SMSF inflow eases

PORTFOLIO POINT: Your super contributions have slumped further! What you’re putting in now is down a full one-third on two years ago. I want to know why.

What’s the story with your super contributions? A little over a year ago, I reported that contributions to SMSFs had fallen down a very deep hole. Statistics from Multiport, a major SMSF services provider, had shown that the quantum of contributions being made to super had taken a huge hit – dropping 22% between 2008-09 and 2009-10.

The figures took me by surprise. I had been expecting contributions be down but not by that much. So I asked Eureka Report subscribers for their opinion and received hundreds of emails.

A big factor was the halving of concessional contribution limits implemented by the Rudd government. There were other reasons, too, including a loss of confidence in super: if super’s rules are going to change and get worse, why not move your finances down the paths of things less likely to change, or with fewer restrictions? Also cited were weakened economic conditions, rebuilding business cash flow and decisions to retire debt.

It took two weeks to cover your responses – click here and here.

Well, it would appear that a failure from government to make any substantial rectification to super has only seen things get worse, some said. Multiport, which handles the administration of more than 1200 super funds, has reported a further fall in contributions for the year to June 30. They dropped a further 14.2% in 2010-11. Added to the previous year’s falls, contributions to super last financial year were down 33% on two years earlier.

There were no major changes to contribution rules during the year. They are still sitting at the same levels of the previous year (pitiful, especially when it comes to the new concessional contribution limits of $25,000 up to age 50 and $50,000 after 50).

We are due to have the 50-50-500 rule – those over 50 can contribute up to $50,000 if their super fund’s value is less than $500,000 – implemented in the middle of next year, but final details have yet to be released by the government. So, those with balances under $500,000 should be able to continue to contribute more from July 1.

It should be the year when super members, particularly those over 50, are making the most of the final year of $50,000 concessional contribution limits.

Remarkably, average weekly ordinary time earnings (AWOTE) rose by about 4.5% during the period, so incomes (and therefore superannuation guarantee contributions) were on the rise.

And it should be noted that Multiport’s figures are only measuring contributions. They don’t take into account what’s leaving the super fund in the way of pensions or lump-sum payments.

As we’ve reported in recent months, it looks like Superannuation Minister Bill Shorten is about to make some positive announcements on contributions.

But we’ve become accustomed to waiting on that front. There would appear to be no hurry. It might be that it’s going to be tied in to the announcement that covers the mineral resources rent tax and the increases in the superannuation guarantee.

Annually, Multiport’s figures showed a decline. But they also showed that the average contributions for the June 2011 and September 2011 quarters were higher than the previous year.

Contributions for June were up to $16,779, versus $14,700 for the previous year. And for the September quarters, it was higher at $10,589 versus $8335 the previous year.

Non-concessional contributions are also making up a higher percentage of contributions at about 55% for the June 2011 quarter (50% in June 2010) and 69% for September 2011 (63% in September 2010).

Total contributions seem to have hit a nadir on the March 2011 quarter, when an average of just $5539 was contributed to each SMSF.

Have you taken a different stance on non-concessional contributions (NCCs) versus concessional contributions (CCs)? There are reasons to do so, given that CCs are taxed at 15% on the way in. Paying contributions tax, if your marginal tax rate would be lower, doesn’t make sense.

I’d like to hear from you if you know why you made lower (or higher) contributions during the 2011 financial year. My email address is bruce@castellanfin.com.au

SMSF trustees are being reminded that they can’t give their super away, as charitable organisations attempt to tap DIY funds for cash. Cavendish Super’s head of education, David Busoli, says charitable organisations have contacted some of his clients offering to assist SMSFs transfer small parcels of shares or dividends to charities at little or no cost. “As individuals they can do what they wish with their personal assets but, as trustees, they are not able to donate superannuation assets,” he says. The organisations are legitimate and are working on the basis that an insignificant sum or parcel of shares could be donated and the fund could receive the tax deduction. Busoli says none of Cavendish’s 5500 clients had been caught out yet but the company has received some enquiries on the subject and thought it was a good idea to clarify the rules around taking money out of super. SMSFs can donate assets or money to charity, but the amounts have to paid out as a member benefit subject to preservation rules first and the individual can pay it personally. A growing shortage of auditors in regional areas as new registration requirements come into force could be replicated in the SMSF sector, says the Institute of Chartered Accountants’ self-managed superannuation fund (SMSF) specialist, Liz Westover. She says a visit to regional NSW showed that accounting firms are struggling to recruit new blood while older practitioners are finding it hard to satisfy Regional Company Auditors requirements. Westover says the same difficulty can be triggered as the rules around SMSF auditor registration are finalised. "We need to be careful that the new provisions don't make it so prohibitive to become a registered SMSF auditor that it then becomes difficult for SMSF trustees to find a suitable auditor, particularly in regional areas." The SMSF administration sector became more crowded on Monday with the launch of SuperIQ. The service, 49% owned by AMP, is a paperless system that aims to make the process of managing SMSF investments, tax and deadlines easier for trustees and advisers alike. CEO Andrew Bloore, who also founded SmartSuper before it was taken over by Perpetual for $16 million in 2008, owns 51% of SuperIQ and wants to attract 3000 clients over the next six months and 20,000 within four years. AMP also owns SMSF researcher and administration Multiport and is playing down speculation that it may merge the two competing brands, saying it makes sense to own more than one administrator because the market is so fragmented. Multiport CEO John McIlroy says SuperIQ is not a threat because people would still rather “fill out a piece of paper” when managing an SMSF than doing it all electronically. Dixon Advisory has won overwhelming support from investors for a second capital raising in its US Masters Residential Property Fund. Almost all of the 1500 fund members, most of whom are SMSFs, approved the $140 million capital raising to expand the fund’s New York residential real estate asset base. The fund easily beat its $30 million minimum in the initial public offering in June when it raised $70 million. Managing director Alan Dixon says the fund has experienced “considerable success” since then. The fund has obtained commitments to buy 144 multi-family residential properties in Hudson County, New Jersey, at a total upfront cost of $28.3 million, and would now be moving into a new “growth phase” with larger-scale activities.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking.

Superannuation Q&A, click here.