Superannuation, the ultimate government cash cow?

[Julia]

Fair point, that is quite cheap indeed. Cheaper then I would have thought. That brings to question why the recommended amount is $200,000+ for an SMSF. I would pay higher then that with my fund as a percentage of my balance and my investment options are much more limited.

I'm just curious as to why you're prepared to pay a% of your balance as a fee? Don't you think it would be more reasonable to pay for the amount of work involved?
eg if you have $3M in the fund, yet it's all in a few term deposits, how can anyone justify charging for tax return and audit on a percentage of assets basis?
Likewise if you only have around $500,000, yet do hundreds of trades p.a. that's obviously a lot more work, yet you're still being charged a percentage of assets?

I've been with my current accountant for many years but still send him the outline of the year's activities and ask for a quote before the work goes ahead. It's always reasonable and always on the basis of number of hours of work involved. eg this current year it works out at around 0.25% of asset base.

 

[Hodgie]

I'm just curious as to why you're prepared to pay a% of your balance as a fee? Don't you think it would be more reasonable to pay for the amount of work involved?
eg if you have $3M in the fund, yet it's all in a few term deposits, how can anyone justify charging for tax return and audit on a percentage of assets basis?
Likewise if you only have around $500,000, yet do hundreds of trades p.a. that's obviously a lot more work, yet you're still being charged a percentage of assets?

I've been with my current accountant for many years but still send him the outline of the year's activities and ask for a quote before the work goes ahead. It's always reasonable and always on the basis of number of hours of work involved. eg this current year it works out at around 0.25% of asset base.

I do agree that you should pay for the services you receive. I was merely comparing the fees paid in a percentage term for a comparison point.

Its funny the example which you used. I have witnessed a very similar situation which you have described there. A super balance in the millions of dollars range (an AXA super fund from memory) which had 80% allocated to fixed interest securities and 20% in cash. Their financial planner over a 3 year period took over 200k in fees from the super fund for managing the portfolio (not much work involved).

I completely understand where your coming from.

 

[Vixs]

SMSFs are not the best option for a lot of people (including many of the people that are currently trustees).

It's a lot of responsibility being a trustee - there's no APRA to fall back on and people to sue.

 

[sydboy007]

I think this thread should be titled Superannuation, the ultimate cash cow for the Financial Services industry.

There are so many ticket clippers that add negative value charging a fee for doing sweet FA.

I saw a few investments I was interested in, then as you read through the prospectus you realise that those providing the investment can't loose.

Once bond based investment was looking to take around 1.7% at the start, then a management fee of around 1% each year, with a 17.X% performance fee for any excess return above the 10 Govt Bond rate.

So for basically doing their job they want extra money. I see this time and time again in the financial industry where these organisations get paid for losing investors money, then expect extra money from us if by chance they make a decent profit.

If the stats are right and there's a 1.6T pool of super savings then the financial industry is probably milking 2% of that every year. $32B which is close to the current funds required for the aged pension. That amount is going to rise faster than pension outlays over the next 10 years, baring another GFC or other black swan event.

 

[FxTrader]

Once bond based investment was looking to take around 1.7% at the start, then a management fee of around 1% each year, with a 17.X% performance fee for any excess return above the 10 Govt Bond rate.

Such fees are common practice for all fund managers and not exclusive to the super industry.

So for basically doing their job they want extra money. I see this time and time again in the financial industry where these organisations get paid for losing investors money, then expect extra money from us if by chance they make a decent profit.

The financial services industry extracts performance bonuses as a ransom for performing better than some benchmark. They cleverly exploit the unwillingness people to manage their own investments or improve their financial literacy. The rising tide of SMSF is a bit uncomfortable for them since outperforming them is not that difficult as more and more people are discovering.

If the stats are right and there's a 1.6T pool of super savings then the financial industry is probably milking 2% of that every year. $32B which is close to the current funds required for the aged pension. That amount is going to rise faster than pension outlays over the next 10 years, baring another GFC or other black swan event.

