ATO, Superannuation

Class finds holes in final PC report

PC report calculations still missing elements.

Class has welcomed the Productivity Commission’s move to modify its original findings on and recommendations for SMSFs and Australian Prudential Regulation Authority (APRA)-regulated superannuation funds, but has cited concerns its research findings have not been fully reflected in the commission’s final recommendations.

In response to the Productivity Commission’s final report on the efficiency and competitiveness of super, Class argued the commission failed to include the ATO’s measure for contributions tax and insurance when comparing the performance of SMSFs and APRA-regulated superannuation funds.

“Instead of adjusting the ATO’s measure for contributions tax and insurance along with the denominator effect outlined by Class (a collective impact of 1.15 percentage points per annum compared with the APRA methodology), the commission instead chose to only adjust for the denominator effect,” it said.

“This results in an adjustment of 0.44 percentage points, representing less than half of the actual impact.”

Furthermore, it pointed out SMSFs with less than $500,000 in net assets are most affected by contributions tax and insurance.

Class data from the 2015 financial year showed the combined returns impact of both was 1.27 percentage points for SMSFs in the $200,000 to $500,000 grouping and 5.08 percentage points for SMSFs with balances below $50,000.

Class’s second point of contention is the commission used the ATO’s ‘expenses’ without adjustment as a measure of the fees associated with SMSFs.

However, there are various items the ATO classifies as expenses that are not actually fees, including insurance, interest, and capital works and depreciation.

“While ATO expenses are relevant for accounting and taxation purposes, which is the primary reason the ATO collects this data, the figures are very different from the fees calculated by APRA, which measure the operating and investment costs associated with funds,” Class said.

A Class “SMSF Benchmark Report” released last year refuted the commission’s claims APRA funds are outperforming SMSFs.

Class argued the ATO’s return on assets used for SMSFs and APRA’s rate of return used for APRA funds produced misleading results and severely underestimated SMSF returns.

Class’s second submission to the commission argued that by erroneously combining expenses and fees, the commission had overstated SMSF costs across all fund sizes. In particular, the expenses stated by the commission for SMSFs with less than $500,000 in net assets were close to double the actual costs.

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