It looks like Cooper and Murray got it right after all. When the Cooper inquiry into superannuation was established in 2009, there was no shortage of critics of the SMSF sector. Yet in 2010, Cooper’s final report essentially gave this superannuation sector a clean bill of health.
Five years later, the Murray inquiry handed down its recommendations. Leaving aside the recommendation to ban limited recourse borrowing arrangements, which the government rightly ignored, it followed in Cooper’s footsteps to essentially say this part of the super sector is flourishing. It would be reasonable to assume critics of the SMSF sector would give some credence to these two inquiries. But despite their positive conclusions about the SMSF sector, and the strong evidence they brought to bear to support them, the critics are still lining up. Any shred of evidence will be seized on to demonstrate the end is nigh for this super sector and the 1.1 million SMSF members who have opted to take control of their own super have got it wrong.
In this environment, the ATO statistics on the SMSF sector are always eagerly awaited. Just as it was an ancient Roman custom to examine the entrails of a sacrificial animal to predict the future, so too do SMSF critics pour over the ATO statistics looking for evidence by which to predict a dire future for self-managed funds.But when the ATO’s statistical review for 2014/15 was released just before Christmas, the critics’ silence was deafening. Perhaps it was a surfeit of Christmas cheer. Perhaps. The more likely explanation was the glowing picture about SMSFs these statistics revealed. The growth in funds and members had continued apace over the past five years, funds under management had risen to $622 billion and the funds were competitive with their Australian Prudential Regulation Authority-regulated cousins in terms of returns and costs.
At 30 June 2015, there were 577,000 funds, 99.5 per cent of the number of super funds, with growth over the past five years of nearly 6 per cent. In terms of trustees/members, there are now nearly 1.1 million, split 53 per cent to 47 per cent between males and females.
The 6 per cent growth figure is certainly sustainable, and gives a lie to the assertion SMSFs are somehow losing their appeal. Quite the contrary. As more and more people understand the need to carefully plan their retirements, an SMSF becomes a very viable option offering control and flexibility. From the association’s perspective, the increasing attractiveness of SMSFs to young people, as well as the growth in women’s balances over the past five years were very positive signs.
Much has been said and written about the imbalance between men and women’s super. It has been the subject of a parliamentary inquiry. So the fact women’s average balances have risen 24 per cent to $498,000 over the past five years is a trend to be strongly encouraged.
It suggests what the anecdotal evidence and research shows: that women, either individually or via specialist SMSF advice, are getting far more involved in their superannuation, acutely aware of the importance of taking control of their retirement income strategies.
For the SMSF specialist there can be no doubt women are a growing market opportunity. Many of these women are actively seeking specialist advice as they look to become more proactive in the running of their SMSF. Certainly it’s become a focus for the association by providing new advice designs and having proficient specialist members in this area.
The other trend to emerge from the ATO statistics was the drop in the median age to 48 for newly established SMSF funds compared with 59 for all SMSF members at 30 June 2015. This demographic shift reflects a growing awareness among (relatively) younger people that superannuation is not an issue to be ignored till later in life. Like women, they are conscious of the need to be proactive with their superannuation to get the best possible outcome in their retirement years.
When critics take aim at the SMSF sector, it’s often on the asset allocation front. Trustees are told, in the nicest possible way, that running an investment portfolio of $1 million, for example, is really beyond their competence. Forget the fact many of these people have successfully run businesses, farms or professional services firms; asset allocation is for the experts.
Australian listed shares, cash and term deposits remain the bulk of the average SMSF portfolio at 57 per cent. These are the asset classes with which they have knowledge; the high allocation to cash and term deposits also reflects the fact many SMSFs are in pension phase and need liquidity to make pension payments. It also reflects a defensive mindset in terms of capital preservation; post the global financial crisis and market volatility since then, that’s highly understandable.
That said, the ATO figures revealed a slight decline in cash and fixed deposits with an increase in trusts and other managed investments suggesting, although trustees are still attracted to their traditional assets, they are increasingly flexible in investing in new asset classes, including offshore, in search of yield and capital gain.
The ATO figures reveal a vibrant SMSF sector with a growing number of people who want to have a secure and dignified retirement – a laudable ambition. It’s time for the critics to sheath their swords.