Self-managed superannuation funds: A statistical overview 2008-09

Appendix 2 - data issues

Data limitations and differences in methodologies impact the analysis of SMSFs and any comparison of SMSF with non-SMSF sectors.

Prior to the development of the SAR for the 2008 and later income years, there were concerns about the reliability of certain statistical information reported on the annual superannuation fund return form.

In 2010 the ATO moved to a new Integrated Core Processing (ICP) system for collection and handling of its data holdings which has impacted on the reproduction of certain historical SMSF data. We will continue to improve the methodologies of reporting SMSF information, which may result in changes to figures in the future.

Differences in methodologies can include:

• Valuation and accounting practices might lead to incorrect calculations of ROA. In particular, APRA regulated funds must report assets at market value, while SMSFs are only required to do so under certain circumstances. That said, anecdotal evidence suggests that market value reporting is becoming more common for SMSFs - particularly for those funds invested substantially in listed shares, managed funds and cash assets.
• Treatment of tax might differ between APRA regulated funds and many SMSFs. APRA regulated funds generally make full provision for income taxes on an accruals basis, as do many SMSFs. Again, however, SMSFs are not required to do so and many do not (in which case tax is effectively treated on a cash basis).
• Pension funds exemption from income tax on investment earnings will mean pensions funds have higher after-tax returns than an identically invested accumulation fund. Given that SMSFs have a proportionately higher number of member accounts in pension phase, there is a potential for the ROA of the whole SMSF population to be overstated.
• Under or overstated costs as cost amounts for SMSFs are based on amounts included in the SMSF annual return (that is deductible expenses) rather than the actual expenditure on fund costs. Such costs could include:
• Life insurance and related cover, where only a portion of the premium is deductible depending on the type of insurance cover.
• Opportunity costs as the cost of the trustee's time and effort in operating the SMSF are not captured. These costs are more likely to be reflected in APRA regulated funds.
• Costs incurred in pension phase SMSFs, where only a part of an SMSF's total expenditure is tax deductible (because the fund is not entitled to a deduction for expenses incurred in deriving exempt income). Relying exclusively on tax deductible expenses to identify operating costs might understate the costs of pension SMSFs by up to 100% (for an SMSF entirely in pension phase).
• Invisible costs potentially arise when assets are held through an external investment structure, such as a trust or managed investment scheme ('investment structure'), rather than directly. Under these circumstances, fees charged by the investment structure will be expensed within the structure and only the net return remitted to the SMSF via distributions. This will not undermine the ROA calculation (because whether the expenses are incurred directly or in another vehicle, the net return to the SMSF is identical). However, the fees charged by the investment structure will not be taken into account in operating expense calculations because the calculations only capture expenses actually occurring within the SMSF. This can occur in both SMSFs and APRA regulated funds.
• Advice costs, how (and whether) advice is received and paid for also affects comparisons.
• Establishment costs, which are incurred by SMSF members, but due to their capital nature are not deductible or able to be amortised over a defined life.
• Management Expense Ratios (MER) of public offer funds, there are a number of other membership features in a public offer super fund that make its published MER figures not directly comparable with the operating expense ratio of an SMSF (such as contribution fees, buy/sell spreads, insurance premiums and exit fees).