SMSF confidential: the inside story on DIY super funds

Note: The ATO publishes an annual report about SMSFs for each financial year. This article covers the ATO’s 2011-2012 statistical review of SMSFs (released in December 2013). This report also contains data for the 2012-2013 year. The annual report for the 2012-2013 year will be available in early 2015.

The Australian Taxation Office has delivered on its promise to regularly share its market intelligence about self-managed super funds (SMSFs). The ATO has now provided the answers to some of superannuation’s burning questions, such as, ‘Are SMSFs really cheaper than larger super funds?’ and ‘Do SMSFs perform better?’

In December 2013, the ATO released its fourth report into self-managed super funds, publishing key data about SMSF costs, investment performance, SMSF asset allocation, SMSF demographics, types of trustees, and what SMSFs are doing in pension phase.

The latest report gives us an insight, albeit a slightly static and historical insight, into the wealth and behaviour of SMSF trustees. For some SMSF trustees, the ATO findings will simply confirm what you already know about SMSFs based on your own SMSF experience. For many SMSF trustees and service providers however, the ATO report highlights trends in how SMSF trustees invest, how much SMSFs cost to run, and how much money is flowing into SMSFs.

Background: This trend towards ATO transparency began in 2009, when the ATO produced a SMSF statistical summary for the Cooper Review. The 2009 report contained information from both publicly available and previously unpublished ATO data. Two years later, the ATO updated this earlier statistical summary by producing the report, ‘Self-managed super funds: A statistical overview 2008-2009’. And again, in April 2012, the ATO released a SMSF report, ‘Self-managed superannuation funds: A statistical overview 2009-10’. The third report was released in late December 2012 covering the 2010/2011 year, and the fourth, and latest report, was released in December 2013 covering the 2011/2012 financial year. The latest report also includes significant data about the 2012/2013 year.

This article is a snapshot of the ATO’s latest statistical summary. Continue reading for the inside story on SMSFs including:

  • ATO analysis of the SMSF data
  • SMSF growth: average account balance and total assets
  • Individual versus corporate trustees
  • SMSF service providers
  • Age and income of SMSF trustees
  • SMSF investment performance and asset allocation
  • SMSF costs

What does the ATO think of the report?

The ATO provides some preliminary observations in the executive summary of the report, which is set out below:

The SMSF sector remained the largest sector of the Australian super industry, with 99% of the number of funds and 31% of the $1.6 trillion total super assets as at 30 June 2013.1

At 30 June 2013, there were 509,000 SMSFs holding $506 billion in assets.2 There were also approximately 964,000 members in the SMSF sector, almost 8% of roughly 11.6 million members in Australian super funds. 3

The data confirms the SMSF sector continued to respond to changing economic circumstances. This was evident from changes in the level of growth in SMSFs, contributions made to the sector and shifts in asset types held. There were positive shifts in SMSF numbers and the level of contributions, in line with improved confidence in economic conditions. SMSFs are both flexible and resilient in their ability to concentrate or diversify asset portfolios.

SMSF members tended to be older than members of APRA funds and had both higher average balances and higher average taxable incomes. The trend continued for members of new SMSFs to be from younger age groups than those of the total SMSF member population.

The majority of SMSFs are solely in the accumulation phase (65%); however, of SMSFs that pay a pension for the first time there continued to be an increase in the proportion of these funds that were in their first year of operation.

SMSFs directly invested 80% of their assets, mainly in cash and term deposits and Australian-listed shares (a total of 61%). In 2011–12, funds across most asset ranges tended to also favour cash and term deposits, while those with more than $5 million in assets held a higher proportion in listed shares. Over the five years to 2011–12, there was an increase to 14% in the proportion of SMSFs holding all of their investments in one asset class.

At 30 June 2012, SMSFs held $6.3 billion in borrowings and $3.5 billion in other liabilities. The level of borrowings is equivalent to 1.4% of total SMSF assets. The proportion of SMSFs with borrowings increased progressively to 3.7% in 2012. SMSFs with borrowings were more likely to hold non-residential and residential real property, assets held under limited recourse borrowing arrangements and other assets, compared to the total SMSF population.

In 2011–12 the estimates of the return on assets for the SMSF sector was positive (1.0%), though noticeably lower than the positive returns in 2009–10 and 2010–11. The trend in estimated returns is consistent with that for APRA funds of more than four members.

