Investments, Regulation, Superannuation

Revised PC SMSF threshold remains misleading

Mixed reactions from sector to PC report.

The SMSF industry has welcomed the Productivity Commission’s revised minimum viability threshold for SMSFs to $500,000, but one firm has warned it is still misleadingly high as a cost-effectiveness measurement.

Responding to the commission’s final report on assessing the efficiency and competitiveness of superannuation, SuperConcepts chief executive Natasha Fenech said she is concerned the report has confused the market in differentiating between a fund balance and member balance when determining the minimum viability of an SMSF.

“The vast majority of funds have more than one member and this needs to be absolutely clear when issuing guidance and potential accountability to professionals about how much money makes an SMSF worthwhile,” Fenech said.

“By this measure the minimum member balance would be $250,000, which is closer to guidance provided by the ATO.”

SuperConcepts cited ATO figures indicating the average assets per SMSF member to be $652,465.

The SMSF Association expressed relief the commission has listened to feedback on its SMSF findings published in the interim report in May 2018, particularly regarding SMSF investment returns.

“The commission acknowledged the difference in investment return calculation methodologies between SMSFs and large superannuation funds and had revised downward from $1 million to $500,000 its fund balance figure as to when SMSFs were cost-effective compared with large funds,” SMSF Association chief executive John Maroney said.

“This is a far more realistic figure to use as a guide for discussing whether it is appropriate to establish an SMSF as there are many high-performing SMSFs with balances below $500,000.

“In our opinion, the commission, in its final report on assessing the efficiency and competitiveness of the superannuation system, has got it right in describing a minimum balance requirement for establishing an SMSF as a ‘blunt tool’ that is far less likely to ensure a healthy SMSF sector compared with improving advice standards.”

The association said it is supportive of the commission’s recommendation for the government to introduce requirements for specialist training for people providing advice on SMSF establishments.

“Raising the standards of SMSF advice through specific education requirements has long been the mantra of the association and a key focus in our mission to lead the professionalism, integrity and sustainability of the $755 billion SMSF sector,” Maroney said.

“It’s significant that the commission is on the same page as ASIC (Australian Securities and Investments Commission) in recognising the importance of advice providers who are appropriately educated.”

According to Maroney, the commission’s stance on advice aligns with its recommendation Australians should be able to choose the right super fund for them, including an SMSF, irrespective of their employment status.

SuperConcepts also supported recommendations to have recognised specialist qualifications for SMSF advice.

“This measure will enhance the compliance aspects of a fund and reduce inadvertent breaches due to lack of understanding around compliance issues,” Fenech said.

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