Super heavyweights

PORTFOLIO POINT: There’s nothing average about SMSFs. But what’s interesting is how much the really big SMSFs throw out the averages.

The chasm between SMSFs and managed fund super is, literally, light years.

They’re in different leagues. It’s like putting up Muhammad Ali in his prime against … well, me, now.

SMSFs are lean machines driven by people taking a very personal interest in their super and, more broadly, their financial futures.

Whereas, managed fund super is for the masses. Many, though certainly far from all, are disinterested and virtually ignore its benefits (often through lack of education) until it’s too late.

But exactly how different are they? Unfortunately, it’s always been a bit of a mystery, as reliable statistics on SMSFs have traditionally been difficult to obtain.

As part of his 2010 Super System Review, Jeremy Cooper asked the ATO if it could provide useful ongoing statistics in this area, given that they oversee the regulation of SMSFs. Now they have. And some of the figures are astounding.

Average versus median

Firstly, there’s very little about SMSFs that is not considerably above average. And primary in those statistics is pure size. But, here, the ATO has provided a few new statistics. And they’re incredibly interesting.

What I have reported from previous releases of SMSF stats from the ATO has been the “average” size of SMSFs in Australia. And as at 30 June 2009, that average balance per member was approximately $439,000, while the average on non-SMSFs is $22,000. (We have had more recent updates on size than that, but I need to highlight the FY09 figures for the purpose of the rest of the statistics in their report.) That is, divide the total amount of money in SMSFs by the number of members and you get the average.

But averages can be very misleading, because the upper end of the market can severely distort the numbers. That is, if you have four funds with $100,000 each in them and then one fund with $4,000,000, then the “average” SMSF has $880,000 ($4.4m divided by 5).

However, the median price (the middle price, or in this case the third price) is $100,000. In this case, which is more reflective of where most super funds are? Clearly, the median. The real estate industry uses medians rather than averages for exactly same reason.

So, while the average SMSF member’s balance is $439,000, the median is $219,000. And that says that a proportionately small number of mega-SMSFs are stretching the numbers.

There’s a serious difference between those figures and the median in this case is far more representative.

The ATO also included the averages and medians across the age groups.

Table 1: Average versus median SMSF member balances:

Similarly, while the average SMSF itself has $835,580, the median SMSF has $471,329, according to the ATO.

So, anyone who had been feeling inadequate about the size of their super fund can relax a little. The ATO has just reset the bar.

Asset balances by size

The largest number of super funds (around 26.5% of all SMSFs) have member asset balances between $200k and $500k, while the next most populated group is between $500k and $1m, which has 22.9% of all super funds.

At the upper end, just 25% of all SMSFs have balances of in excess of $1m and only 9.3% have balances over $2m.

From the member perspective, just 10.3% of all members have individual balances above $1m, while nearly 30% have balances in the $200-500k range. More than 43% of individuals have account balances of less than $200k.

Pure growth

I’ve previously covered the growth in SMSF numbers. There was a huge spike in FY2007 – when there was a one-off opportunity to put $1m per member into super – which has since levelled off. But the sector still retains an average net growth rate of 7-8%.

But the numbers on contributions into SMSFs is staggering. In FY2009, $32.5b was tipped in, with $8.9b of that from employers and $23.6b from members. Roughly, for every one dollar that’s put in to super by employers, three dollars are contributed by members.

No statistic was provided for non-SMSFs. While most money into SMSFs is personal, managed fund super is overwhelmingly grown through employer Superannuation Guarantee contributions. I’d be surprised if non-SMSF members even put in $1 personally for every $3 tipped in by employers.

The average net rollovers made into SMSFs is around $7.3b ($10.1 in and $2.8b out).

And when it comes to the sole purpose of super funds – to provide retirement benefits – approximately 30% of SMSFs are in pension phase, the rest are considered to be in accumulation mode.

Larger pay packets, better performance

The overall average salary of a SMSF member for FY09 is $86,430, compared to the average of $48,915 for non-SMSF super members.

At all age groups, the average is considerably higher, although it falls away to below 50% higher in the oldest age group of 65+.

While the ATO hands out warnings about the reliability of data provided before 2008, it seems that SMSF trustees have also managed to provide better performance.

For the three financial years to FY09, APRA regulated funds returned 14.5%, -8.15% and -11.7%. Over those same periods, SMSFs provided a returns on assets (RoA) of  16.7%, ,-6.3% and -6.7%.

Shortcomings

One of the major problems for SMSFs is that, like many other taxable entities, the ATO can’t provide a lot of data until after SMSFs have reported their data, which can be up to 9-10 months later. So, to that end, the data in the ATO’s report, Self-Managed Superannuation Funds – A Statistical Overview (2008-09), is largely only to June 30, 2009.

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The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are advised to consult your financial adviser.

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