A $1.6 billion industry superannuation fund is calling for new regulations to make it tougher for people with low account balances to set up a self-managed superannuation fund.
REI Super, a public offer fund with its roots tied to the real estate industry, is urging for reforms in light of the Productivity Commission's recent draft report on superannuation. The report found SMSFs with smaller balances (less than $1 million) perform "significantly worse" than APRA-regulated funds.
Using ATO data, it highlighted the poor performance of SMSFs with lower balances as unsustainable and posing a major risk to members.
The PC noted the SMSF sector has broadly tracked the long-term investment performance of APRA-regulated funds, on average. However, smaller SMSFs (balances under $1 million) have delivered materially lower returns on average than larger SMSFs - exceeding 10 percentage points every year from 2005.
REI Super chief executive Mal Smith said the ATO data showed about one-in-five SMSFs have account balances of $200,000 or under and this subject to "considerable risk."
"The data is clear, and shows that you need an average of $2 million in your SMSF until you start to match the returns of APRA-regulated funds," Smith said.
After speaking to REI Super members who set up an SMSF, he noted many returned to the fund due to low returns and hidden costs.
"One member with an account balance of $100,000 was advised to go into an SMSF by her accountant. Another member was given bad advice and set up an SMSF with her husband with a combined account balance of $300,000," he added.
The members said they were not prepared for how hard it was, how much time it took, and how much expertise was required to make informed investment decisions, Smith said.
"Changes to SMSF rules would help prevent financial advisers from encouraging people into an SMSF when it is not in their best interest," he said.