Industry leaders opened the SMSF Association’s National Conference with a denunciation of SMSF minimum fund limits, but warned that if the industry can’t come to an agreement on how to fix the issue of low-balance accounts, the government may do it for them.
The panel of executives, hosted by BT general manager of superannuation Melinda Howes, roundly criticised the benchmark $500,000 minimum balance suggested in the Productivity Commission’s report into superannuation efficiency.
“$500,000 is completely arbitrary,” CoreData founder Andrew Inwood said. “The thing that drives people into SMSFs mostly is the desire to manage their finances personally…If you have the will, the intention and the skill to do it, it shouldn’t be a number that stops you.”
The Productivity Commission’s report questioned the efficacy of low-balance self-managed superannuation accounts, noting that while large SMSF accounts earn similar returns to APRA-regulated funds, those under $500,000 “perform significantly worse on average”.
While conceding that a hard-minimum balance was “too blunt an instrument”, the report stated 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 $500,000 figure was a departure from the $1,000,000 benchmark highlighted in the Productivity Commission’s original draft report, which the SMSF Association – among others – rejected as “questionable” and “inaccurate”.
On the panel, Michael Rice, chief executive at Rice Warner, noted that his company had completed research that suggested $200,000 was a more appropriate minimum.
“If you wait until they have $500,000 before you let them set up an SMSF, then they’ll be paying capital gains on the growth of their funds when they move their funds into an SMSF,’ Rice said. “It’s people’s own money, and if they get good advice, then they’ve got a path. I think the amount of money is a factor, but I don’t think we should have a hard limit.”
SMSF Association chief executive John Maroney agreed that capital gains tax implications went some way to validating lower balance accounts. He also denounced the methodology used in the Productivity Commission’s report, calling it a “simplistic analysis” that “didn’t compare apples with apples”.
Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck stopped short of denouncing the $500,000 limit, but did make the point that the issue of inefficient funds with low balances would not go away. If the industry did not address it in some way, she explained, the government would.
“We’re at a crucial point,” Scheerlinck said. “If you don’t take this into your own hand, the government will come in and do it for you with a really blunt instrument that nobody will like.
“That’s the way the government works. Once a problem has been identified, you get a period of time to fix it yourselves, and if you don’t, someone will come in and make a blunt rule – for example, no SMSF under $500,000. You want to do what you can to avoid that.”