All superannuation funds play a significant role in Australia’s development, irrespective of whether they are big, medium or small. Whether it’s a retail, industry, corporate, public sector or self-managed fund, there is an absolute requirement that the contributions received are invested to benefit members.
Each type of fund has a distinct role to play in the overall superannuation picture, and no one type of fund should be considered without considering the others. The reason superannuation funds exist at all is to ensure the money is there for retirement, or for dependants in the event of a member’s death.
Self-managed superannuation funds (SMSFs), which represent about 33 cents of every $1 in superannuation savings, contribute just as significantly to the country’s future as all other types of funds.
They make a considerable contribution to Australia’s investment pool, as they invest in companies listed on the stock exchange, either directly or indirectly, provide loans to large public organisations and invest directly or indirectly in property.
Even the cash holdings of self-managed funds, just like other funds, are used by financial institutions for investment in projects for Australia’s future. Overall, the investment pool of self-managed funds is basically no different to those of the larger funds, a fact proven by statistics provided by the superannuation regulators, the Australian Taxation Office (ATO) and the Australian Prudential Regulation Authority (APRA).
The advantage of using one type of fund over another must be clearly understood. Some funds provide a wide range of services to members, while others are much more limited. In some funds, members make the investment decisions about the destiny of their superannuation, and in other situations, those decisions are made by investment managers.
Some years ago the superannuation rules were changed to provide people with a choice of superannuation fund. Choice was hailed by many as a great step forward because members could select where their retirement savings were to be managed.
This meant that people could access the fund that was the most suitable for them, rather than one that had been chosen by their employer or under an industrial agreement or award. There is no restriction, in most cases, to the type of fund that could be used for choice of fund purposes.
Self-managed funds are there for specific purposes, just like every other type of fund. They provide a person access to direct control over investments, flexibility in investment timing and may provide cost savings over the larger funds. Indeed, self-managed funds are an integral part of the role of retirement savings and the draw down cycle.
However, as with any personal investment decision, the pros and cons of a self-managed superannuation fund should always be considered before proceeding. If the advantages are understood correctly, they can provide a rewarding experience.
As history shows, all superannuation investments are subject to the uncertainties of the market, and the performance of larger funds over the past decade is evidence of this.
Detractors of self-managed superannuation funds say that when it comes to superannuation, many small business people and others have no idea about overseeing the investments in their superannuation fund. SMSF Professionals’ Association of Australia (SPAA) believes these people, aided by professional advisers, can make these decisions.
The professional advice factor is critical. With SMSFs, what must be remembered is that not everyone requires someone to make investment decisions for them. However, they all need to understand when help is required. In this respect, a trustee of a self-managed superannuation fund is in the same position as other funds that engage professional managers and advisers because of the need for specialist expertise or due to the size of the task involved.
In any event, many people enjoy the experience of having their own superannuation fund, just like those who make personal investment decisions directly. At least if they mess things up, it’s their own requirement savings at risk, unlike many superannuation fund members who rely on the investment skills of managers.
Whether one provides better results over the other will always be a matter of conjecture. However, it was recognised at a recent conference of larger super funds that SMSF performance was at least equal to what their funds had earned over the past decade.
Andrea Slattery is CEO of the SMSF Professionals’ Association of Australia