Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law, has today reinforced his support for the growing self managed superannuation fund (SMSF) sector and highlighted areas where the governance of the sector might be improved in the near future.
In a speech to the SMSF Professionals Association of Australia conference in Brisbane today, Minister Sherry said the SMSF sector had grown to over 370,000 funds holding around $300 billion in assets.
"The SMSF sector is an important part of the superannuation architecture in Australia and I strongly support the ongoing role it plays. But we have to be ready to face up to some of the issues we see in the sector," Minister Sherry said.
As part of his initial assessment of the sector Minister Sherry highlighted the Government's concern that some SMSF trustees are unaware of their legal obligations.
A recent Australian Taxation Office (ATO) survey found that 21 per cent of participating SMSF trustees had 'low' or 'low to medium' knowledge of their obligations and 30 per cent could not explain what the 'sole purpose test' was. The survey also found that 15 per cent of trustees did not have an investment strategy, while another 25 per cent were unaware of the restrictions on the type of assets that could be acquired from related parties.
"The survey results indicate that whilst the majority of the sector is well managed, a significant minority may not be. A robust governance system is needed to ensure the security of the retirement incomes of all Australians using SMSFs," Minister Sherry said.
Minister Sherry also raised the issue of a growing number of people being advised to set up SMSFs without being made fully aware of the time and costs involved in running their own superannuation fund.
"It is critical that those recommending an SMSF provide effective disclosure to their clients. We need to ensure that people are familiar with details such as the financial and time burdens and the amount of money they need in the fund to make it a worthwhile option,'' Minister Sherry added.
ATO data shows that for fund sizes up to $50,000 the ratio of operating expenses to total assets was a staggering 10.51%. For funds in asset ranges between $50,000 and $200,000, the ratio of operating expenses to total assets ranged from 3.55% to 2.63%.
Worryingly, the trend in fees for most members is up over the past three financial years.
Minister Sherry highlighted closing any education gap for trustees as a way forward and called on industry for submissions on how best to address the issue.
"I am aware that some industry organisations are putting greater emphasis on training for their members. Some are introducing requirements for ongoing education."
Submissions on SMSF governance should be emailed to SMSFConsultations@treasury.gov.au. Contributions are sought by the end of April.