(03) 9020 2905PORTFOLIO POINT: Finally, you can take a good look in the mirror. The Cooper Review into superannuation has produced probably the best, and most fascinating, statistical analysis of SMSFs yet compiled.
So, how exactly do you and your SMSF measure up? Are you an average SMSF member, with a taxable income of approximately $92,000? Are you one of the 30% of SMSFs that managed a positive return in FY2008, during what was one of the worst years for investing?
Despite the offer of help all around (including us here at Eureka Report), the duties and responsibilities that come with being a DIY Super operator can be quite isolating.
Trustees are, by choice, electing to run their own super fund. They can’t have more than four members – and more than 90% have only two – so there aren’t too many trustees to consult directly with. The cost of bringing in an accountant (who can’t give investment advice) or a financial adviser for every decision would be expensive and, in some cases, self defeating – and that’s not why people get into running their own fund.
For years, people have moaned about the lack of quality of statistical data available for SMSFs. Well, finally, something reasonable is here, thanks to Jeremy Cooper’s Super review.
It is, at least, the best compilation of data on SMSFs published to date. And, if you were ever wondering how your fund compares to the 410,000 other funds out there, here is the document that will tell you whether you’re above, at or below average across a number of fields.
Cooper’s A Statistical Summary of Self-Managed Superannuation Funds covers a lot of ground, including growth in the SMSF sector, member demographics, member income, fund balances, investment performance, asset allocation, operating expenses and compliance. (All annual statistics relate to financial years.)
Where possible, it compares SMSFs and their trustees to the rest of the super industry and their members.
For instance, SMSF assets grew at an average rate of 20% during the five years to June 2009, while the rest of the industry grew at just 8%. The average SMSF member had a taxable income of $92,000, while the average non-SMSF member earned just half that, at least than $47,000.
However, the peak earning years for Australians is between 35 and 60. The report shows that SMSF trustees between those ages earn an average of $106,000 versus about $55,000 for non-SMSF members.
The contribution flow is weighted heavily towards SMSFs. SMSFs got between 20% and 41% of all contribution during the four years of statistics. The 41% high was during the 2007 financial year when the temporary $1 million non-concessional cap was in play, as reasonable benefit limits were being removed.
To further demonstrate where SMSF contributions are coming from, during the five years to June 2008, member contributions outweighed employer contributions three dollars to one. As a result of the massive inflow of money into SMSFs, between 2004 and 2008, SMSFs moved from controlling approximately 20% of the super fund market to 30%. In dollar figures, SMSFs went from $132 billion to $332 billion.
For SMSFs, the average combined employer and member contribution for the 2008 year was $68,156, while the median was $26,475. This suggests that a large number of members used the various maximums ($100k and $50k for concessional and $150k/$450k for non-concessional contributions) to help bring up the averages.
Performance:
SMSFs have beaten larger APRA-regulated funds in each of the 2006, 2007 and 2008 financial years. SMSFs scored returns of 12.6%, 16.9% and -6.1%, while the whole of industry average was 12.2%, 13.3% and -7.8%.
It is probably no surprise that the larger SMSFs performed better than the smaller funds, given some of the fixed costs (fees, accounting and audit) involved in running a SMSF. But the difference was remarkable. Funds greater than $2 million outperformed those with less than $50,000 by between 14 % and 19% between 2006 and 2008.
In the June 2008 financial year, 70% of SMSFs had a negative year. In the previous two years, those figures were just 19% and 14% respectively.
Demographics:
At the end of the 2009 financial year, 23% of SMSFs had just a single member and 67.9% had two members. The number of funds with three or four members was 4.5% and 4.6% respectively.
Two-thirds (67%) of SMSF members are agd over 50, while in other superannuation sectors, the over-50s make up just 22% of the member population. It’s even more stark when you look at members over the age of 65. In SMSFs, the share is 19.4%, while in non-SMSF super, it’s just 3%.
Just 5.5% of SMSF members are aged 35 or less, while that age group makes up 43% of the overall superannuation market. But in the setting up of new SMSFs, as expected, it is younger Australians who are looking to take advantage of the freedom of SMSFs.
About 22% of all members in SMSFs are on a super pension, while about 27% of all SMSFs were fully or partially in pension phase.
Member balances:
The differences are nowhere wider than in super balances. The average member balance inside SMSFs is $456,000, more than 18 times the average non-SMSF member’s balance of approximately $25,000.
The common wisdom, based on the level of costs associated with running a SMSF, has been that $200,000 should be the minimum balance to set up a fund. And the average fund size did rise considerably between the 2006 and 2008 financial years. The proportion of small funds (under $200k) fell, while mid-sized funds ($200k to $1m) stayed steady and larger funds increased by proportion.
Very interestingly, those who open a SMSF don’t necessarily roll all their super into it (or have some trapped in defined benefit funds). Of those who had money in both, the average balance inside the SMSF was $272,000, while they had another $78,000 in super outside their SMSF.
Operating expenses:
The average cost of running a SMSF has declined by 20% between 2006 and 2008, from 0.86% of the average balance to 0.69%, while the average for all super funds is about 1.2%. However, in dollar terms, the average operating expense cost rose from $5500 to $6500 over the same period.
Economies of scale are quite evident in the size of a SMSF. Funds with less than $50,000 tend to pay around 5-6 per cent of fund assets in expenses, while the largest super funds pay 0.36% of assets.
Other findings:
Some of the other findings do not differ at all, or differ little, from data we have covered previously in Eureka Report, including that SMSFs tend to be more overweight to Australian shares and cash than APRA funds, which have higher allocations to international shares and fixed interest.
Other interesting pieces of information:
- 71% of SMSFs have individual trustees, while 29% have corporate trustees
- 86% of trustees said greater control of investments was one of the reasons for setting up their fund.
- 46% said it was the primary reason for doing so.
- The average super fund has been around for eight years.
- 64% have been around for more than five years
- 38% have been established for more than 10 years.
- Only 15% were less than two years old.
- When setting up their fund, 72% said they consulted an accountant, 42% said they consulted a financial adviser and just 3% said the consulted no professionals.
- Approved auditors qualified the accounts of 3.8% of super funds in the 2008 financial year.
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The information was compiled by Cooper’s review team because there was a frustration with the lack of overall information available on SMSFs, the fastest growing sector of the superannuation industry.
And let’s hope that someone, perhaps the ATO, picks up the ball and produces these results annually.
Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.