Being a fund manager is a great gig if you can land it. I once did some IT contracting work for Telstra Super and it was quite revealing. They actually outsourced funds management while the executives sat in plush offices earning big money for essentially just performing an administrative role. Should have gone for a Finance degree instead of IT. Fund managers and the finance industry generally are supreme financial parasites.

 

[13ugs13unny]

I think this thread should be titled Superannuation, the ultimate cash cow for the Financial Services industry.

Don't hold back, its a scam to 'fee' the be-jess-us out of super, to govern control of super or SMSF in anyway which you want to put it. Government, CA's, CPA's, fund managers, fraudsters, ...you name it.

The audit brigade for SMSF is now marching in to swoop in for their fees.

And savings of more than 250k will be taxed in the near future.

Its getting to the point the best thing to do if you have a lot in super is to just leave the country permanently cash in your property as well and take it with you.

Its the only way to escape.

 

[Judd]

Snip....

If the stats are right and there's a 1.6T pool of super savings then the financial industry is probably milking 2% of that every year. $32B which is close to the current funds required for the aged pension. That amount is going to rise faster than pension outlays over the next 10 years, baring another GFC or other black swan event.

The latest figures I saw, based on 2012, was $18.6B which went to fund managers, etc. And the real fun part is that when you get down to the nitty gritty, their buying/selling is more than likely to each other.

It is why the finance industry hate SMSFs. As at the end of June 2012, the ATO estimated that SMSFs held 31% ($0.434T) of the $1.4T in super assets. You bet the finance industry is salivating about getting that under its control.

 

[Julia]

I think this thread should be titled Superannuation, the ultimate cash cow for the Financial Services industry.

There are so many ticket clippers that add negative value charging a fee for doing sweet FA.

Hence the rise in SMSFs.

The audit brigade for SMSF is now marching in to swoop in for their fees.

What fees? My audit fee has hardly changed in ten years.

And savings of more than 250k will be taxed in the near future.

More information on this? What exactly are you saying will happen?

Its getting to the point the best thing to do if you have a lot in super is to just leave the country permanently cash in your property as well and take it with you.

Seems somewhat extreme. I'm still pretty happy with my SMSF situation.

It is why the finance industry hate SMSFs. As at the end of June 2012, the ATO estimated that SMSFs held 31% ($0.434T) of the $1.4T in super assets. You bet the finance industry is salivating about getting that under its control.

Why do you think they have any reason to so salivate, Judd? I don't see too many SMSF trustees relinquishing their original reason for DIY, i.e. to have control, and falling into the ever welcoming arms of a bunch of self serving 'advisers'.

 

[Hodgie]

It is why the finance industry hate SMSFs. As at the end of June 2012, the ATO estimated that SMSFs held 31% ($0.434T) of the $1.4T in super assets. You bet the finance industry is salivating about getting that under its control.

It's actually quite common for financial advisors to recommend to their clients to start up an SMSF, with recent changes to legislation (FoFA) and the move to a fee for service based remuneration model instead of charging a commission on a super balance it is easier for an advisor to attempt to justify the fees they charge if they recommend to setup an SMSF as well as how to invest all the funds within the SMSF. It also opens them up to a much larger range of products to recommend.

Many advisors work as an accountant as well as a financial planner. They take a fee based on the investment recommendations as well as the audit and compliance side of a SMSF.

They would already have a large portion that $0.434T under control.

 

[13ugs13unny]

It's actually quite common for financial advisors to recommend to their clients to start up an SMSF, with recent changes to legislation (FoFA) and the move to a fee for service based remuneration model instead of charging a commission on a super balance it is easier for an advisor to attempt to justify the fees they charge if they recommend to setup an SMSF as well as how to invest all the funds within the SMSF. It also opens them up to a much larger range of products to recommend.

Many advisors work as an accountant as well as a financial planner. They take a fee based on the investment recommendations as well as the audit and compliance side of a SMSF.

They would already have a large portion that $0.434T under control.

