SMSFs preventing economic growth

International financial institution Credit Suisse has blasted SMSFs as one of the major impediments to economic growth in Australia.

Speaking at a media briefing in Sydney yesterday, Credit Suisse equity strategist Hasan Tevfik said there are a few impediments to economic growth in Australia, of which SMSFs are “the bigger force”.

“One is the institutional investor with his more short-term nature potentially holding back cap ex, and the other one, which is probably the bigger force, is SMSFs,” Mr Tevfik said.

“The SMSFs are feeling wealthier while their kids can’t get jobs,” he said.

Mr Tevfik said a form of ‘ageism’ exists whereby older Australians continue to profit at the expense of younger generations.

“There is a bit of ageism going on here – the older you are, the more likely you are to own assets and you are doing quite well,” he said.

“The younger you are, the harder it is to get a job – and guess what? You don’t actually own many assets.

“You find it hard to get on the property ladder and you find it hard to get a job.”

Mr Tevfik believes that Baby Boomers holding SMSF assets have become too rich and, as a result, they can afford to retire a few years early.

“Around the world they have done pretty well with these asset returns, so you get this natural attrition in the labour market which means the potential for growth is not going to be as great as what you had previously,” he said.

Mr Tevfik expects to see an increase in SMSFs as balances in APRA-regulated funds get larger.

“It makes sense for a large pension pool to go into an SMSF,” he said. “Also, as the cost of running an SMSF falls, that will also be a driver.”

An unusual quirk in the Australian financial system means that as SMSF trustees enter the pension phase, their equity allocation actually rises due to the lack of a corporate bond market in Australia.

“It’s odd,” Mr Tevfik said. “You reach this pension phase where you are expected to be reaping the rewards of your savings and buying credit, but of course there is no credit market in Australia,” he said.

SMSFs make up a third of total superannuation assets and now own more than 16 per cent of the Australian equity market, Mr Tevfik said.

 

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