Is Self Managed Super at risk of its own success?
With the countdown to the Federal budget (and by all accounts likely to be Wayne Swan's last, at least for a while) replacing the recent leadership shambles as the focus of attention for Canberra watchers, there's a strong feeling that Australia's much vaunted superannuation system is in the current treasurer's sights.
Originally introduced twenty years ago in 1992 by Labor's then Prime Minister Paul Keating as a 3% levy on employers, superannuation was intended to ensure that Australian's future retirement incomes were properly funded, and retirees were not, or at least less, dependent on a government pension. Since then the levy has risen to 9%, is scheduled to rise to 12%, and according to Keating should be 15%.
In most respects "Super" been a phenomenal success, as the funds management industry (which is now estimated to manage around $1.4 trillion of Super) will no doubt attest. So successful that successive treasurers haven't been able to keep their hands out of the cookie jar, although to be fair Peter Costello's lump sum contribution concessions greatly added to it. Which brings us to the looming budget, and the strong potential for more changes to the regulations in an attempt to increase the take on Super's concessional tax rates.
The Treasurer will of course want to keep the faith with his party's few remaining faithful and target the top end of the Super chain. This will put the Self Managed Super Fund sector firmly in his sights. SMSF now accounts for an estimated 35% of the total Superannuation pool with approaching 500,000 individual funds. This is likely to grow as the compounding effect of 20 years of contributions take effect.
Originally the administrative and compliance cost of operating a SMSF made it prohibitive for all but those with the largest balances to manage their own retirement nest egg. The combination of technology and scale has reduced this barrier, which coupled with rising contributions and balances will only increase the SMSF sector further.
What's this got to do with absolute return funds? According to Wikipedia, Australians now have more money invested in managed funds per capita than any other economy. While absolute return and alternative funds are not supported in Australia by institutions and pension funds to the same extent as they are overseas, SMSF investors seem to understand the benefits of active and discretionary management of their savings.
So come early May when Mr. Swan rises to announce his final budget with an expected attack on the industry's tax arrangements, SMSF beneficiaries are likely to be hardest hit. What started as a great idea for reducing the government's obligation to provide an aging population their pensions will have turned the full circle to be a source of filling the expanding hole of the budget deficit.
On that happy note, I wish you a happy, healthy and carefree long week end.
And for something completely different - "Ou est le papier?"
Regards,
Chris
CEO, AUSTRALIAN FUND MONITORS
