Thousands of Australians use DIY pension funds to buy crypto
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Losses likely in the hundreds of millions -Reuters calculation
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Australia has few rules governing what DIY funds can buy
By Lewis Jackson
SYDNEY, March 2 (Reuters) - Thousands of Australians who used do-it-yourself (DIY) pension funds to bet on cryptocurrencies face hundreds of millions of dollars in losses, jeopardising their savings in a scheme originally set up to ensure adequate retirement income.
These risky bets are possible as DIY or self-managed superannuation funds (SMSFs) fall outside the remit of the prudential regulator that oversees professionally managed funds, thereby allowing them to invest with fewer restrictions.
DIY pension funds account for a fourth of Australia's A$3.4 trillion ($2.29 trillion) pension pool. Tens of thousands set up such funds over the pandemic, pouring money set aside for retirement into markets, including cryptocurrency. But regulators can do little more than warn about the risks.
Peter, 50, who describes himself as a "bitcoiner", is among those who is content to ignore the warnings.
He moved his A$130,000 nest egg from an Australian pension fund into an SMSF and invested it in bitcoin investing in index funds for retirement 2021. At one point his fund was up A$100,000 as bitcoin scaled an all-time high, but is now "underwater" after prices crashed.
However, Peter continues to buy bitcoin.
"My conviction hasn't changed," said Peter, without giving his full name to keep his financial affairs private.
"It doesn't bother me, honestly. After ten years of being on this ride, part of me has died inside when it comes to price."
And Peter is not alone.
According to Australia's tax office, more funds are adding cryptocurrencies, although they remain a small minority.
CRYPTO 'WILL HELP'
There is about A$880 billion in Australia's SMSFs, with crypto assets accounting for $1. If you loved this article and you want to receive more details regarding investing in index funds India please visit the web-site. 4 billion of that in fiscal 2021. The quantity of crypto assets has likely grown since then.
Regulatory rules require investors to keep assets for retirement, run audits and acknowledge risks, but say nothing about the appropriateness of investments by SMSFs.
That is in stark contrast to measures in some other countries or even Australia's oversight of the A$2.3 trillion professionally managed pension sector where funds can be barred from taking new members if they underperform.
The tax office does not provide information about portfolio losses. However, bitcoin prices, near $24,000 now, are 16% below the 2021 trough and 60% below the 2021 peak.
Assuming an average 40% decline would imply an almost A$600 million drop in the value of SMSF cryptocurrency investments, Reuters calculations show.
This estimate was validated by Liam Shorte, a financial planner specialising in SMSFs.
"Most of the people I'm dealing with got in late," he says.
But crypto loyalists believe the asset class should be judged over decades, not days.
"If I want an early retirement, this will help," said Ken, a 47-year old professional who piled into cryptocurrency in May 2021 after first checking with his wife.
He bought more than A$100,000 of bitcoin and ether via his SMSF, accounting for 10-20% of the fund.
"If the investment goes pear-shaped, I work an extra year," said Ken, who also did not want his full name disclosed.
LITTLE REGULATION
New SMSFs grew 30% in 2021, a survey from Vanguard and Investment Trends shows, with more than half the new starters surveyed saying they could outperform their pension fund.
"I was getting calls every week at the peak," says Sevan Tuna, managing director at financial adviser Alexander Spencer. "It was ridiculous, people had a lot of time on their hands."
Australia's DIY pension sector combines size and freedom in a way that sets it apart from other countries.
The United States also has a freewheeling DIY pension sector but take-up is negligible.
In Britain, self-managed pension funds cannot directly invest in bitcoin or other cryptocurrencies, how to start investing in index funds for retirement in index funds according to Victoria Scholar, head of investment for Interactive Investor.
Hargreaves Landsdown, among Britain's largest retail stockbrokers, also bars its 460,000 self-managed pension customers from property.
But in Australia, SMSFs can take out loans for houses and farms, buy shares in private companies or collectibles like fine wine and jewellery.
Australian regulators in 2019 recommended banning SMSFs from borrowing, and in the same year the Australian Tax Office (ATO) warned 17,700 fund trustees they were not diversified enough.
Where funds are highly concentrated, investors must show they have considered the risks, the ATO said in a statement.
Treasury, which oversees the ATO, said there are no changes planned to SMSF governance.
Regulating SMSF investment decisions could have unpopular consequences, Tuna said. Forced diversification could limit big property investments. Property and the loans to finance it make up a fifth of all SMSF assets.
John Maroney, who stepped down as head of Australia's SMSF association this week, said big cryptocurrency investments are concerning but changing rules would add costs.
