9th Oct 2018
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ASIC urges super fund safeguards to protect nest eggs
Author: Janelle Ward
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For anyone who set up a self-managed super fund (SMSF) on advice and later discovered it was really not for them, a recommendation from the Australian Securities and Investments Commission (ASIC) might be music to their ears.

ASIC is advocating a minimum balance for SMSFs as a means of better protecting consumers and banning limited recourse borrowing arrangements (LRBAs) when SMSF trustees borrow for investments. Again, the purpose is to protect consumers and their retirement nest eggs.

The move comes as the big four banks and AMP retreat from lending to SMSFs to buy residential investments in the wake of softer property prices and the financial services royal commission.

About one million SMSF balances in Australia account for $750 billion or one-third of all superannuation funds. However, there are concerns that too many SMSFs with small balances and inexperienced managers are costing the economy.

A Productivity Commission report into super showed that SMSFs with less than $1 million in assets perform “significantly” worse than retail or industry funds. “It is not clear how many of these will perform better in future as they grow in size,” the report says.

Industry Super Australia reported earlier this year that SMSF members “have potentially wasted billions in life savings due to poor performance”.

Australian Tax Office (ATO) statistics show that SMSF membership continues to grow despite 40 per cent of funds receiving zero or negative return on assets in 2016.

The Australian Financial Review reported: “The (ATO) briefing note says SMSFs with less than $2 million of assets were, on average, worse off than members of an Australian Prudential Regulation Authority (APRA) regulated fund. It says an SMSF with a balance of between $1 million to $2 million generated a 2.2 per cent return on assets, while SMSFs with balances less than $200,000 suffered negative returns. In contrast, industry super fund members generated average returns of 4.1 per cent over the same period.”

Answering a question on notice from the Parliamentary Joint Committee on Corporations and Financial Services this week, ASIC listed “possible policy solutions” to SMSF issues.

It wants more education for members, better financial advice for consumers considering SMSFs, better oversight, and says minimum balances should be investigated but did not suggest an amount.

It said: “Consideration could be given to prohibiting LRBAs and/or mandating a minimum SMSF balance.

“We note the Council of Financial Regulators is currently considering LRBAs and is due to report to the Government by the end of this year.”

ASIC suggested that promoters of SMSFs undergo specific education to ensure their advice did not disadvantage older Australians.

“This could involve imposing an obligation on SMSF promoters to consider the type of consumer whose needs would be addressed by establishing the SMSF and the channel best suited to distributing the SMSF as a product class.”

It also suggested new training and education standards be set by the Financial Adviser Standards and Ethics Authority (FASEA) to improve the quality of financial advice provided to consumers.

Do you have an SMSF? Do you believe you are getting good value from the fund? Is your SMSF performing better than retail and industry funds of a similar size?

How does your super affect your overall retirement income? The RetirePlanner™ tool has all the information you need.

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    COMMENTS

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    TREBOR
    9th Oct 2018
    11:12am
    Depends how those 'new rules' work out in practice.

    I note that many SMSFs were included as not performing well... are they to be unilaterally taken over and to whom are they to be handed, and does the owner have a choice?

    Where do rights start and end?

    Footnote (not relevant to discussion, and I have no wish to engage in another war over DI):- I had at Brother Shorten this AM over dividend imputation and the fatuous statement that ALL zero tax payers except 'pensioners' would have their DI chopped..... saying that instead how some are writing down huge discretionary income to zero needs to be looked at.
    TREBOR
    9th Oct 2018
    11:15am
    Oh - and 'minimum balance' needs to apply to EVERYONE - shades of the TREBOR Scheme... in order to comply with the requirement under Law that it function equally.

    The big question is where all this lovely for ALL will go (the TREBOR
    Scheme)... to be protected from parasites and vultures both.
    Old Geezer
    9th Oct 2018
    11:19am
    Trebor there you go again discussing things you have no real knowledge about.
    Anonymous
    9th Oct 2018
    1:38pm
    Shorten doesn’t understand imputation credits either
    But I’m sure his tax advisors who may have read Roberts drivel would have had a good laugh
    TREBOR
    9th Oct 2018
    5:28pm
    I know all about it - the difference is I see how it should work - you derive benefit from it not working properly.

    There endeth today's lesson.
    Anonymous
    9th Oct 2018
    5:32pm
    Its working Robert. As it was designed to do.
    Saying it doesnt work just because you cannot understand the system doesnt make you right. Just makes you look silly
    Old Geezer
    9th Oct 2018
    5:34pm
    Been busy writing for submission to the Franking credit enquiry.

    Sorry folks I can't share it as I had to agree not to publish it anywhere else.
    TREBOR
    9th Oct 2018
    7:10pm
    Show us your submission so we can clarify it for you, OG....

    Might put on in myself..... based on the facts as written by the ATO and government.
    Anonymous
    9th Oct 2018
    7:50pm
    Not much point OG showing you his work. You'd never understand it. Worse you will add your nonsensical understanding to make the whole submission worthless
    TREBOR
    9th Oct 2018
    9:42pm
    You're good for a laugh, diablo..... if nothing else....
    TREBOR
    9th Oct 2018
    9:48pm
    Finding it hard to sustain your position in the face of alternative readings and ways of looking at it?

    It was working fine until Costello decided that a free handout to the undeserving was the way to go - obviously to suit the fat cat mates... all Shorten wants to do is return it to its original setting -in which you return will be fully evaluated to ensure you get back what you are entitled to, no more and no less....

