The superannuation fund for the real estate industry has called for stricter controls on the establishment of self-managed superannuation funds (SMSFs) with small account balances.
It follows the release of the Productivity Commission’s draft report on superannuation, which finds that SMSFs with low account balances perform “significantly worse” than APRA regulated funds.
The Productivity Commission’s draft report confirms recent Australian Tax Office data on the performance of SMSFs, which show that very low balance SMSFs are unsustainable – often delivering negative returns – and that a lack of scale is a major risk to members.
REI Super is calling for new rules to make it harder for people with under $200,000 in their super to set up an SMSF.
The Productivity Commission’s draft report found that “many smaller SMSFs (those with balances under $1 million in assets) have delivered materially lower returns on average than larger SMSFs.” (draft finding 2.2)
It found that “costs for low-balance SMSFs are particularly high, and significantly more so than APRA-regulated funds. These high costs are the primary cause of the poor net returns experienced by small SMSFs on average.” (draft finding 3.3)
It comes on top of devastating evidence before the Royal Commission into the Banking and Financial Services Industry earlier this month, of financial advisers pushing people with small superannuation balances into SMSFs, without considering whether or not it is in their best interest.
REI Super CEO Mal Smith said the ATO data showed that approximately one in five SMSFs have account balances of $200,000 or under. (Source: ATO, SMSF statistical report, September 2017.)
“This is a significant proportion of the superannuation industry to be subject to such considerable risk.
“The data is clear, and shows that you need an average of $2 million in your SMSF until you start to match the returns of APRA regulated funds.”
Mal Smith said the fund had recently spoken to several REI Super members who set up an SMSF, only to return to the fund after realising it was a mistake – due to low returns and hidden costs.
“One member with an account balance of $100,000 was advised to go into an SMSF by her accountant.
“Another member was given bad advice and set up an SMSF with her husband with a combined account balance of $300,000.
“Like the other members we spoke to, they have returned to REI Super, where they have told us they are better off.
“They told us they were not prepared for how hard it was, how much time it took, and how much expertise was required to make informed investment decisions.”
Mal Smith said it shouldn’t be as easy as it is to set up an SMSF when good returns on low balances are on average not achieved.
“Changes to SMSF rules would help prevent financial advisers from encouraging people into an SMSF when it is not in their best interest.”
SMSF returns (by account size)
| Average balance |
2013 |
2014 |
2015 |
2016 |
| $1 - $50k |
-17.28% |
-12.51% |
-17.38% |
-16.70% |
| >$50k - $100k |
-5.17% |
-2.78% |
-6.84% |
-7.28% |
>$100k - $200k
|
0.83% |
1.55% |
-1.02%
|
-3.28% |
| >$200k - $500k |
6.36% |
5.88% |
2.45% |
-0.02% |
| >$500k - $1m |
9.31% |
8.33% |
4.60% |
1.37% |
| >$1m - $2m |
10.64% |
9.59% |
5.70% |
2.15% |
| >$2m |
11.59% |
11.29% |
7.52% |
4.27% |
Source: “Self Managed Super Funds, A Statistical Overview 2015-2016” - ATO 2017.
Media contact: Rebecca Nicholson – 0409 216 053
Past returns are no guarantee of future performance, and investment returns of less than one year should not be relied upon as any guide to future performance. This information may be general advice, which does not take into account your personal objectives, situation or needs. Before making a decision about REI Super, consider your financial requirements and refer to the relevant Product Disclosure Statement (PDS). REI Superannuation Fund Pty Ltd ABN 68 056 044 770, AFSL 240569, RSE L0000314 Trustee of REI Super (ABN 76 641 658 449), RSE R1000412