SMSF sector set for further growth as trustees say they outperform large super funds, new SPAA / Russell research says

From
  • Contribution cap limit has $15.1 billion impact
  • Investments outside SMSFs are key to asset allocation
  • SMSF trustees prefer partnership approach

The Self-managed superfund Professionals Association of Australia (SPAA) and Russell Investments has today launched their inaugural annual SMSF report, which finds the sector is set for further growth with future demand likely to be driven by ‘coach seekers’ who are interested in the benefits of an SMSF but need professional support to make the transition.

The research was commissioned by Russell and SPAA and conducted by CoreData-brandmanagement. It surveyed SMSF trustees, non-trustees and professional SMSF advisers during November and December 2010. In total 1,331 Australian consumers were surveyed, of whom 431 were SMSF trustees and 258 high net worth individuals (HNWIs) without SMSFs. A total of 599 responses were recorded for the adviser research.

The SMSF sector is the largest and fastest growing superannuation sector with some $392.9 billion under management, equating to close to a third of Australia’s $1.23 trillion superannuation industry.

Managing director, intermediaries at Russell Investments Patricia Curtin said the research refutes speculation SMSF sector growth would plateau. “This research shows the sector is set to continue to grow steadily with one in 10 respondents who do not have an SMSF likely to set one up in the next two years. Importantly this growth will come from a new segment we’ve called ‘coach seekers’, which if managed correctly could lead to even greater growth ahead,” she said.

Coach seekers would rather do things themselves but need information to support their decisions – or are looking for someone to help them. This group makes up 30% of the population but only one in four have an SMSF, presenting the biggest growth opportunity.

SMSFs outperform

The report confirms the sector is also performing well with an average return over the last 12 months of 10.7% pa for those trustees who made a positive return, representing 98.6% of trustees. These self-reported figures suggest SMSFs have outperformed large super funds, which on average delivered 8.9% pa during the same period.

SPAA CEO Andrea Slattery said: “These returns are among the reasons why trustees are confident about their retirement outlook with four out of five saying they’re on track to achieve their target retirement income of around $1,500 per week.”

This mirrors their confidence in the super system with three in four SMSF trustees (74.0%) saying they’re confident in super as a vehicle for retirement savings – significantly higher than the proportion of non-trustees who share their level of confidence (53.6%).

Contribution cap limits has $15.1 billion impact

Despite high levels of trustee confidence, the retirement savings of around half of SMSF trustees have been limited by contribution caps. This group would have contributed on average $72,704 each to their SMSF if contribution cap limits were raised, equating to a collective contribution of some $15.1 billion. This lost opportunity comes as the research suggests trustees will have to access capital after 10 years in retirement to fund their future.

“SPAA has been calling for the excessively low superannuation contribution caps to be restored to their pre-2009 levels to help people save for retirement. These findings highlight the lost potential of this regime with some trustees still likely to rely on government to support them in their later years of retirement because sufficient sums couldn’t be saved and invested,” Ms Slattery said.

The findings also found trustees were working longer with more than half (53.2%) intending to work part time post-retirement compared to 32% of non-trustees, which has implications for policy makers.

“As trustees work longer, government should look at extending age limits for non-concessional contribution caps to 75 years old,” Ms Slattery said.

Investments outside SMSF are key to asset allocation; low interest in new borrowing rules

While the quantitative research shows SMSF assets are highly concentrated, qualitative research suggests many trustees hold investments outside their SMSF, perceiving their fund as just one aspect of their investment mix.

“The control and flexibility afforded to trustees mean many are complementing their SMSFs with investments outside super or with allocations to large super funds. In fact over one in three trustees (37%) also have investments within a large super fund,” Ms Curtin said.

These findings are consistent with trustee appetite for borrowing within their fund with three in four trustees (75.6%) saying they have not used the new borrowing rules and do not intend to do so, suggesting borrowing to invest occurs outside their SMSF. This contrasts with advisers – two in five say they have advised on the new rules.

While the findings suggest a healthy SMSF sector, Ms Curtin said there was room for improvement. “Some 41% of trustees have no clear investment performance goals and close to one in four rely on gut instinct when forming their investment strategy. This presents an excellent opportunity for specialist advisers to work with trustees to overcome these limitations.

“Further, most trustees (67%) haven’t changed their allocation post retirement. There are often different investment criteria which should be considered in retirement and so trustees need to actively consider these in their asset allocation especially if they are in the decumulation or drawdown phase,” she said.

Trustees appear to be offsetting this risk with high allocations to fixed interest and cash (26.7%) with many waiting for a better investment option (51.9%) or using cash to reduce risk (46.4%).

“High cash allocations are also reflected in the fact three in five (62.6%) advisers said their SMSF clients’ asset allocation has become more conservative post-GFC. Now is the time trustees should be actively considering when they get back into the market and working with their professional advisers on building awareness of what the investment opportunities are out there. For example we are experiencing a notable upswing in the level of investment in the Russell ETFs by SMSF funds,” Ms Curtin said.

SMSF trustees prefer partnership approach; rely on mainstream media

Advisers serving the market would be wise to develop their mentor skills, according to Mrs Slattery.

“The findings highlight trustees are seeking a partnership approach with their financial advisers with around one third using their adviser for high level ideas before making their own decisions. Only one in four rely on them as the exclusive advice provider,” she said.

Reflecting the reduced reliance on advice, trustees say they rely primarily on mainstream media when making investment decisions with around half of trustees basing financial decisions on information sourced from financial and general newspapers, magazines and/or websites.

To access the executive summary and full report for “Intimate with Self Managed Superannuation” please visit www.russell.com.au/smsfreport

You must be logged in to post or view comments.