How do your annual SMSF accounts compare? The financial statements for most SMSFs are prepared on a cash basis with no consideration for the retirement obligations of the fund’s members. This is less than helpful when say:

  • you have less than $200,000 and are mid-career, or
  • you are a couple approaching retirement with a combined balance of $500,000 or
  • you are a young adult with no savings or are having a career break, or
  • you have entered retirement phase with assets of around $650,000

An alternative to cash accounting would include some recognition of the retirement obligations of each SMSF by having each member formally set their retirement objectives and adding a note to the accounts with an estimate of their accrued benefits as a discretionary liability. This would create a greater alignment of the fund’s objectives and its members with the Australian Superannuation system.

The benefits of this additional disclosure would include the following:

  • It would clearly indicate whether the fund is on target towards meeting its members’ retirement objectives over time.
  • There would be a greater incentive for all individuals to engage with their retirement objectives and savings.
  • It could be referred to by financial planners as a guide for providing further advice to members and trustees.
  • Any changes to the retirement objectives of the members could be explicitly measured and reported to both members and Government.
  • It would be cost neutral to Government and potentially offer savings in the longer term with a greater emphasis on long-term investment strategies.
  • The fund’s investment returns could be benchmarked annually against the assumptions used to determine the value of accrued benefits.

The steps to implementing this would be relatively straightforward as the principle of valuing accrued benefits is well established internationally within both accounting and actuarial standards for private superannuation and pension funds.

Also by including these values in the notes to the accounts as a discretionary liability, they would remain off the balance sheet and yet would provide added guidance to trustees and members alike.

For an immediate assessment of your accrued benefits, please try our online calculator below:

Valuation of Accrued Benefits - Calculator

Alternatively, you can download our submission to Treasury’s, “Review of Retirement Incomes in 2020,” – here.