Self-managed superannuation fund leaders are calling for more policy debate around the longevity of superannuation, as the ageing population sparks concerns about how the industry will adapt.
Industry experts speaking at a CPA Australia conference on SMSFs said the SMSF sector will change greatly in the next five to 10 years, signalling administrative and licensing reforms and lower costs, but also forecasting potential problems as the majority of SMSF holders enter old age.
Speaking at the conference last Friday, Frank Gayton from Industry Fund Services says some SMSF holders, who are getting older and are faced with health problems such as dementia, are now seeking advice and looking to move into an industry fund, rather than a SMSF.
“For many people, SMSFs become a wonderful opportunity, but for many others we’ve seen them become a total complete burden.
“SMSFs are probably a bit of a fashion at the moment. As people get older, they get to a stage where perhaps they’re not able to make the decisions,” he says.
Gayton says the industry funds are concerned too many people are starting SMSFs who do not have the financial knowledge to run a fund.
“Industry funds feel there are many people in SMSFs who shouldn’t be. They’ve been sold a product on the principle of having control, when in reality some of them do not have the ability to make an informed judgement about what that actually means.
“We’ve seen too many instances where former industry fund members have been convinced to move into SMSFs by advisors, some with balances as small as $10,000, to move into a SMSF and unfortunately there has been a lot of mis-selling and mis-investment as a result,” he says.
Australian Taxation Office commissioner for SMSFs, Stuart Forsyth, said there is a need for more in-depth policy debate about the longevity of the superannuation sector and government funding.
Forsyth says as members get older, attention should be directed to “reinvigorating” the industry superannuation fund sector as many members will turn back to these types of funds.
“If you look at the longevity side of things, at some point you’ve got to make a call on whether you can put more money aside to cover the terrible risk that we’re all going to live to long.”
SuperIQ chief executive Andrew Bloore says SMSFs are here to stay, but people need to realise there is a time to establish an SMSF and a time to leave the sector.
“Superannuation is here to stay as an area of retirement savings and as balances grow we get to a point where people need and want more ability to do different things. But then as people get older we need to then say, I need to move out of that [an SMSF] and back into other areas of super.
“So what we are seeing in the tension between the different areas is in where those lines blend, and when should you and shouldn’t you be in SMSFs or in industry funds or in other funds,” he says.
The SMSF sector in Australia is nearly a third of the whole superannuation market and over the last decade SMSFs have increased in value from $83 billion to $474 billion.
Within the next decade it’s expected the sector will reach $3 trillion.
Forsyth says the rapid expansion of the sector has resulted in a “changing culture” and within the next five to 10 years there will be some major changes in the management of investments.
“We need to do a lot more work on investment products, in particular longevity products. There is scope, if we’re to become the Switzerland of the South Pacific, for a lot more work to go into bond type products to provide annuity streams of income to people in retirement,” he says.
Bloore says administrative costs for SMSFs have been lowered to the point where it’s no longer profitable to do the work, but in the future this is set to change.
“Administratively things are going to change, we must now become more efficient with the way we do administration… to rebuild some profit back in the sector,” he says.
