The SMSF Professionals’ Association of Australia (SPAA) will provide compelling evidence to the second round of the Financial System Inquiry (FSI) consultation as to why there should be no barriers to establishing a self-managed super fund.

In the FSI’s interim report, handed down today, it stated it wanted further information on the operating costs of SMSFs and whether there should be any limitations on the establishment of SMSFs.

SPAA CEO Andrea Slattery says: “It has been SPAA’s long-held position to oppose limitations on establishing SMSFs, especially conditions linked to starting balances of SMSFs. The choice to establish an SMSF is based on individual factors and a blanket rule on conditions of entry simply wouldn’t work.

“The same issue was raised during the Cooper Review into Superannuation, and its final report, handed down in July 2010, comprehensively ruled out imposing any barriers to entry – and SPAA would expect the FSI to reach the same conclusion.

“We will be providing the FSI with detailed information about the operating costs of SMSFs, such as:

o Although they can seem high when SMSFs are established, operating ratios fall quickly as funds grow;
o Operating figures can be distorted by the fact that cost-to-asset ratios of SMSFs are only captured at the end of the financial year in ATO statistics, distorting figures as new SMSFs are set up towards the end of the financial year;
o SMSF compliance costs are significantly reducing, particularly through technology efficiencies and competition;
o The cost of financial advice can be included in SMSF costs, again distorting operating costs as individuals choose to get professional advice.

“SPAA believes that the issue on costs can be resolved by trustees having access to advisers with better knowledge and understanding of SMSFs so they can have meaningful discussions on how having an SMSF will fit their individual circumstances. And as statistics from the ATO and APRA demonstrate, SMSFs perform well in the market.”

SPAA notes the interim report’s comments that leverage by superannuation funds “may create vulnerabilities for the superannuation and financial systems”.

Slattery says: “In its submission to the FSI, we said that the use of gearing by SMSFs is being done ‘sensibly’ and was only used be a very small percentage of SMSFs; 0.5% to be exact.

“In addition, most loans made to SMSFs are being made with responsible lending practices. Banks have tighter lending policies and have experienced lower levels of default with this type of credit facility as compared with loans made for other purposes.

“SPAA also believes any changes to the use of borrowing by superannuation funds should be targeted at the ‘fringes’ of the superannuation borrowing market and concentrate on inappropriate promotion of borrowing in superannuation funds,” she says.

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