In the past few weeks we’ve seen commentary from the ‘other side of the fence’ about the supposed perceived risks of the SMSF sector, including union heavyweight Paul Howes (National Secretary of the AWU) chiming in with an article in the Australian Financial Review (AFR) about the ‘heady mix of super and property’.
This was squarely focused on SMSFs and limited recourse borrowing arrangements, most likely endeavouring to apply the blowtorch back onto the SMSF sector, when the Coalition Government is now beginning its focus on pursing the Cooper Review recommendations to bring a greater transparency into the governance of APRA regulated funds.
The likely loser out of this process with the inclusion of independent directors? Yep, you guessed it, union sector representation.
This got me thinking a little bit about the rise of SMSFs and how it is redefining what superannuation stands for with many Australians. SMSFs have become disruptive to such an extent that the rest of the superannuation industry is fighting hard to counter the revolution and at the same time trying to redefine its purpose with a growing number of individuals becoming engaged with their retirement savings.
When we think about “disruption”, there are so many examples around us everyday to look at – think about the internet and it impact
with retail shopping, the creation of email and instant messaging, downloadable digital music or streaming. Being disruptive describes innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in a new market and later by lowering prices in the existing market.
Doesn’t this kind of sound like what SMSFs have done to the superannuation sector once dominated by the retail, corporate and industry superannuation sectors?
It is quite apparent that the SMSF disruption commenced some years ago, given the $530 billion asset pool that now exists within SMSFs. But with a growing maturity of the SMSF sector we will continue to see innovation and opportunities to further its growth.
How much further is an interesting question – taking statistics from the Deloitte Actuarial report, Dynamics of the Australian Super System, SMSFs are likely to represent $2.23 trillion out of nearly $8 trillion sector by 2033 .
Therefore, will LRBA strategies like those suggested by Paul Howes continue to be a catalyst for even his union members to choose SMSFs rather than industry-based funds?
I can see in the not to distant future and ability for SMSFs be able to invest into some of Australia’s largest infrastructure projects to help build Australia, just like what many of the industry funds do today.
Whatever the future holds, it is quite clear that the disruptive nature of SMSFs is challenging the status quo of the current $1.75 trillion superannuation industry and will do so for many years and decades to come.
About Aaron Dunn
Aaron Dunn is managing director and co-founder of self-managed superannuation consultancy The SMSF Academy and education service SMSF101.
A CPA and SMSF specialist adviser, Aaron has worked within the accounting and financial services sectors for more than 16 years, providing strategies and direction for professionals and trustees.
Aaron was an invited member of the Australian Taxation Office (ATO) SMSF Audit Working Group for Super Simplification, which was established as a result of the Simplification of Superannuation reforms introduced by the Coalition Government in July 2007 and also gave advice to the 2010 Cooper Review.
He is the current chairman of the SPAA Victorian Chapter, a SPAA national membership committee member and part of the SPAA national conference committee.
