Editorials

A turning point maybe

ATO SMSF cost data

New ATO data has provided better insight into the actual running cost of an SMSF and refuted claims they are too expensive compared to other funds.

Last week a potentially game-changing event occurred in the SMSF world: the ATO released its statistical overview of the sector for the 2018 financial year.

While reading this you’re probably thinking what the big deal is, seeing the ATO has obviously published this type of data before. The difference is this time around the regulator has aggregated the statistics in a more granular way, making the data infinitely more meaningful.

This represents a significant transformation in one particular area and that is the figures showing how much it costs to run a standard SMSF.

Previously, all expenses involved with having an SMSF were lumped together and this data set was used to calculate the average associated running costs.

It meant the statistics were skewed by the expenses incurred for funds with assets in excess of $2 million and certain items, such as investment fees, insurance fees and interest, were thrown into the mix – expenses that were not applicable to the majority of SMSFs.

Refreshingly the latest statistics have properly separated ‘Administrative and Operating Expenses’ to allow the category to include only things such as the approved auditor fees and management fees as reported in the annual return.

This new granular detail allowed the SMSF Association to determine the median operating expense of running a fund was $3923 for the 2018 financial year.

You still may be wondering why this is significant. Well, while not indicative for this sector, running costs is one criteria that has been used constantly in comparisons between SMSFs and other types of superannuation funds – in particular industry funds.

But the running cost figure for SMSFs was always based on an average figure polluted by the unrepresentative expense items detailed above.

I and other SMSF commentators and stakeholders have been highly critical of the process in the past because it has led to some unbelievable cost figures and subsequently even more far-fetched conclusions about who should have a self-managed fund and how much money you would need to make it viable.

Two recent examples of this spring to mind. First is the Productivity Commission finding at the start of last year stating SMSFs with a balance below $500,000 perform on average “significantly worse” than other types of superannuation funds.

It went on to originally recommend it was unviable to establish an SMSF unless you had a minimum asset balance of $1 million. It was forced to revise this amount to $500,000 – better, but still too high.

Anyone with a reasonable knowledge of SMSFs would know these thresholds are unrealistic and nonsensical. But how were they arrived at? They usually come from an extrapolation of an original average cost number, so you can see the effect an inaccurate SMSF expense premise can have.

The second example of a ridiculous SMSF running cost figure was that included in the Australian Securities and Investments Commission SMSF Fact Sheet released late last year. The regulator stated the average yearly SMSF expense level is $13,900 – an overinflated figure in anyone’s language.

Hopefully these new granular statistics will mark a turning point in the way SMSFs are assessed and compared with the remainder of the superannuation industry.

A more accurately documented cost structure should provide less ammunition for the constant criticism from self-interested parties, such as industry funds, and result in a better understanding of the sector and in turn better regulation and legislation implemented for it.

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