There is debate about whether $1 million is the new "viability threshold" for DIY super. Daniel Kalisz Photographer
The rate at which new self-managed superannuation funds are being established has reportedly hit a 10-year low, amid debate about whether $1 million is the new "viability threshold" for DIY super.
The SMSF establishment rate dropped to 4.8 per cent last year, down from a high in 2010 of 9.3 per cent, according to a survey for investment management company Vanguard.
Survey participants said keeping track of changes to rules and regulations had become their biggest challenge, ahead even of choosing the assets in which to invest.
Regulatory complexity adds to costs, which the Productivity Commission's draft report on competition and efficiency in super found to be relatively high among SMSFs with lower balances.
The commission found low-balance SMSFs performed "significantly worse" than institutional funds because their returns are so heavily eroded by costs.
But SMSFs with balances of $1 million plus were "broadly competitive".
The report acknowledged there were many reasons for setting up an SMSF, including choice and control, and noted many smaller balances might be on their way to becoming bigger funds.
But the findings have set off alarm bells for some.
Berrill & Watson Lawyers director John Berrill said Australian Securities and Investments Commission guidance was for a minimum balance of $200,000, but it was out of date.
"As compliance obligations go up you're more likely to need professional help, which increases costs," he said. "The Productivity Commission has ramped up the viability threshold."
HLB Mann Judd superannuation director Andrew Yee said SMSFs should be considered on a case-by-case basis.
"An individual could have very little in super, but if they have the ability to build it up methodically over time, then they could also be good candidates for having their own SMSF," he said.
The SMSF Association rejected the notion of a $1 million starting balance but agreed SMSFs should be aiming to reach a balance of $1 million for a couple.
"Over time you want your fund to have scale, which makes it more competitive on costs," the association's head of policy, Jordan George said.
The banking royal commission has heard examples of people being advised to set up SMSFs to their financial detriment, or by planners who stood to earn hefty ongoing fees.
REI Super chief executive Mal Smith said people wanting to set up an SMSF should be required to have a minimum start-up balance or complete a competency test.
"It's attractive to say to somebody, we'll give you control of your retirement savings," said Mr Smith, who runs a $1.5 billion industry fund catering to real estate professionals.
"But we've seen a couple of people who've left us and then come back later and said, 'what have I got myself into? I didn't realise the amount of work, the complexities, the legality, it's all too hard'."
Another industry fund, Hostplus, has experienced an increase in net inflows from SMSFs, but Mr George said official data did not show any significant shift from the DIY sector to industry funds.
He said it was important to note that the Productivity Commission found the proportion of low-balance funds had been falling over time.
He said Australian Tax Office data showed that of the SMSFs established in 2012, half reported total assets below $200,000 but by 2016, only 20 per cent were still active.
By Joanna Mather
8 June 2018