In a recent opinion piece, Townsends Business & Corporate Lawyers principal Peter Townsend said the two major parties “both have supporters who view self-managed super as an impediment to their success”.
“The Coalition is philosophically aligned with the retail funds and is no doubt lobbied regularly by the retail fund industry,” said Mr Townsend.
“Labor of course is philosophically even closer to industry funds and it can be hard to see the seams in the Labor/union/industry fund aggregation.”
While self-managed super has over a million members who all vote and parties may not be openly hostile, Mr Townsend questioned some of the reforms and regulations imposed on the SMSF sector.
“To achieve ‘plausible deniability’ politicians are happy for the regulators and the lobby groups to take the running on the constant criticism of self managed super and the impediments to easy operation of a fund,” Mr Townsend stated.
He noted some of the claims put forward that SMSFs do not provide the returns that the member could achieve in a public offer fund.
“This is been proven wrong time and time again most recently by the University of Adelaide research that showed self managed returns on par with public offer funds for SMSFs with more than $200,000,” he stated.
“Along with that was ASIC’s ill-considered claim that a self managed fund should have not less than $500,000 otherwise the costs of operating the fund were excessive. This has been shown by actuarial research to be incorrect also, with the figure again closer to $200,000.”
Given the long-term nature of superannuation, Mr Townsend questioned why it would not be acceptable for a young person to establish a fund with less than $200,000 and use a borrowing to get into the market even though in the shorter term the returns might be below the benchmark.
He also pointed out that an SMSF is not an investment as such but a structure that members use to make their investments.
“At the public offer level the membership of the fund is also effectively the investment by the member but that doesn’t apply to self managed,” he stated.
“Why then is it necessary for a person’s accountant to have a financial services licence before recommending they have a self managed fund? There’s nothing preventing that accountant from recommending any other structure that an investor wants to use such as a company, a family trust or a unit trust.”
Mr Townsend said a financial services licence should be for advice on what the fund invests in, not whether or not to have the fund in the first place.
“This bureaucratic treatment of self managed super as an investment in and of itself rather than just a structure flows over into other areas of required compliance that are nothing short of downright silly in the context of a fund run by its private members,” he said.
“A self-managed fund’s trustees are its members and all its members must be its trustees. It is very similar to a family company where the shareholders are the directors. It is a family owned and run structure designed to maximise the members’ wealth in the concessionally-taxed environment of superannuation.”
He also questioned why SMSFs should have to comply with many of the same rules as a public offer fund.
“Take for example the need for the fund to have an investment strategy. Surely the members don’t need the help of government regulators to remind them of the need to think about how to achieve good returns?” he questioned.
“Having a self managed fund indicates a desire to be more actively involved than the set-and-forget superannuation strategies of members in public offer funds.”
Mr Townsend said there were “numerous examples of requirements that are unnecessary in the context of self-managed funds”.
“The government allows significant tax concessions for superannuation and is therefore entitled to ensure that the self managed fund is being operated properly. That should not be confused with applying inappropriate rules designed for public offer funds,” he said.
Correct. There’s a few more examples to add.
The SMSFA is conflicted re investment strategies and being licenced to recommend setting up a SMSF, as while suggestions above save SMSFs money, part of their membership is financial advisers. This means we have no effective lobbying in these areas.
SMSFs are predominantly a tax structure. The tax rate is lower, but there are age restrictions on accessing the money.
Hear, hear!
Well said! The elephant in the room (or discussion) is the small percentage of ‘rorters’ who see an opportunity to achieve a nefarious goal. As usual, the small percentage ruins it for the rest.
The sheer size of the capital pool will always mean there will be angles to wedge some of it away. This is the issue at heart, not anything to do with us needing to be saved from ourselves.
The existence and success of SMSFs has provided healthy competition in the sector. There is probably at least an indirect link to the fact that APRA Funds have lifted their game over the past 10 or so years. Was is inevitable, for example, that APRA funds would have offered access to direct equities? Maybe, but the asset class being available in SMSFs from the get go was definitely a contributor to the big fund changes to investment offerings.
SMSF have always been just the investment vehicle and without any seeding, the financial service laws are useless. The investment selection is where the financial services laws apply but whilst ever Chapter 7 does not carve out SMSFs, the entity, it is one in all in. Member advice to a SMSF member to contribute or draw a pension – where is the need for the financial services laws? These are said to “protect consumers”. The questions for SMSFs is, protect them from what/who?