The significance of the research report by the SMSF administrator Class into the cost structure of self-managed super funds (SMSFs) cannot be understated, says SMSF Association CEO John Maroney.
The nine-page report, one of two submissions Class made to the Productivity Commission inquiry into the efficiency and competitiveness of superannuation, challenges the Commission’s conclusion in its final report that SMSFs with balances of less than $500,000 are less cost-effective than APRA-regulated funds.
“As the report clearly illustrates, the Commission has adopted an ‘apples and oranges’ methodology when it comes to measuring expenses between the different superannuation sectors, and in doing so has cast SMSFs in a negative light, especially those with lower balances. Our SMSF Association submissions also highlighted this to the Commission.
“As Class succinctly explains, the Commission used the ATO’s ‘expenses’ without adjustment as a measure of the fees associated with SMSFs. However, there are several items that the ATO classifies as expenses that are not actually fees, including insurance, interest, and capital works and depreciation.
“Although ATO expenses are relevant for accounting and taxation purposes – the primary reason it collects this data – the figures are very different from the fees calculated by APRA, which measure the operating and investment costs associated with funds.”
Maroney says the inclusion of these “expenses” by the Commission has the effect of nearly doubling the true costs of SMSFs with net assets of less than $500,000.
“Quite clearly this research demonstrates that SMSF cost structures are not a reason to stop people from setting up an SMSF, and that when the comparison with APRA-regulated funds is done on an ‘apples and apples’ basis then SMSFs can be competitive on fees – even below $500,000.
“In saying this it’s not an argument that everyone should have an SMSF. The Association has never maintained that. What we do say is that people who want to take control of their superannuation should be allowed to do so, especially when they are receiving sound professional advice.”
“That is why we are supportive of the Commission’s recommendation to introduce specific SMSF education requirements for SMSF advisers.”