The federal government says self-managed superannuation funds (SMSFs) are too tricky for the layman. “There may be better options for your super savings,” the Australian Tax Office (ATO) says. “It’s best to see a qualified, licensed professional to help you decide.”
The Australian Securities and Investment Commission advises you to choose a financial adviser, despite the challenges being worked through in that industry.
And moneysmart.gov.au says: “While having control over your own super can be appealing, it’s a lot of work and comes with risk.
“Only set up your own super fund if you’re 100 per cent committed and understand what’s involved.”
But if you have time on your hands, you’re not afraid to learn new things and it’s your hard-earned, you may want to control your destiny.
The latest Self-Managed Super magazine details the results of research the SMSF Association commissioned from actuarial firm Rice Warner.
It found that SMSFs with balances of more than $200,000 were as cost-effective as public offer funds and, in some circumstances, were the cheapest retirement savings vehicle available to Australians.
The Rice Warner report stated that SMSFs with balances of $500,000 and above were “generally the cheapest superannuation fund option in the market”.
SMSF Association chief executive John Maroney said the research should lay to rest any arguments that SMSFs were not competitive on cost compared with the APRA-regulated superannuation sector.
“This is welcome news for the SMSF sector as the cost of running SMSFs, especially those funds with balances below $500,000, has been used as a key factor as to whether an SMSF is viable or not,” he says. “This report should bring that false analysis to an end.”
However, the research did confirm that SMSFs with balances of below $100,000 could not compete on a cost basis with public offer funds. It found “SMSFs are the most expensive retirement savings vehicle if the fund’s asset pool is less than $50,000”.
With regard to performance, the study found that since 2005, SMSFs generated returns that were equivalent to their APRA-regulated counterparts.
Mr Maroney said: “These results may not support the proposition that SMSFs are better investment managers than APRA-regulated funds, but they do indicate that members of SMSFs, in aggregate, are not disadvantaged when compared with APRA funds.”
The Rice Warner research analysed information gathered from around 100,000 SMSFs and is an update on a similar study conducted for the Australian Securities and Investments Commission (ASIC) in 2013.
“In the seven years since the previous report, average costs of APRA-regulated super funds have risen, whereas SMSF costs have fallen,” said Rice Warner executive director Michael Rice.
“It is cost-effective to open and maintain an SMSF account at much lower levels than declared by the Productivity Commission and ASIC. Separation of the results into those funds holding or not holding properties gives a more accurate picture of the cost structures.”
Referring to the latest research, SuperConcepts chief investment officer Grant Christensen said the finding that SMSF costs were falling was significant.
“While the issues with small-value funds will always exist, it has been encouraging that they grow quickly. Other positive signs are the age at which SMSFs are being established is now in the 35 to 44-age bracket and a significant proportion of small business owners deciding to forge their retirement destiny,” he said.
However, you don’t need to look too far for reminders of the complexity of governing a super fund.
Mondaq.com says: “The rules relating to SMSFs are complex and it is vital to get tailored, professional advice regarding the acquisition of assets in the fund.”
Mr Maroney, writing for AFR, said COVID-19 had made investment markets even more volatile, demanding SMSF trustees must not only have a documented investment strategy, but review it regularly.
“Comprehensive reviews are not just necessary to gauge the investment performance of a fund and, if necessary, adjust the investment strategy. Other events can necessitate the need for a review, such as the death of a member or a relationship breakdown involving fund members.
“It’s also important for trustees to have an exit strategy, particularly if there is a dominant trustee or the fund has assets that may be difficult to sell.”
Mr Maroney also warned that despite the devastating financial impact of the global pandemic, trustees could not use their SMSF as “a source of short-term financial assistance”.
“With a few exceptions, trustees must understand they cannot access their superannuation early from their SMSF, even for a short period.”
Moneysmart offers the following advice on the responsibilities of an SMSF trustee:
- you are personally liable for all the fund’s decisions – even if you get help from a professional, or if another member made the decision
- your investments may not bring the returns you expect
- you are responsible for managing the fund even if your circumstances change – for example, if you lose your job
- there may be a negative impact on your SMSF if there is a relationship breakdown between members, or if a member dies or becomes ill
- if you lose money through theft or fraud, you won’t have access to any special compensation schemes or to the Superannuation Complaints Tribunal
- you could lose insurance if you’re moving from an industry or retail super fund to an SMSF.
Do you have an SMSF? Are you confident in your ability to manage your own superannuation?
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