‘More work’ needed with comparison of SMSFs and APRA funds
While the Productivity Commission adjusted its figures comparing the returns of SMSFs against public offer funds in its final report, certain expenses such as insurance were not accounted for in the returns for public offer funds, according to an SMSF software provider.
Earlier this month, the Productivity Commission released its final report on superannuation with a range of recommendations for the superannuation sector, including SMSFs.
The Productivity Commission modified the findings and recommendations from its earlier draft report following submissions from Class and the SMSF Association.
After the draft report was released, Class and the SMSF Association pointed out that the SMSF performance was understated in the PC report because of the differences in the way APRA and the ATO report fund performance.
Following these submissions, the final report acknowledged the different approaches used by the ATO for SMSFs and by APRA for public offer funds, which meant that SMSF returns may be understated relative to the APRA formula.
However, whilst the final report did make modifications, which were welcomed by the SMSF industry, SMSF software provider Class said that the research provided to Productivity Commission was still not fully reflected in the findings of the final report.
“Instead of adjusting the ATO’s measure for contributions tax and insurance along with the denominator effect outlined by Class, [resulting in] a collective impact of 1.15 [per cent] per annum compared with the APRA methodology, the commission instead chose to only adjust for the denominator effect,” Class explained.
“This results in an adjustment of 0.44 [of a percentage point], representing less than half of the actual impact.”
Class pointed out that the commission used the ATO’s “expenses” without adjustment as a measure of the fees associated with SMSFs.
“However, there are a number of items which the ATO classifies as expenses that are not actually fees. These include insurance, interest, and capital works and depreciation,” it said.
“While ATO expenses are relevant for accounting and taxation purposes — which is the primary reason the ATO collects this data — the figures are very different from the fees calculated by APRA, which measure the operating and investment costs associated with funds.”
Class acting chief executive Glenn Day said that industry discussion continues around the need for increased member education when establishing SMSFs, and the reality that SMSFs are not suitable for everyone.
“However, there remains a separate need to understand the economic efficiency and viability of operating SMSFs at various net asset levels, using like-for-like comparisons and measures to avoid drawing incorrect conclusions on returns and costs, particularly for smaller SMSFs.”