The estimated average operating expense ratio of SMSFs fell over the four years to 2010–11 and remained stable in 2011–12. Further the ratio declined in proportion to the increase in the fund’s asset size. In contrast the estimated SMSF average operating expenses in dollar terms increased from 2010 to 2012, particularly for SMSFs solely in the accumulation phase.

SMSFs are still the leader of the pack

SMSFs are the fastest growing sector of the Australian super industry for the 5 years to 30 June 2013. During this 5-year period, SMSF assets grew by 53%, while total super assets (including large funds) grew by 42%.

The number of SMSFs also grew substantially (27%) during the 4 years to 30 June 2013, rising from just under 400,000 SMSFs at June 2009, to 509,000 SMSFs at June 2013.

Note: Nearly half (46.4%) of all SMSFs have existed for more than 10 years, and 90% of all SMSFS established in the past 10 years to June 2012 are still in existence.

For information on the growth in number of SMSFs see the full ATO report (see link at end of article), or check out SuperGuide articles SMSFs surge towards 520,000 controlling $520B in assets and Comparing super funds: Who’s who in the super zoo. 

Who runs the SMSF show, really?

Individual trustee, or corporate trustee? According to the ATO report, three-quarters (76%) of SMSFs had individual trustees rather than a corporate trustee, as at 30 June 2013. In recent years there has been a shift away from corporate trustees: for each of the years ended 30 June 2013, 30 June 2012 and 30 June 2011, more than 90% of newly registered SMSFs had individual trustees.

Accumulation phase, or pension phase? Nearly two-thirds (65%) of SMSFs reported they were solely in accumulation phase, while the remaining 35% reported they were making pension payments to some or all members (and so were considered in pension phase), for the year ended 30 June 2012. The number of SMSFs considered in pension phase has increased from 26% to 35.1% in the past 5 years. An interesting trend the ATO has observed is that there has been a continuing shift towards new SMSFs starting pensions in the first year inferring that an increasing number of Australians are setting up SMSFs with superannuation savings from large super funds, transferred on retirement.

SMSF approved auditors. The audit data for the year ended 30 June 2012 was not available in this report. Nearly 9,600 approved auditors were involved in the SMSF sector as at 30 June 2011, conducting 40 audits each on average. Of these 9,600 approved auditors, just over a third (36%) conducted fewer than 5 audits. What the ATO could say about the 2012 financial year and SMSF auditors, is that 9% of auditors were also providing other services for SMSF clients such as tax agent, accountant or administrator.

Tax agents and accountants. Around 13,000 tax agents and accountants looked after SMSFs as at 30 June 2012, with 99% of 2012 SMSF annual returns lodged by a tax agent. Tax agents and accountants had an average of 29 registered SMSF clients, although it is worth noting that just over half (52%) of tax agents looked after 10 or fewer SMSFs, while 17% (2,175) had a single SMSF client. What this means is the higher average is skewed by the 6% of tax agents (785) that look after 100 or more SMSFs.

How old, and how wealthy, are SMSF trustees?

According to the ATO report, the average age of an SMSF member is 56.5 years, and the median age is 57.8 years. An interesting trend however is that members of newly registered SMSFs (for 2012 year) have an average age of 51.5 years, and a median age of 51.1 years.

The ATO report also states that just over a quarter(25.9%) of SMSF members are aged 65 and over, while in the non-SMSF sector only 4% of account holders are over 65. In the SMSF sector, 69% of SMSF members are over the age of 50, compared with 26% of members in the non-SMSF sector.

At 30 June 2013, 82% of SMSF members were aged 45 years or older, which then means, obviously, that 18% of SMSF members are under the age of 45, although for newly established SMSFs (for 2012 year), a third of SMSF members (32.7%) are under the age of 45.

The gender balance of SMSF trustees is 53% male and 47% female, and nearly 70% of SMSFs have two members, and 23% of SMSFs have one member.

For the year ended 30 June 2012, SMSF members of all ages had a higher average taxable income than non-SMSF members. The average taxable income of all SMSF members in the year ended 30 June 2012 was $97,000, compared to non-SMSF members who had an average taxable income of $52,000. SMSF members aged 35 to 49 had an average taxable income of $123,000 compared to non-SMSF members in the same age group who had an average taxable income of around $68,000.

