Funds’ new DIY options welcome

Could the rush by industry super funds to offer DIY investment options to their members be a case of “if you can’t beat them, join them”? Whatever the answer, the latest extension of industry fund investment options to include ASX300-listed shares, selected exchange traded funds (ETFs) and term deposits is welcome news for investors wanting greater control over their retirement savings.
 
These new options introduce greater transparency into the assets owned by the individual investor compared with the ownership of the unitised managed fund options already on the approved product range. For example, by opting to purchase listed investment companies in the ASX300, they will be able both to access low management expense ratios and know what they have invested in.
 
Given that many industry funds lend their shares to short sellers and other borrowers, their members still cannot have the same confidence as DIY investors that they retain beneficial ownership of the shares at all times. Another drawback is that the current approved product lists do not include listed hybrid securities providing much higher yields than term deposits.
 
Unlike DIY fund term deposits, which are covered by a government guarantee backing up to $250,000 per institution, industry fund term deposits will not have this protection. This makes little difference for the big four banks’ term deposits, but does increase the risks of owning term deposits in smaller institutions offering higher interest rates.
 
Despite this, switching from cash accounts to term deposits is likely to improve interest returns. The additional risks of moving from cash into term deposits may only be marginal in a crisis because there is also no government guarantee of the monies invested in large funds’ cash accounts.
 
In launching its DIY option, QSuper’s chief executive announced that its new arrangements could allow “hands-on” investors potentially to save thousands of dollars in capital gains tax. This would result from their decision to allow the direct transfer of member-directed investments from the accumulation to pension phase and thereby not trigger a capital gains tax liability.
 
Apparently the same arrangements will not be extended to the transfer of internal unitised investment options into the pension phase. Until this option is also available, SMSFs which can switch member’s accounts between the accumulation and pension phases without the need to sell any fund assets will continue to be more attractive to older industry and retail fund members.
 
There is no legal or taxation impediment preventing industry and retail funds from allowing members to switch between accumulation and pension accounts without forcing the sale of assets, as QSuper will be doing with its direct “hands-on” options. This raises the question why this new option to avoid paying capital gains tax at the time of switching from the accumulation to pension phase is not offered for all investment options by all public offer funds. It would appear that these public offer funds place a higher priority on operating accumulation accounts than on facilitating and helping members to commence and operate pension accounts.
 
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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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