Its already happening. Usually accountant has an auditor for compliance and charges separately.

The accountant charges to establish the SMSF, then charges to administer the ACN company which is usually yourself as trustee of a trust. Now you also need to have your SMSF audited for compliance another charge for that.

Your accountant ensures the company operates within ASIC rules, and manages the ATO side of things as well as the compliance auditing.

The upside is if you don't like your accountant you can leave, and you don't have superfund managers taking a fee of your entire super amount. If you have half a brain you have more freedom to invest your super as you see fit, usually do better than fund mangers.

The downside is more regulation is costing more to have a SMSF. But its a lucrative business if your a CA firm. The other down side is as SMSF become a bigger "pie" the government is likely to want to eat more of it in the next 10-20 years.

Overall if you have more than 400k and have a half a brain its worth doing IMHO.

 

[Vixs]

I think this thread should be titled Superannuation, the ultimate cash cow for the Financial Services industry.

There are so many ticket clippers that add negative value charging a fee for doing sweet FA.

I saw a few investments I was interested in, then as you read through the prospectus you realise that those providing the investment can't loose.

Once bond based investment was looking to take around 1.7% at the start, then a management fee of around 1% each year, with a 17.X% performance fee for any excess return above the 10 Govt Bond rate.

So for basically doing their job they want extra money. I see this time and time again in the financial industry where these organisations get paid for losing investors money, then expect extra money from us if by chance they make a decent profit.

If the stats are right and there's a 1.6T pool of super savings then the financial industry is probably milking 2% of that every year. $32B which is close to the current funds required for the aged pension. That amount is going to rise faster than pension outlays over the next 10 years, baring another GFC or other black swan event.

Sounds like a pretty **** fund.

Domestic bond funds usually range from 0.25%-0.6% p.a. ICR. 1.7% is an embarassment to the joker that recommended it.

You don't need to pay a contribution fee. They're a joke, and rightly so aren't used by any adviser worth talking to anymore. What is common is a one off implementation fee for setting up accounts, arranging rollovers and getting the funds invested.

Performance fees are usually subject to a high water mark, meaning if your investment is underwater due to drawdown then they're not making anything. Other funds use the cash rate as a benchmark, which doesn't seem right in a strong market as they're taking performance fees on anything over the cash rate, however they take nothing at all when you don't get returns in excess of cash.

Not all fund managers and funds are the same, but if you look at what you can get when you talk to your local CBA branch planner or OnePath 'adviser' you won't find the cream of the crop. You get **** products with no ongoing advice.

As far as getting paid to do your job - yeah - I suppose fund managers do want that. How much work do you do for free? Hell in most businesses if you add value that contributes to a strong performance, you get a bonus!

The people that should have their money in quality funds are not people that should be running their own portfolios inside an SMSF. This forum is not a representation of the Australian population, it's a representation of the sub-set of us that care enough to learn how to do it ourselves.

As far as the financial services industry getting to much of the pie? When you take 0.5 - 1% in advice fees off a 7.5 - 9% return net of performance and management fees, the cumulative fees paid look pretty scary over 30 years. You know what looks worse? The money sitting in the bank for 30 years simply so the financially illiterate didn't pay any fees out of principle. Again, this forum is not a representation of the general population.

 

[Vixs]

We've shut down more SMSFs for new clients than recommended new ones this year.

Some blew up most of their retirement nest egg over 12 months before they realised they were in over their heads. They don't have the means to recover the money they lost at their age. We've even had 2 that set up SMSFs through their accountant, who provided no advice on how to invest, and the funds sat in cash for 3 years. The accountant collected the audit and tax return fees each year, but they never suggested maybe the client should do something with their money.

 

[Julia]

Its already happening. Usually accountant has an auditor for compliance and charges separately.

The accountant charges to establish the SMSF, then charges to administer the ACN company which is usually yourself as trustee of a trust. Now you also need to have your SMSF audited for compliance another charge for that.

Your accountant ensures the company operates within ASIC rules, and manages the ATO side of things as well as the compliance auditing.

