SMSF expert Salvador Saiz looks beyond the headlines in examining the recent decline in the number of self-managed super funds being established and concludes there is no reason for concern.
At first sight, the recent SMSF March quarter data released by the Australian Tax Office (ATO) showing a sharp 40-per-cent drop in SMSF establishments appears to indicate growth in the sector may not only be slowing but may actually be on the decline. However, any such alarms are, I think, unfounded.
To begin with, as some have rightly pointed out, there tends to be a pick-up in establishments in the final quarter of the financial year, so we should expect a lift. But even then, the latest March results are likely to improve after further revisions by the ATO.
Focusing on the quarterly data may be interesting, however, it is too short term in nature for us to be drawing any meaningful conclusions. It’s more relevant to look at the long-term trend, which as the accompanying chart shows, has seen SMSF establishments (on a rolling one-month basis) rise steadily over the past three years. Yes, the trend has dipped, seeing the total number of establishments in the past 12 months fall to 38,664 from 42,687 (a 9.4-per-cent drop), but this is hardly a cause for concern and remains above the average.
Another interesting and relevant data point from the ATO’s release, missed in the headlines, is that wind-ups have reached a historical low, falling rapidly from 3251 in the 2012 June quarter to a low of 62 in the March quarter – that’s a total of 4446 wind-ups in the past 12 months, another low.
That’s not to say that the latest data doesn’t indicate uncertainty with regards to government policy hasn’t had an impact. I’m sure it has but this uncertainty is not specific to the SMSF sector. As CoreData’s recent Member Engagement and Post-retirement studies have shown, this uncertainty is impacting the majority of super fund members’ confidence in the superannuation system more broadly and also influencing their decisions on whether to make extra contributions over the next 12 months.
Rude health
If anything, the sector’s growth profile remains healthy. While it will likely experience a slow down in future, all indications are that the sector will continue its growth trajectory, and move to account for more than just one third of the Australian superannuation sector – with the number of SMSFs having now past half a million, and the number of SMSF members just short of 1 million.
Any glimmer of hope that super funds may see in the latest drop in quarterly SMSF establishments, shouldn’t last. If anything, what should be of concern to super funds is that the fastest growing SMSF segment by age cohort isn’t the 50-plus segment, but the 41-to-50-year-old segment, followed by the 31-to-40-year-old cohort – as highlighted by CoreData’s research. Demand from these segments will continue to drive SMSF growth.
That these are the fastest growing SMSF segments may be news to some and should be of concern to those super funds (and there are many) that are only beginning to have a conversation with members around financial planning and retirement when they are in their 50s – thinking that this is the most appropriate time to do so and of the view that it’s in this phase and later when SMSFs are predominantly established. Wrong.
The problem with this view of the world issue is that despite the offer of direct investment options, these funds will continue to be blindsided by SMSFS specialists such as accountants who will get to their high balance members first before they even realise what’s happened.
Salvador Saiz is head of advice, wealth and super at Core Data Consulting