Note: At 30 June 2012, the average SMSF member balance was $487,000 which the ATO reports to be approximately 16 times the size of the average account balance of non-SMSFs ($30,000). The average SMSF member balance for a new fund is $185,632. The average assets of an SMSF was $929,000 for the 2012 year, while the average starting balance for a new SMSF (reported by funds established during the 2012 financial year) is $331,729.

For more information on the age and wealth profile of SMSF members see the full ATO report (see link at end of article, or check out SuperGuide article Do you fit the profile of a ‘typical’ SMSF trustee? 

What do DIY super fund trustees invest in?

As at 30 June 2012, just over 61% of all SMSF assets are invested in 2 asset classes – Australian listed shares (28.6%) and cash and term deposits (32.5%). According to the ATO, in 2012 there was a shift back to cash and term deposits, and a small rise in investment in non-residential and residential property. There was also a continued shift away from listed trusts.

For more information on the types of SMSF investments and the typical asset allocation see the full ATO report (see report link at end of article), or check out SuperGuide article SMSF investment: Three most popular asset classes, and the rest 

How well do SMSFs perform?

SMSFs outperformed large super funds for the three years ended 30 June 2007, 30 June 2008 and 30 June 2009, but were pipped at the post for the years ended 30 June 2010 and 30 June 2011. SMSFs again outperformed large super funds for the year ended 30 June 2012.

Investment performance

Financial year SMSFs (%) Large funds (%) Outperformer
2007 16.7% 14.5% SMSFs
2008 -5.9% (loss) -8.1% (loss) SMSFs
2009 -6.7% (loss) -11.5% (loss) SMSFs
2010 7.7% 8.9% Large funds
2011 7.7% 7.8% Large funds
2012 1.0% 0.5% SMSFs

Note: While the methodology used to estimate SMSF performance resembles APRA’s, the data collected is not the same. The data in the table above is sourced from three ATO reports: SMSFs – A statistical overview 2011-2012, SMSFs – A statistical overview 2010-2011, SMSFs-A statistical overview 2009-10, and SMSFs – A statistical overview 2008-09.

How much do SMSFs cost?

About two-thirds (65.3% for 2012) of SMSFs had an estimated operating expense ratio of less than 1%), with more than a third of SMSFs (41%) having an expense ratio of less than 0.25%, that is a quarter of 1%!

The average operating expense ratio has fallen steadily in percentage terms over the 4 financial years from 2008 to 2011, and remained steady for the financial year ended 30 June 2012. Note that in dollar terms, the average operating expenses have increased for the 2011 and 2012 years. More specifically the average operating expense ratio for each financial year was as follows:

  • For year ended 30 June 2008 (0.69% or $6,500 in dollar terms)
  • For year ended 30 June 2009 (0.58% or $5,100 in dollar terms)
  • For year ended 30 June 2010 (0.57% or $5,000)
  • For year ended 30 June 2011 (0.56% or $5,300).
  • For year ended 30 June 2012 (0.56% or $5,600).

Note: SMSFs with fund balances of less than $50,000 had an 9.5% average operating expense ratio compared to SMSFs with fund balances of more than $500,000 with an average expense ratio of less than 1%.

SMSF audit fees: The average SMSF audit fee was $556 for the year ended 30 June 2012, compared with $577 for the 2011 year, and $607 for the 2010 year. For the 2012 financial year, 56% of SMSFs paid less than $500 to approved auditors for audit fees, while 2% paid more than $2,000 (compared to 4% of SMSFs for the 2008 year).

For more information on SMSF costs see the full ATO report (see report link at end of article), or check out SuperGuide articles SMSF: How much does a DIY super fund cost? and Super fees: how much should a fund charge you? and Are SMSF audits too expensive?

You can access the ATO reports by clicking on the links below:

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.

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Comments

  1. Many thanks Wendy for your kind comments. We’re delighted that you finds the information helpful. Regards Trish

  2. wendy donald says:

    Thank you so much for this summary. As usual the information and explanations you provide are a ray of light in a dim room. What this tells me is that my ‘gut’ feeling about SMSF costs and returns is spot on. I am glad the ATO is giving us information, and that you are putting it in a form easily grasped.

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