|Summary: There are now more than 500,000 self-managed funds, and around one million members, collectively managing more than $470 billion. With the government planning more changes to superannuation, the DIY army could prove to be a key force at the polls.|
Key take-out: Depending on the continued strength of equity markets, the average DIY super fund balance could top $1 million this year.
Key beneficiaries: Superannuation investors and SMSF trustees. Category: Superannuation.
With due deference to Paul Hogan (who was talking about knives in the original Crocodile Dundee): “That’s not an army. THAT is an army!”
If the nation’s political leaders are considering aggravating SMSF trustees, they might want to check the numbers first.
Sometime, around about now, our SMSF army hit a major milestone.
The number of SMSFs in existence most likely hit 500,000 in February, according to figures from the Australian Tax Office. At December 31, there were 496,028 SMSFs. In recent history, they have been growing at 3,000 a month, or about four an hour. Allowing for the usual Christmas and January slowdown, the number should have roughly topped 500,000 ... well, pretty much today.
But that’s just SMSFs themselves. Each fund has an average of 1.9 members. We’ll hit the magic million member mark, according to my extrapolation of those numbers, in the second half of September, around the time of this year’s federal election. Keep that in mind, Canberra.
Particularly if you decide that you want to target individuals with larger superannuation balances, such as those with more than $1 million in super. And those rumours only seem to be growing stronger in that period of time we’re now in, in which budget wish-lists are being kicked around. They’re considering taxing higher-balance super funds – which would pointedly hit SMSFs harder than Australian Prudential Regulatory Authority regulated fund members – at higher rates, though we haven’t seen enough detail yet.
Superannuation will be a bit of a battleground this year. It’s unlikely to be front-page news, but both sides of politics are going to be spruiking their credentials.
Labor is raising the Superannuation Guarantee levy from 9% to 12% (over a number of years, starting on July 1, 2013), which was to be funded by the mining super profits tax (oops!) while the Coalition is promising not to make super any worse in its first year in office, a promise that’s been broken too often for us to place much faith in.
What we’d love to hear is how superannuation is going to be made better. Unfortunately, they don’t seem to be the cards in anyone’s hands.
Both the ATO figures and figures out from the APRA show the increasing clout that SMSFs have.
The new converts continue to get younger too. Nearly 40% of new SMSF trustees are aged 44 or less. The average age is around 50.
Women make up nearly half of all new members, at 47%. And the median income would be about the same as the “average” in the population, though the largest, by pure weight of numbers, are in the $100,000-$200,000 range. SMSFs control 33% of all superannuation assets.
With 496,000 members on December 31, and total assets of around $474.4 billion, we’re agonisingly close to the “average” super fund being worth $1 million.
Depending on the continued strength of equity markets, the $1 million average super fund could also happen this year.
Equities are back as top of the pops again – probably largely more to do with the growth in equity values since the middle of last year than deliberate asset allocation.
In June last year, the single largest asset held was cash, with $130.8 billion. As at 31 December, that had grown to $135.8 billion.
Over the same period, the value of equity holdings in SMSFs had grown from $127.6 billion to $150.1 billion, an increase of 17.6%.
However, those figures suggest that even as equity markets were rising, SMSF trustees were easing up their allocations to shares.
Share prices over that period rose, roughly, 20%, including a bit in dividends and distributions. That it is roughly the same as the increase in equities and suggests that, net, we put no new money into equities.
Given that it’s made up of averages, many of you were continuing to withdraw from equities, as others were pumping money in, as the market was making a long-awaited comeback (I was certainly in the camp of the latter), and we certainly hope it will continue to canter on for a little longer.
The ATO’s stats don’t seem to back up Multiport’s figures that I mentioned in last week’s column. But that might be because the ATO stats don’t seem to record, or not obviously so, the amount of gearing undertaken by SMSFs.
The amount of money invested in residential property continues to grow, but did not grow above the growth in investments in other asset classes. Over the six months to the end of the year, overall assets in SMSFs increased by nearly 9%, while residential property assets increased by only 4.1%.
It would be reasonable to assume, however, that if those properties that have been geared begin to take off in value, that we’ll see a considerable rise in the net value invested in residential property, in particular.
But in the meantime, SMSFs continue to grow more and more powerful.
Though perhaps not as in-your-face as the National Rifle Association’s famous slogan, perhaps we SMSF trustees need to start showing some solidarity and have some bumper stickers made up.
“I’m a SMSF trustee. And I vote.”
The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.
- Superannuation assets grew 14.6% for the 12 months to 31 December 2012, according to the Australian Prudential Regulation Authority's (APRA's) December 2012 quarterly superannuation performance publication. Total estimated assets, including self-managed superannuation fund assets and the balance of life office statutory funds, rose by $192.2 billion to $1.51 trillion over the 12-month period. In the December quarter alone, total estimated industry fund assets grew 4.8% to $294.7 billion.
- Retirement readiness is on the decline in Australia, according to Mercer’s latest superannuation sentiment index. The survey found two out of three working Australians expect to run out of retirement savings by the age of 70 and four out of five believe they will run out before the age of 80. Mercer managing director and market leader for the Pacific market, David Anderson, said Australians are confused and not sure about the best way to prepare for retirement. “Super funds, employers, and the government all have a challenge to improve retirement readiness in this country. It’s a challenge with social and economic worthwhile outcomes and super funds shouldn’t lose sight of the bigger picture,” he said.
- Elsewhere, another survey has found Australians expect their superannuation holdings to make up just 20% of their retirement savings. HSBC’s future of retirement survey found that Australians expect 30% of their retirement savings to come from the age pension, 20% from super, 14% from savings, 11% from property and 8% from shares and investments. Meanwhile, almost 60% of respondents said they were either not planning for retirement adequately or not preparing at all.