SMSFs more popular but give lower returns

Peter Terlato 22 December 2016 NEWS

Summary finances paperwork superannuation fund

SMSFs have returned less than APRA funds since 2011.

Over the last five years self-managed superannuation funds (SMSFs) have significantly grown their numbers, despite being routinely outperformed by Australian Prudential Regulation Authority (APRA) regulated funds, according to new research.

The Australian Taxation Office's (ATO) Self-managed super funds: a statistical overview 2014–15 report found the number of SMSFs in Australia increased 31% since 2011.

SMSFs make up 99.6% of funds and account for 29% of the $2.1 trillion held in superannuation assets.

There are currently 577,000 SMSFs holding $622 billion in assets, and more than one million members.

In 2015, the average assets of SMSFs reached $1.1 million, up 20% over five years.

Per member, average assets totalled $590,000.

Total contributions rose 38% over the five years to 2015, 6% higher than the growth of total contributions to all superannuation funds (32%) over the same period.

However, for the year ending June 2015, SMSFs returned less (6.2%) on assets than APRA funds (8.9%).

Lower returns have been a pattern for SMSFs over the last five years.

SMSFs with $50,000 or less in assets have the highest average expense ratios. As the fund grows in size, the ratio of expenses to assets decreases significantly (as can be seen below).

Fund sizeAdministration and operating expensesInvestment expensesTotal expenses
$1–$50k7.78%4.77%12.55%
>$50k–$100k3.33%3.14%6.47%
>$100k–$200k2.19%3.47%5.66%
>$200k–$500k1.22%1.66%2.88%
>$500k–$1m0.72%0.71%1.43%
>$1m–$2m0.48%0.47%0.96%
>$2m0.26%0.36%0.62%

The report suggests SMSFs need a balance of at least $200,000 to be cost-effective but almost half (42.8%) of all funds have less than $500,000 in assets and one-fifth (19.1%) have less than $200,000.

A research report released this week suggests average insurance premiums through superannuation are too high for some Australian workers, slashing hundreds of thousands of dollars off retirement balances.

Plus, one third of workers are being stiffed by employers sidestepping compulsory super contributions.

Purchasing or switching insurance policies? Research and compare to make an informed decision.

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