ASIC has released new guidance, raising the suggested minimum threshold for the establishment of an SMSF and giving pause to both consumers and those recommending the establishment of an SMSF as an investment choice.
Self-managed superannuation funds (SMSF) appeal to those who want greater control of their investment decisions. However, recently released ASIC guidance reveals that SMSFs require a considerable contribution of time from the trustee. The guidance also advises that a higher than expected minimum investment is required if the SMSF is to function in the appropriate way and meet the desired returns. In light of these findings, ASIC has urged consumers to consider carefully whether a SMSF is appropriate for their needs.
In ASIC’s guidance released on 11 October 2019, ASIC revised their previous advice on what constitutes a viable minimum investment for a SMSF, increasing the amount from $200,000 to a $500,000 investment. Productivity Commission data included in the 2018 report “Superannuation: Assessing Efficiency and Competitiveness”, identified that balances lower than $500,000 earn lower returns on average than industry funds with the same investment.
ASIC also discovered, via community consultation and released in Reports 575 and 576, that member experiences with SMSFs found that after expenses and taxes are disbursed, investments with a pool lower than $500,000 are not competitive with industry and retail super funds.
ASIC also considered the time commitment required from a superannuation trustee, and found that an estimated 100 hours is required annually or 8.4 hrs per month, to ensure the application of proper oversight to the management of the SMSF. ASIC also suggests that a certain level of financial literacy is necessary if the various legal requirements are to be complied with appropriately.
Access to ASICs factsheet on SMSF for consumers is available here.
This is a significantly higher threshold for establishing an SMSF to the previous minimum suggested requirement. Accountants and consumers should carefully consider if an SMSF is appropriate for them.
For more information about these findings or compliance regulations, please do not hesitate to contact a member in our Financial Services team – Contact Us
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.