Overview
This interview with Liam Short, SMSF Specialist Advisor from Sonos Wealth Financial Planning, covers the superior performance of Self-Managed Super Funds (SMSFs) compared to retail and industry funds, regulatory changes, tax proposals, and practical advice for superannuation management. The discussion highlights both the opportunities and complexities in SMSFs and broader superannuation strategies.
SMSF Performance Overview
- Outperformance: SMSFs have outperformed retail and industry super options by an average of 1.2 percentage points over the past five years (up to 2023), according to University of Adelaide research.
- Key Drivers:
- Preference for blue-chip stocks, term deposits, and annuities over riskier bonds (which underperformed in recent years).
- Long-term investment approach, avoiding speculative risks.
- Example: Many SMSFs invest steadily in established companies like Cochlear, taking advantage of discounts and longterm growth.
- Key Drivers:
- Diversity of Outcomes: With over 600,000 SMSFs, performance varies greatly—some take excessive risk and fail, while others are overly conservative with cash holdings.
SMSF Management Complexities
- Active vs. Passive Investing: SMSF trustees must decide their investment style.
- Trends: Growth in index fund “core”strategies with satellite investments.
- Responsibility: Requires ongoing market awareness and prudent risk management.
- Practical Example: A client considering increased exposure to Cochlear at a significant discount exemplifies active, opportunity-driven SMSF management.
Regulatory & Taxation Updates
Proposed Tax on Super Balances Over $3 Million
- Current Status: The government (Labor and Greens) is pushing to introduce this tax, despite opposition from Liberals and Nationals.
- Criticism: Described as “badly written,”particularly due to lack of CPI indexation and taxation of unrealized gains.
- Revenue Focus: Government motivated by revenue needs, expecting the tax to affect more than the stated 80,000 people as super balances grow over time.
ASIC & ATO Oversight on SMSF Establishment
- Objective: Ensure individuals are not inappropriately advised or coerced into SMSFs.
- Advisor Scrutiny: ASIC is investigating whether SMSF recommendations truly serve clients’best interests, especially if they are already well-served by other fund types.
- Example: Avoiding scenarios where property spruikers push SMSFs for personal gain rather than client benefit.
Practical Advice for SMSF Members
Claiming Deductions
- Notice of Intent: Members must submit a notice of intent to claim a deduction for concessional contributions before rolling over funds to a new SMSF or pension phase.
- Common Pitfall: Missing this step can result in higher tax liabilities.
Minimum Pension Requirements
- Calculation: Based on the fund balance as of July 1 and age brackets (e.g., 4% up to 65, 5% from 65–74, 6% from 75–80).
- Impact of Strong Returns: Good investment years and age progression can significantly increase required minimum pension withdrawals.
- Advice: Monitor cash flow and ensure liquidity to meet pension requirements before June 30.
New Superannuation Products for Retirement Income
- Recent Developments: Funds are introducing new products aimed at providing steady, understandable retirement income.
- Challenges: Many retirees withdraw lump sums or hold cash, missing out on structured pension benefits.
- Education Need: Super funds must better explain options to average members, emphasizing the benefits of transitioning to pension phase (tax-free income, reduced risk).
Key Takeaways
- SMSFs continue to outperform traditional super funds, mainly due to prudent, long-term strategies.
- Regulatory scrutiny is increasing to protect members from poor advice and ensure suitability.
- Legislative changes, especially around taxation, remain contentious and could impact a broader range of members over time.
- Practical steps—like timely deduction claims and monitoring pension requirements—are crucial for optimal SMSF management.
- The super industry is evolving to offer better retirement income products, but member education is vital for uptake and effective use.
