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SMSF sector at risk of getting 'too big'

Self-managed super funds (SMSFs) play an important role in the Australian retirement system but risk becoming too popular to effectively manage, warns Challenger’s Jeremy Cooper.

Addressing an SMSF Professionals’ Association of Australia (SPAA) NSW chapter function last night, Cooper – who led the federal government’s Cooper Review of the superannuation sector – said the SMSF sector needs to ensure the factors that have made it a success are maintained.

“The reason why the self-managed sector works is self-selection,” he said. “SMSFs appeal to people that are generally better off and are used to making money decisions and they are suitable for those people.

“But as you grow the SMSF sector, it will become indistinguishable from the general population – and the minute you have the general population taking control of their own retirement savings, there is a risk that politicians and policymakers just clamp down on the sector.

“So the fear is that too many people want to be in it, and it loses the characteristics that have made it work so far.”

Cooper, a former ASIC commissioner, also singled out the risk of “property-related leverage”, echoing comments made by current ASIC commissioner Peter Kell last week about the regulator’s intention to crack down on dodgy property spruikers in the SMSF space, though he added this is only a “tiny percentage of SMSF activity”.

However, at the same time, the chairman of retirement income at Challenger Limited said he was not a “Chicken Little” on the future of the SMSF sector and pointed out that the sector has survived previous negative rhetoric following the Westpoint and Storm Financial crises.

“Overall, I think the outlook is extremely good; everything is on the up, the regulator is paying attention and the standards of gatekeepers are rising,” he said.

“We are showing the rest of the world that individuals with a good bit of advice really can manage their own retirement savings.”