(03) 9020 2905Two of the worst years for investing in the nation’s history and legal headwinds for trustees have not dented Australians’ desire to take personal control of their super.
At the end of June, the number of SMSFs in Australia jumped above 410,000 for the first time – and the take-up rate only slowed marginally for the year despite the market’s slide to near six-year lows in March.
The number of SMSFs grew by 7% during the 2009 financial year. There were 28,995 funds opened and 2310 closed, meaning a net gain of 26,685. At the end of June, the Australian Tax Office’s quarterly figures say there were 410,318 SMSFs in Australia, with a total of nearly three quarters of a million members.
Despite threats of deeper regulation, stricter crackdowns and heavier Tax Office compliance audits – including a specific threat from the Tax Office in the last week – the number of SMSFs continues to grow virtually unrestrained.
Those considering joining the run to self-managed super should be aware of the fresh warning from the ATO. Assistant commissioner Stuart Forsythe said the ATO was concerned that the rise in super fund numbers had been matched by an increase in breaches. And he hinted that making examples of fund trustees to get the message across was an option the ATO could and would pursue.
On top of that, this year the SMSF industry has had to constantly fight to protect its interests as more cohesive and better connected sectors of the industry, including industry super funds (click here for my recent column on how industry funds are attempting to undermine SMSFs through the current super inquiries).
If the ATO’s year-end SMSF figures had a dark spot for SMSFs, it was that the number of new funds being opened fell in the June quarter. Typically, the year-ending June quarter is the biggest of the year, when about one-third to one-half of SMSFs are opened. However, the fall is probably understandable given its proximity to the All Ordinaries falling below 3100 points in March.
The fall in June to 6188 openings was actually the fourth consecutive quarterly fall, from a level of 11,285 in June 08. (By comparison, in the June 2007 quarter – when Australians had a one-off opportunity to contribute $1 million in non-concessional contributions to super – there were 22,639 SMSFs opened.)
Constantly rising fund and member numbers tell one story. On the assets side of the equation, the struggle in investment markets has clearly been a bit tougher. However, after an understandable fall in the total assets controlled by SMSF funds from June 07 to June 08, inflows from new members meant that the total assets controlled by SMSFs actually increased to a new record. At June this year, SMSF total assets sat at $332.3 billion.
The portion held in direct shares was $92.3 billion (down from $112 billion in 2007).
Rising to make up the shortfall were cash and term deposits, the largest asset class held, which topped $100 billion for a new record (versus $87.1 billion in 2008 and $82.2 billion in 2007).
Business real property was down marginally ($34.1 billion in 2009 versus $35.2 billion in 2007).
A total of 90.9% of all SMSFs have two members or less, with a sharp rise in the number of single-member funds (from 20.8% in 2004 to 23% in 2008.
The average fund size? To the end of the 2008 financial year, 24.8% of funds held between $200,000 and $500,000, while a further 22.4% held between $500,000 and $1 million.
About 9.48% of funds held less than $50,000 – a percentage that thankfully still seems to be trending downwards. At the other end, 16.3% of funds were between $1 million and $2 million, 8.6% were between $2 million and $5 million and just 1.53% of funds held more than $5 million.
SMSF trustees need to stay on their toes. Despite their ranks continuing to swell, some tough opposition awaits SMSFs in the coming year or two, particularly from a Federal Labor Government intent on making wealthier Australians pay a greater share.
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An update on a currency strategy I wrote about in this column for DIY funds in recent months.
After yesterday’s rate rise from the RBA from an official cash rate of 3% to 3.25%, Australia’s dollar continued its recent resurgence. Late last night, the dollar had risen to as high as US88.8c in response.
Australia’s rapidly strengthening currency could again provide the potential for a currency bonus on international investments (click here to read my piece from July 1) by using both hedged and unhedged versions of international share funds (such as Vanguard).
The opportunity is potentially there for those who believe in the laws of “reversion to mean”. As I said at the time, it’s probably not worth it while the dollar is between US60c and US80c, because that’s bouncing around its longer term average of US70c. But the further it creeps outside of those zones, the more appealing it gets.
And, like the example in my July article, if the dollar does head above US90c, then I’ll be putting some money where my mouth is.
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None of the recommendations in this article should be taken as personal investment or financial advice. In any investment program, your personal situation and needs should be taken into account. Please see your adviser/s before implementing any major changes to your investment program.
Bruce Brammall is the author of Debt Man Walking and director of Castellan Financial Consulting.