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 2012-2013 statistical review of SMSFs (released in December 2014). This report also contains data for the 2013-2014 year. The annual report for the 2013-2014 year will be available in December 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 2014, the ATO released its fifth 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 The 2009 report contained information from both publicly available and previously unpublished ATO data.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, the fourth report was released in December 2013 covering the 2011/2012 financial year. The fifth report, and the latest report, was released in December 2014 covering the 2012/2013 financial year. The report also includes significant data about the 2013/2014 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:

Self-managed superannuation funds (SMSFs) make up 99% of the number of funds and 30% of the $1.9 trillion total superannuation assets as at 30 June 2014. There were 534,000 SMSFs holding $557 billion in assets, with over 1 million SMSF members representing 9% of approximately 11.6 million members in Australian super funds.

The data confirms the SMSF sector continued to respond to changing economic circumstances, evident from positive shifts in SMSF numbers, total assets and member account balances over the five years to 2013. SMSFs also showed their flexibility and resilience in their ability to concentrate or diversify asset portfolios.

For the first time, in 2013 average taxable income of SMSF members reached over $100,000. Likewise, the average SMSF member account balance in 2013 reached $524,000 and was the highest over the period.

Over the five years to 2013, member contributions made to SMSFs increased by 5%. However, employer contributions fell by 46%, largely due to the decrease in 2013 to $5.5 billion. By comparison, both member and employer contributions to all super funds increased by 10%.

SMSF members tended to be older than members of APRA funds and had both higher average balances and higher average taxable incomes. However, the trend continued for members of new SMSFs to be from younger age groups than those of the total SMSF member population. For the first time, the median age of SMSF members of newly established funds in 2013 decreased to less than 50 years.

The majority of SMSFs continued to be in the accumulation phase (63%). However, over the five years to 2013, there was a shift of SMSFs from being in the accumulation phase moving into the full pension phase (approximately 7%). Of SMSFs starting to make pension payments in 2013, 43% were more than five years old, while 38% were less than two years old. Of funds established over the last 10 years to 2013, 74% have not started making pension payments.

SMSFs directly invested 78% of their assets, mainly in cash and term deposits and Australian-listed shares (a total of 61%). In 2012–13, funds across most asset ranges tended to also favour cash and term deposits, while those with more than $2 million in assets held a higher proportion in listed shares. Of SMSFs with assets held under limited recourse borrowing arrangements, the majority acquired assets in residential real property (51%) and non-residential real property (28%). In terms of value, real property assets collectively made up 89% or $7.4 billion of investments in limited recourse borrowing arrangement.

At 30 June 2013, SMSFs held $9.2 billion in borrowings and $3.8 billion in other liabilities – 1.9% and 0.8% of total assets respectively. The proportion of SMSFs with borrowings increased progressively to 5% in 2013, and the average amount borrowed also increased to $366,000. 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 2012–13, estimated return on assets for SMSFs was positive (10.5%), the highest over the five-year period, and in positive terms for the fourth consecutive year. 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 in 2012–13 increased to 1% and an average value of $10,200. This increase is due to new data collection from 2012–13 on non-deductible expenses incurred by SMSFs, particularly those in pension phase. As a result, SMSFs in pension phase had higher total average operating expenses than SMSFs solely in accumulation phase. The average ratio of operating expenses continued to decline in direct proportion to the increase in fund asset size.

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 2014. During this 5-year period, SMSF assets grew by 49%, while total super assets (including large funds) grew by 53%, and SMSFs contributed 28% in the proportion of overall growth.

The number of SMSFs also grew substantially (29%) during the 5 years to 30 June 2014, rising from just under 400,000 SMSFs at June 2009, to 414,000 at June 2010, and then to over 534,000 SMSFs at June 2014.

Note: Nearly half (47%) of all SMSFs have existed for more than 10 years, and 90% of all SMSFS established in the past 10 years to June 2013 are still in existence.

For information on the growth in number of SMSFs see the full ATO report (see link at end of article). 

Who runs the SMSF show, really?

