SMSF members avoided an end of year rush when timing contributions in the last financial year and instead spread them out to avoid market volatility and to make catch-up contributions, according to a new report issued by Class.
The Class annual SMSF benchmark report, based on the anonymised and aggregated data of its client base, found the events of 2020 altered the way SMSF members approached the timing of contributions.
“The last financial year was an anomaly, with a great many uncertainties in the market, both in terms of public health and financial performance. This has led to the greatest contributions change on record,” the report stated.
“Traditionally, most contributions take place at the end of the financial year as SMSF members make use of contribution caps. However, last financial year we can see that contributions were far more dispersed across the year.
“This [recovery] may reflect individuals working to get available capital into their SMSFs to capture the upside following market downturns in March 2020, or to allow them to get their capital into a secure vehicle to avoid market volatility from other potential investments.”
The report added there was a “reverse radical recovery” in contributions during the 2020-21 financial year driven in part by the heavy reductions in caps for concessional and non-concessional contributions after 2017.
Alongside this shift, Class also found female balances were growing faster than their male counterparts and since 2016 had outperformed them by 4 per cent. Across the same period, the balance size for female SMSF members had increased from 79 per cent to 84 per cent of male balances.
“The behaviours toward long-term investment strategies for females is changing. There is a continued trend of higher participation by women in younger demographics compared to older demographics – at 50 per cent for under 45s and 40 per cent for over 85s,” the report added.
“Also, 19 per cent more females than males are making downsizer contributions, accelerating their balance growth. This reinforces what we know about societal shifts, where women are taking more ownership in household finances and a more active view of financial independence.”
Speaking on the release of the report, Class chief executive Andrew Russell said: “As we worked through the impacts of COVID-19 on our industry, we knew that this was the time to examine deep inside the SMSF sector to look for the emergence of trends.
“It has been interesting to see how resilient the sector has been, from avoiding early release mechanisms to making more contributions to SMSFs across the year as we believe investors looked to capture the significant upside following market falls.
“This is a critical exercise because understanding the data for the sector will lead to innovation and evolved strategies for the future.
“We present this data and set of insights to the financial services industry so they, too, can discover more about the critically important SMSF sector and how it is working.”