At the SMSF Association national conference in Melbourne in February, Tax Commissioner Chris Jordan rather let the cat out of the bag. But it wasn’t as ferocious a feline, as had been foreshadowed.

Jordan gave the ATO’s latest figures on the numbers of very-high-balance self-managed super funds – those “high-income tax minimisers” against whom Treasurer Scott Morrison railed so fervently last year, as the government worked on its new super rules.

The tax commissioner said there were now 2500 funds with assets of more than $10 million, up 300 since 2015. That means there are 2500 SMSFs – out of a total of more than 580,000 funds – with assets over $10 million, or not even 0.5 per cent of funds. And given that, as outgoing SMSF Association chief executive Andrea Slattery pointed out, most of these funds had the full four members in them – so the ATO’s numbers were not pointing to individual balances of that size.

Jordan also said ATO data showed there were about 5000 SMSF members, out of 1.1 million, who had a balance of more than $5 million, as well as 400 Australian Prudential Regulation Authority fund members with a balance above $5 million.

And at the very top end, there were still six funds with balances over $100 million. But these SMSFs – which have family-office-style firepower – are accidents of history and past legislation.

From days gone by

“Those SMSFs on the larger size put things in there a long, long time ago and locked it up – they had sufficient funds at the time and were willing to lock up that money for decades and it did grow, and they tend to be people in their 80s,” Jordan told the SMSF Association conference.
These mega-funds represent “a problem that will literally die out,” says Jordan George, head of policy at the SMSF Association.

“There are very few really large SMSFs, and they are very much a product of people who made significant contributions before the current limits applied, and also were fortunate enough to invest very well. It’s no longer possible to accumulate such large balances under the more recent set of rules, and we won’t see their like again,” George says.

A misconception guiding policy?

Despite this, the government clearly fixated on the mega-funds as it went about deciding on the new rules.
“When Australians see the government supporting the accumulation of enormous superannuation fund balances in a tax-preferred (and in retirement, tax-free) environment, that does undermine confidence in the system,” Morrison said in November 2015. “Super should not be seen as an open-ended savings vehicle for Australians to accumulate large super balances in a tax-preferred environment, well in excess of what is required for an adequate retirement. It is not an estate planning vehicle, nor was it ever intended to be,” he said.

The mega-funds go well beyond what the government is talking about in terms of the objective of superannuation – its legislation describing super’s purpose as “to provide income in retirement to substitute or supplement the age pension” is being reviewed by a Senate inquiry.

“The government has made it very clear, and this is still its position, that superannuation is not a wealth-creation vehicle. You can look at these very large funds and they are a very obvious target of that kind of talk, and I think those funds have had anecdotal influence on the SMSF sector over the years,” George says.
A misconception has definitely arisen about the SMSF sector, he says, that huge funds are common.

“From our point of view, it has been great to see the tax commissioner clarifying the actual numbers, and showing that we’re really only talking about a very small number of funds,” George says. “We think the important point to take from the ATO’s figures is that SMSFs are really not a vehicle for the super-rich to shelter assets from tax.”

What’s more likely, George says, is that the government has targeted its policy at SMSFs with balances of about $2.5 million.

“We think that level of fund has had a greater influence on the policy. This has been a far further-reaching package in trying to limit the concessionality for super on contributions than what we’ve seen before; but also limiting the concessions for large balances in retirement – which is something we haven’t really seen before [either].