SMSFs close in on the magic million

PORTFOLIO POINT: The average SMSF balance will most likely top $1 million this year.

Australia’s average SMSF balance could top $1 million this month with the aid of a small recovery in property and equity markets and Australia’s usual end-of-financial-year flurry of contributions.

The average DIY super balance was within a whisker of topping seven figures in mid-April, when Australia’s stock market topped 5000 points for the first time since mid 2008. But it was probably whittled down a peg or two with correcting equity markets of May.

Analysis of quarterly figures from the Australian Tax Office shows that the average SMSF balance stood at $946,774 on March 31. This was just a little more than 5% short of the magic million dollar mark.

In early April, equity markets continued to rise and, assuming the payment of regular superannuation contributions, the average balance likely topped $970,000 and might have actually hit $980,000.

The figures are based on the ATO’s quarterly SMSF statistics that show the total funds sitting in DIY at the end of March topped $400 billion for the first time, at $400.189 billion. The total number of super funds at the time was 422,687, giving the average balance of nearly $947,000.

That in itself is a testament to the rising popularity of DIY funds, as the total balance of Australia’s SMSF sector grew 33% in 15 months from December 2008 quarter, when the sector’s balance totalled just $300,119.

Fund numbers, assets and averages on the rise

Just before the November 1, 2007, peak of Australia’s stock market, it is likely that the average super fund balance reached approximately $950,000. At the bottom of the market in March 2009, the average balance fell to as low as $755,000.

But even if share and property markets stand still, it’s seems likely that an average of $1 million will be topped some time this calendar year.

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Almost even more surprising is another statistic that has been overlooked in this regular ATO series. And that is the growth in ownership of residential property. More accurately, the lack of growth.

It is now more than two and a half years since super gearing was allowed (September 2007). Allowing for the fact that no-one was lending for SMSFs in the first six months, the growth in residential property assets being controlled by SMSFs has stayed staggeringly steady, according to the ATO.

In early to mid 2008, SMSF experts were predicting that super gearing into property could entice a huge number of members/trustees to start thier own SMSFs. One senior figures was saying that as many as 15% of the then 360,000 SMSFs could see super gearing as their reason to buy residental property. To date, this prediction has proved considerably off the mark.

In June 2008, DIY funds controlled $10.928 billion of residential property. As at March 2010, this had only grown to $12.806 billion. This shows growth of just 17% over that 21-month period.

Over the same period, investment in cash has grown 24.6%, listed shares has grown 14.8% (and shares have still not recovered their lost ground in that time) and listed and unlisted trusts have separately grown 28.1%.

The figures show investment (or possibly just asset appreciation) has grown steadily during that period, but the much anticipated rush of SMSFs had clearly not started by the end of the March quarter.

However, I get the feeling that might be about to change. Given that predictions for residential property are coming true – that first home buyers would leave the market after the first home buyer’s grant finished in December and it would be then that investors moved in – this could be about to change.

The recent interest in gearing in super for property, as evidenced in last month’s Eureka Report super gearing webinar, suggests SMSF trustees are getting comfortable with borrowing for property and this slow growth could be about to change.

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In case you hadn’t notice, it’s June. And June is time to make your final super contributions for this financial year.

If you’ve got some of your $25,000 or $50,000 limit left, now is the time to consider topping up your SMSF’s bank balance.

For the self-employed, consider putting earnings into super and paying 15% tax, rather than paying tax at up to 46.5% in your own name. Just make sure you check how much has been contributed in your name this financial year. And don’t forget to count what employers may have contributed on your behalf as Superannuation Guarantee contributions.

If you haven’t had a great year, then putting in $1000 of your own, after-tax, money, could gain you a government co-contribution. Same goes for your spouse.

It can be particularly hard for small business owners to justify putting money into super at this time of year, but it’s important. Make sure you spend some time making sure you’re making the most of the low-tax gift that superannuation is … while we do actually know what the rules are. Because next financial year, with superannuation likely to become a election football, the rules are a lot less certain.

Bruce Brammall is director of Castellan Financial Consulting and author of Debt Man Walking.