The upside is if you don't like your accountant you can leave, and you don't have superfund managers taking a fee of your entire super amount. If you have half a brain you have more freedom to invest your super as you see fit, usually do better than fund mangers.

None of the above seems to address my earlier questions to you, viz

Originally Posted by 13ugs13unny
The audit brigade for SMSF is now marching in to swoop in for their fees.

What fees? My audit fee has hardly changed in ten years.

( 13ugs13unny])]And savings of more than 250k will be taxed in the near future.

More information on this? What exactly are you saying will happen?

( 13ugs13unny)Its getting to the point the best thing to do if you have a lot in super is to just leave the country permanently cash in your property as well and take it with you.

and rather seems to contradict your statement here:

Overall if you have more than 400k and have a half a brain its worth doing IMHO.

We've shut down more SMSFs for new clients than recommended new ones this year.

Some blew up most of their retirement nest egg over 12 months before they realised they were in over their heads. They don't have the means to recover the money they lost at their age. We've even had 2 that set up SMSFs through their accountant, who provided no advice on how to invest, and the funds sat in cash for 3 years. The accountant collected the audit and tax return fees each year, but they never suggested maybe the client should do something with their money.

Interesting, Vixs, though I'm not too surprised. Not sure I'd be blaming the accountant entirely, however, unless he was also employed to act as a financial adviser. I have the highest regard for my accountant, but wouldn't be asking him for actual investment advice.

 

[13ugs13unny]

None of the above seems to address my earlier questions to you, viz

What fees? My audit fee has hardly changed in ten years.


More information on this? What exactly are you saying will happen?




and rather seems to contradict your statement here:



Interesting, Vixs, though I'm not too surprised. Not sure I'd be blaming the accountant entirely, however, unless he was also employed to act as a financial adviser. I have the highest regard for my accountant, but wouldn't be asking him for actual investment advice.

I thought new levy on savings was a done deal 1 jan 2016, see link below even if SMSF your not exempt if you have cash savings, let me know if this isn't the case anymore.

http://www.heraldsun.com.au/busines...t-of-savings-tax/story-fni0dcne-1226689773598


What fees? My audit fee has hardly changed in ten years.


oh well your lucky to have a lenient accountant? Perhaps you have a simple SMSF everyone is in a different situation, I have diversified my SMSF and I suppose it costs more for a compliance audit and has gone up to about 800 p/a to audit. Seems the ATO compliance has tightened somewhat last year or two.

Still think SMSF is worth it, but I can see the SMSF pie being plundered by the government indirectly over the next 10 years or so because they have run out of assets to sell.

 

[Julia]

I thought new levy on savings was a done deal 1 jan 2016, see link below even if SMSF your not exempt if you have cash savings, let me know if this isn't the case anymore.

http://www.heraldsun.com.au/busines...t-of-savings-tax/story-fni0dcne-1226689773598

Do you have a link which shows this is actually happening? AFAIK it was another of Labor's thought bubbles, released to the media in a 'testing the waters' exercise. It was prior to the election, and I'd be surprised if it's been confirmed by the new government. It was certainly slammed by the Bankers Assn and others.
Since you've raised it as fact, perhaps you'd be good enough to look into it and tell us if it's reality or not.

What fees? My audit fee has hardly changed in ten years.

oh well your lucky to have a lenient accountant?

No, I'm not lucky. I did considerable shopping around and had two dud accountants before I found someone with integrity. He outsources the audit, and my earlier comment stands. I wouldn't be paying $800 just for the audit. Maybe shop around a bit.

Perhaps you have a simple SMSF everyone is in a different situation, I have diversified my SMSF and I suppose it costs more for a compliance audit and has gone up to about 800 p/a to audit. Seems the ATO compliance has tightened somewhat last year or two.

The ASIC annual levy has gone up a little, but hardly enough to get hysterical about.

Still think SMSF is worth it, but I can see the SMSF pie being plundered by the government indirectly over the next 10 years or so because they have run out of assets to sell.

