Political risk a real SMSF danger

When you hear the term political risk it is often mentioned as a factor to take into account when investing in a particular part of the world, such as certain emerging markets. It’s not usually associated with savings plans of modern economies, but that is exactly what we’re witnessing in this country.

Political risk is a factor just as significant in Australia’s retirement savings system as are longevity risk and sequencing risk. And that reality alone seems a little ridiculous as two of these elements are largely out of our control, while one is totally within our control.

I think we’d all agree we cannot dictate how long we are going to live. If we could, we’d never face the prospect of running out of money in retirement as we’d know the exact minute we needed to spend our last cent before we passed away.

And similarly we know inevitably there will be another downturn in investment markets. We just don’t know exactly when it will happen or the magnitude of the event.

However, unlike these areas of risk, political risk in terms of legislation governing superannuation is something we should be able to control through the people we charge with the responsibility of governing the country.

But alas time and time again we are disappointed when we find out our retirement savings and the system regulating them are being used as a political football.

If you needed any confirmation this is really happening, you need only look as far as the two initiatives the coalition government has introduced to the SMSF sector in the past six months – one being the ability of SMSFs to include a maximum of six members rather than four, with the other being the introduction of a three-year audit cycle.

The first measure seems fairly innocuous with the general consensus among the SMSF community that it is unlikely to make a significant difference, at least not in the short term.

The second, however, will make a massive difference to the way the sector operates and has the ability to erode the checks and balances currently present.

The SMSF sector as a whole has left no stone unturned in lobbying the government to convince it that changing the audit cycle is not good policy. It has argued the integrity of the sector is at risk and the objectives of reducing red tape and, in particular, lowering running costs will not be achieved.

In reality though the government is simply not going to listen to the industry or budge on its stance and has admitted as much.

Industry insiders involved in the process have revealed the government has confessed it will be pushing this agenda purely to counter the unpalatable Labor proposal of banning franking credit refunds so it can secure SMSF trustees’ votes. The message being “we’re the good guys for SMSF trustees and Labor are the bad guys”.

The most alarming thing is the government’s attitude toward the policy is clear – it is purely a political play, nothing more, nothing less.

This blatant use of SMSFs as a political football has to end before all confidence in the system is lost. Without this commitment, political risk will continue to be high for all SMSF trustees and all superannuants.


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