14/04/2022

Self managed superannuation has few friends in Canberra.

Both sides of the Despatch Boxes have supporters who see self managed super as an impediment to their success.

The Coalition is philosophically aligned with the retail funds and is no doubt lobbied regularly by the retail fund industry.

Labor of course is philosophically even closer to industry funds and it can be hard to see the seams in the Labor/Union/Industry Fund aggregation.

Self managed super has over a million members and they all vote, so the parties can’t be openly hostile.  They can, however, and do, make it hard for the self managed sector.

To achieve ‘plausible deniability’ politicians are happy for the regulators and the lobby groups to take the running on the constant criticism of self managed super and the impediments to easy operation of a fund.

It has been regularly claimed that self-managed superannuation does not provide the returns that the member could achieve in a public offer fund. This is been proven wrong time and time again most recently by the University of Adelaide research that showed self managed returns on par with public offer funds for SMSFs with more than $200,000.

Along with that was ASIC’s ill-considered claim that a self managed fund should have not less than $500,000 otherwise the costs of operating the fund were excessive.  This has been shown by actuarial research to be incorrect also, with the figure again closer to $200,000.

Given the long term nature of superannuation why would it not be acceptable for a young person to establish a fund with less than $200,000 and use a borrowing to get into the market even though in the shorter term the returns might be below the benchmark?  It’s the longer term that’s important.

It’s important to remember that a self managed superannuation fund is not an investment as such.  It is simply the structure that the members use to make their investments. At the public offer level the membership of the fund is also effectively the investment by the member but that doesn’t apply to self managed.

Why then is it necessary for a person’s accountant to have a financial services licence before recommending they have a self managed fund?  There’s nothing preventing that accountant from recommending any other structure that an investor wants to use such as a company, a family trust or a unit trust.

The financial services licence should be for advice on what the fund invests in, not whether or not to have a fund in the first place.

This bureaucratic treatment of self managed super as an investment in and of itself rather than just a structure flows over into other areas of required compliance that are nothing short of downright silly in the context of a fund run by its private members.

Just to clarify: a self managed fund’s trustees are its members and all its members must be its trustees. It is very similar to a family company where the shareholders are the directors.  It is a family owned and run structure designed to maximise the members’ wealth in the concessionally-taxed environment of superannuation.

Why then should such a structure have to comply with many of the same rules as a public offer fund?  Take for example the need for the fund to have an investment strategy. Surely the members don’t need the help of government regulators to remind them of the need to think about how to achieve good returns?

Having a self managed fund indicates a desire to be more actively involved than the set-and-forget superannuation strategies of members in public offer funds.

There are numerous examples of requirements that are unnecessary in the context of self managed funds.

The government allows significant tax concessions for superannuation and is therefore entitled to ensure that the self managed fund is being operated properly. That should not be confused with applying inappropriate rules designed for public offer funds.

Of course if the constant criticism of self managed and the application of those rules is designed to dissuade people from using self managed then that’s a different agenda.

For further information, please contact Townsends Business & Corporate Lawyers on 02 8296 6222 or email info@townsendslaw.com.au.