"Our general position is if it's legal to invest investing in index funds for retirement speculative assets, then no further restrictions should apply to SMSF investments." ($1 = 1.4828 Australian dollars)
(Reporting by Lewis Jackson; Editing by Praveen Menon and Himani Sarkar)
*
Losses likely in the hundreds of millions -Reuters calculation
*
Australia has few rules governing what DIY funds can buy
By Lewis Jackson
SYDNEY, March 2 (Reuters) - Thousands of Australians who used do-it-yourself (DIY) pension funds to bet on cryptocurrencies face hundreds of millions of dollars in losses, jeopardising their savings in a scheme originally set up to ensure adequate retirement income.
These risky bets are possible as DIY or self-managed superannuation funds (SMSFs) fall outside the remit of the prudential regulator that oversees professionally managed funds, thereby allowing them to invest with fewer restrictions.
DIY pension funds account for a fourth of Australia's A$3.4 trillion ($2.29 trillion) pension pool. Tens of thousands set up such funds over the pandemic, pouring money set aside for retirement into markets, including cryptocurrency. But regulators can do little more than warn about the risks.
Peter, 50, who describes himself as a "bitcoiner", is among those who is content to ignore the warnings.
He moved his A$130,000 nest egg from an Australian pension fund into an SMSF and invested it in bitcoin investing in index funds for retirement 2021. At one point his fund was up A$100,000 as bitcoin scaled an all-time high, but is now "underwater" after prices crashed.
However, Peter continues to buy bitcoin.
"My conviction hasn't changed," said Peter, without giving his full name to keep his financial affairs private.
"It doesn't bother me, honestly. After ten years of being on this ride, part of me has died inside when it comes to price."
And Peter is not alone.
According to Australia's tax office, more funds are adding cryptocurrencies, although they remain a small minority.
CRYPTO 'WILL HELP'
There is about A$880 billion in Australia's SMSFs, with crypto assets accounting for $1. If you loved this article and you want to receive more details regarding investing in index funds India please visit the web-site. 4 billion of that in fiscal 2021. The quantity of crypto assets has likely grown since then.
Regulatory rules require investors to keep assets for retirement, run audits and acknowledge risks, but say nothing about the appropriateness of investments by SMSFs.
That is in stark contrast to measures in some other countries or even Australia's oversight of the A$2.3 trillion professionally managed pension sector where funds can be barred from taking new members if they underperform.
The tax office does not provide information about portfolio losses. However, bitcoin prices, near $24,000 now, are 16% below the 2021 trough and 60% below the 2021 peak.
Assuming an average 40% decline would imply an almost A$600 million drop in the value of SMSF cryptocurrency investments, Reuters calculations show.
This estimate was validated by Liam Shorte, a financial planner specialising in SMSFs.
"Most of the people I'm dealing with got in late," he says.
But crypto loyalists believe the asset class should be judged over decades, not days.
"If I want an early retirement, this will help," said Ken, a 47-year old professional who piled into cryptocurrency in May 2021 after first checking with his wife.
He bought more than A$100,000 of bitcoin and ether via his SMSF, accounting for 10-20% of the fund.
"If the investment goes pear-shaped, I work an extra year," said Ken, who also did not want his full name disclosed.
LITTLE REGULATION
New SMSFs grew 30% in 2021, a survey from Vanguard and Investment Trends shows, with more than half the new starters surveyed saying they could outperform their pension fund.
"I was getting calls every week at the peak," says Sevan Tuna, managing director at financial adviser Alexander Spencer. "It was ridiculous, people had a lot of time on their hands."
Australia's DIY pension sector combines size and freedom in a way that sets it apart from other countries.
The United States also has a freewheeling DIY pension sector but take-up is negligible.
In Britain, self-managed pension funds cannot directly invest in bitcoin or other cryptocurrencies, how to start investing in index funds for retirement in index funds according to Victoria Scholar, head of investment for Interactive Investor.
Hargreaves Landsdown, among Britain's largest retail stockbrokers, also bars its 460,000 self-managed pension customers from property.
But in Australia, SMSFs can take out loans for houses and farms, buy shares in private companies or collectibles like fine wine and jewellery.
Australian regulators in 2019 recommended banning SMSFs from borrowing, and in the same year the Australian Tax Office (ATO) warned 17,700 fund trustees they were not diversified enough.
Where funds are highly concentrated, investors must show they have considered the risks, the ATO said in a statement.
Treasury, which oversees the ATO, said there are no changes planned to SMSF governance.
Regulating SMSF investment decisions could have unpopular consequences, Tuna said. Forced diversification could limit big property investments. Property and the loans to finance it make up a fifth of all SMSF assets.
John Maroney, who stepped down as head of Australia's SMSF association this week, said big cryptocurrency investments are concerning but changing rules would add costs.
"Our general position is if it's legal to invest investing in index funds for retirement speculative assets, then no further restrictions should apply to SMSF investments." ($1 = 1.4828 Australian dollars)
(Reporting by Lewis Jackson; Editing by Praveen Menon and Himani Sarkar)
