What type of people have SMSFs?

Self-managed super funds (SMSFs) are now firmly embedded in Australia’s superannuation system, so what type of people are attracted to running their own funds?

SMSFs are privately run super funds that can currently have between one and four members.  

According to the latest Australian Taxation Office (ATO) statistics, more than 1.1 million Australians are members of SMSFs. The number continues to grow steadily, although the rate of growth has been falling for several years as the sector matures. Collectively they hold 26% of the $2.9 trillion in super assets.

Increasingly, those SMSF members are female, especially in younger age groups. At last count, 47% of SMSF members were female with an average balance of $624,000. While lower than the average balance of $754,000 for men, women are growing their savings at a faster rate, up 28% over five years compared with 21% for men.

Almost 70% of SMSFs have two members, typically an older married couple; 23% have one member while only 3.5% have three members and a similar proportion have four members. And these percentages have been consistent for many years. Plans to increase the maximum number of members from four to six have been delayed. The Morrison Government has indicated it remains committed to the move but the current make-up of funds would indicate there may not be much demand for change.  

Age and gender distribution

The age ranges and genders of SMSF members as at June 2019 were fairly evenly spread between the ages of 35 and 84, as indicated in the table below.

The median age for all SMSF members was 60, which has crept up a little as the baby boomers move into retirement. There has been a slight decline in the percentage of members in all age brackets below age 70, and a slight increase in those aged 70 and over in the latest statistics.

The gender of members is also fairly evenly split, at 53% male and 47% female.

Age and gender profile of SMSF members: All members

Source: Australian Taxation Office

The ATO statistics also reveal that both men and women aged between 35 and 44 have been the most active in terms of recently establishing new SMSFs. The median age of new members was 46 in 2017/18.

In an encouraging sign, women are starting their own SMSFs at a faster rate than men in all age groups between 25 and 49. The following table reveals the age and gender of members of SMSFs established in the March quarter of 2020.

Age and gender profile of SMSF members: New members

Source: Australian Taxation Office

Income ranges

The average taxable income for all SMSF members was $117,000 as at June 2018, while the median income was $64,000. This compares with members of other types of super funds who had average taxable income of $62,000 and median taxable income of $48,000.

The following table provides information on the income ranges of both male and female SMSF members.

Source: Australian Taxation Office

Significantly, the above table also highlights that the proportion of female SMSF members earning a taxable income of less than $80,000 is higher than the proportion of male SMSF members. It also reveals that the proportion of male SMSF members earning taxable incomes above $80,000 is higher.

However, in line with popular perceptions, SMSF members generally have higher taxable incomes than members of other types of super funds, as the table below (for the 2018 financial year) shows.

Source: Australian Taxation Office

Superannuation balances

The average account balance of all individual SMSF members according to the latest ATO statistics is $678,621, although this figure is skewed by members with very large balances. The median balance (half of all members have a balance higher and half have a balance lower) is a more modest $408,237. These figures are up 25% and 28% respectively over five years.

Women are beginning to close the gap, with the average balance for women up 28% in the five years to June 2018 to $624,000. The average balance for men increased 21% to $754,000 over the same period.

The table below shows that balances peak for both men and women aged 75–84. This could indicate that either people are not spending as much as they could afford in retirement or they plan to leave a significant inheritance to their beneficiaries.

Source: Australian Taxation Office

ATO figures further reveal that the average assets per member in the establishment year of an SMSF was $214,000 in 2018, while the median was $125,000.

Although it’s generally advised that the cost of setting up and running an SMSF may not be in the best interests of members with a balance of less than $200,000, there is anecdotal evidence that some people establish funds with less in the expectation of increasing their balance fairly quickly. In any event, the message does seem to be getting through. The proportion of SMSF members with balances of $200,000 or less fell from 46% to 40% in the five years to 2018.

Locations

SMSFs are proportionally more popular in Victoria than any other Australian state or territory. Although Victoria has 25% of Australia’s population, it has 30% of all SMSF members. NSW has 33% of all members.

On the other hand, Queensland, Western Australia, Tasmania and the Northern Territory are under-represented in terms of SMSF members when compared to their respective shares of Australia’s total population.

The differences between SMSF members in the accumulation and retirement phases

The most recent ATO figures reveal that 39% of all SMSF members are currently in the retirement phase (previously known as the pension phase). The picture is slightly more complex at the SMSF fund level, given that the average fund has two members, typically a married couple who may be in different member phases. Also, the introduction of the $1.6 million transfer balance cap in July 2017 means some retirees may have money in both accumulation and pension accounts within their SMSF.

According to Class Super (an SMSF administration software company), as at March 2020 48% of funds have at least one member in retirement phase, but 31% have a mix of accumulation and retirement assets. Accumulation funds are defined as those which only have accumulation members. Retirement SMSFs hold purely pension accounts with no assets in accumulation.

Class has broken down the numbers for each member phase in the table below.

Source: Class

According to Class Head of Analytics, Adam Solomon: “While mixed phase SMSFs are not the largest SMSF member segment, they do hold significantly more in net assets per member than those in either accumulation or retirement phase.”

Following the rule change in July 2017 limiting the amount that can be transferred into a pension account, funds with wealthier pension members with more than the transfer balance cap of $1.6 million will typically be in mixed phase.

“Mixed SMSFs include funds where all members are in retirement phase but some fund assets are held outside of pensions, as well as funds with a mix of accumulation members and pension members. Mixed funds may only have one member if that member has both accumulation and pension balances,” says Solomon.

Different types of SMSF members

The most common trait for those deciding to start or join an SMSF is having the motivation to choose and manage their own super investments. In 2017, CBA and the SMSF Association produced a report that broke down SMSF members into the following four investor profiles:

1. The Controller: This is the most common type of SMSF member. They want to have a high degree of control over the management of their fund and investment decision-making. They may seek professional advice, but they are also confident in their own ability to manage their SMSF, especially in relation to investment decisions.
2. The Self-directed Investor: This type is less likely to seek professional advice in managing their fund or making investment decisions than a controller. They have a high level of confidence in their own abilities.
3. The Coach Seeker: Coach seekers take a moderately active role in managing their SMSF and making investment decisions. They seek professional guidance to help them, but don’t outsource completely.
4. The Outsourcer: This type of SMSF member prefers to almost totally outsource the day-to-day administration of their fund and investment decision-making to professionals that they hire.

The bottom line

The number of SMSFs in Australia has continued to rise in recent years, along with average individual member and overall fund balances. Another trend is the growing number of women with SMSFs and a tightening of the gap between male and female account balances.

SMSF members are generally attracted by the freedom to choose and manage their own super investments. But there can be significant costs and responsibilities involved with setting up and running an SMSF, so it’s important that the benefits outweigh the costs.