Budget may boost SMSF appeal

SMSFs appeal

A number of the 2020 federal budget announcements have the potential to strengthen the appeal of SMSFs, some technical experts have predicted.

Some technical experts have forecast a number of the announcements made in the 2020 federal budget have the potential to to boost the appeal of SMSFs and make them more attractive as the preferred retirement savings vehicle.

According to knowIt Group senior technical manager Rob Lavery, the measure whereby super funds will be required to meet an annual performance test is one announcement that may work in favour of SMSFs.

“Under that proposal, which came out of the Productivity Commission’s report, initially if any MySuper fund – but they are saying they will extend it to other funds, although what the other funds are I couldn’t tell you and I presume that’s choice funds – underperforms whatever the chosen benchmarks are on the first occasion they have to tell their members they’ve underperformed. If they do it twice, they’re not allowed to admit new members until their performance improves,” Lavery explained to smstrusteenews.

“What that’s going to result in is MySuper funds, and presumably choice funds, being really risk averse because the punishment for failing these performance tests is pretty severe.

“So any client who is more aggressive than the chosen benchmark and wants to outperform whatever the benchmark is, is pretty much going to have to use an SMSF or ignore the warnings from their fund about the underperformance.

“So I think it’s going to push SMSFs as the vehicle of choice for people who want to outperform those benchmarks.”

SuperGuardian education manager Tim Miller said the budget initiative stipulating new superannuation funds will no longer be automatically established when an individual changes jobs may not make a significant difference on the surface, but coupled with other legislative changes could also increase the appeal of SMSFs.

“Because the measure is really ultimately talking about transient employees and new employees who are going to have very low super balances, I would think that it would be hard to argue the case that SMSFs will be that stapled super fund for this cohort,” Miller told smstrusteenews.

“However, in saying that if the six-member fund measure comes through, then we may see there would be greater capacity for that.

“So for a family fund with younger family members I can see there being more capacity to use an SMSF in that way.”

With regard to the announcement of additional pension supplements of $250 in December and a further $250 in March 2021, Miller suggested this should trigger a review of SMSF pension strategies.

“The impact that measure will have on self-managed super funds is for people who are looking at stopping and starting pensions, it’s incumbent on them to make sure if they’ve got pre-2015 grandfathered pensions that they don’t take any action in the short term that could disqualify them from the Commonwealth Seniors Health Card and therefore losing out on that $500 stimulus payment,” he said.


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