The recent report by the Productivity Commission into superannuation has been criticised as not properly comparing the fees of SMSFs and larger APRA-regulated funds, with fees for SMSFs under $500,000 in assets potentially double the true figure.
SMSF Association CEO John Maroney said the Commission “has adopted an ‘apples and oranges’ methodology when it comes to measuring expenses between the different superannuation sectors, and in doing so has cast SMSFs in a negative light, especially those with lower balances”.
He pointed to statements by Class Ltd, which also made submissions to the Commission. Class welcomed the modifications made by the Productivity Commission from its draft report, but said that more work was needed as the research findings hadn’t been fully reflected in the final recommendations.
The ATO was a source of much data on SMSFs for the Productivity Commission. Class says the Commission only partially adjusted the ATO’s measure for contributions tax and insurance and used the ATO’s ‘expenses’ without adjustment.
Class said: “However, there are a number of items which the ATO classifies as expenses that are not actually fees. These include 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.”
“The second submission from Class to the Productivity Commission highlighted that by incorrectly combining expenses and fees, the Commission had overstated SMSF costs across all fund sizes. In particular, the expenses quoted by the Commission for SMSFs with less than $500,000 in net assets were close to double the true costs.”
The draft report of the Productivity Commission had suggested that SMSFs under $1 million in assets were not cost-competitive with APRA-regulated super funds. By the final report this threshold had dropped to $500,000.
Maroney agrees with the analysis by Class. “Quite clearly this research demonstrates that SMSF cost structures are not a reason to stop people from setting up an SMSF, and that when the comparison with APRA-regulated funds is done on an ‘apples and apples’ basis then SMSFs can be competitive on fees – even below $500,000.”
“In saying this it’s not an argument that everyone should have an SMSF. The Association has never maintained that. What we do say is that people who want to take control of their superannuation should be allowed to do so, especially when they are receiving sound professional advice.”
“That is why we are supportive of the Commission’s recommendation to introduce specific SMSF education requirements for SMSF advisers.”
Class Ltd acting CEO Glenn Day said: “Industry discussion continues around the need for increased member education when establishing SMSFs, and the reality that SMSFs are not suitable for everyone. However there remains a separate need to understand the economic efficiency and viability of operating SMSFs at various net asset levels, using like-for-like comparisons and measures to avoid drawing incorrect conclusions on returns and costs, particularly for smaller SMSFs.”
The Government is waiting on the final report of the Banking Royal Commission before responding to the recommendations of the Productivity Commission.