Pensions, SMSF, Superannuation

SMSFs lead pension transition

pension phase SMSF APRA funds Class

Far more SMSF members over 65 are in pension phase compared to APRA-regulated fund members, highlighting the different levels of engagement in the two sectors.

Around 90 per cent of SMSF members have moved their superannuation into retirement phase compared with less than 50 per cent of Australian Prudential Regulation Authority (APRA)-regulated fund members, highlighting the differences in levels of engagement, according to research released by Class.

In its “2023 Annual Benchmark Report”, Class found 49.1 per cent of APRA-regulated fund members aged 65 and over were entirely in accumulation phase in the 2022 financial year compared to 12.2 per cent of Class SMSF members.

Class chief executive Tim Steele said the research was based on anonymised and aggregated data drawn from the 186,000 funds on the Class Super platform and was significant when looking at the number of APRA-regulated fund members.

“This is big. At June 2022, there were 2.8 million members that were over 65 in APRA funds and only one in two were in pension phase, which means that nearly half of the members were still in accumulation phase,” Steele said at Class Ignite 2023 in Sydney today.

“Based on the Class data, only one in eight SMSF members remain solely in accumulation and this is a significant point of difference in terms of engagement and outcomes ultimately for members of APRA-regulated funds compared to a member of an SMSF.”

He pointed to comments in the report from Accurium principal Melanie Dunn about why the gap was so large and noted SMSF members were likely to be more engaged in directing outcomes for their superannuation.

“There is a requirement for SMSF trustees (who are also the members) to think about member objectives and cash-flow requirements as part of their investment strategy and to plan for the fund’s ability to pay benefits when members retire,” Dunn said in the report.

“Trustees may seek advice from professionals, including accountants and financial advisers, to assist them in managing their fund and making decisions, such as when to commence a pension.

“The responsibilities of being a member of an SMSF and the support sought and provided by professionals in the SMSF industry are likely to be key reasons why the SMSF sector is a big step ahead of APRA funds in the retirement income space.”

The report also noted the need to close the gap rested with the APRA-regulated fund sector, which had been prompted to act by regulators.

“Many APRA fund members are missing out on tax savings through lack of awareness and engagement by the members and, as previously described by the Australian Securities and Investments Commission and APRA, ‘a lack of progress and insufficient urgency from registrable superannuation entity licensees in embracing the retirement income covenant to improve members’ retirement outcomes’,” it stated.

“This highlights the need for industry to educate members on the benefits of moving into pension phase after they reach retirement age.”

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