Workers warned about risks of super smurfs - Brisbane Times

AAP

They're called SMSFs - self-managed super funds - but Australia's foremost authority on superannuation prefers to call them smurfs.

And while the do-it-yourself retirement saving may soon rival the little blue gnomes for popularity, Jeremy Cooper warns there are risks involved - like the possibility of "blowing up" your life savings.

Mr Cooper, chair of the comprehensive 2010 Cooper Review of Australia's superannuation system, warned that SMSFs come with risks that did not exist with retail and industry funds overseen by the prudential regulator, APRA.

"You can blow yourself up. In theory, by reason of bad luck or fraud or other happenstance you can theoretically lose your entire investment savings and this is where the self in self-managed comes to the fore," Mr Cooper said at an Australian Securities and Investments Commission conference in Sydney.

"There's a big difference between a self-managed fund and an APRA-regulated fund in this respect.

"There's no special statutory safety net in the event of a fraud."

Self-managed superannuation funds (SMSFs) - or "smurfs" as Mr Cooper has dubbed them - are the fastest-growing sector in Australia's $1.4 trillion superannuation industry and consultants at Deloitte have estimated the total value of SMSFs will pass $500 billion this year.

Fund numbers are expected to hit one million.

Mr Cooper warned, however, that while SMSFs offer greater control and potentially lower costs, fund owners were ultimately responsible for their own performance.

"You win your own wins and you own your own losses," he said.

Mr Cooper said it was important to make those risks clear and those who were not comfortable with the risks could choose another option.

Another key point is that volatility is not well understood because of the broader superannuation industry focus on long-term performance.

"A loss of 10 per cent in year one and a gain of 10 per cent in year two doesn't put you back square," Mr Cooper said.

"I think a lot of smurf investors are underestimating or undervaluing the harm that volatility does to their portfolios."

Mr Cooper warned that SMSF weak points, according to Tax Office data, were asset allocation, complexity and cashflows to retirees - though that last element is not restricted to self-managed superannuation.