The SMSF Association has taken issue with the Productivity Commission’s draft findings about the cost effectiveness of self-managed super funds (SMSFs), arguing the evidence used to reach this conclusion is “fundamentally flawed”.
And the Commission’s focus on costs also fails to consider the broader motivations on why individuals set up SMSFs, says SMSF Association Acting CEO Jordan George.
In the Association’s 42-page submission to the Commission’s Draft Report, it argues that factors such as data problems, investment return calculation methodology and the retirement demographics of SMSFs compared with APRA-regulated funds should rule out the Commission concluding that SMSFs with FUM under $1 million are not cost effective.
“In addition, ATO cost and return calculations include SMSF establishment and advice costs that vary considerably to the costs incurred by APRA-regulated funds, in the process distorting SMSF returns, especially for new and lower balance funds.”
For the Association, the final nail in this coffin is the Commission’s concession in the Draft Report that there are issues with comparing APRA-regulated funds and SMSFs.
As part of its submission, the Association presented alternative data on SMSF costs and investment returns that draw a far different conclusion to the Commission’s findings.
In particular, it cited data from BGL Pty Ltd, a provider of SMSF administration software, that was collected from 92,284 SMSFs, that showed SMSF investment and administration costs lower than the ATO figures.
Taking 2016, BGL administration costs for SMSFs between $0-$200K were 1.02 per cent, a figure that falls to 0.61 per cent for funds between $200-500K, and then to 0.39 per cent for funds between $500K-1m. In stark contrast, the ATO figures for these three categories of SMSF were 5.59 per cent, 1.38 per cent and 0.80 per cent, respectively.
On investment costs, BGL has the figures at 2.38 per cent, 1.22 per cent and 0.78 per cent, respectively, while the ATO numbers are 4.22 per cent, 1.86 per cent, and 0.78 per cent, respectively.
As the Association said in its submission, “these numbers present a very different perspective to the Commission’s view on the viability of SMSFs as discussed in the draft report and lends credibility to the current industry belief that SMSFs can be cost effective if established with a balance of around $200,000.
“In particular, establishment costs are not reflected in these figures and we believe that the figures reported through SMSF administrative platforms by accountants are more accurate than ATO data due to the more accurate and timely data entry.”