The Productivity Commission’s decision to follow the SMSF Association’s recommendations to opt for higher SMSF advice standards and reject the minimum balance approach as the better option for ensuring the integrity and sustainability of the self-managed super sector (SMSF) has been welcomed by the Association.
SMSF Association CEO John Maroney says: “In our opinion, the Commission, in its final report on assessing the efficiency and competitiveness of the superannuation system, has got it right in describing a minimum balance requirement for establishing an SMSF as a ‘blunt tool’ that is far less likely to ensure a healthy SMSF sector compared with improving advice standards.
“So, we are fully supportive of its recommendation that the Government introduce requirements for specialist training for people providing advice to set up an SMSF.
“Raising the standards of SMSF advice through specific education requirements has long been the mantra of the Association, and a key focus in our mission to lead the professionalism, integrity and sustainability of the $755 billion SMSF sector. It’s significant that the Commission is on the same page as ASIC in recognising the importance of advice providers who are appropriately educated.”
Maroney says the Commission’s decision to go down the advice path is underlined by its recommendation that Australians should be able to choose the right superannuation fund for them – including an SMSF – irrespective of their employment status.
He says that the Association was heartened by the fact that the Commission had listened to its feedback on its SMSF findings published in the interim report in May 2018, especially regarding SMSF investment returns.
“The Commission acknowledged the difference in investment return calculation methodologies between SMSFs and large superannuation funds and had revised downward from $1 million to $500,000 its fund balance figure as to when SMSFs were cost-effective compared with large funds.
“This is a far more realistic figure to use as a guide for discussing whether it is appropriate to establish an SMSF as there are many high-performing SMSFs with balances below $500,000.
“The Commission’s conclusion that ‘the SMSF segment delivered annual returns (less fees and taxes) of about 5.7 per cent a year over the 11 years to 2016, compared with 5.3 per cent for the APRA-regulated segment over the same period’, simply reinforces the fact that the SMSF sector has and is performing well.”
Maroney says the Association will consider in more detail the Commission’s recommendations to require people providing advice to set up an SMSF to give prospective SMSF trustees a document outlining ASIC’s ‘red flags’ before establishment, and to extend the proposed product design and distribution obligations to SMSF establishment.
“These measures, aimed at protecting consumers, need careful consideration to ensure they can deliver the desired outcomes and not become an inefficient compliance point for advisers and SMSF trustees.”