SMSF balance concerns overlook purpose of funds
Concerns around the number of self-managed superannuation funds (SMSFs) with low balances is “a storm in a teacup” and overlooks the long-term nature for which the funds have been created, according to a planner and director of an industry association.
Kingdon Financial Group managing director Darren Kingdon, who is also a director of the Small Independent Superannuation Funds Association (SISFA), said that many SMSFs with low balances and small contributions were at the starting point of a longer-term strategy.
“Low balance funds are those typically starting out as retirement saving vehicles, and balances usually grow as the investment strategy progresses,” Kingdon said.
“This is evidenced by the fact that since 2004 balances under $50,000 in SMSFs have reduced heavily as a percentage of the overall SMSF sector.”
The Cooper Review stated that funds under $50,000 represented 14.5 per cent of the sector in 2004 while they represent 5.6 per cent of the sector in 2011, according to data collected and recently released by Rice Warner Actuaries.
“This falling number in a growing market is indicative that many of these lower funds are springboards to larger investments further down the track, and lower balances should not be seen as evidence of a problem within the SMSF sector,” Kingdon said.
“If a fund balance stays around the $50,000 mark then there would be good reasons for an adviser and their client to question the validity of the strategy in the long term.
“However if people are armed with the right knowledge they can make that choice; but SMSF advisers do need to continue to disclose fund fees, especially if the trustees do not do their own administration and sit on a balance for some time, since they will continue to pay fixed costs.”
Kingdon’s comments follow the release of a consultation paper by the Australian Securities and Investments Commission regarding the quality of advice given when setting up SMSFs. The paper, which contains a report on the costs of operating SMSFs, stated that when comparing the cost of an SMSF and the cost of industry and retail funds, SMSFs with less than $50,000 were the most expensive superannuation vehicle available.
Their comparative costs reduced as balances climbed. SMSFs with balances between $50,000 and $100,000 were cheaper than only the most expensive retail personal superannuation plans.
The report stated that “SMSFs of this size would only be appropriate if they are expected to grow to a competitive size within a reasonable time”.
Recommended for you
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
The second tranche of DBFO reforms has received strong support from superannuation funds and insurers, with a new class of advisers aimed to support Australians with their retirement planning.
