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Productivity Commission questions value of SMSFs under $500,000

Superannuation  |  11/01/2019  |   5 min read

Self-Managed Super Funds (SMSFs) with assets of less than $500,000 perform ‘significantly worse’ on average than regular super funds, according to the Productivity Commission’s final report into the industry released on 10 January 2019. It said larger SMSFs have delivered returns similar to Australian Prudential Regulation Authority (APRA) regulated funds.

The Commission said there were around 380,000 members in smaller SMSFs that have been established more than two years, representing about 42% of all SMSFs.

“Some of these members may be benefiting from high returns or tax advantages but, on average, they are paying relatively high costs and facing low net returns,” it reported.

“When a member is being advised to set up an SMSF, the adviser should be required to give them a document that clearly explains key issues they need to consider (‘red flags’) in deciding whether an SMSF is right for them."

“A minimum balance is too blunt an instrument, but advisers should be prepared to justify to ASIC why they are recommending an SMSF be established with a balance remaining under $500,000 beyond the initial establishment years,” the Commission added.

Profit-to-member funds like Equip are seeing more members who find running their own SMSFs is challenging and not delivering the results they expected. Some inquiries are from surviving partners in SMSFs, who had little to do with setting them up and feel ill-equipped to continue running them when their partner dies.

Equip Financial Planning offers a service to handle the complexity of unwinding an SMSF that is no longer wanted, enabling people  to roll their money into an Equip account.

Equip’s Executive Officer, Member Engagement, Camille Magee, says the Productivity Commission report identifies the cost of a typical SMSF has risen, despite the increasing number of platforms available to support SMSF trustees.

“The Commission says the annual cost for an average SMSF member rose from around $5,300 in 2013 to $7,200 in 2016,” she says.

“For a member with a benefit of $500,000, this represents an annual cost of 1.4% of the assets in their fund and this increases for smaller account balances. For a member with $100,000 in their SMSF, it amounts to 7.2% per annum. In many years, this will exceed their investment earnings.”

The cost of an Equip account based pension invested in the Conservative investment option with a balance of $500,000 would be 0.52.% per annum, or $2,580, assuming no change in the account balance over 12 months.*
 

If you would like to know more about Equip Financial Planning’s SMSF wind-up service, you can click here, or call 1800 065 753.

 

*Based on estimated costs as shown in our PDS dated 1/07/2018 for Equip Account Based Pension. 

Equipsuper Pty Ltd (“Equip”) (ABN 64 006 964 049, AFSL 246383) is the Trustee of the Equipsuper Superannuation Fund (“the Fund”) (ABN 33 813 823 017, MySuper Authorisation 33813823017672). This document provides general information only. It does not take into account your personal objectives, financial situation or needs, so should not be taken as personal advice. Before making a decision to invest in the Fund, you should read the appropriate Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Equip is licensed to provide intrafund personal and general superannuation advice under its AFSL. Member Advisors are employees of Equip. For more information about the remuneration of Equip and its employees, please refer to the Equipsuper Financial Services Guide (FSG).

Equipsuper Financial Planning Pty Ltd (“EFP”) (ABN 84 124 491 078, AFSL 455010) is licensed to provide financial planning services to retail and wholesale clients. EFP is owned by Equipsuper Financial Holdings Pty Ltd (ABN 11 604 515 791). You can obtain the EFP Financial Services Guide and/or Privacy Statement by contacting our Helpline 1800 682 626.

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