Aussie DIY Pension Funds Results is Millions Lost on Crypto Bets

Aussie DIY Pension Funds Results is Millions Lost on Crypto Bets

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Reports by Reuters indicate that thousands of Australians who used do-it-yourself pension funds to bet on crypto face millions of dollars in losses.

Reuters reports thousands of Aussies who used DIY pension funds, or superannuation funds (SMSFs), who bet on cryptocurrencies face millions of dollars in losses. The massive losses threaten their savings in a program initially established to ensure pensioners have adequate retirement income.

Investors can make these risky bets through SMSFs as they fall outside the scope of the prudential regulator, which oversees professionally managed funds. The lack of regulatory oversight means people can invest with fewer restrictions but ultimately bear a much greater risk.

Regulator's Hands Are Tied

In Australia, SMSFs account for 25% of the country's $2.29 trillion pension pools. During the COVID-19 pandemic, thousand of these DIY funds were set up, which resulted in people investing money set aside for retirement into the markets, including in the crypto market.

Regulators have no recourse other than to warn investors about the risks associated with investing in such funds.

Reuters recounts the story of Australians who are perfectly content to ignore regulators' warnings. While the bull market was in full swing, Aussie portfolios made profits for a short time, but since the massive market crash, many have been left "underwater."

Despite facing losses and being "underwater," investors continue to invest in crypto – specifically Bitcoin. Australia's tax office reports that more funds are adding crypto, but they remain a small minority.

In 2021, new SMSFs grew by 30%, according to a Vanguard and Investment Trends survey, with more than half of new independent investors claiming they can outperform their pension funds. Australia differs from many countries concerning the DIY pension sector. Australia's SMSFs combine size and freedom unlike any other. DIY pension funds are available in the United States, but the portion of people investing through them is negligible. Victoria Scholar, head of investment for Interactive Investor, says DIY pension funds cannot directly invest in Bitcoin or any other cryptocurrency in Britain.

The story in Australia is, however, somewhat different. SMSFs can take out loans for houses and farms, buy shares in private companies, and even collectables such as fine wine or jewellery.

Regulators have tried stepping in, and in 2019 recommended banning SMSFs from borrowing. The same year, the Australian Tax Office (ATO) warned 17,700 fund trustees that their portfolios were not diversified enough. The ATO said in cases where funds are highly concentrated, investors must prove they have considered the associated risks. 

There are, however, no anticipated regulatory changes to SMSFs.

John Maroney, former head of Australia's SMSF associated, said significant crypto investments are concerning but added that amending rules would add costs. He contends:

Our general position is if it's legal to invest in speculative assets, then no further restrictions should apply to SMSF investments.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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