The SMSF Association put out a media release, on 25 July 2018, tackling the Productivity Commission’s draft findings, about the cost effectiveness of self-managed super funds (SMSFs). It says the Commission uses evidence that is “fundamentally flawed” and does not consider broader motivations on why individuals set up SMSFs.
“Factors such as data problems, investment return calculation methodology and the retirement demographics of SMSFs compared with APRA-regulated funds make it unreasonable for the Commission to conclude, from the data they used, that SMSFs are not cost-effective with a balance below $1 million.
As part of its 42-page submission to the Commission’s Draft Report, the Association has provided alternative data on SMSF investment returns and costs. The SMSF Association says that: “It’s our belief that this data is more accurate, than the ATO data that the Commission used, in its Draft Report. Significantly, this data shows that SMSFs can be cost-effective below the $1 million balance.”
The Association also told the Commission that:
- the SMSF cost-effectiveness debate must be extended beyond a mere analysis of net returns and costs;
- It must consider the cost of running an SMSF over the long-term;
- It must also consider the varied motivations that SMSF members have in setting up their own funds, such as increased control and their individual retirement goals.
“SMSFs give members the responsibility of managing their own retirement savings, as well as the ability to respond to other motivations such as transparency, engagement, investment choice, tax planning, flexibility, estate planning and achieving better returns and lower costs. “Many SMSFs are small business people, professionals, or farmers, who take risks every day in their business lives, but are now being implicitly told they lack the experience and knowledge to handle their retirement savings. We don’t accept that proposition.”
[An added, and potent, reason for not interfering with the fundamental design model of SMSFs, is that they operate on a totally different model to the public pooled funds and as such represent a very valuable competition segment, to challenge the public pooled versions. The public pooled funds are no paragon of virtue (as exposed by the current Banking Royal Commission). They occupy a very sizeable proportion of the several $trillion total of superannuation fund assets and provide a valuable ‘bulwark’ against the excesses and shortcomings of these other funds.]
The SMSF Association also uses its submission to acknowledge the questions regarding the quality of advice to SMSFs and recommends that any financial adviser who wants to advise SMSF members should undertake specialist SMSF advice education to improve the quality of that advice.
FJM 14.8.18
[SMSF Association website: Media Release on PC findings; LTN 141, 25/8/18; Tax Month – July 2018]
Comprehension questions (answers available)
- Did the Productivity Commission reach draft conclusion that SMSF’s wouldn’t be competitive in their investment returns, unless they had at least $1m in assets?
- Was this because of the size of SMSF costs (which are, in large part, fixed)?
- Does the SMSF Association agree with this analysis?
- Did the SMSF Association have its own data, which it said was more reliable and which it put forward as part of its submission to the Commission?
- Did it also also say that the costs of an SMSF ought be measured across the whole life-cycle of the fund?
- Does the substantial SMSF sector provide a valuable competitive alternative to the public pooled funds, precisely because they operate in a quite different business model and without the temptations of outsiders to deplete member account balances with their fees and excessive costs?
