Industry Super Australia analysed 2015/16 SMSF statistical data from the tax office, concluding that SMSFs with balances under $2 million fall “seriously short” of APRA funds when it comes to returns.
A paper from the advocacy group plucked statistics that paint a sour picture for SMSFs, including that for SMSFs with balances below $200,000, returns dropped into the negatives.
Further, the paper noted a significant spike in total assets under limited recourse borrowing arrangements (LRBAs) to $25.4 billion or 17.8 per cent, which is an 18-fold increase since June 2011
“Unless it contains multi-million dollar assets, an SMSF may prove a mistake for the average consumer,” Industry Super Australia said in a statement.
Industry Super Australia hasn’t fudged the figures, but there’s holes in the context of the statistics.
The SMSF Association’s (SMSFA’s) head of policy, Jordan George, said annual ATO statistics aren’t necessarily a “perfect” indication of a fund’s performance, particularly in its early stages.
“For example, they pick up establishment costs in the first year of operation, and don’t count for events like a rollover that is set to come in for the next financial year,” Mr George told SMSF Adviser.
Importantly, the statistics don’t paint a picture of where an SMSF sits in the context of a broader retirement income strategy, and what the members’ long-term plans are for it as a savings vehicle. With similar thoughts in mind, actuary and head of customer at Heffron SMSF Solutions, Meg Heffron, has previously explained to SMSF Adviser why she chose to start her SMSF with $30,000.
Further, Mr George said there is “good evidence” that SMSFs can achieve scale, and strong returns, over time.
In January this year, the ATO examined SMSFs that lodged their first return in 2012, and traced their performance up to 2016.
The tax office found 51 per cent of a sample of 36,160 SMSFs reported total assets of $1 to $200,000 in 2012. Comparatively, this asset range made up only 20 per cent of funds still active in 2016.
In relation to gearing in SMSFs, Mr George pointed out the growth is coming from a starting point of zero in 2007, which is when borrowing became allowed in SMSFs.
“It’s something that we should keep on analysing and assessing, but it’s coming from a low base, and as a proportion of total assets held it is still relatively small,” Mr George said.
This analysis from Industry Super Australia follows predictions from outgoing SMSFA chair, Andrew Gale, that stakeholders in the APRA-regulated space would stir up controversy about SMSFs to deflect attention from the royal commission investigations.
“With large superannuation funds included in the terms of reference and under scrutiny, we expect the large fund sector, especially industry funds, to seek to deflect attention by pointing out issues with SMSFs,” he said in mid-February.
“Issues raised could include minimum reasonable account balance sizes for SMSFs and limited recourse borrowing arrangements,” he said.
katarina.taurian@momentummedia.com.au
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I suppose the easiest remedy to ISA’s concerns is that we all simply do as they do; deliberately obfuscate the real returns via irregular valuations, opaque asset performances and financials, generic terminology when specifying exactly where the money has been invested with no other detail provided, and overall published returns not accounting for ‘indirect member costs’ that never appear on any member’s statements.
The biggest issue industry super funds have is their members are apathetic towards super whereas SMSF members are highly engaged in not just their retirement savings, but the entirety of the wealth.
We see fees and return ratios in line with (or superior to) industry funds for the overwhelming majority of the SMSFs we administer. Both APRA regulated funds and SMSFs are an important part of the superannuation space and provide options and choice which is needed for the retirement savings system to work efficiently.
Don’t the Industry Funds use gearing in many property purchases and property developments ?
If they want to Ban SMSF gearing into property then they should also be banned ?
You have got to love the pathetic self interest arguments from IFA to the whole industry. And better still they almost actually believe their own propaganda ?
seems like ISA are feeling threatened and have to distort issues to suit their argument. I would not recommend anyone actually pays attention to anything that comes out of ISA. SMSF trustees are seeking professional advice and receiving it and I believe that we as an industry have moved on from the sale of SMSF for selfish reasons. As for gearing – the only gearing I do is for business real property. have not done residential for SMSF for years. Certain people love to own their business premises in super and have the resources to do it. The idea that one needs multi millions for an SMSF is ludicrous. Likewise, just because you have multi millions doesn’t mean you must have an SMSF. We are, after all, as professional financial advisers, duty bound to put client interests first. Unlike ISA it seems.
😆 Don’t let the facts get in the way of a good story Industry Super Australia… “Further, the paper noted a significant spike in total assets under limited recourse borrowing arrangements (LRBAs) to $25.4 billion or 17.8 per cent, which is an 18-fold increase since June 2011.” There has not been a significant spike in LRBAs since 2011. What has changed is the ATO improving their analysis and reporting of same. LRBAs have remained largely consistent at around 3 to 3.5% of total SMSF assets over the past 6 years. Over the past 5 years to 2017, SMSF assets grew by $274.3 billion or 65%. This is significant growth and makes the $25 billion in LRBAs (used largely for the purposes of purchasing real property by owners of SMEs with an SMSF) in a multi-trillion (Yes, with a BIG “T”) real estate market, makes this all pale into insignificance. It is amazing how rattled everyday Mums and Dads managing their own retirement savings have got the retail and industry funds. They can see their fatcat director fees and over the top management fees slowly slipping away, as more and more Australians decide to take control of their own retirement savings.