The SMSF sector is currently enjoying a renaissance. The trend that saw establishments decline between 2013 and 2019 has been steadily reversing since 2020, with recently released ATO data showing a healthy 32,747 fund establishments in 2023/24. Even after taking into account fund closures, the net figure still shows strong overall net growth.
The regulator’s statistics show the total number of SMSFs as at 30 June 2024 was 625,609 and with realistic predictions net fund assets will pass the $1 trillion milestone this calendar year. This is a remarkable outcome given the superannuation sector was little more than an afterthought when compulsory super became part of this country’s financial architecture in 1992.
Within this growth story another trend has emerged – the falling average age of those deciding to personally manage their own superannuation and set up an SMSF, with ATO data showing a significant rise in fund establishments among people in their mid-30s to mid-40s or the millennial generation who were born between 1981 and 1996.
This upsurge in interest in SMSFs among a younger cohort, the first generation to have enjoyed compulsory superannuation all their working lives, should not be exaggerated. The bulk of SMSFs remain the preserve of well-heeled baby boomers, individuals born between 1946 and 1964, and to a lesser extent generation X, those born between 1965 and 1980.
That said, it’s a notable trend, especially when it’s considered women are at the forefront, with the causes worth examining. There is no doubt the pick-up in SMSF establishments that began in 2020 is related in part to the onset of COVID-19, with the pandemic sparking a renewed interest in investing across the globe.
How this played out in Australia can be gauged from the results of a 2022 survey by public offer fund Equip Super. At the height of the pandemic, it found millennials and generation Z, individuals born between 1997 and 2012, were prioritising their super-related goals and for a minority this meant opting for an SMSF.
The study also found 47 per cent of Australians aged between 18 and 24 regarded super as more important now than before the COVID-19 pandemic began. This is unsurprising when three other factors are considered.
Firstly, in the past decade, myriad super-focused apps, such as Spaceship, Stake Super and Raiz, targeting younger Australians emerged online, with the inevitable consequence of increasing this audience’s financial awareness. For a minority, it’s just a hop, step and a download to an SMSF.
Secondly, falling administrative costs and greater use of technology, an integral part of this cohort’s daily lives to reduce workloads, are making SMSFs more attractive.
Thirdly, the fact some could access their superannuation during COVID-19 was a pertinent reminder of this retirement nest egg.
The cornerstone belief of this growing interest by a younger cohort to establish an SMSF is no different to what motivated their elders, that is, the desire for control over their retirement income strategy. A Reserve Bank of Australia study of SMSFs in 2009 made this salient point, with every superannuation inquiry, research report or survey ever since simply confirming it.
One reason why individuals have the desire to take control of their superannuation is related to investment with an SMSF providing a degree of control over their investments in terms of diversification, strategy and cost. It is therefore unsurprising the statistics show they are attracted to exchange-traded funds providing them with access to the same technology and artificial intelligence-related stocks that have been driving the United States equities market. They are also comfortable going it alone, with many choosing not to seek professional investment advice.
Another aspect as to why control is important is their response to their Australian Prudential Regulation Authority (APRA)-regulated fund experience. Again, this point should not be overstated because for most younger fund members their superannuation account is little more than an unopened email or letter in the post. However, for a minority, it is important.
Significantly, at a recent Australian Securities and Investments Commission Moneysmart roundtable, millennial panellists stated in their eyes super funds were failing to meet their expectations and as a result needed to lift their game by increasing services, enhancing transparency and improving access to information, a challenge for the increasing bureaucratic structures of the APRA-regulated behemoths.
One final and important point needs to be highlighted. Despite all the political posturing about a housing crisis, many young people are, in all likelihood, concluding home ownership is beyond their reach, especially for those without access to the bank of mum and dad.
In these circumstances, superannuation, not property, will be the cornerstone of their retirement income. While they will benefit from enjoying the super guarantee all their working lives, this must be offset against the likelihood many of this cohort may have to settle with having to always rent. It is no wonder more and more younger Australians are opting for an SMSF to provide them with greater control over what may inevitably be their single largest financial asset.
Stephen Doulgeridis is founder and chief executive of Neo Super.