Regulation, Superannuation

SMSF analysis restates PC report’s figures

Class has reaffirmed the performance of SMSFs compared to Australian Prudential Regulation Authority (APRA)-regulated funds, following discrepancies in the Productivity Commission’s inquiry into superannuation.

In its submission to the commission’s 571-page draft report, Class said while it provided well-researched findings on APRA funds, it failed to hit the mark on SMSF performance.

The specialist software provider pointed out this was not a reflection on the quality of the commission’s work, but a stark reminder of the inherent differences between how APRA and the ATO report fund performance.

Class said the key disparities in performance reporting are that the ATO includes contributions tax and insurance costs in net earnings, while APRA does not, and given these extra costs, the ATO performance measure will always be worse than APRA’s.

In addition, the smaller the SMSF balance, the higher the impact of those extra costs, it said.

As a result, Class completed its own analysis, based on publicly available contribution tax and insurance data from the ATO, to restate SMSF performance that can be directly compared to APRA fund returns.

Using this basis for the 10-year period the commission’s report covers, SMSFs outperformed APRA funds on a like-for-like basis.

In a technical supplement to the report, the commission noted if APRA fund performance is calculated using the ATO method, then SMSFs outperform APRA funds at 5.59 per cent compared to 4.98 per cent.

The Class submission shows when SMSF performance is restated using the APRA approach, the amount by which SMSFs outperform APRA funds is even higher at 6.71 per cent compared to 5.58 per cent.

Class also highlighted a second large discrepancy around performance reporting.

“The report highlights how APRA funds, of different sizes, performed over the 10 years (2006-2015). In parallel the report should also show how SMSFs starting with different balances, for example $1 to $50,000, $51,000 to $100,000, performed over the same 10-year period,” the submission said.

“Instead, they provide a mash-up of one-year performances across the 10 years.”

The draft report noted: “It is unclear as to what extent the presence of small SMSFs in the system is necessarily a problem. It may be that many of these SMSFs will move into higher categories over time, or as the upfront capital costs are paid off, although this is difficult to discern given the lack of publicly available panel data.”

Class said this was highly concerning, given super is all about saving over the long term, and the industry should be able to compare this data on a like-for-like basis.

Further analysis of SMSF performance across five years shows that although funds with smaller balances do generate lower returns, the variance is considerably less than the exaggerated results provided in the draft report.

“It appears that the advice the commission got from the regulators was that it is ‘too hard’ to compare the performance of APRA funds against SMSFs, which is disappointing, given the dual regulators are responsible for an industry worth over $2 trillion,” Class chief executive Kevin Bungard said.

“The Class analysis highlights how significant the different approaches to performance reporting are.

“It’s time that the two industry regulators start to actively collaborate to deliver accurate insights into like-for-like fund performance. This is part of recommendation 22 that was included in the report, and one that Class wholeheartedly agrees with.”

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