Self-managed super funds (SMSFs): Sector insights
Written and accurate as at: Jul 12, 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 Guaranteearrangements; and
3. Voluntary private savings, supported by taxation concessionsand 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*|
|Sector size||In 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 distribution||At 30 June 2018, the average and median SMSF age was 10 years.|
|Benefit payments||In 2016-17, total benefit payments from SMSFs were $46.4 billion:|
|Payment phase||In 2016-17:|
|Trustee structure||At 30 June 2018, 58.9% of all SMSFs had a corporate trustee (rather than individual trustees).|
|Member gender/age||At 30 June 2018:|
|Member number||At 30 June 2017, 70% of SMSFs had two members.|
|Member balances||At 30 June 2017, the average and median SMSF member balance was $640,191 and $296,721, respectively.|
|Asset size||At 30 June 2017:|
|Asset allocation||At 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 concentration||At 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 assets||At 30 June 2017, 8.9% of SMSFs reported LRBA assets, of which 93.2% consisted of real property.|
|Borrowing||At 30 June 2017, borrowing represented 2.9% of total SMSF assets, and the average amount borrowed was $368,210.|
|Investment return||In 2016–17, the average return on assets for SMSFs was 10.2%.|
|Contraventions||Up 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%).|
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.