Opinion piece written by John Maroney, CEO, SMSF Association
Software providers to DIY funds say annual operating costs are much lower than the $13,900 cited by ASIC.
What does it really cost to run your own self-managed superannuation fund (SMSF)? The Australian Securities and Investments Commission (ASIC) recently published a fact sheet showing the average annual cost of having a SMSF is $13,900. The reaction from industry indicates a typical SMSF actually costs less than $5000 a year.
Why is there such a large difference between what ASIC says and what individual SMSF trustees and the industry say?
ASIC did not show the source of its figure on the fact sheet but it’s understood it relied on the ATO annual SMSF statistics that were also used by the Productivity Commission. These statistics are flawed if you are trying to compare annual operating costs of SMSFs and large super funds for several reasons, including inclusion of optional insurance premiums, loan interest, financial advice, capital expenditure, set-up and wind-up costs.
In addition, a small proportion of very large SMSFs distorts the average cost compared with the cost of a typical SMSF and the median cost would be a more meaningful metric for comparison.
Typical SMSF operating costs (excluding any investment costs) were published by SMSF software provider BGL recently, based on analysis of more than 180,000 SMSFs. The table contrasts median and average annual operating costs of SMSFs.
Cloud-based SMSF software provider Class provided adjusted expense analysis to the Productivity Commission, stating: “After removing the components of the ATO “expenses” which are unrelated to the operating and financial efficiency of the underlying SMSF, it is possible to obtain an adjusted expenses measure (see barchart) which is more reflective of fund efficiency.” The analysis considered expenses for funds that had been running for a whole financial year.
Class findings include:
- Over three quarters (76.8 per cent) of SMSFs have expenses that are below the $13,900 figure;
- The funds with expenses of $13,900 or more had on average $2.35 million of assets in the 2016-17 financial year; and
- The median cost of running an SMSF was $6800, which is less than half of the figure quoted in the ASIC fact sheet.
These figures were based on Class data for more than 110,000 SMSFs within the 2016-2017 financial year, the same period used by the Productivity Commission.
One observation of the large differences between the ASIC fact sheet and the industry figures is the need for greater transparency of official SMSF statistics and the definitions of the components that are used in their compilation.
One of the Productivity Commission recommendations was for the creation of a permanent superannuation data working group, comprised of the Australian Prudential Regulation Authority, ASIC, the ATO and the Australian Bureau of Statistics to be chaired by Treasury. This would enable comparable statistics to be collected and published across the whole superannuation system.
ASIC’s fact sheet provides a timely warning about the need to seek specialist advice before establishing an SMSF. It would be a shame if its credibility was damaged thanks to incorrect cost metrics.