So just an opinion on your part. Fair enough. Somewhat less impassioned than your earlier comment that the only way to survive was to cash in everything and leave the country!!

 

[sydboy007]

http://www.actu.org.au/Images/Dynamic/attachments/8092/ACTU Economic Bulletin - December 2013.pdf

Can I just say WOW that the top 10% of income earners get more super tax breaks than the bottom 60%

The present system for taxing superannuation contributions is blatantly inequitable. An individual with an income of $60 000 faces a marginal tax rate of 32.5% (not including the Medicare Levy), and pays 15% on super contributions. This is a concession of 17.5 percentage points. A high-income earner on $180 000 or more receives a concession of 30 points.

The system will be rendered more inequitable as a result of the Government’s abolition of the Low Income Superannuation Contribution and rejection of the plan to reduce the super tax concession for individuals with annual incomes greater than $300 000. The LISC effectively refunds the tax paid on super contributions by individuals with incomes below $37 000. The abolition of this measure will mean that an estimated 3.6 million low income earners will pay 15% tax on their super contributions, while facing a marginal tax rate on ordinary income of 0% or 19%.

Treasury analysis shows that high income earners benefit far more than low-income earners from superannuation tax concessions (including those associated with contributions, earnings, and withdrawals).9 It shows that the top 10% of income earners received 38.2% of superannuation tax concessions in 2009-10. This is more than the share of the bottom 60%, combined. The bottom 10% received a negative share of the total, as they paid more on their super than on other income. The analysis also shows that the support given to high income earners in the form of superannuation tax concessions exceeds that enjoyed by lower income earners in the form of the age pension. The Treasury found that “the top 1 per cent of income earners received the most combined support,” taking both the age pension and super concessions into account.

Tax expenditures associated with super are estimated to be worth $31.8 billion in 2012-13, rising to $44.8 billion by 2015-16.10 Unions support the concessional taxation of superannuation, but these concessions must be sustainable and equitably distributed. This is not currently the case. The Commission must recommend reform to the size and distribution of these tax expenditures if it is to seriously grapple with the medium to long-term budget pressures facing the Commonwealth.

 

[Bill M]

http://www.actu.org.au/Images/Dynamic/attachments/8092/ACTU Economic Bulletin - December 2013.pdf

Can I just say WOW that the top 10% of income earners get more super tax breaks than the bottom 60%

The LISC effectively refunds the tax paid on super contributions by individuals with incomes below $37 000. The abolition of this measure will mean that an estimated 3.6 million low income earners will pay 15% tax on their super contributions, while facing a marginal tax rate on ordinary income of 0% or 19%.

I got to say sydboy I just can not believe any government would axe the LISC. This is just ridiculous, the poorest of the poor gets nothing. Shame shame shame.............. shakes me head...:headshake

 

[sydboy007]

I got to say sydboy I just can not believe any government would axe the LISC. This is just ridiculous, the poorest of the poor gets nothing. Shame shame shame.............. shakes me head...:headshake

Yes. A policy that provides the greatest assistance to those who least need it, on top of making the pot of money at the end tax free with minimal consequences for gaining access to a publicly funded pension and the ability to spend it as fast as you like with minimal consequences.

How the current Govt can say axing the LISC is in any way good policy I don't know. We have a super system that costs an exorbitant amount and does little to reduce the cost of aged pension. How many more budget deficits before they're forced to review their policy stance???

 

[sydboy007]

Looks like there might be some interesting developments in super land next year, but I'd expect the Government to neuter any positive outcomes.

http://www.smh.com.au/national/supe...t-deals-with-parent-banks-20131222-2zt1c.html

One of the cash funds is producing a return of 1.38 per cent, well below the Reserve Bank cash rate of 2.5 per cent and the inflation rate of 2.2 per cent.

Australian Prudential Regulatory Authority research into fees, related parties and concentrated markets in the superannuation industry found several concerns.

