Author: Jason Roccasalvo, Partner, TAG Financial Services
Although the Federal Budget was subdued in terms of superannuation announcements, the references to super will create change within the industry.
The announcements centred around responding to the Hayne Royal Commission’s recommendations of improving fund performance and transparency.
How are funds likely to react?
Funds operating a MySuper option (generally industry super funds) will be under pressure to not underperform. This may mean fund Trustees:
- Take extra investment risk to try to outperform
- Take a more conservative investment approach so they reduce the chances of a really poor return
- Ensure their portfolios align with market indexes to ensure they never appear to underperform, but will most certainly never outperform
Some items of note from our vantage point:
- Industry super funds already hold direct property and infrastructure assets that are not valued by the market – rather by the Trustees, there by distorting real returns
- Industry super funds may spend less on advertising and political donations once the extent of these expenses is disclosed. These expenses are after-all deducted from the returns of members
Most MySuper options are the standard “balanced” investment option, but what one fund calls “balanced” is different to another. Industry funds may adjust how they invest within the “balanced” option, which may mean super members end up taking on more or less risk than they intended. We discussed this is our recent Industry Funds blog.
So be careful which fund and investment option you select. It may be a wolf in sheep’s clothing.
What does it mean for Self-Managed Super?
These budget announcements, although insignificant in terms of complex client strategy, will ensure Trustees (including SMSF Trustees) are more accountable for the long-term interest of the members.
The ATO have already been making significant noise about “lazy” Self-Managed Super Funds, i.e. that are inactive, retain large amounts of cash, or hold investments that are underperforming. Expect this to ramp up over coming years.
One of the most common reasons people choose a SMSF is to provide investment control. Taking control and actively managing your retirement wealth means different things to different people. There is no one size fits all in terms of appropriate investment.
Trustees must:
- Understand their retirement goals – and how they will attempt to achieve them.
- Be able to articulate and show a plan, to achieve the desired outcome
- As advisers, we need to ensure trustees treat their investment strategy as more than an “obligation” to satisfy an auditor.
SMSF Trustees have the control – so make sure they take advantage.
As always, if you have any questions, please contact us on 03 9886 0800 or via email.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).