Super admin fees tipped to spike with Labor’s policy

Super admin fees tipped to spike with Labor’s policy

 

hmmm, maybe for managed funds, which are already expensive compared to indexed funds...

 

Rubbish. Whether divs are franked and refundable / non-refundable is irrelevant to costs. All modern software automates tax calcs and entries. Anyone doing it old school would find a SINGLE change to the final prep of the tax return so the franking credits would go to a box marked - Non-refundable in place of the present box for refundable franking credits.

What most dont realise is foreign tax credits are already affected by this same issue. Its not a complex issue at present (in fact its a non event) and wont be later.

 

I think the opposite would be true, if anything.

If funds flow out of SMSF and into Industry/Retail funds as a result of this change, I'd expect admin costs to either be unchanged or to fall. Industry/retail would have more assets and more members. Therefore economies of scale dictate fees could fall.

 

Except super funds are built on scale. AMP are not upping their fees due to outflows. Markets set competitive fees. AMP follow the market price.

Members could split funds. Hold franked income in a public fund. SMSF for property. But its not efficient as costs are increased even when a low fee industry fund is used. Because its an additional cost not an alternative cost.

Some people use a SMSF for control and choice. They would need to weigh whats more important. To keep franking but lose control over choice. eg Most public and industry funds dont offer choice of investment - Just strategy. ie Growth. And that mean some in property, some offshore and so on. This is even more so for pension funds who are those more impacted.

 

Thanks Paul for the comments. I actually posted this to highlight yet again that under the proposed (god knows what will eventuate however) changes SMSFs will be treated differently to Industry / Retail Funds:

Yes if a two member SMSF has a sizable balance with both members having pensions and excess in Accumulation this would result in four separate accounts in say an Industry Fund. The overall fee could end up much higher compared to remaining in a SMSF. In some cases the fee may end up being more that the SMSF admin fee and loss of franking credit refunds under the changes.

If the changes are ever legislated you as a very experienced accountant / SMSF Advisor of course would be aware of strategies to minimise / eliminate the impact of same. There’s already been a number of such strategies discussed if one knows where to look.

But of course this is all conjecture at this stage and a source of entertainment for me. Yeah I know I’m odd.

 

I already see people aged 60+ with 100% in accumulation who think its a hassle to go pension and save tax. eg a member with $700K earning 3% pays $3,150pa. But they often claim the franking pays the tax. But it would be Nil if it was pension. A refund even.

One of the hidden costs of going to an industry fund v staying in SMSF is loss of control and also the requirement to use a default strategy. The default strategy has a element of shares - local, foreign etc. Markets crash they all crash. And you are in it for the slide. Sure you can go cash - After 3-5 days when they allow you to change strategy. Damage is done. Default strategies dont allow a fund to exit a market. A SMSF can exit a market in time it takes to place a Commsec order to manage risk. The SMSF can trade back in afterwards. Not the industry fund it has a strategy that mandates X% of ASX shares. And retirees are those who least afford the catastrophe.

Potentially if a change like this is bought in the markets will adjust. And investors may lose. Imagine CBA shareholders or Telstra shareholders dumping due to the reduced yield.

 

Thanks Paul.

Regarding the default strategy there are an increasing number of Industry / Retail Super Funds offering members direct option where members can choose to buy individual LICs / ETFs / shares and not have to own the higher fee diversified funds (eg balanced fund) run by the Super fund. Sometimes there are rules in regard to % per holding and amount of cash that must be held etc. Unfortunately the cash option often pays very little interest. And term deposit options very limited often just one or two banks.

But as you say loss of Control can be a biggie as well as the speed at which the member can implement a change or take advantage of opportunity / risk reduction. And there are still some potential tax saving options available to SMSFs not available or not allowed by public offer funds.

In our case should the proposed franking change be legislated if we moved to an Industry Fund even using the Members Direct option the increased fee would likely be greater than the loss of the franking credits. So we simply hold most of our cash / term deposits, all International equity funds and favour a trust structure (eg Index ETF) over a LIC (eg Company Structure) in the SMSF. The larger amount of ASX holdings are outside the SMSF where there would be less wastage of franking credits and more options to potentially eliminate any wastage of same.

This split suits us regardless of any potential future legislative changes. That is, diversification and risk management takes precedence over maximisation of franking credits in the SMSF under the current system.

Finally we currently hold quite a lot of cash compared to usual. Apart from a well matured bull market especially in the US, numerous other heightened risk factors here and abroad and the impact of possible changes by a Labor Gov’t with its potential effect on our market (particularly yield favourites) the holding of some additional cash might be prudent especially for us as retirees.

 

Some (few) have member choice but its not open ended with a VERY limited product list and also very limited % choice for most. Income ETFs are the only direct class with no max limit.
Authorised Product List for Australian Super is here : Investment Menu PDF

Many issues affect choices in super. eg Insurances. One of the key issues to note is the direct option is considered Very High Risk

 

For every retiree that sells, there is an accumulator that gets to buy (and if at a reduced price then all the better for me). I don't have any sympathy for people who invest based on tax. Tax rules always change.

As for the article, I didn't hear any bleating when Turnbull and Morrison introduced a transfer balance cap and all the additional record keeping that entailed.

I also don't remember fees falling when Howard abolished Reasonable Benefits Limits rules.

The financial industry does what the financial industry does. It looks out for itself and will use and abuse everyone in its quest to clip more fees from the punters.