Self-managed super review finds bigger better

It found that funds with less than $50,000 were the poorest performers and had the highest management fees, while funds with more than $2 million had the lowest fees and the best returns.

It also found that more than half the funds with less than $50,000 had 100 per cent of assets allocated to a single asset in most cases, cash or term deposits.

The comprehensive study was based on data sent to the Australian Taxation Office for the financial year ending June 2008 and was published by the Super System Review, known as the Cooper review.

It costs the ATO $69 million to collect data and monitor the sector, but it collects revenue of only $18.5 million from the sector. A new levy is expected to increase revenue to $40.6 million for the 2009 financial year, the report says.

The ATO reported that it had tightened compliance and, as a result, had wound up 17 funds in 2009. Forcible undertakings had been taken against 385 funds over the past three years. The most common breach was borrowing money out of the fund.

Meanwhile, the Australian Prudential Regulation Authority yesterday announced that the superannuation assets of Australians increased by $114.5 billion to $1.2 trillion between July and September this year.

These figures do not include contributions or gains made by self-managed superannuation funds (SMSF), which are not regulated by APRA.

The Cooper review is analysing Australia's superannuation and is to release its third discussion paper on the structure of the industry and the SMSF sector.

The study found:

The investment performance of the whole SMSF sector was slightly better than APRA-regulated funds over the past three years, but only SMSFs with more than $500,000 outperformed the industry average.

The cost of running a SMSF did not drop below industry standards until the fund held at least $200,000, with management fees for funds under $100,000 running at 5.3 per cent in 2008.

The average fund had returns of 9.8 per cent in 2006, 13.1 per cent in 2007, and lost 9.8 per cent in 2008. Funds with more than $2 million gained 15.3 per cent, 19.8 per cent and lost 4.24 per cent in the same period.

Funds with more than $2 million were mostly allocated towards listed shares, about 30 per cent of the portfolio, cash and term deposits and unlisted trusts.

The smallest funds had the biggest allocation towards cash.

The main reason for setting up an SMSF was to have greater control over investments, with 53 per cent of trustees (owners) believing they could garner better returns than their previous superannuation fund.