Tighter regulatory settings and associated enforcement around the provision of advice by accountants and other promoters around the establishment of self-managed superannuation funds (SMSFs) may have acted to constrain the marketing of the sector in recent years, according to the Association of Superannuation Funds of Australia (ASFA).
In its submission responding to the Productivity Commission’s draft report on assessing superannuation competitiveness and efficiency, ASFA has directly questioned the commission’s emphasis on the size of the SMSF sector and switching rates to and from funds regulated by the Australian Prudential Regulation Authority (APRA).
“While the presence of SMSFs helps to demonstrate that the superannuation system is competitive, looking at SMSFs and switching in isolation does not provide a comprehensive picture of competition,” it said.
The submission argued that SMSFs catered to only a relatively small proportion of overall fund members, especially given that their substantial fixed operating costs, and the legal and operational obligations imposed on SMSF trustees, meant that “they are really only viable with respect to relatively large account balances where the members are prepared to assume responsibility for operating the SMSF”.
It said surveys had consistently shown that a key reason for establishing an SMSF related to having greater control over investment decisions, including the timing of acquisitions and disposals and that tax and estate planning also could be important reasons for establishing an SMSF, as could be a desire to place a property or building, used in business activities by one or more fund members, within superannuation.
“For the great bulk of fund members these factors are not significant issues,” it said.
The ASFA submission argued that the size of the SMSF sector was also influenced by factors not related to competition, such as the size of concessional and non-concessional contribution caps, with lower caps tending to impact more on SMSF members given that SMSF members tended to be wealthier on average.
“Tighter regulatory settings and associated enforcement regarding the provision of advice by accountants and other promoters in regard to the establishment of SMSFs also may have constrained the marketing of SMSFs in recent years,” it said.
“It is also worth acknowledging that the SMSF sector’s share of system assets and members has declined slightly over the last few years.”
