The SMSF sector will continue to hold around 30 per cent of all superannuation assets for at least another decade, despite an increase in market share for industry funds and a contraction in market share for retail funds, according to research and consultancy group Rice Warner.
Rice Warner chief executive Michael Rice predicted that by June 2028 SMSFs would account for $1.46 trillion, or 29.4 per cent, of superannuation assets, down from 29.7 per cent as at June 2018 when total superannuation assets were $750 billion.
Rice, who made the comments as part of an SMSF thought leadership paper released by the SMSF Association and BT today, noted 10 years ago, total superannuation assets in SMSFs were 30.9 per cent, compared to retail and not-for-profit funds at 32.4 per cent and 36.7 per cent, respectively.
He added while the proportion of superannuation assets in SMSFs would remain steady, not-for-profit funds would increase their proportion against retail funds, with a predicted rise from 43.7 per cent in June 2018 to 46.9 per cent in June 2028, compared to a fall from 26.6 per cent to 23.6 per cent over the same period for retail.
“The commercial (retail) and corporate sectors have contracted substantially over the past decade. For commercial funds, we have projected this to continue, particularly off the back of the Productivity Commission and the royal commission, where heightened media attention has driven billions of dollars from commercial funds to industry funds,” he said.
“Conversely, industry funds have been gaining market share for an extended period – generally at the expense of commercial and corporate funds. This looks set to continue, as we project industry funds to overtake SMSFs as the largest segment by 2020.”
According to Rice, the future growth of SMSFs would likely be restricted by changes within the 2016 federal budget, which reduced the level of funds that could be put into superannuation, as well as the tax attractiveness of the retirement phase.
“It is important to note that another threat to SMSFs is Labor’s announced policy to remove the refundability of franking credits,” he said.
“As this policy is targeted at a fund level, many members may shift back to APRA (Australian Prudential Regulation Authority)-regulated funds that offer direct share options as they will be able to retain the franking credit benefit for a modest fee.
“Despite these factors, we project that SMSFs will continue to hold a healthy 30 per cent of the market in terms of assets, as they continue to provide a strong option to high-wealth individuals approaching retirement,” he said, noting the retirement market has also historically been dominated by SMSFs.
“We project that this will continue, however, APRA-regulated funds will claw back market share in this space as their membership ages, with SMSFs dropping from 56 per cent in 2018 to 43 per cent by 2033.”
This decline will be driven by an increase in pension payments from SMSFs as more members enter retirement phase, the reduction in contribution caps limiting the accumulation of balances than can be moved in retirement and efforts by not-for-profit and retail funds to prevent leakage to SMSFs, he noted.