In a submission to the Productivity Commission’s review into superannuation, The Australian Institute of Superannuation Trustees expressed concerns about the current asset allocation of SMSFs collectively.
“It is at least arguable that the collective investment profile of SMSFs represents an inefficient misallocation of capital at the national level,” AIST said in the submission.
“In particular, the heavy weighting to cash and term deposits deprives SMSF members of potential returns, while the weighting of $97.9 billion to direct property — when combined with the government’s policy of permitting borrowings by SMSFs through limited recourse vehicles — has helped inflame the property market and reduced housing affordability for younger Australians.”
Data collected by Class earlier this year indicates, however, that only 1 per cent of residential properties are owned by SMSFs.
AIST said it was also concerned about the capacity of individual trustees to navigate complex financial decision making as they grow older with 17.7 per cent of SMSF members aged over 70 at 30 June 2016.
“The great majority of SMSFs are structured as having individual rather than corporate trustees. To the extent that the capacity of SMSF trustees declines with age, it would be expected that either the SMSF must be liquidated and assets rolled into an APRA regulated fund, or the economic performance of the SMSFs will decline with a consequent loss of efficiency for the sector, and further losses to the economy overall,” the submission said.
The submission also stated that the $61.7 billion held in unlisted trusts in SMSFs is “a clear risk to government revenue”.
“[There is] opportunity to channel trust earnings through to a super fund with a nominal tax rate of either 15 per cent or 0 per cent, depending on whether the member is in the accumulation or pension phase,” AIST said.
“Government policies which facilitate the offer of an unrestricted number of investment options, and which place minimal barriers for the creation of SMSFs, generate material inefficiencies within the superannuation system as a whole and, in the SMSF sector, permit material capital misallocation within the economy, add heat to the housing market and facilitate tax minimisation,” said the submission.
I have to agree with anonymous that this is a bit of a beat up. I do believe that SMSF gearing needs to be better managed and Best Interest duty enforced across all investment sectors to avoid One Stop Shops spruicking just property and lack of a third party viewing the deal in the process to ensure it meets client’s needs. However SMSF Property buyers will never be a real influence on the overall property market as most that buy in the SMSF would just buy outside on higher LVRs if not available as an SMSF strategy
I would have thought the Hanson family pass-the-baton directorship at Statewide Super would have been more worthy of AIST attention and comment on governance standards…but obviously not when supping from the same trough.
I totally agree What an absurd statement and why shouldn’t Trustees have the right to invest their investments wherever they like. I would rather trust my own judgement than most of of the so called independent investment experts out their trying to make a quick buck at my expense.
Agreed, and when you look at the member funds in this joke of an ‘institute’ (AIST – seriously?) they are mostly all self interested ISA fnds or their ilk, so the more they disparage SMSF’s the better off they are.
They’re simply trying to provoke another rushed political reaction, as property prices and housing affordability are topical and populist political agenda items atm.
$61.7b x 0.1% trustee fee = happy AIS trustees
Have to agree with anonymous. Article appears to be nothing more than a lobby group trying to push their own agenda with overblown claims extreme bias.
For a publication that is called SMSF adviser you would expect to see the proper side of the story as well
Agreed!
Wow, talk about a biased and quite frankly incorrect statement of the statistics –
“while the weighting of $97.9 billion to direct property — when combined with the government’s policy of permitting borrowings by SMSFs through limited recourse vehicles — has helped inflame the property market and reduced housing affordability for younger Australian” – The $97.9bn includes Commercial Property – Residential Property investments are approximately 30.0Bn.
“$61.7 billion held in unlisted trusts in SMSFs is “a clear risk to government revenue”. – Unlisted trusts also includes any trusts not listed on an ASX so would include a significant proportion of public offer trusts managed by respected fund managers.
Rather than quoting gross investment values, which in superannuation are always big headline grabbing numbers, why not quote a percentage of the total market. In Mar 17, Australian residential properties were estimated to be worth 6,000Bn (6 Trillion). So SMSFs investments in residential property represents 0.5% (less than 1%) of the total property market.
Reports like this from self-interested lobby groups should largely be disregarded as the quoted facts are largely far from the truth
Agreed, definitely not ‘inflamed’