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Reforms hinder super after-tax strategies
Regulatory reform fatigue has prevented superannuation funds from focusing on after-tax investing, according to Parametric.
Director, research and after-tax solutions Raewyn Williams said the scale of MySuper and Stronger Super regulatory reform has sapped a lot of resources from super funds as they tried to implement the reforms "just to stay in business".
"In talking to funds during this period they were frustrated that they couldn't get onto some more strategic initiatives like after-tax investing, but they just couldn't get to it in terms of sparing their resources," Williams said.
Also, as funds emerged out of the global financial crisis, they saw that they had large amounts of tax losses, especially in the international equities portfolio.
This meant funds had tax loss shelters that they had accumulated during this time.
"They weren't too worried in the early years post-GFC about capital gains because they had these losses to offset them," she said.
"They felt that they had a lot of time to get to the capital gains tax management issues because of the GFC losses, but it's just now starting to gain some momentum again in the industry."
Since July last year, the Superannuation Industry (Supervision) Act 1993 requires super trustees to be after-tax focused.
"That said, I think the real momentum is coming from the excitement at how much value there is on being after-tax focused so the funds that have moved in that direction are showing that there's significant value-add," Williams said.
According to Williams' research, focusing on an after-tax investment instead of a pre-tax strategy in super could mean a member retires on $327,000 versus $240,000 over 25 years, with a 50-100 basis points saving on the equity's allocation.
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The future of superannuation policy remains uncertain, with further reforms potentially on the horizon as the Albanese government seeks to curb the use of superannuation as a bequest vehicle.
Superannuation funds will have two options for charging fees for the advice provided by the new class of adviser.
The proposed reforms have been described as a key step towards delivering better products and retirement experiences for members, with many noting financial advice remains the “urgent missing piece” of the puzzle.
APRA’s latest data has revealed that superannuation funds spent $1.3 billion on advice fees, with the vast majority sent to external financial advisers.
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