The study, which examined more than 100 funds, highlighted the conflicts of interest inherent in the board composition and ownership structure of many for-profit superannuation funds, particularly when parent companies are aligned to the funds' material service providers.

For example, APRA found some trustees of for-profit funds using related-party administrators were paying significantly higher administration fees, ''effectively doubling the median member's cost load'' - that is, paying twice as much.

APRA noted ''reconciling this finding with the superannuation trustee's fiduciary duty to fund members will bear further investigation''. It found fees paid by trustees of not-for-profit funds to related parties were ''not significantly different than those to independent service providers''.


Seems for all the angst against Industry funds they are not ripping off the fund members in the ways the retail funds are.

Considering how the Govt is considering to pretty much remove any benefits from the new FOFA legislation, I don't think much will come to pass, though hopefully APRA might force some change through.

 

[k.smith]

http://www.actu.org.au/Images/Dynamic/attachments/8092/ACTU Economic Bulletin - December 2013.pdf

Can I just say WOW that the top 10% of income earners get more super tax breaks than the bottom 60%

The present system for taxing superannuation contributions is blatantly inequitable. An individual with an income of $60 000 faces a marginal tax rate of 32.5% (not including the Medicare Levy), and pays 15% on super contributions. This is a concession of 17.5 percentage points. A high-income earner on $180 000 or more receives a concession of 30 points.

The system will be rendered more inequitable as a result of the Government’s abolition of the Low Income Superannuation Contribution and rejection of the plan to reduce the super tax concession for individuals with annual incomes greater than $300 000. The LISC effectively refunds the tax paid on super contributions by individuals with incomes below $37 000. The abolition of this measure will mean that an estimated 3.6 million low income earners will pay 15% tax on their super contributions, while facing a marginal tax rate on ordinary income of 0% or 19%.

Treasury analysis shows that high income earners benefit far more than low-income earners from superannuation tax concessions (including those associated with contributions, earnings, and withdrawals).9 It shows that the top 10% of income earners received 38.2% of superannuation tax concessions in 2009-10. This is more than the share of the bottom 60%, combined. The bottom 10% received a negative share of the total, as they paid more on their super than on other income. The analysis also shows that the support given to high income earners in the form of superannuation tax concessions exceeds that enjoyed by lower income earners in the form of the age pension. The Treasury found that “the top 1 per cent of income earners received the most combined support,” taking both the age pension and super concessions into account.

Tax expenditures associated with super are estimated to be worth $31.8 billion in 2012-13, rising to $44.8 billion by 2015-16.10 Unions support the concessional taxation of superannuation, but these concessions must be sustainable and equitably distributed. This is not currently the case. The Commission must recommend reform to the size and distribution of these tax expenditures if it is to seriously grapple with the medium to long-term budget pressures facing the Commonwealth.

http://www.crikey.com.au/2014/05/14...d-on-low-income-earners/?wpmp_switcher=mobile

''.....And last night’s budget also revealed the latest Treasury projections for the cost of superannuation tax concessions, which in total will exceed $50 billion in 2017-18. That’s not the amount of revenue that could be obtained from removing those concessions, but Treasury estimates in its annual Tax Expenditures Statement suggest 90-95% of that foregone revenue could be obtained through their removal.

The bulk of that $50 billion in 2017-18 will flow to high income earners ”” and the higher your income, the more you will get. The Australia Institute showed in 2009 that the top 5% of income earners obtain 37% of all superannuation tax concessions. The multibillion-dollar rise in superannuation tax concessions ”” which cost “just” $30 billion this financial year ”” is thus primarily a multibillion-dollar handout to high-income earners, primarily those above $180,000 a year. In fact, the cost of the deficit levy to people on those incomes and above ”” just over $3 billion ”” will be entirely swamped by the increase in tax concessions on superannuation from this year ($30 billion) to next alone ($36 billion).

None of those concessions were touched last night by the government; Treasurer Joe Hockey’s only move on superannuation has been to abandon a Labor plan to tax super earnings over $100,000 per annum.....''

Superannuation, the ultimate cash cow?