SMSFs will be crucial in wealth transfer wave

Andrew Inwood, global CEO of CoreData, believes that keeping inheritance wealth within the superannuation system could strengthen the economy, help younger generations retire earlier, and reduce pressure on government pensions.

However, he said the industry will face challenges including regulation, public criticism of SMSFs, and the need for stronger governance.

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Speaking on the latest SMSF Adviser podcast, Inwood said Australia has reached the peak of the wave of accumulation and the next 20 years will see a massive decumulation.

“In the next 20 years, 4 million people in Australia will die. As they die, they throw off extraordinary assets, $10 billion worth of farms, trillions in houses, 21,000 SMEs worth $5.4 trillion. And it’s accelerating every day and growing at an exponential rate.”

He said that wealth “has to go somewhere” and argued strongly that if it could be saved inside superannuation, it would benefit all Australians.

“The country would be fundamentally better off if we could save inside the super system permanently, or we could split it up amongst the kids. Retire early and retire better, and every time we do that, we take the pressure off the government,” he said.

Inwood said it is “wrong” to now “fumble away” Australia’s superannuation system and for the SMSF sector to be demonised.

“If you think about the kind of cohorts that are coming down the pipeline, 4 million Australians will have trustee-directed outcomes, which means that they’re there being the superannuate, and the superannuation trustee will be guiding their outcomes.

“Then you’re going to have about 3 million people who are going to need some advice, which means they’re going to need some destination and understand what they need to take through those systems.

“There will be about 2 million people who need a lot of advice, because, let’s say they’ve got more than $1 million in super, and they need to know what’s going on in those instances.

“Then there will be about 500,000 people who’ve got a huge amount of money through circumstances of luck or hard work or chance, and they’re going to need complicated systems to manage their outcomes.”

Inwood said while legislative changes will be needed, it is also important that the superannuation sector and the SMSF sector take charge of the narrative to ensure that the narrative around the benefits of saving within superannuation are understood.

“Unless there are legislative changes this thing’s probably going to double in size in the next five years. There will be a second wave of closing and as this industry matures, how we manage that is going to be really important,” he said.

“As you know, often there’s multiple trustees. Often the trustees include the people who haven’t died, and how that’s managed as a cohort is going to become interesting. There will be a challenge to the existence of SMSF.

“Building a narrative about what an SMSF does, how it works, and how it helps people becomes really important. SMSFs aren’t trivial, and it’s easier to set up an SMSF than it is to run one and if you are the individual trustee you have to take that seriously.

“The SMSF community is going to be great for the economy, and it’s going to be great for the families that are involved in it. The people I know who have an SMSF, they’ve got reasonably big pools of capital. In most cases, they’ve made it themselves, and in most cases, it’s come from a business that they’ve built and has been sold or changed or otherwise traded.

“Sometimes it’s the property that was attached to the business that was built and sold or otherwise traded. They have every right to that money because it was their sweat, their risk and their capital they put into it. They used to want to manage it in a style which behoves them. Then absolutely they should do that. They shouldn’t be compelled to do anything.

“There is a cohort which wants to demonise SMSFs, but we have to start to control the narrative, and that means to be clear about it. There are going to be frauds and bad accountants and bad actors in the space, and we have to be very clear about calling that out. If we don’t, then the market will, and that’s a bad outcome.”