As David Murray embarks on the government’s review of the financial services sector this year, expect a lot of noise from the competing sectors of the superannuation industry.
It got off to an early start this week with an opinion piece by Paul Howes, national secretary of The Australian Workers Union, in The Australian Financial Review on Monday.
Property – friend or foe
Howes argues that the investment by SMSFs in property is fuelling a bubble. However he ignores the fact that the majority of SMSF property investment is in commercial property – 77% – and the total exposure by SMSFs to residential property represents just 3.5% of all assets.
Also Switzer Super Report director, Paul Rickard, points out that borrowing by SMSFs represents just over 1% of total sector assets, and he objects to the loose comparison made to the impact of negative gearing in the article.
“SMSF property purchases are not about negative gearing,” he says.
Graeme Colley, director technical and professional standards, SMSF Professionals Association of Australia (SPAA), also stresses that the majority of investment in property by SMSFs is in commercial property.
“We don’t really think it’s going to fuel any bubble, particularly in the residential side, because most people put their business property in their fund for really good reasons,” he says.
A survey recently completed for SPAA by CoreData Research, to be released at the SPAA conference next month, has also just found that while many SMSF trustees may talk to their advisers about property, they don’t actually go ahead with investments in that space.
“Our perception last year was there was a lot of noise but not a lot happening,” Colley says.
“That seems to have been born out by the surveys that have been done by CoreData.”
One thing the larger funds forget when it comes to their criticism of property purchases in SMSFs, is the complex process that trustees actually need to go through to get loans approved by banks. Banks are extremely cautious, loan to value ratios are higher than ordinary home or investment purchases, and the process can take months.
“It is too complex to put your geared property through superannuation, and it’s expensive,” Colley says.
Industry gears up for battle
Some years ago, the superannuation space was dominated by the battle between industry and retail funds following choice of super fund legislation in 2005 that allowed many members to switch between funds.
Given the huge popularity of SMSFs, the battlelines have now moved, and the larger funds are, rightly, concerned by outflows to SMSFs (see Barrie Dunstan’s article [1] today for more on this trend).
Colley says there will be significant lobbying from all sides of the industry this year, as a result of the Murray Review.
“Industry super funds are leading the charge because they are threatened by SMSFs,” Paul Rickard says, and points out that the Australian Financial Review neglected to mention that Paul Howes is also deputy chair of the AustralianSuper Trustee Board.
But the regulators are paying attention. On Monday [2], Media Super was forced to pay a penalty for not accurately representing the costs and benefits of its funds in a comparison it made to SMSFs in member communication.
“There has been so much criticism about SMSFs last year from the bigger funds, at least this was a little bit of compensation,” Colley says of the ASIC decision.
“Maybe the larger funds need to be a little bit more careful when they start attacking other sectors.”
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Also in the Switzer Super Report:
- Barrie Dunstan: SMSFs a force to be reckoned with [1]
- Roger Montgomery: A good-value medical opportunity in LifeHealthcare [3]
- Penny Pryor: How to buy international shares [4]
- Tony Negline: Three important super issues you need to know about [5]
- Question of the week: Are insurance companies worth holding on to – or buying? [6]