Increasing the number of people who can be members of a Self-Managed Superannuation Fund (SMSF) risks creating systemic risks, according to University of Sydney Professor of Finance, Susan Thorp.
Thorp, who is Associate Dean (Research and Research Education) at the University of Sydney Business School, used a submission to the Senate Economics Legislation Committee to sound a cautionary note about the Government’s changes to SMSFs.
In doing so, she contrasted the differences between the regulatory approach of the Australian Prudential Regulation Authority (APRA) with respect to large superannuation funds and that of the Australian Taxation Office (ATO) with respect to SMSFs.
“The large-fund sector of the Australian superannuation system is prudentially supervised by APRA, which is consistent with the mandatory features of the Superannuation Guarantee that create an obligation for public agencies to protect members,” her submission said. “By contrast, the SMSF sector is compliance regulated by the ATO and presents different systemic risks.”
“Growth in the number of superannuation members in a sector that is not prudentially regulated should be considered with systemic risks in mind.”
“SMSF member/trustees are not generally more capable than large-fund members. Academic research shows that 1) SMSF members are not more financially sophisticated than the general population of superannuation fund members; 2) do not carefully monitor the performance of their funds relative to other superannuation vehicles; and 3) tend to both over-confidence in their own abilities and over-optimism in their funds’ performances,” Thorp’s submission said.
It said that, on this basis, changes in the rules that allow more people to enter the sector “warrant close consideration”.