Figures released by the ATO last week show self-managed superannuation funds have higher balances and are more likely to be in pension phase than five years ago, and usually employ a corporate trustee structure.
Key findings in the ATO’s annual statistical overview of SMSFs include the fact that, as at June 30, 2017, there were 1,100,000 SMSF members and more than 597,000 SMSFs, holding $697 billion in assets. The number of SMSFs being set up has grown at an annual rate of 5 per cent over the last five years, and SMSFs now make up more than 30 per cent of all superannuation assets.
The data set also looks at the how the sector has evolved over the last five years.
The biggest change among SMSFs has to do with size; in 2012, 51 per cent of SMSFs had a balance under $200,000, but by the 2015-16 financial year, this was down to 20 per cent of the active population. The average SMSF member balance has risen 26 per cent, to $599,000, with the assets in an average SMSF worth just over $1,100,000 by 2015-16, a growth of 25 per cent over five years.
As SMSFs have grown bigger, the proportion of balances in pension phase has increased from 12 per cent in 2012 to 34 per cent of funds still active in 2016. Of all payments, 94 per cent are now in the form of an income stream.
Liam Shorte, director at Verante Financial Planning, says the increased proportion of SMSFs in pension status reflects a post-retirement community more judicious about how it spends remaining funds.
“Even when they do have access to unlimited withdrawals, members in full pension phase are being very cautious,” he says. “I see time and time again where, because of the GFC, the lack of economic certainty and an unstable political situation worldwide, people are minimising their drawdowns from their super. This, coupled with uncertainty about longevity and future aged-care costs, means many are hoarding wealth for future years and estate planning.”
Trustees favour corporate structure
SMSFs are also being set up mostly with company ownership; as at June 30, 2017, 43 per cent of funds had individual trustees, with the remainder being set up with corporate trustee structures. Of all new SMSFs registered from 2015 to 2017, however, 81 per cent were established with a corporate trustee.
The drift towards corporate ownership has been driven by advisers extolling the flexibility of the structure and the protection it affords its members. Alex Denham, a specialist SMSF adviser at Dartnall Advisers, explains how company ownership minimises clients’ exposure to claims.
“With a corporate trustee, generally, any claim against the fund is limited to its assets and the director’s personal assets are not at risk,” she says. “There’s also more flexibility to add and remove members with a corporate structure, as families grow and change through children growing up and joining the fund, marriage, divorce, incapacity and death.”
The fact that sole membership of an SMSF requires corporate ownership is also a significant driving factor. Furthermore, as Verante’s Shorte notes, “If you are mentally incapacitated, your spouse can act as director, under an enduring Power of Attorney, to run the fund on their own without the need for interference by others.”
He also highlights the administrative efficiency of corporate trustee structures, especially if lending is required.
“If you want to borrow to buy a property via your SMSF, most lenders will require a corporate trustee, as that is easier for them to deal with.”
Gender gap remains
The data also notes the disparity in the average SMSF balances of men ($641,000) and women ($511,000). This is an improvement on 2012, when the average SMSF balance was $524,774 for males and $393,837 for women.
Denham says the disproportion stems from pay inequities as much as time away from work for childbirth and rearing.
“Of course, time out of the workforce directly impacts super balances for women (and some men),” she says. “However, the gender pay gap is also very significant. If super contributions are based on a percentage of salary, and women’s salaries are lower, then of course super contributions will be lower. Over a whole working lifetime, the difference will be substantial by retirement.”
Shorte agrees, yet remains optimistic that smarter use of superannuation strategies will bring about further change.
“I would hope that [the imbalance] is contracting, as more advised clients are making use of co-contributions, spouse contributions and superannuation splitting,” he says. “It is great to see more articles, conversations and guidance out there in the market for women on how to preserve and grow their superannuation throughout their lifecycle.”
