SMSF Association takes issue with PC draft findings

SMSF Association Media Release

25 July 2018

The Productivity Commission’s draft findings about the cost effectiveness of self-managed super funds (SMSFs) uses evidence that is “fundamentally flawed” and does not consider broader motivations on why individuals set up SMSFs, says SMSF Association Acting CEO Jordan George.

“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.

“In addition, ATO cost and return calculations include SMSF establishment and advice costs that vary considerably to the costs incurred by APRA-regulated funds, in the process distorting SMSF returns, especially for new and lower balance funds.

“The Commission acknowledges in the Draft Report that there are issues with comparing APRA-regulated funds and SMSFs, and our analysis of the data issues leads us to the conclusion that it should reassess its draft findings that SMSFs with balances under $1 million are not cost-effective and underperform.”

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.

George says: “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 and consider the cost of running an SMSF over the long-term, as well as 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.

“Simply comparing investment returns between SMSFs and other superannuation funds does not acknowledge or account for the other benefits that SMSF members receive from their funds.”

George says the Association strongly opposes an establishment limit that would reduce choice and competition in the super system, paternalistically implying that only the wealthy know how to and are able to invest responsibly.

“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.”

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.

Click here to view our submission.