SMSF investment returns outperform APRA funds, Class finds

SMSFs are actually outperforming APRA-regulated super funds, despite initial findings of the Productivity Commission to the contrary, Class Limited has found.

Class says that a “like-for-like” Return On Assets (ROA) calculation shows an average 5.59% return for SMSFs compared to 4.98% for APRA funds over a 10 year period.

On a Rate Of Return (ROR) basis SMSFs averaged 6.71% versus 5.58% for APRA funds.

The methodology used in comparing the returns of SMSF and APRA funds in the draft report by the Productivity Commission on the efficiency and competitiveness of the super system has been criticised by Class Limited and other organisations. Class says this does not reflect on the quality of the Commission’s work, but is a “poor performance” by APRA and the ATO in being unable to agree how to report performance in the super industry.

“The competing approaches used to report super performance deliver significant differences and given the dual regulators are responsible for an industry worth over $2.5 trillion, it’s time for APRA and the ATO to agree on a consistent approach to fund performance reporting,” said Class CEO Kevin Bungard.

Class says the ROA formula used by the ATO is “conservative” and will always produce a worse result than APRA’s ROR formula. In part this is because contribution tax and insurance is not treated as an expense in APRA’s calculations, but they are by the ATO’s formula.

The Productivity Commission recently released a supplementary analysis of super fund investment performance, which takes on board these concerns.

“For the 10-year period the Commission’s Report covers, on average, SMSFs outperformed APRA funds on a like-for-like basis regardless of whether ROA or ROR is used,” said Class, in its latest Benchmark report.

Since the Productivity Commission released its draft report the ATO has provided ‘revised’ ROR figures, but some issues remain.

Class is encouraging the ATO to also perform long-term analysis on the performance date of SMSFs to help answer questions about the expenses and returns of small SMSFs.

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