Younger Australians Increasingly Opting for SMSFs

Who doesn’t love a great data set to analyse? You can gain insights into trends and undercurrents that you wouldn’t otherwise note from your day-to-day experience and the news. 

The last couple of months have seen two main data reports of the SMSF sector. Firstly, the ATO’s SMSF quarterly statistical report – March 2022, released in June, which is an aggregate of all information collected through the ATO’s role as regulator of the SMSF industry. The second is the Annual SMSF Benchmark report issued by Class, a technology platform preferred by over half of accountants nationally, which uses big data to conduct a deep dive into information, which is anonymous and aggregated, across its compliance network. So, let’s take a look at some of the main findings.

Desire for Control Over Investments

The main reason for establishing an SMSF remains as it always has been: the desire for more control over investments. This can be seen with the statistic that 65 per cent of all SMSFs established are with individual trustees. It’s easier to control an individual trusteeship rather than a corporate trustee, and also less costly.

There has long been the perception that SMSFs are only for those approaching retirement. However, the ATO’s report shows that the average age of members that decide to establish an SMSF is now 46. The establishments for the 35-44 age bracket in the March quarter is over double that of 45-49 age bracket. This illustrates that younger Australians want control over their superannuation and retirement planning, and don’t want to leave this to later in their working lives.

(Source: ATO)

SMSF Resilience

The Class Benchmark Report notes that SMSFs have shown resilience and have sustained growth during disruptions ranging from the impact of COVID-19, the Ukraine war and inflation to director IDs and changes to audit independence. The report highlights that customers’ portfolios are often weighted towards risk-adverse allocations, which explains why SMSF balances were down 5 per cent in the second quarter compared with the ASX 200 being down 12 per cent over the same period.

A notable investment trend of late has been ETFs, which within SMSFs have shown the highest growth among the asset classes, with a 5 per cent increase from June 2020 to March 2022.

The top 20 of ETFs, domestic shares, international shares and managed investments on Class’s compliance platform is as follows:

These tables are quite powerful snapshots. We see how over 600,000 SMSFs in Australia, while all unique with different needs, risk tolerances, and perspectives, construct their investment portfolios with a consistent thread of either the main blue-chip Australian shares, large ETFs, and/or international household name brand shares.

The data suggests that if an SMSF were to invest either between an MF or ETF, the percentage of the total SMSF investment for an ETF would be more than double that of a MF (4.4 per cent vs. 1.9 per cent). This reinforces and validates the main driving force behind SMSF establishments; direct control over the investment choices. SMSFs prefer direct investments such as ETFs at least twice as much as managed investments where someone else such as a fund manager is making the choices for them.

Women Making More Contributions

The data on contributions and member balances was the most striking to me of all the data sets presented from the two reports.

While the superannuation industry has grown in total fund assets between March 2021 to March 2022 by 12 per cent to now total $892 billion, member contributions between March 2021 and March 2022 increased by 60 per cent from $23.4 billion to $37.4 billion. Most significantly, net contribution flows into SMSFs changed from $9.8 billion in March 2021 to $58.9 billion in March 2022, a 500 per cent increase (due to SMSF members taking fewer lump sum payments out of their SMSF).

Looking deeper into the data, the main driving force with contribution flows and increased member balances has been centred on females. Female member balances have grown faster than male member balances since 2017, outperforming them by 4 per cent. And female members are making more contributions than their male counterparts, both in non-concessional contribution and in downsizer contributions (15 per cent more females than males are making downsizer contributions).

This is great news given that legislative changes over the last three years are aimed at providing equality in superannuation opportunities. Statistics like these show the hard work that financial advisers have done with the SMSF population to implement strategic advice that aims to equal member balances within an SMSF.

While the ATO is due to release the June quarterly statistical report any day now, the above highlights the strength and diversity of SMSFs within a superannuation system that has been compulsory for around 30 years now. Female superannuants are becoming actively engaged through targeted strategic strategies and decisions. And while each superannuant is making decisions independently in their best interests, collectively the same decisions and methods of implementation are clearly identifiable both from a contribution and investment perspective.