SMSFs pose retirement risks

The operational risks associated with self-managed superannuation funds (SMSFs) as retirees age and are no longer capable of managing the funds have not been adequately addressed, according to new research released by Financial Services Institute of Australia (FINSIA).

The research, which took the form of a health check of Australians’ financial wellbeing in retirement, warned that while plenty of attention had been directed at retirement incomes as a result of the Ripoll Inquiry and the Cooper Review, the average Australian remained largely apathetic with regard to their superannuation arrangements.

Commenting on the research, FINSIA chief executive Martin Fahy said the disconnect between Australians and their retirement needs could be attributed to complexity and information overload.

“While the Cooper super system review provides significant opportunity to make positive changes, the Government must be conscious not to cause greater confusion and complexity in the reform process,” Fahy said. “Paradoxically, just as poor decision-making in relation to retirement can often be due to a lack of available information, there is also a risk of further disengagement by offering too much choice.

Dealing with the question of SMSFs, Australian Centre for Financial Studies director Professor Deborah Ralston said that in developing policies to deal with financial wellbeing in retirement it was critical that longevity, investment and operational risks were identified and addressed.

In doing so, she cited SMSFs and said they faced considerable challenges in the retirement versus accumulation phase.

“Current policies have not adequately been directed towards the operational risks associated with SMSFs as retirees age and are no longer capable of managing their own superannuation funds,” Ralston said.