Delving deeper in to SMSF stats

It is always nice to see how the SMSF sector is progressing and what are the new trends identifiable from the financial returns and other interactions between the ATO and Trustees, even if they are relying on old data. The ATO has recently released the fifth edition of its annual statistical report on SMSFs. The overview provides high-level observations and commentary on the 2012–13 statistics gathered from SMSF annual returns, SMSF registrations and auditor contravention reports it receives.

The statistical highlights from the ATO 2012–13 overview are:

• SMSFs account for 99% of the total number of funds and 30% of the $1.9 trillion total super assets in Australia. No surprise as each fund has 2-4 members maximum whereas a fund like Australian Super has millions of members known affectionately by a number! Stand up 24601 (ok, I could not miss a chance to use this from Les Miserables!). Also no surprise that they hold so much of the assets as they are the “retirement vehicle” of choice so more attractive to older members with big balances, but the tide is changing and costs reducing.
• The 40 somethings are  starting to engage. The SMSF sector grew by about 29% between 2010 to 2014 and it is the continuing rise in numbers of younger trustees that is starting the shape the future direction of the SMSF service industry
  

  source: ATO

  Whilst 53% of members were aged 35-55, the sector is now seeing significant growth in the lower end at the 35-44 age bracket.   The ATO has highlighted within the report that for the first time, the median age of SMSF members of newly established funds in 2013 was below age 50.

• At 30 June 2013, SMSFs held $9.2 billion in borrowings and $3.8 billion in other liabilities – 1.9% and 0.8% of total assets respectively. The proportion of SMSFs with borrowings increased progressively to 5% in 2013. So while a drop in the ocean compared to the total asset pool, the rise of SMSF borrowing needs to be monitored and I believe ‘managed’ so members can leverage for long-term gains but with safeguards in place like lower LVRs, full disclosure of all referral fees, marketing budgets, commissions, finders fees or whatever you want to call the huge  payments made to third parties in the property sales process. If you know the sales person or “funnel” you are buying from are getting $40,000 in payments on that $400,000 property then at least you know you are starting from well behind. At the moment, novice or time-poor investors don’t see the full extent of the “dipping into the honey pot”.

• It is estimated that SMSFs experienced a positive return on assets of 10.5% in 2012–13, the highest achieved over the five-year period. I hate people quoting one-year returns when people are or should be focused on long-term investing. Show me the 5, 7 and 10-year numbers! I know the ATO may be able to do this in a few more years once they have enough data. Quoting 1-year numbers is like telling me you saved some money last year without admitting that the previous 10 years you racked up huge debts and the savings last year were only because your mum gave you some money.

• SMSFs directly invested 78% of their assets, mainly in cash,  term deposits, and Australian listed shares. I suspect the people with this sort of allocation are not using financial advisers or investment consultants as most of my clients have healthy allocations to international shares, bonds and property. SMSF Trustees need coaching and education not preaching or gloating about missed returns to step out of their comfort zones.

• The majority of SMSFs continued to be in the accumulation phase (63%); however, over the five years, there was a shift of 7% of SMSFs moving into the full pension phase. The “Grey Army” will likely get stronger and more vocal with retirement incomes to protect and they should have more influence on future Government “tinkering.” Rise up and be heard or they will sweep the rug from under you!

• At 30 June 2014, 77% of all SMSFs had individual trustees, rather than a corporate trustee. Of newly registered SMSFs in 2014, 92% had individual trustees. This is a shame and a reflection of poor advice or no advice and lack of foresight. Any trustee who feels it is ok to subject their surviving spouse to reams of paperwork at the same time as losing their lifelong partner just to save $700 should forewarn them now so they know what to expect. Read my previous blog Why Self Managed Super Funds Should Have A Corporate Trustee to understand why.

• For the year ended 30 June 2013, 63% of SMSFs were solely in the accumulation phase, with the remaining 37% making pension payments to some or all members in retirement. Of these, 11% were in partial pension phase (making payments to some members), while 26% were in full pension phase (making payments to all members). If you are over 55 then you should at least explore the Transition to Retirement Pension option. Don’t complain about tax and investment returns while ignoring low-risk strategies to improve your position. Read Understanding transition to retirement pensions fro some ideas.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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