New data reveal rapid SMSF growth

New data for the 2011/2012 financial year – released in January by the Australian Taxation Office (ATO) and Australian Prudential Regulation Authority (APRA) – show the self-managed super fund (SMSF) sector is in good health.

According to the ATO, 35,276 new funds were established in the year to June 2012, up from 28,031 for the year to 30 June 2011 and the highest recorded number since reports began in 2008.

Meanwhile, APRA released its annual superannuation figures to 30 June 2012 which showed that although the growth and performance of the superannuation industry overall was unspectacular, the number of SMSFs grew by 8 per cent to 478,000.

The sector stretched its lead in terms of total assets to $439 billion, up from $423 billion at 30 June 2011, ahead of retail funds (up from $368 billion to $371 billion), industry funds (up from $250 billion to $267 billion) and public sector funds (up from $210 billion to $222).

Figure 1 (supplied by the SMSF Professionals’ Association of Australia (SPAA) and based on recent APRA data) shows the relative growth of assets in SMSFs compared to all public offer funds since 2004. The assets for each sector are indexed to 100 at 2004, with SMSFs having grown by almost 40 per cent more in the following eight years.

“We indexed that [data] back to 2004 just to get an idea of the growth of SMSFs compared to the retail sector,” said Graeme Colley, SPAA’s education and professional standards director.

“I noticed in the APRA stats as well that SMSFs since 2007, in absolute terms, are definitely the largest growth area of super. At that time, they took over from retail funds as having the highest proportion of assets of any super fund category.”

According to the ATO, there was also a continuing sharp decline in the number of SMSFs being wound up. While almost 15,000 SMSFs were wound up in the 2010 financial year, this number dropped to just above 5,000 in 2011 and dipped to just under 1,000 in 2012.

There may be several reasons for the reduction in windups, according to Colley.

“If you have a look at the stats, it seems the ATO has a bit of a clean-up every now and again,” he said. “Fifteen thousand wind-ups was ‘out of the ether’ stuff, but I think that’s been stabilised.” Most of the funds being wound up now are more likely to be for a change in circumstances, Colley added.

Financial advisers may be less likely to wind up client SMFSs at the moment because with the unreliable performance of investment managers, they may see themselves as being able to better invest those funds, he said.

Colley was also hopeful that the figures suggest an end to anecdotal reports of many trustees being advised inappropriately to set up SMSFs.

“What we’re seeing with the statistics from the ATO is that SMSFs are being better run, the ATO are finding fewer compliance problems, and it seems specialists are learning more about SMSFs and how they should operate,” he said.

The ATO statistics also show an increasing number of young people turning to SMSFs, with significant growth in the 25-54 age bracket, particularly for people aged between 35 and 44. This age bracket accounted for one quarter of all SMSF establishments in the 2011/2012 financial year.

Member contributions have remained relatively stable over the past few years, notwithstanding a drop in average employer contributions in line with a reduction in the concessional contribution cap.

According to the SPAA, the ATO data also show the estimated operating expense ratio of SMSFs fell over the four years to 30 June 2011, from 0.69 per cent for the year ended 30 June 2008 to 0.54 per cent for the year ended 30 June 2011. No data are yet available for the 2012 financial year.

As at 30 June 2011, more than 40 per cent of SMSFs had an operating expense ratio of less than 0.25 per cent, compared with 37 per cent of funds as at 30 June 2010 and 30 per cent of funds as at 30 June 2008, the SPAA said.

“The ATO numbers show that the sector continues to perform and grow strongly in line with market expectations,” Colley said. “While SMSFs are not suitable for everyone, there is growing evidence that suggests there is increased understanding of how they are to be used correctly.

“All the evidence suggests the right people are setting up SMSFs and, with the assistance of the appropriate professional specialists, are prudently managing their fund in a responsible way.”