SMSFs could be Labor’s swansong

Blogger: Chris Saunders, Principal, Instreet Investment Limited

Well, it’s hardly a surprise. Canberra has been whittling away at the concessions afforded superannuation for several years as it seeks to balance its books, fund its policies, and now find a gaping fiscal hole left by the mining tax.

After all, it’s quite a honey pot. SMSFs constitute around 480,000 funds and represent more than 900,000 members; that is, one-third of the available $1.4 trillion in superannuation monies. In the four years to June 2012, this sector grew by $109 billion or 33%, the fastest growing sector in superannuation, contributing 42% of the 33% growth. Wow!

Like the social network phenomena, this is a bubble that simply is not going to burst; deflate yes, but not burst. Get taxed yes, but not taxed out.

So if you were Wayne Swan managing the budget and looking for revenue, wouldn’t you look at this sector – with a microscope? Absolutely.

SMSF members’ average taxable income is around $98,000 and, if you are aged between 35 and 49, you have an average taxable income of over $124,000 and an average balance of more than $500,000 underpinned by over $27 billion in contributions annually. And the number of SMSFs is growing at more than 3100 a month. Again, wow!

That is a lot of money for a Federal Government with a thirst for revenue.

As I said, the Federal Government has got form in this area. For example, in July 2012, the amount of pre-tax income people over the age of 50 could put into superannuation each year was halved to $25,000.

That measure caused an enormous amount of angst among SMSF trustees, especially small business people nearing retirement who were hoping to top off their super as they plan for retirement in a regulatory environment that is in flux.

But if Treasury decides to take another axe to the tax concessions afforded super, then the backlash might even surprise Canberra. There is no shortage of evidence suggesting that people are losing faith in superannuation; a world-class system that was deliberately designed to make people self-sufficient in retirement. In the end the big loser will be the tax payers of the next generation who will be funding the retiree of the future. It is a short term view being taken by the Treasurer – no surprises there.

Surveys by organisations such as Rice Warner Actuaries and SPAA-Russell Investments highlight the fact that people are more concerned with “legislative risk” than they are with “market risk”. Given the market volatility post the GFC that’s saying something. Quite simply, the more the Government moves the goal posts the more people lose faith in the system, and they will start looking at other, more tax effective ways, of building their retirement nest egg.

No doubt Canberra will put every possible source of revenue under the spotlight as we head into the federal budget. Direct property, with CGT exemptions, is just one of those countless options. Although we don’t know the outcome yet, the outlook is far from promising. I believe there is still time to let our dissatisfaction be known. Based on the current polls Labour will lose, but they will want to minimise the number of seats lost with every five seats lost possibly meaning another term in opposition.

For the industry now advising SMSFs, there is a silver lining in all this uncertainty. The more things change, the more people will want specialist advice. Those practising in this field will find even greater demand for their services. And certainly it’s imperative for trustees to use credible advisors of which there are many in this space; the need for good, strategic advice has never been greater.

About Chris Saunders
Chris is one of the co-founders of Instreet Investments Limited. A former Australian Rugby Sevens and NSW 1st XV Representative, Chris spent his off-field career in the financial industry, having spent over 20 years of diverse experience within the financial markets, funds management and financial services industries.

Chris spent 10 years in financial markets trading 90 Day Bank Bills, 10 and 3 year bonds on the Sydney futures exchange, for both boutique and institutional organizations. He has worked as a financial planner with Apogee FP, and since 2001 has held senior positions with Citicorp, Zurich Financial Services and Wilson HTM.

More recently Chris was CEO for a boutique financial planning business with assets totaling $2b and was Head of Private Wealth Management for Wilson HTM, responsible for the Financial Advisory and Financial Investment businesses.

Chris holds a Diploma of Financial planning, a Diploma of Business Management, and is a graduate of the Australian Institute of Company Directors