Individual trustee, or corporate trustee? According to the ATO report, three-quarters (77%) of SMSFs had individual trustees rather than a corporate trustee, as at 30 June 2014. In recent years there has been a shift away from corporate trustees: for each of the years ended 30 June 2014, 30 June 2013 and 30 June 2012, more than 90% (92%) of newly registered SMSFs had individual trustees.

Accumulation phase, or pension phase? Nearly two-thirds (63%) of SMSFs reported they were solely in accumulation phase, while the remaining 37% reported they were making pension payments to some or all members (and so were considered in pension phase), for the year ended 30 June 2013. In previous reports, the ATO has observed an interesting trend that there had 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. This trend has stalled for the 2013 year.

Approved SMSF auditors.  Approximately 6,650 approved SMSF auditors were involved in the SMSF sector as at 30 June 2013, conducting 60 audits each on average.

Tax agents and accountants. Around 13,000 tax agents and accountants looked after SMSFs as at 30 June 2013, with 99% of 2013 SMSF annual returns lodged by a tax agent. Tax agents and accountants had an average of 31 registered SMSF clients, although it is worth noting that just over half (51%) of tax agents looked after 10 or fewer SMSFs, while 16% (2,066) had a single SMSF client. What this means is the higher average is skewed by the 6% of tax agents (845) 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 years, and the median age is 58 years. An interesting trend however is that members of newly registered SMSFs (for 2013 year) have an average age of 49 years, and a median age of 49 years.

The ATO report also states that just under a quarter(23%) of SMSF members are aged 65 and over, while in the non-SMSF sector only 5% of account holders are over 65.

At 30 June 2014, 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 2013 year), two-thirds of SMSF members (68%) are under the age of 55.

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 2013, 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 2013 was $103,000, compared to non-SMSF members who had an average taxable income of $56,000. SMSF members aged 35 to 49 had an average taxable income of $124,000 compared to non-SMSF members in the same age group who had an average taxable income of around $72,000.

Note: At 30 June 2013, the average SMSF member balance was $524,000 which the ATO reports to be approximately 17 times the size of the average account balance of non-SMSFs ($36,000). The average SMSF member balance for a new fund is $187,000. The average assets of an SMSF was $992,000 for the 2013 year, while the average starting balance for a new SMSF (reported by funds established during the 2013 financial year) is $346,000.

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 2013, just over 60% of all SMSF assets are invested in 2 asset classes – Australian listed shares (30.3%) and cash and term deposits (30.3%). According to the ATO, in 2013 there was a slight drop in the allocation to cash and term deposits and a slight increase into shares. Also, there was a small drop in investment in non-residential and residential property.

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, 30 June 2012 and 30 June 2013. SMSFs again outperformed large super funds for the year ended 30 June 2012.

Interestingly, over the 7-year period to 30 June 2013, SMSFs outperformed large funds delivering 4.33% a year on average, compared with 3.69% for large funds. The dismal long-term performance for both sectors is due to the Global Financial Crisis destroying the returns for 2 of those years within the timeframe.

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 0.3% 0.6% Large funds
2013 10.5% 13.7% Large funds

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 four ATO reports: SMSFs – A statistical overview 2012-2013, 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?

Almost two-thirds (62% for 2013) of SMSFs had an estimated operating expense ratio of 1.5% or less, with more than a quarter of SMSFs (27.4%) having an expense ratio of less than 0.5%, that is a half 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. For the 2013 year however, the average operating expense ratio has jumped, since the ATO now includes expenses that super accounts in pension phase cannot claim as tax deductions. In the past, these expenses were not included in the statistics.

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).
  • For year ended 30 June 2013 (1.03%, or $10,200).

Note: SMSFs with fund balances of less than $50,000 had a 10.9% average operating expense ratio compared to SMSFs with fund balances of more than $500,000 and less than $1 million, with an average expense ratio of 1.34%.

SMSF audit fees: The average SMSF audit fee was $729 for the year ended 30 June 2013, compared with $556 for the 2012 year, $577 for the 2011 year, and $607 for the 2010 year. For the 2013 financial year, 57.2% of SMSFs paid less than $500 to approved auditors for audit fees, while 2% paid more than $2,000 or more (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:



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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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