA
5 February 2010

APRA and the ATO have been consulting for some time in relation to their joint concern about the increased prevalence of identity fraud and illegal early release (IER) of superannuation benefits. Although there are various forms of IER, the following primarily relates to IER involving transfers and rollovers into SMSFs.

In an effort to minimise this form of IER, APRA are writing a letter to all trustees to provide guidance on additional processes that trustees should consider implementing to assist in verifying the validity of transfer or rollover requests to self-managed superannuation funds (SMSFs).

It is also timely given the recent changes announced by the ATO to the SMSF registration process (enabling sham SMSFs to be identified and prevented from operating) and to Super Fund Lookup (improving compliance transparency through the introduction of a new status of "Registered - status not determined? for all new SMSFs).

Typically, this form of IER occurs where superannuation benefits held by APRA-regulated funds are illegally accessed under the guise of transfers or rollovers into SMSFs. This passes control of the money from an APRA licensed trustee into the hands of a scheme promoter or participant so that the money can illegally leave the superannuation system via a SMSF. There are two types of IER schemes:

1. The fraudulent use of a member?s identification by an unrelated party to steal the member?s benefits without their knowledge or consent.
2. The member participates with a promoter to access the member?s benefits. In many cases, the participant ends up with a considerably reduced benefit after „fees?, tax and penalties are deducted.

To date, evidence indicates that these schemes prey mostly on people from non-English speaking backgrounds and others who have limited understanding of the superannuation system, and people who are experiencing financial pressures or distress.

The attachment to the letter outlines a number of suggestions that trustees should consider integrating into benefit payment processes that may assist in verifying the validity of transfer/rollover requests to SMSFs and is designed to minimise the risk of Illegal early release and identification (ID) fraud.

These suggestions are generic and do not take into account a trustee?s discretion in the carrying out of transfer/rollover requests. They do not prevent trustees from carrying out additional checks or alternative processes that provide an equivalent or greater level of assurance.

Most importantly, these checks do not diminish the responsibility of a trustee to safeguard members? superannuation benefits.

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