Is there a conspiracy against Self Managed Super Funds?

I’m seeing more and more investors taking control of their financial future and setting up a Self Managed Super Fund. I know I’ve run my own SMSF for over 25 years.

But lately there seems to be a conspiracy against these funds by vested interest and it’s been fanned by the media according to finance commentator Peter Switzer.

He writes the following in Yahoo Finance:

Vested interest groups are joining with some well-meaning people who might have some reasonable concerns, but it has become a hype-fest.

There is a conspiracy against Self-Managed Super Funds and it has to stop! It’s like a fire started by those funds that fear the growth of SMSFs and it has been fanned by an easily-influenced media who are desperate for sensational stories in a post-election news drought.

It was made worse by the fact that Tony Abbott, in the early days of his election victory, was playing the cone of silence card believing that both business and consumer confidence would be better served if Government was not continually in the news for the wrong reasons. I have to confess that it sounds like a sound strategy to me.

So what we have are vested interest groups joining with some well-meaning people who might have some reasonable concerns about the wrong people in SMSFs at a time when a housing bubble could eventually happen. However, the numbers involved are so small that this has become a hype-fest. It reminds me of Bob Dylan’s old song, Hurricane, where the words go:

“Bello and Bradley and they both baldly lied,

And the newspapers they all went along for the ride.”

 

The facts

Okay, that’s enough for my “return fire” stuff, so let’s look at some facts to hit some of these anti-SMSF bouncers for a six.

A study by Deloitte actuaries Russell Mason and Wayne Walker found the following:

• Our current super system of $1.62 trillion will go to $7.6 trillion by 2033.
• 12% compulsory super isn’t enough for a comfortable retirement but 15% is, so you might need to make salary sacrifice or non-concessional contributions to be materially safe after you end work.
• The actuaries say the concessional caps would be better if they were higher and it would reduce the 81% of Aussies who pocket a pension — full or part.
• Aussies over 65 will increase 75% to 5.8 million by 2033.

• Delaying retirement by five years could pump up the average super balance by about $550,000 and you can thank the compound interest effect for that!

 

Cashflow positive

But this was the huge point from the study for anyone sick of SMSFs being bagged — Wayne Walker says the Australian super system from the Government’s perspective, which means super tax in and super concessions out, will be cashflow positive within 20 years.

So the wealthier SMSF trustees are NOT the pariahs who are breaking Treasury’s coffers, which was the Treasury-pedalled story under the Gillard Government over the past 12 months.

Deloitte says it’s average wage earners who are populating the pension system and that’s why Government should be encouraging greater contributions via bigger caps on concessional contributions or with higher compulsory contributions.

I would also argue that getting into a SMSF leads to greater engagement with your super and that will be good for the super system as well.

 

Housing bubble talk

Adding to the media pressure on SMSF trustees has been this housing bubble hype.

The media seems to be suggesting that SMSFs are adding to a housing bubble, which at the moment does not exist.[sam id=32 codes=’true’]

These second-rate writers ignore the small proportion of loans going to SMSFs — under 2% — and they also ignore the fact that a lot of these people would buy investment properties outside of super if it were not slightly more attractive inside super.

So the higher house price effect is marginal and it comes when the lack of first homebuyers is historically significant, which puts downward pressure on prices.

The simple story is that APRA funds — industry and retail funds run by financial institutions — are all worried that they are losing their best customers with high balances to the SMSF sector. These groups understandably would gild the lily by looking at what could go wrong with SMSFs, and the media is going along for the ride.

 

Spruiker concerns

Ironically while APRA has shown some concern about SMSFs getting into property, as has ASIC, and even the Reserve Bank has shown some interest in the issue, the ATO, which actually runs SMSFs, is comfortable with the sector!

All groups are worried about property spruikers and so am I, but there are also stock market and bond fund spruikers out there and I haven’t seen any newspaper articles on these groups!

A further irony is that a recent Rice Warner study showed SMSFs outperformed professional fund managers by 3% over a seven-year comparison period! These were gross of fees figures, and so when you throw in the fees, there’s a very big case for sensible people, with wise investment strategies and with good balances in their funds, to consider a SMSF. And that’s why there’s a conspiracy to bring them down.

By the way, if property spruikers are misbehaving with SMSF trustees, well, let ASIC get in and hit them for a six.

 

Keating’s observation

With the racing season hotting up over the next couple of months, it is worthwhile remembering what Paul Keating once observed: “In a two-horse race, always back self-interest because at least you know it’s trying.”

[post_ender]



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About

Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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