Minimum $1 million balance for SMSFs “simply rubbish”

SMSF costs are competitive, if you get good data, according to software company BGL.

There has been growing concern that the Productivity Commission may recommend a minimum balance in order to have an SMSF, driven by seemingly high costs.

However BGL says the Productivity Commission is using “outdated and incorrect data”.

BGL extracted data from its Simple Fund 360 database – which includes over 165,000 SMSFs – and found that costs for SMSFs are competitive.

BGL Managing Director Ron Lesh said the data used by the Productivity Commission is “simply flawed”.

“Our data clearly shows the administration cost for funds with balances of less than $200,000 is around 1% and as fund balances grows this percentage drops significantly,” he said.

Data from BGL was also used by the SMSF Association in its Productivity Commission submission, which criticised the methodology used by the Commission.

Related: Productivity Commission’s SMSF findings “fundamentally flawed”

“The suggestion that a SMSF needs a starting balance of $1,000,000 in the AFR this week is simply rubbish,” said Mr Lesh.

“My view has always been you cannot put a minimum cap on how much is needed to set up an SMSF. It is simply not possible.”

“The circumstance of people are all very different. You may have a guy who is 40 years of age, has a balance of $80,000 in an industry fund who decides to move to SMSF. Some people would say – hey that’s not enough to set up an SMSF. But the same guy is then going to make a non-concessional contribution of $100,000 the next year, make his $25,000 concessional contribution and buy a property with an LRBA.”

“Does he now have enough in his SMSF?

“Or the guy may not have $100,000 to put in his SMSF, so he invests the $80,000 plus his $25,000 concessional contributions in listed securities – in Australia and overseas. What’s wrong with that? This likelihood he is would still be better than being in an industry fund – and he would know exactly where his money is invested and exactly to whom he is paying fees.”

BGL will be releasing its BStar SMSF Insights Report in mid August, with an Executive Summary of the report released at the BGL Regtech 2018 | Accountants in BETA conference – which starts today in Sydney, with other cities to follow.

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