SMSFs in their current form have a systemic risk and can leave consumers with no protection, according to two of the first public submissions to Murray inquiry.
Both the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST) have raised major concerns about SMSFs in their financial services inquiry submissions.
ASFA’s CEO Pauline Vamos told Wealth Professional
that the association wants the Treasury to re-look at chapter seven of the Corporations Act in order to better protect SMSF
“People are now making their own decisions, and have the ability to invest their superannuation money in any asset,” she said. “This means that some SMSF members are investing in funds that are not part of the financial regulations framework, and that puts them outside the consumer protection regime.”
The ASFA submission seeks to solve this problem by mandating the use of financial planners.
"ASFA has previously advocated that consumer protection be increased in relation to SMSFs by mandating that asset classes such as investment property and limited recourse loans only be provided through licensed financial planners,” it said. “This enables SMSF trustees to have access to industry and consumer dispute resolution bodies.”
Vamos also said that the SMSF industry has grown on an unprecedented scale since the Wallis Inquiry, and currently accounts for about a third of the retirement pool. As a whole, this pool needs to be assessed, she said.
“You need a body to look at that and see if the system is working, someone who will look at the whole system from a risk or regulation point of view.”
The AIST submission agreed that there was inherent systemic risk in the current SMSF sector, especially given that there is no way of comparing the adequacy and quality of the prudential supervision provided to SMSFs by the ATO with that provided to large super funds by APRA.
“In addition, the possibility of systemic risk associated with SMSFs is often not recognised, let alone addressed,” it said. “That widespread lack of recognition is of itself a failing in the system.”
While AIST does not call for the supervision of SMSFs by APRA, it recommends that APRA’s powers are extended to include supervision of superannuation systemic risk.
"Rather [the] preferred approach is to call for greater and more formal coordination between regulatory bodies, and for there to be a requirement for them to consider efficiency as well as prudential oversight."