The Productivity Commission’s (PC’s) finding that many people have their superannuation in underperforming funds also extends to self-managed super funds (SMSFs), founder of SMSF Benchmarks, Nick Shugg, has said.
Shugg said that many SMSF trustees were disengaged with their funds and had “no idea” how it was performing, nor what they should do were it consistently underperforming.
“Trustees have an obligation to review their investment strategy, but most just pay lip service to that, to satisfy a ‘compliance hassle’,” according to Shugg.
He warned that there could be significant consequences to SMSFs not being managed well.
“It could mean that trustees fail to get the lifestyle they want, and it could mean that the whole superannuation trade-off breaks down. This is a problem for all of us because SMSFs make up a significant part of our economy.”
Shugg was referring to the “trade-off” that he thought the Federal Government applied in handing out tax breaks to save money in super, and thus be more self-funded in retirement, on the trade-off that the Aged Pensions saved should be greater than the tax benefits handed out.
Shugg said, however, that it was not the role of the Australian Taxation Office, which only had the resources and mandate to check if trustees were managing their fund for compliance, to worry about whether trustees were actually doing a good job of managing funds.
Rather, he said that the conversation with trustees needed to change to ensure better performance.
“We don’t necessarily need a compliance ‘stick’. It may be more effective to provide a carrot to lift the average performance of SMSFs,” Shugg said.
“Many self-directed trustees … are often unaware of the range of alternative approaches they could be including in the mix, which may lead to better outcomes.
“We need to change the conversation with trustees, to make it fun and less threatening for them to use benchmarking as part of a Strategic Management Process. If they start to look at how their fund is actually going, they will become more engaged, and open up to discovering other investment approaches, and they’ll be better placed to make good decisions and get better outcomes over time.”