The SMSF Association has thrown its support behind research from sector administrator Class showing the cost-effectiveness of SMSFs, stating it was more realistic than the numbers used by the Productivity Commission (PC) in its recent report.
Class provided a submission to the commission showing SMSFs with balances under $500,000 were as cost-effective as Australian Prudential Regulation Authority (APRA)-regulated superannuation funds if the ATO’s measure for items such as contributions tax and insurance were excluded in the cost comparison. Details of the submission were released after the commission’s final report was published.
SMSF Association chief executive John Maroney said in choosing to include all the items the ATO classified as costs relevant to an SMSF, “the commission has adopted an ‘apples and oranges’ methodology when it comes to measuring expenses between the different superannuation sectors, and in doing so has cast SMSFs in a negative light, especially those with lower balances”. Maroney said the significance of the research provided by Class cannot be understated as it “succinctly” explained how the commission used ATO expense figures, without adjustment for items such as insurance, interest, and capital works and depreciation, as the measure of SMSF fees.“Although ATO expenses are relevant for accounting and taxation purposes – the primary reason it collects this data – the figures are very different from the fees calculated by APRA, which measure the operating and investment costs associated with funds,” he noted.He added the inclusion of these expenses in the commission’s final report had the effect of nearly doubling the true costs of SMSFs with net assets of less than $500,000, but the Class research provided a better basis to make a cost comparison. “Quite clearly this research demonstrates that SMSF cost structures are not a reason to stop people from setting up an SMSF, and that when the comparison with APRA-regulated funds is done on an ‘apples and apples’ basis, then SMSFs can be competitive on fees – even below $500,000,” he said.