The ATO Statistical Overview shows SMSFs growing from strength-to-strength, however more statistical information is required to better understand behaviour of trustees/members

As previously announced over a month ago on thedunnthing blog, the Australian Taxation Office has yesterday released an updated statistical overview into Self Managed Super Funds for the 2008-09 financial year. This report is an update to the Statistical Summary prepared on the request of Jeremy Cooper, Chair of the Super System Review.  He used this report as part of Phase Three to debunk many of the myths surrounding SMSFs and ultimately conclude that the SMSF sector was in fairly good shape.

A recommendation of the Stronger Super reforms is to improve the statistical information available of SMSFs to better understand the sector.  The ATO as Regulator is in the best position to provide this reporting through the information they gather each year in the SMSF Annual Return and fund establishment process.

This report provides us with a greater insight into SMSFs than the quarterly statistics issued on SMSFs, so the updated report is well overdue for the industry.  However in my view it needs to be expanded further to better understand all the elements within the SMSF life-cycle.  Unfortunately, with the need for greater statistics comes the need for trustees and SMSF service providers to collate and report this information.  The issue of cost in improving this statistical data is a potential impairment for the Government.

There has already been some positive talk from this statistical overview about the sector’s growth, both in the number of funds and also in total super assets.  SMSFs have moved from being a retirement vehicle for baby boomers to a retirement vehicle of choice for those individuals who wish to become ‘engaged’ in their superannuation savings.  As a result, we are seeing significant growth in the 35-54 age demographic setting up SMSFs.  This is in my view a collective of factors including greater engagement, coupled with improved financial literacy, greater investment choice (including the ability to leverage investments), along with the having an adaptable retirement savings vehicle that moves as individuals move employment.

Disappointingly from these statistics, we see no break down in the contributions, in particular member contributions that are provided as off-market or in-specie asset transfers?  This information is readily available within the SMSF Annual Return.  By not providing this information, I believe it has impacted the ability for the SMSF industry to put forward a valid argument on the Stronger Super reforms recommendation to remove listed shares from related parties exception (s.66, SISA) from 1 July 2012.  The reality is the Government has responded to a Cooper Review recommendation to ban off market transfer of listed shares on ‘hear-say’ stories of the industry (whether true or not).   In my view, I think it would be valuable to not only look at contributions to SMSFs at a macro-level, but also understand how these contributions got into the fund, e.g. as business real property or listed shares transfers.

The statistical report also shows the continued growth in SMSF net flows (total contributions and benefit payments).  The statistics support that not only did the Simpler Super reforms provide an incentive to get money into super, but the draw down benefits (in particular post-60) have meant we are seeing a growing percentage in the benefit payments taken each year.  The popularity of Transition to Retirement would also be attributing to the increase in benefit payments.  However, a macro-view is taken to benefit payments, rather than providing information on how these benefits are being withdrawn, either as lump sum or via income stream (such as account based pension).  I believe, providing greater information in this area will help the industry and Government better understand the direction retirement income stream policy needs to be taken in the future.  It would be good to be able to identify whether on average, members are ‘living beyond their means’ and how that will influence how long their money will last against average life expectancy, etc…  The issue of longevity risk would be the number one emerging issue in superannuation right now.

A few other areas of note from the statistical overview:

• It staggers me than only one in every ten new SMSFs established are within a corporate trustee;
• SMSFs whilst growing in the area post-retirement benefits, very few establish funds and commence income streams immediately (only 11%).  49% of funds commencing pensions within 2009, had been in existence for 5 or more years;
• The concept of a ‘family fund’ doesn’t appear to be gaining traction… only 4% of funds have 3 or 4 members;
• The entry point for SMSFs appears dropping in more recent times.  Growth has occurred in all ranges up to $500k.  This may be due to performance dissatisfaction as a result of financial markets – historically the number of new SMSFs have grown in poor financial markets.  Conversely, there has been an asset size decline in member balances >$500k.  This will have come about from a variety of reasons including the impact of GFC coupled with an increasing trend in benefit payments; and
• SMSF Trustees appear to have taken an active response to their investment strategy as a result of the GFC, with a move to cash and term deposits.  Holding of real property has also grown which would incorporate the law changes to allow limited recourse borrowing from 24 September 2007;  It will be interesting to see in future data, when SMSF trustees look make that shift back into listed equities;

View the ATO Statistical Overview 2008-09.