SMSFundamentals | Dec 14 2011
By Andrew Nelson
If you want something done right then do it yourself. That’s how the saying goes. However, in the world of financial management, that truism has never really been accepted as true. But as Bob Dylan sang: “The times, they are a changin’”. At least that’s how it now seems when it comes retirement investing.
Recent data from the Australian Tax Office have provided us with some very interesting results. It seems that over the past five years self-managed superannuation fund (SMSF) investors grew their assets by more than double the rate of the superannuation industry as a whole. In fact, in the five years to June 2010, SMSF investors booked a 122% rise in assets managed compared to just 60% from the professionals.
In the ATO report, Self Managed Super Funds: a Statistical Overview, the tax office says that the much of the growth is due to the increase in salary contributions and net rollovers into SMSFs over the past few years coupled with the deposit of investment earnings.
This trend is better explained by Self Managed Super Fund Professionals Association (SPAA) CEO, Andrea Slattery, who said that SMSF members tend to be the most engaged people in the superannuation industry. She notes that it’s these hands on investors that make sure their own funds operate and perform well.
As importantly, Slattery pointed out that it’s this positive relative performance that encourages SMSF operators to put a much higher proportion of their earnings and savings into super.
In fact, the ATO numbers show that, on average, member contributions to SMSFs were twice that of SMSF employer contributions. Tax office data shows that in the five years to June 2009, super contributions averaged $32.5bn a year, with $23.6bn from members and just $8.9bn from employers.
The trend is moderating, however, with the ATO indicating that the growth rate in member superannuation contributions has started to trend downwards over the past year.
So while Mrs. Slattery remains upbeat about the level of SMSF member voluntary contributions, and the confidence and commitment that drives it, she does note “the halving of the annual superannuation concessional caps from 2010 has already had a negative effect on savers' attempts to self-fund their retirement".
The report also confirmed what many believe, that SMSF members are generally older and have higher average taxable incomes and higher deposit levels than non-SMSF members. However, the age demographic of new SMSFs is getting younger and younger. The data show that 11% of new SMSF members were under the age of 35 in the June 2010 quarter compared to just over 5% for the whole SMSF member population.
Mrs. Slattery thinks that younger investors like the control and flexibility that running their own SMSF gives them. She believes SMSF will continue to appeal to “younger, highly educated professionals who are already confident about seeking service providers and skilled advisors".
Last but not least, while investment returns for almost everyone have showed some red over the 2007-08 and 2008-09 periods, the ATO data demonstrate that negative returns for SMSFs have been smaller than for APRA regulated funds.
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