Since I started covering this sector back in 2008 I have been constantly amazed at the misinformation published that has had the effect of providing fuel for critics of SMSFs.
And over the past 15 years incredibly very little has changed in terms of the negative narrative making up the anti-SMSF case.
No doubt you would have seen some of it as recently as 2022 with the election of the Albanese government that triggered the all too predictable calls to ban SMSFs from being able to use limited recourse borrowing arrangements. These calls were made with no evidence this type of gearing strategy caused the slightest problem threatening to undermine the sector.
One of the other old chestnuts that has continued to generate debate is the minimum superannuation asset balance a person should have before they can contemplate establishing an SMSF.
Back in 2008 the generally accepted “scientific method” to determining this figure was to use the estimated annual cost of running an SMSF as a base figure and extrapolate the appropriate balance based upon the percentage of the fund’s total asset balance trustees wanted to have this cost figure represent.
For example, if an SMSF was incurring $4000 in administration costs per year and the trustees did not want these expenses to represent more than 1 per cent of the fund’s asset holdings, the recommended minimum member balance at establishment would be $400,000.
But this methodology, while fairly simple to follow, continually sparked contention over the accuracy of the estimated running costs of an SMSF.
For instance government agencies such as the Productivity Commission would include contentious expenses in their analyses such as insurance costs, irrelevant for SMSFs, that would drive up the recommended minimum set up balance. This, in effect, would mean setting up an SMSF would only be appropriate for a small cohort of superannuants.
In fact the Productivity Commission in late 2018 recommended only individuals with $1 million or more in super benefits should contemplate establishing an SMSF only to reduce this figure to $500,000 in early 2019 after receiving a wave of criticism.
The Australian Securities and Investments Commission (ASIC) also adopted this $500,000 asset threshold for SMSF establishments in its industry guidelines.
Then in February 2022 the SMSF Association released research conducted on its behalf by the University of Adelaide that provided some definitive “science” as to the recommended retirement savings amount an individual should have that would make an SMSF a cost effective solution. The study determined this amount is $200,000.
From that point in time the industry body had been in contact with ASIC to have the regulator revise its minimum SMSF establishment threshold of $500,000 to bring it in line with this report.
For the majority of the year ASIC said it was looking into the matter and considering changing its position. Then last month it released Information Sheet (INFO) 274 to provide tips for giving self-managed superannuation fund advice.
The guidance eliminated any reference to a recommended minimum member balance for the establishment of an SMSF stating balance alone is not the only indicating factor as to whether this type of fund is appropriate for a particular person.
The regulator instead said a variety of factors including the risk in switching finds, investment strategy, liquidity and costs should all be considered before setting up an SMSF.
This significance of INFO 274 should not be underestimated as it is one of the few times a government agency has produced SMSF guidance that is not in conflict with just about all of the recognised sector stakeholders.
It could well represent a seminal moment in finally being provided with some accurate and valuable information from industry officialdom. Let’s hope it does.
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