DIY super funds humble the majors

Self managed super funds have captured half of the growth sector superannuation market. With the returns from DIY funds closely matching those of the professionals, self managed funds are likely to keep growing.

Just over 50 per cent of the money being used to fund private retirement pensions is held in self managed funds.

This latest confirmed figure by the Self Managed Superannuation Funds Professionals Association is actually a little lower than earlier preliminary estimates but is still a staggering amount.

The SPAA data shows that half of those who are using superannuation to do what it is designed to do – provide pensions for those in retirement – find that self managed funds are far superior to outlaying vast sums to highly paid professional mangers. According to the tax office, the professional managers barely match the self managed fund investment performances.

The industry funds and to a lesser extent, the commercial superannuation groups, have missed the growth market – funding retiree pensions.

And while some of the big funds are now trying to recover, as explained below, their latest actions show their culture remains wrong and they still have not worked out why so many retirees are giving them the flick.

And the strength of self managed funds also underlines how foolish large corporations are in spending so much of their time promoting their companies to declining legacy institutions instead of the growth markets.

In all, in the year ended June 30 2011, $406 billion, or about 30 per cent of total superannuation fund assets, are being used to fund retirement pensions. Of that sum $206 billion or 50.7 per cent is held by self-managed funds.

But by June 30 2016 – just three and a half years away – the superannuation assets funding pensions will have risen to $610 billion, a staggering 50 per cent increase on 2011. If the self managed funds maintain their share there will be $300 billion devoted to pensions in self managed funds. (The Self Managed Funds association, being conservative, thinks self-managed funds may drop their share fractionally).

By 2026 funds devoted to retirement pensions will rise to $1,400 billion or 44 per cent of the total money in superannuation. A 50 per cent share would see $700 billion in self managed funds devoted to funding pensions. Even if the percentage is lower we are still looking at staggering numbers.

At the moment the self managed funds have just under a third of the total superannuation market but because they dominate the growth area it is set to rise sharply.

What the latest SPAA data confirms is that most people who retire with superannuation balances in professional funds either set up self managed funds to finance their retirement or take the cash out of superannuation and pay off the house, credit cards etc and/or save it outside the superannuation system.

The exodus of money is particularly prevalent in industry funds, which are the largest players in superannuation savings for those who are working but, according to SPAA data only have 5 per cent of the post retirement market. Commercial funds have 32 per cent.

My guess is that the vast majority of self managed funds used by working people simply continue on in retirement – people don’t take the money out.

The big industry and commercial superannuation funds keep trying to devise stunts to overcome their own misjudgments. Their latest game is to ask APRA to protect the self managed funds against themselves – in other words spend money to install the mechanisms designed to stop professional managers stealing the money.

The Australian taxation office watches the self-management fund industry closely and reports that the trustees, who are the beneficiaries, are doing a remarkable job. They do not need protection from themselves. There will always be bad apples but they also exist among professional fund mangers.

The Australian superannuation movement is unique in the world and Australians have discovered how it can be adapted to suit their needs.

The big funds should offer good products to the self-managed funds and some are starting to do this. They should have started long ago instead of fighting to try and stop the self-managed fund movement.

Hopefully APRA will understand some of the big funds are still showing their foolishness by continuing to dream up stunts to attack self managed funds instead of adapting to serve their needs.