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Self-managed super funds (SMSFs): Sector insights

By July 26, 2019August 28th, 2020No Comments

Are you looking for a broad overview of the existing self-managed super fund (SMSF) sector? In this article, we provide you with SMSF insights to help you get up to speed.

Written and accurate as at: 12 Jul 2019

When it comes to the sustainability of Australia’s retirement income system (in the context of an ageing society), a three-pillar approach has been pursued by the Government for the last few decades.

This three-pillar approach comprises of the following:

  1. The means-tested and publicly funded Age Pension;
  2. Compulsory private savings through the Super Guarantee arrangements; and
  3. Voluntary private savings, supported by taxation concessions and government contributions for low-income earners.

In terms of the last two points, compulsory (entirely) and voluntary private savings (partially or entirely) are directed into super, which is considered to be one of the most tax effective investment structures available.

With the above in mind, there are many different types of super funds. For example:

  • industry super funds,
  • public offer (retail) super funds, including super platforms,
  • corporate super funds,
  • self-managed super funds (SMSFs).

The type of super fund that you choose to help facilitate the accumulation of wealth in your working years, and the provision of income in your retirement years, will depend largely on your personal circumstances.

For some of us, there may come a point in our financial lifecycle when an SMSF becomes the preferred choice. Importantly, there are a variety of reasons why this may occur. For example, the desire to:

  • have more control over all decisions affecting retirement savings,
  • manage taxation outcomes more closely,
  • increase flexibility to implement strategies that suit you and your family’s needs,
  • reduce potential costs (especially on larger balances),
  • borrow to purchase investments in property and shares,
  • purchase commercial property from which the SMSF trustees or related parties may operate their business,
  • invest directly in assets or structures that are not available in other super funds.

With this in mind, whether you have or are considering an SMSF, or would just like a broad overview of the sector, we provide you with SMSF insights below.

 Latest SMSF Sector Insights*
Statistical overview
Sector sizeIn 2017-18, there were 25,034 SMSF establishments and 10,529 SMSF windups. As such, at 30 June 2018, there were 596,225 SMSFs, with 1,118,650 SMSF members, holding $749.9 billion in assets.
Age distributionAt 30 June 2018, the average and median SMSF age was 10 years.
ContributionsIn 2016–17:

  • The total contributions to SMSFs were $41.8 billion, of which $34.7 billion was member contributions and $7.1 billion was employer contributions.
  • The total average and median member contributions to an SMSF was $133,061 and $30,000, respectively. Whereas, the total average and median employer contributions to an SMSF was $24,976 and $19,155, respectively.
  • The majority of the total contributions to SMSFs were made by (member, 81.3%), and on behalf of (employer, 83.3%), those aged 50-69.
Benefit paymentsIn 2016-17, total benefit payments from SMSFs were $46.4 billion:

  • The average and median benefit payment per SMSF was $144,987 and $67,380, respectively.
  • The average and median benefit payment per SMSF member was $94,290 and $42,000, respectively.
  • 86.9% of all benefit payments were in the form of an income stream (including transition to retirement income streams).
  • 91.5% of SMSF members receiving benefit payments were aged 60+.
Payment phaseIn 2016-17:

  • 57.6% of SMSFs were solely in accumulation phase.
  • 31.6% of SMSFs were solely in pension phase.
  • 10.8% of SMSFs were in partial accumulation and pension phase.
Trustee structureAt 30 June 2018, 58.9% of all SMSFs had a corporate trustee (rather than individual trustees).
Member gender/ageAt 30 June 2018:

  • 53% of SMSF members were male, and 47% were female.
  • The median age for SMSF members was 59.4 years; however, the median age of SMSF members of newly established funds in 2016–17 was 47.6 years.
Member numberAt 30 June 2017, 70% of SMSFs had two members.
Member balancesAt 30 June 2017, the average and median SMSF member balance was $640,191 and $296,721, respectively.
Asset sizeAt 30 June 2017:

  • The average and median assets per SMSF were $1,223,460 and $693,265, respectively.
  • The average and median assets per SMSF member were $652,465 and $393,141, respectively.
  • 47.6% of SMSFs held assets of between $200,001 and $1 million, accounting for 20.9% of total SMSF assets.
  • SMSFs established in 2016–17 had average assets of $521,373.
Asset allocationAt 30 June 2017, the top five assets held by SMSFs (by value) were listed shares (29.1%), cash and term deposits (23.4%), unlisted trusts (10.6%), non-residential real property (9.2%), and limited recourse borrowing arrangements (LBRA) (5.3%).
Asset concentrationAt 30 June 2017, 43.6% of SMSFs held 80% of their assets in one particular asset class, representing 28.9% of total SMSF assets.
LBRA assetsAt 30 June 2017, 8.9% of SMSFs reported LRBA assets, of which 93.2% consisted of real property.
BorrowingAt 30 June 2017, borrowing represented 2.9% of total SMSF assets, and the average amount borrowed was $368,210.
Investment returnIn 2016–17, the average return on assets for SMSFs was 10.2%.
ExpensesIn 2016-17:

  • The average total expense ratio (administration and operating expenses 0.66%, and investment expenses 0.51%) of SMSFs was 1.17%.
  • The average total expense ratio for SMSFs generally declined as the fund size increased. For example, SMSFs with a size of >$200,000 to $500,000 had an average total expense ratio of 3.4%, whereas it was 1.0% for those with >$1m to $2m.
ContraventionsUp to 30 June 2018, the top three contraventions by SMSFs (as a proportion of the number of contraventions) were loans and financial assistance to members (21.2%), in-house (related party) assets exceeding 5%  (18.8%), and failing to keep the SMSF assets separate to personal or business assets (12.9%).

Moving forward

Like other super funds, such as industry and public offer (retail), SMSFs are a way to help facilitate the accumulation of wealth in your working years, and the provision of income in your retirement years.

However, there’s a difference. The members of an SMSF are also generally the trustees, which entails considerable responsibility, and significant penalties if these are not carried out correctly.

With this in mind, SMSFs are not for everyone – and if you are considering an SMSF, then it’s important to remember to seek qualified professional advice.

If you have any questions regarding this article, please do not hesitate to contact us.

 

 

*ATO. Self-managed super funds: A statistical overview 2016-17. Data tables.