The ATO is underestimating how well SMSFs perform


A new report from the Self-Managed Superannuation Fund Association (SMSFA) and the University of Adelaide has found the Australian Taxation Office is increasingly underestimating the performance of SMSFs.

The SMSFA and the University of Adelaide's International Centre for Financial Services (ICFS) yesterday released their findings after a joint examination of the financial performance of a large sample of self-managed super funds.

The examination, which took place over the period 2017-2019, comprised of over 489.000 unique observations with data on over 318,000 unique SMSFs.

ato underestimating smsf performance

The research found that the ATO's calculation of SMSF investment performance persistently underestimates SMSF performance, with evidence suggesting that this gap is widening.

Commenting on the research, University of Adelaide Business School lecturer in finance George Mihaylov says that as far as he is aware, this is the largest dataset that's ever been compiled for a certain stage.

"To have access to like more than half of the available funds is really significant point of strength for the work that we've done," he says.

"One of our findings is that SMSF returns displayed greater variation, and they have a high propensity to outperform and some of them have a propensity to underperform the upper fund sector."

Other findings in the report state that, on average, the investment performance of SMSFs with balances of $200,000 or more (which are not heavily invested in cash) was competitive with APRA regulated funds during the period in question.

On aggregate, SMSFs with more diversified asset allocations also achieved higher returns.

Overarchingly, the report states there is sufficient evidence to suggest that SMSF investment performance is largely on par with that of APRA funds.

The report states that ASIC's existing emphasis on minimum SMSF balances of $500,000 is excessively conservative and could be recalibrated to $200,000.

"For the SMSF Association, we think there is strong evidence to warrant a focus on trustee education around the risks and limitations of inefficient investment management," the report reads.

"Identifying and helping at-risk cohorts, such as small cash-heavy funds or under-diversified funds, offers a promising way forward for lifting standards and improving headline performance outcomes for the SMSF sector overall."

"We're very excited to be launching this research alongside the University of Adelaide," says SMSF deputy chief executive and director of policy and education Peter Burgess.

"It's very interesting and I suspect many of the findings from this research will be a point of reference for SMSF advisors and trustees for many years to come."

This article first appeared on Financial Standard

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Chloe Walker was a journalist at Financial Standard from November 2021 to March 2024. She has a Bachelor's degree in journalism from QUT.