There’s more to running an SMSF than paperwork and penalties
Complexity has long been a bugbear of SMSF trustees, for whom the administrative burden is a necessary evil, but changes are afoot to help reduce the hassle, says Vanguard’s Robin Bowerman.
Glenn Freeman: I'm Glenn Freeman here at the Morningstar Individual Investor Conference. And I'm talking today to Robin Bowerman from Vanguard.
Robin, thank you for your time today.
Robin Bowerman: Great to be with you, Glenn.
Freeman: Now, you were talking today in the session about SMSFs. And complexity has always been something that's been a challenge for SMSF trustees. And government complexity isn't something that gone away, and it's arguably become even more complex. And we've got things like the Retirement Income Review. What are the biggest things on the agenda and how can trustees, sort of, deal with some of these complexities?
Bowerman: Well, I think, you're right in the sense that the regulatory agenda and particularly, with SMSFs, about 48% of the assets are in drawdown mode, in pension mode. So, there's very specific rules around that. So, getting good professional advice from a SMSF specialist advisor is, I think, the first protocol. And people being – you know, as trustees, you set up an SMSF usually for a control; you want to run your performance, your portfolio. Very few trustees I've ever heard say they really sign up for an SMSF because they really want the trustee obligations. So, I think people need to understand that they need – it's an obligation. You've got to actually put in place the right level of advice and support from administrators, accountants and auditors to actually make sure you run the fund properly, because the penalties can be really severe if you get it wrong. So, that's the sort of first point.
In terms of the government Retirement Income Review, I think that's a welcome step forward to see how superannuation, Social Security tax can work together more efficiently so that people get to – their retirement savings is actually properly integrated. Retirement Income Review, I think, you got to be keeping in context though, is about building a fact base, as I understand it, till June next year, not about recommendations. So, I think, a lot more to come there. But again, I think SMSFs are pioneers in the retirement drawdown phase because the assets and the demographics mean more people are in pension mode. So, a lot to come in that space over the next couple of years.
Freeman: And another thing that you and I were just talking about just earlier was the superannuation – or SMSFs, the data that is gathered – I mean, you need to be able to – for any inquiries to be effective, they need to have accurate data to work with. And that's something as a sector they struggle with and there's a few reasons for that, isn't there?
Bowerman: Yeah, I think one thing the SMSF Association is looking to do is to build better, more reliable sort of data sets. So, there's a lot of information bouncing around the system. The ATO is the sort of go to session, but the ATO themselves admit that their data set is not precise to the point of, say, doing a comparison of performance with APRA-regulated funds, et cetera, different types of data inputs basing off the tax return versus some of the other data. So, we just got to get, I think, a bit smarter about that, make sure we're comparing apples with apples, so that people understand what the role of an SMSF is, how it compares to industry funds, retail funds, et cetera.
Freeman: And that's the thing is you having taken up the role as Chair of the SMSF Association, though you have been involved with them for a few years before that. Is that something that you're working quite closely with?
Bowerman: For sure. I mean, I think the SMSF Association led by John Maroney is really pushing the whole sort of policy around the retirement income, some of the regulatory stuff, working with the tax office really closely and positively. So, I think that's all good. But the role of the Association is to help advisors develop good professional skills, and also making sure trustees are well-educated and informed and engaged.
Freeman: Excellent. Thank you for your time today.
Bowerman: Thank you.