Regulators and policy makers are now in a better position to understand the hugely influential self-managed superannuation segment following the latest Productivity Commission report, but more work needs to be done, according to the SMSF Association’s chairman, Deborah Ralston.
Based on the number of accounts the SMSF segment (1.1 million) is much smaller when compared with industry (11.3 million) and retail funds (12.3 million). However, SMSFs account for the largest slice of the local retirement savings pool – $697 billion – in terms of assets under management, APRA’s latest data reveals.
Despite the size and rapid growth of SMSFs – the segment has grown at an incomparable compound annual rate of 12 per cent in the decade to the end of 2017 – the data relating to how these funds perform and what they cost to run has been broadly misunderstood, Ralston comments.
Ralston, who is also a professor with the Monash University’s department of banking and finance, will present an opening address at the SMSFA’s annual conference in Melbourne in February.
“We are really delighted the PC has recognised the very poor data to do sector comparisons with,” Ralston tells Professional Planner.
Ralston is referring to the decision by the Productivity Commission to revise down the amount it recommended SMSFs have under management to be viable. In its draft the Productivity Commission recommended SMSFs have a balance of at least $1 million, yet in its final report $500,000 was suggested.
Specifically, in its final report, the Productivity Commission recommended that advisers should be prepared to justify to ASIC why they are recommending any SMSF be established with a balance remaining under $500 000 beyond the initial establishment years.
The story behind how the PC arrived at its more inclusive minimum balance level recommendation for SMSFs highlights the poor data that policy makers and regulators have struggled with in the segment to date, Ralston says.
“You often see people quoting very poor rates of return. It was good to see the Productivity Commission recognise that rates of return across the whole sector are pretty good, and in some cases exceed APRA regulated funds,” she said.
Among the submissions to the Productivity Commission highlighting the draft report’s misrepresentation of average returns of SMSFs and in particular returns of small balance funds, super software provider Class’s submission presents an analysis of the different reporting methods used by APRA and the ATO and shows they’re comparing apples with apples.
Karen Chester, who led the Productivity Commission inquiry and has since been appointed as deputy commissioner at ASIC, spent a lot of time in the final report on comparability of data across the various superannuation segments, an issue the industry has been publicly grappling with.
One of the recommendations in the final Productivity Commission report is for the Australian government to establish a permanent superannuation data working group, comprised of APRA, ASIC, the ATO, the ABS, the Commonwealth Treasury and the new member advocacy body to be formed by Treasury.
“There is a huge amount of ignorance about how SMSFs perform,” Ralston notes, adding that the PC’s recommendations on the matter represent a step in the right direction.
While the traditional role of the regulator has been an enforcement body for regulation, Ralston predicts that regulators will increasingly need to become better at collecting and understanding data.
“I think because data is a lot easier to collect these days with big data sets, and because of our need to make sure policy it is evidence based, there is going to be greatly increased emphasis for all regulators to have better data in the future,” she says.
