The Self-managed Independent Superannuation Funds Association (SISFA) has called out the Australian Institute of Superannuation Trustees (AIST) for making numerous prejudiced claims against SMSFs.
In its submission to the Productivity Commission’s Review of Efficiency and Competition in Superannuation, the AIST stated the collective investment profile of SMSFs represented an insufficient misallocation of capital at the national level, in particular, the heavy weighting to cash and term deposits deprived SMSF members of potential returns.
The AIST also said the weighting of the $97.9 billion to direct property – when combined with the government’s policy of permitting borrowings by SMSFs through limited recourse vehicles – had helped inflame the property market and reduced housing affordability for younger Australians.
It went on to say the SMSF holding of $61.7 billion in unlisted trusts represented a clear risk to government revenue, given the opportunity to channel trust earnings through a super fund with a nominal tax rate of either 15 per cent or 0 per cent, depending on whether the member is in the accumulation or pension phase.
The mental capacity of SMSF trustees was also questioned by the AIST, noting economic research indicating that individual capacity to navigate complex financial decision-making declines with age thus resulting in a consequent loss of efficiency for the sector and further losses to the economy overall.
It also said large numbers of investment choices for SMSFs correlated strongly with substandard fund-level investment performance.
“We’ve refuted these outrageous statements around terrible generalisations, such as poor allocation of capital, with factual and statistical data from the Reserve Bank of Australia and the regulators, as AIST’s [claims] tend to be rhetoric,” SISFA managing director Mike Goodall told selfmanagedsuper.
“They represent commercial funds and there’s room in the industry for everybody, but I think it’s obvious AIST don’t like SMSFs and think they’re poorly run by trustees.
“To misstate the situation in the marketplace is a poor tactic and ill-informed.”
SISFA’s recent supplementary submission to the Productivity Commission stated the relatively conservative approach of trustees held them in good stead during the global financial crisis when they lost less value than Australian Prudential Regulation Authority (APRA) funds.
Furthermore, it was important to note the investment performance of SMSFs reported by the ATO is the average return on assets for 500,000 SMSFs, masking a spectrum of performance.
The responsibility placed on SMSF trustees is to act in the best interest of their members, generally one and the same, and not to achieve some economic efficiency target set by others.
When it came to SMSFs inflaming the property market, SISFA labelled the AIST’s claim a “wild exaggeration” as ATO data shows SMSF residential investments amounted to 0.39 per cent of the total value of the $6.7 trillion Australian residential property market.
Commenting on tax minimisation, SISFA’s submission referred to the strict rules, backed by law, governing contributions to super funds and the taxation of earnings derived from fund assets.
Trust earnings derived on a non-arm’s-length basis are in fact subject to tax at the top marginal tax rate, currently 47 per cent, resulting in no loss to revenue.
“Perhaps, instead of criticising SMSFs, AIST would do better to look at the reasons why, given the choice, people prefer other options when it comes to managing their retirement savings,” SISFA director Duncan Fairweather said in the association’s supplementary submission.
“Or does AIST believe all compulsory and voluntary superannuation contributions should be a monopoly market to their benefit?”
SISFA said if people lose mental acuity as they age, they are usually assisted by their families and by professional advisers to make appropriate decisions about the management of their financial affairs.
Fairweather said it would be arbitrary and somewhat discriminatory to decree that people aged 70 and over are unable to make sensible decisions about their financials and so their SMSF accounts should be liquidated and their assets rolled into an APRA-regulated fund, as the AIST suggested.
The AIST’s comments on excessive choice seem to be directed towards for-profit retail funds, a source of competition for the industry funds AIST represents.
“The range of choice of product offered by both retail and industry funds is a commercial decision for each fund,” Fairweather noted.
“In time, the market will sort out the optimal range of investment products.
“It seems AIST resents competition whether it comes from retail funds or from SMSFs.”
The upcoming SISFA SMSF Forum will be held on 9 October in Melbourne. More information can be found here.