SMSFs may pose risk to Federal Budget
The Federal Government may end up holding the baby with respect to failed self-managed superannuation-funds (SMSFs) unless appropriate policies are put in place now.
That is the analysis of CentricWealth's chief executive, Phil Kearns, who warned that the growth of SMSFs could cause problems for retirees and create further strain on the nation's budget if large numbers of the sector's trustees fail to correctly manage retirement funds that are now worth $500 billion, or one-third of Australia's total superannuation assets.
Commenting on the latest research from the SMSF Professionals' Association of Australia (SPAA) showing an additional 1.4 million people are considering the setup of an SMSF over the next three years, Kearns pointed out that the number of self-managed retirees could swell to almost 2.5 million.
"Is it likely that all these people will have the knowledge, experience and time needed to manage their SMSF effectively?" he asked.
"In my view, this could create a number of problems for the individuals and the Government, who may end up financially supporting these people down the track."
Indeed, according to Kearns, many people incorrectly believe running an SMSF is just a matter of getting the investment strategy right.
"Managing an SMSF is no easy task," he said.
"While many SMSF trustees are highly proficient at managing their strategy, compliance and investments, others may not appreciate the complexities involved or the implications of the role of being a trustee."
Natasha Panagis, technical specialist for Centric Wealth, said complex and ever-changing requirements and regulations meant trustees needed to have a very thorough understanding of the rules in order to avoid large fines.
She added that trustees needed to have the time, resources and knowledge to ensure they were abiding by government regulations, maintaining adequate insurance and receiving good investment returns.
"Aside from onerous reporting requirements, there is also the issue of costs," explained Panagis. "It is not uncommon for clients to be paying their accountant over $6,000 a year to administer their fund and ensure correct audit and compliance requirements are followed."
"Some administration providers will quote one headline low fee, but hit the trustee with a range of fees for various products and services," she continued.
"We tell our clients that they need to have at least $500,000 in assets, plus other alternative assets like an investment property, before an SMSF is worthwhile."
However, Panagis said that even if an individual had that level of assets, it didn't necessarily mean they should be managing their own superannuation.
"There is much to be said for relying upon professional advice and spending your time and effort on other areas of your life," she said.
According to Kearns, the Government needs to be providing more to potential SMSF trustees, specifically with respect to education.
"If the Government does not act on this issue now, they could find vast numbers of Australians retiring without adequate retirement savings," he said. "This will mean strain on the nation's Aged Pension budget.
"Ensuring that anyone setting up an SMSF has the right knowledge - or the right support by way of an appropriately qualified financial adviser - is the first step in avoiding the pitfalls of running their own fund."
Originally published by SMSF Essentials.
AUTHOR
Staff Writer
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