    Now continue with your personal beliefs founded in Howstello benefits to mates - changes ARE coming, as they must to ensure fair dealing in income taxation....

    Again, though - easiest way is to abolish dividend imputation entirely and just pay your own taxes.... how could such a simple solution be such a burden on you .....but we all know why you hate that (wink, wink).....

    Now get to the issues surrounding this move to gather in (The Grim Reaper) all those dead and near-dead SMSFs... and what that actually means....... enough of your endless carping about losing your unwarranted bonus from dividend imputation... you'll pay your taxes and you'll like it....
    Old Geezer
    9th Oct 2018
    11:14am
    Is this is fake news as my SMSF is preforming streets ahead of those averages?
    TREBOR
    10th Oct 2018
    6:19am
    Sounds to me like it is performing amazing gymnastics of the mind....
    Rae
    10th Oct 2018
    9:09am
    They were always going to come after the SMSFs. Too much money there to ignore and money is getting tight now. The party is almost over but the banisters still want as much of the punch bowl as they can possibly get.
    Not a Bludger
    9th Oct 2018
    11:15am
    What a load of rubbish.
    This is, no more and no less, than a continuation of the push by industry funds specifically (and the super fund industry generally) to get their sticky fingers on the ever increasing monies in SMSF’s.
    Call it out for what it is!
    Old Geezer
    9th Oct 2018
    11:20am
    I agree and that is exactly my thoughts when I read it too.
    TREBOR
    9th Oct 2018
    11:27am
    Why blame ONLY industry funds, NAB? They generally return more to their shareholders and the financial sector ones are the most predatory and rapacious.

    That's precisely why I advocate and developed the concept that all super funding go under one roof out of the hands of all these parasites and vultures, including government... and for those who missed the point - the industry sector as well.

    A fully independent super fund not answerable to anyone but is shareholders, who all have the same rule and treatment, and run by an elected board that can determine investment for the best benefit of the group and of the nation first and foremost.
    TREBOR
    10th Oct 2018
    6:21am
    Let us recap - it is not the industry funds who are seeking to take over total control - that idea came from the financial sector funds - with their higher costs and fees and their generally lower returns....

    I think some just gloss over a headline, add their personal bias, and endlessly repeat the same thing over and over regardless of the original and ongoing realities.
    Geminiwoman
    9th Oct 2018
    12:41pm
    I have always agreed with mandatory superannuation. Obviously, the taxpayers of this country cannot forever carry the enormous welfare debt we have and superannuation will, in the future, cut that debt down considerably. However, I have always said and still say that as the Government made superannuation mandatory, there should be some regulations in place to safeguard that money and I feel that the Government should guarantee it in some way. Sadly there are unscrupulous companies out there charging exhorbitant fees and throwing workers'money down the drain with their incompetant investments and dealings. This is where the Government should step in, put a stop to the unscrupulous and incompetent behavious of these companies and to some extent, at least, guarantee workers will get what they have put into superannuation during their working lives.
    Old Geezer
    9th Oct 2018
    12:46pm
    That is precisely why I have my own SMSF.
    Rae
    10th Oct 2018
    9:13am
    Yes. People should not have to do it themselves with a government sponsored compulsory savings plan. Neither should criminals and incompetents be let loose with the money.

    9th Oct 2018
    1:40pm
    A lot of SMSF’s have investment property and other investments. The lower returns may be due to gearing and depreciation allowances and unrecognized capital gains
    Not a Bludger
    9th Oct 2018
    2:21pm
    Exactly right, olbaid - and most of these civil servant and similar report writers have no comprehension of the real world that I and most live in.
    Rae
    10th Oct 2018
    9:17am
    There are possibly a heap pf capital losses sitting in funds as well if leveraging has been used at the top of a boom. This isn't going to end well no matter how you look at it.

    I feel sorry for those with an investment property returning average area rents less costs that someone has to live on because the "value" is over the asset test limit.

    People do lose a lot of capital at the end of property bubbles and it is never easy.

    The RBA should have acted years ago to stop the rot but they failed in their duty.
    floss
    9th Oct 2018
    5:20pm
    The Greed is Good Gang is always good for a laugh TREBOR.
    TREBOR
    9th Oct 2018
    5:30pm
    Indeed... trouble is it can't last, since it is costing too much for the ordinary taxpayer, who foots the bill for every tax dodge.
    Old Geezer
    9th Oct 2018
    5:32pm
    Ha ha Floss you are so predictable too.
    TREBOR
    9th Oct 2018
    7:09pm
    As are you, OG - as are you.
    Rae
    10th Oct 2018
    9:20am
    Very few ordinary taxpayers these days TREBOR. The plan to ruin worker's power has just been too damn effective and unfortunately neither LNP or ALP see consequences until they slam right into them.
    Rae
    10th Oct 2018
    8:58am
    Since when has it been our job to protect the "economy". I'd have thought the APRA legislation allowing cash funds to be bailed in is enough protection for the banks. What protections do we have though? Very few as far as I can see and the rules just keep changing to make the situation worse.

    I'm already totally annoyed that my 48% non concessional super is deemed to be only 10% now through regulatory capture legislation. Superannuation is not safe while the privateers are loose and ASIC and APRA work for the bankers.

    It is the Government and RBA responsible for protecting the economy and they are doing a lousy job in my opinion.


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