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Touted $1m minimum for SMSFs cops more heat
The Productivity Commission's take-down of SMSFs with balances of less than $1 million has copped further backlash, this time from a research house which sees minimum balance prescriptions as overly simplistic and detrimental.
In its draft report on the efficiency and competitiveness of the superannuation sector, released in late May, the Productivity Commission said it was concerned that SMSFs with less than $1 million were not competitive against retail super offerings.
This has already received criticism from the SMSF Association who raised concerns around the quality of the data used in the draft report and stated $1 million was not an appropriate figure for basing decisions on whether to establish an SMSF or not.
SMSF Benchmarks, a company that provides peer-to-peer comparisons for SMSFs, agrees that while fees are a factor, especially for funds under $300,000, there are plenty of large SMSFs that are underperforming the median SMSF return, and plenty of small SMSFs performing strongly.
SMSF Benchmarks chief executive Nick Shugg said the conversation should not be “over-simplified to say that ‘SMSFs under $1m should be shut down’ as has been suggested in some quarters”.
Mr Shugg said there are many SMSF trustees that are disengaged with their fund however, and have no idea how it is performing or what they should to if it consistently under-performing.
“Trustees have an obligation to review their investment strategy, but most just pay lip service to that, to satisfy a ‘compliance hassle’,” he said.
“Many self-directed trustees fall into one approach or another without wanting to face how that approach is going, because they see it as a reflection on them. Some behave more like speculators than investors.”
Trustees, he said, are often unaware of the range of alternative approaches they could be including in the mix, which may lead to better outcomes.
“It is not the role of the ATO, as regulator of SMSFs, to worry about whether trustees are doing a good job of managing their fund for performance — they only have the resources and the mandate to check if trustees are managing their fund for compliance,” he said.
“If [trustees] start to look at how their fund is actually going, they will become more engaged, and open up to discovering other investment approaches, and they’ll be better placed to make good decisions and get better outcomes over time.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
A million Dollars to set up a SMSF - so that requires everyone to be in a public offer or industry fund. Sounds like self interest to me. However, when the magic $million is hit and a member rolls out into their own SMSF, who is going to pay all of that capital gains tax that comes up - oh, the member. So how is that going to help them.
If the productivity commission believes that is a suitable cost for the member to bear on changing funds then let the productivity commission either, reimburse the SMSF for the cost of the CGT incurred on rollover into a SMSF or have them petition the government to allow a CGT free rollover exemption when the member wants to move from a public offer or industry fund into a SMSF. Also allow a CGT free rollover when or if the member wishes to roll back from the SMSF to a public offer or industry fund in the latter years of their life.
Now that would make for a better productivity gain for all members of superannuation funds.
One of the biggest costs that a member can incur is the CGT costs if they want to change from one fund of any type to another superannuation fund of any type.
Solution, free CGT rollovers between funds for all members.
Now that would make some of these public offer and industry funds pay a little more interest in their members funds performance, as members would be free to change funds as and when they liked, with no CGT costs or exit fees incurred.
That would then be true choice of fund for everyone.
Rather than being locked into a fund for 40 years because you chose a fund that was suitable at the time, or were put into because at 20 you didn't care about engaging with your super fund, but when you are 30 and you become interested, the performance or suitability of the fund you joined as a 20 year old has changed since you joined it, but you cannot afford to move because of the CGT bill you will pay to leave. That would then be a thing of the past.0
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