SMSF, Superannuation

Ageing demographic future of SMSFs

SMSF Deloitte Growth Industry funds Dynamics of the Australian Superannuation System Report

SMSFs were predicted to grow well into the future but an ageing demographic was likely to reduce their numbers and overall pool of retirement savings.

The continued growth of the pool of superannuation savings will continue to boost all fund sectors, but SMSFs are expected to decline in number as current members move into retirement and begin to draw down retirement savings, according to Deloitte.

In a new report, titled “Dynamics of the Australian Superannuation System”, the actuarial and consulting firm noted the compulsory nature of the system meant overall superannuation assets would keep increasing, but not all sectors would continue to grow.

“Each of the dominant fund sectors (industry, retail and SMSFs) are expected to grow significantly over the next 20 years. Within this set, industry funds are expected to grow at a rate above competitors due to strong current positioning and lower fees on average,” the report stated.

In regards to the growth of industry funds, Deloitte noted mergers were now commonplace and had shifted the structure of the market and boosted the market share of the segment, with a forecast it will hold close to $6 trillion by 2043.

At the same time, retail super funds have changed their business model following the Hayne royal commission, engaging in product closures and simplification and investment in member services.

“Into the future we expect growth in the retail segment by virtue of their existing scale, wealthier demographic base and ability to spend capital to develop new products which retain members up to and through retirement,” the report said, predicting this sector would hold $2.5 trillion by 2043.

SMSFs were also predicted to hold the same level of assets, with Deloitte noting they “remain a preferred vehicle for investing the assets of wealthy Australians due to their tax benefits and provision of additional control”.

“Despite these benefits remaining, we expect that SMSFs will decline in market share in the next two decades due to their older demographic transitioning to retirement and commencing material drawdowns of their assets,” it said.

The report highlighted the remaining public sector funds would continue to grow at a diminished pace to $250 billion by 2043, while corporate funds would decline as they were only available to restricted groups of people.

The relative arrangement of each sector was likely to continue into the post-retirement space where SMSFs would lead industry funds in post-retirement assets, where they are predicted to hold around $1.42 trillion by 2043 compared to industry funds with $1.39 trillion, but they are likely to overtake SMSFs due to the latter’s ageing population.

“Industry funds will benefit from the ‘stapling’ of superannuation accounts and individuals being more likely to be industry fund members at the point of retirement and therefore continuing to remain in that fund post-retirement. Because of their older demographic, the SMSF sector already has a significant proportion of its assets supporting pensions in payment, but will grow less strongly due to their high cash outflows,” the report said.

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