Outflows from SMSFs via early release of superannuation related to COVID-19 are likely to be much lower than recent predictions, according to the SMSF Association, which has also taken an optimistic view of the equity returns for SMSF investors.
Association deputy chief executive and policy and education director Peter Burgess told selfmanagedsuper the industry body expected early release from SMSFs would likely reach about $500 million in total, much lower than a recent prediction of $1.5 billion from research house DEXX&R.
“We expect total withdrawals to be closer to the lower figure by the end of 2020, when the early release scheme ends, based on the current rate of access we have seen to date,” Burgess said.
This total figure would be nearly double the current rate, according to the ATO, which confirmed that, as at 7 July, 28,000 applications for early release of super had been made from 17,000 SMSFs, totalling around $280 million, from a total of 2.5 million individual approvals for early release totalling $28.1 billion.
Burgess said the lower prediction by the association of total early release applications was due to many SMSFs already being partly or fully in pension phase, and so already having access to funds, and SMSF members being more engaged with their funds.
Despite this, he added the body was unsurprised some SMSF members would draw down on their fund during the COVID-19-related economic downturn.
“In the past we have only seen a handful of compassion or hardship claims leading to early access to SMSF monies, but with the COVID-19 forced closure of many small business, which are often held by SMSF owners, it was likely they would take advantage of the measure,” he said.
Burgess also challenged DEXX&R’s suggestion investment losses in SMSFs would be exacerbated by the higher level of equity holdings within the funds.
He said the association’s view of recently released ATO statistics placed average equity holdings at about 40 per cent to 45 per cent of total investments, and noted the downturn was driven by social and health factors more than economic issues.
“We are still optimistic about the prospects for SMSFs. We are unsure if they will be forced to use investment capital because markets are starting to come back and we are already seeing some recovery,” he said.
“There will be reductions in returns but new investments will become available,” he said, pointing to the growth in investments in exchange-traded funds and small-cap stocks available to SMSF investors.
