APRA-regulated superannuation funds could vie for a larger proportion of the retirement savings pie – particularly among self-directed superannuants – if they were willing to innovate more, says Michael Rice, chief executive of consulting firm Rice Warner.
Specifically, Rice pointed to the opportunity funds had to appeal to the more engaged fund members by allowing married couples to pool their retirement savings into one account. SMSFs enable couples to pool assets, while APRA-regulated funds do not.
“While the law requires fund managers to keep separate accounts, funds could still allow assets to be pooled,” Rice tells Professional Planner in advance of participating in a panel discussion to open the Self-Managed Superannuation Fund Association National Conference. “The problem is, most funds aren’t strong enough at administration and innovation in this area is limited.”
Rice will join Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck, SMSF Association chief executive John Maroney and CoreData founder Andrew Inwood to discuss “What role should SMSFs play in Australia’s superannuation system?” on Wednesday morning.
Rice points out that close to 90 per cent of the 1.1 million Australian Taxation Office-regulated self-managed superannuation funds in existence are accounts set up by married couples who have pooled their assets. Allowing married couples to combine their accounts is a bit of a no-brainer for APRA-regulated funds, Rice reckons.
About 70 per cent of Australians are married at the time they retire, Rice notes.
“One of the advantages for funds of having accounts for both partners is that it will be easier to provide accurate benefit projections and to provide better information on which to deliver any financial advice,” Rice notes. “At present, most benefit projections from funds are based on individuals, so only about 30 per cent have any accuracy and even these are subject to variability based on the assumptions used.”
Given the predominance of married couples who have pooled their assets to start up an SMSF, it’s clear the structure appeals to this cohort, Rice adds.
SMSFs need at least $500,000 – preferably more – to be viable, the Productivity Commission pointed out in its report, which was released this year.
“There’s no doubt starting an SMSF is a risk because many trustees and members probably don’t have the scale or the expertise to manage their own superannuation thoroughly, but for larger accounts [$1 million or more] there’s no reason SMSFs can’t outperform APRA-regulated funds,” Rice says. “To appeal to this self-directed set, APRA funds need to allow [spouses] to combine their assets into one account.”