A leading SMSF law firm has criticised the Australian Securities and Investments Commission’s (ASIC) recommendation that an SMSF should in most circumstances not be established unless superannuation benefits of $200,000 are in existence.
The suggested $200,000 minimum superannuation asset balance for the set up of an SMSF was included in the corporate regulator’s Information Sheet 206 “Advice on self-managed superannuation funds: Disclosure of costs” (INFO 206) issued last week.
In response, Townsends Business and Corporate Lawyers said: “While there are a number of useful features of ASIC’s new guidance papers on SMSF advice (Information Sheets 205 and 206), comments relating to the preferred minimum for an SMSF of $200,000 are not among them.”
The legal firm cited several reasons for its misgivings about that recommendation, one of which was the lack of certainty upon the death of a member.
“They [SMSF trustees] get the ability to make a specific type of BDBN (binding death benefit nomination) that may not be allowed via a public offer fund … and/or ensure that their death benefit, which may be well over $200,000 after a life policy payout, does not become subject to a public offer trustee’s payment policy,” Townsends said.
The suggested minimum balance was also potentially restrictive in regard to investment strategies, it said.
“There are certain strategies that are not available via public offer funds that can give a massive boost to long-term retirement income, such as limited recourse borrowing arrangements to buy direct shares and property, even where the starting balance is well under $200,000, since that is just the deposit,” it said.
It also suggested INFO 206 lacked consideration of the long-term objectives of an SMSF with its minimum balance recommendation.
“It’s not about how much is in the fund now, it’s about how much will be in there long term for retirement,” it said.
“ASIC’s focus on short-term costs is simply naïve – it effectively says it is better to pay 2 per cent fees in a public offer fund that yields a 5 per cent return in the long run compared to say 7 per cent fees in a SMSF that yields 20 per cent returns over the same period.”
Further, it said the suggested $200,000 minimum asset balance for establishment ignored the most common reason people set up an SMSF and that was to be able to exercise control over their own retirement savings, irrespective of what their superannuation balance might be.