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SMSFundamentals: SMSF Trustees Becoming Younger And Richer And Looking Offshore

SMSFundamentals | Jun 26 2014

SMSFundamentals is an ongoing feature series dedicated to providing SMSFs with valuable news, investment ideas and services, in line with SMSF requirements and obligations.

For an introduction and story archive please visit FNArena's SMSFundamentals website.

By Greg Peel

The number of Australian self-managed super funds (SMSF) has continued to grow, according to the latest data provided by the Australian Tax Office. Research house CoreData notes the number of SMSFs has passed the half million mark while the total number of trustees of those funds now exceed one million. Most notable in the data is a sudden growth in popularity of SMSFs among younger investors, beyond those in or nearing retirement.

In the nine months to March 2014, 62.1% of new SMSFs were established by Australians in the 34-54 year age bracket, compared to only 36.6% up to July last year. Even the 25-34 bracket saw an increase to 11.1% of new trustees compared to 4.0% last year. As a result, those nearing or already in retirement fell as proportion of new trustees, with those 54-64 dropping to 20.7% from 32.2% and those over 64 dropping to 4.7% from 25.9%.

CoreData does not offer any possible explanation for this quite remarkable and sudden surge in popularity of self-managing one’s super among Australians still in the “growth” phase of their retirement investment rather than those at or nearing the “income” phase. We might posit, however, that SMSF growth in general has gained pace since the GFC as investment across diversified asset classes has become more accessible through the growth of listed property, infrastructure and other funds and the exponential growth of exchange-traded funds across a range of asset classes, as well as receiving a boost from bank competition for term deposits. And SMSF services – platforms, accounting and advice – have also grown rapidly.

Perhaps Mum and Dad have been sufficiently satisfied with the results over this time they have advised their children to follow suit.

Money might have something to do with it, given the ATO data also indicate new SMSF trustees are richer. The data reveal 20.5% of new entrants earn $100-200k compared to 14.4% last July. But this statistic is a little counterintuitive, as one might expect the growth of SMSFs and related products and services would render self-management more accessible to those on lower incomes over time, as compared to earlier times when SMSFs were considered the preserve of the wealthy.

But then if you’ve got more to throw around, best to start looking to keeping it in the future.

It’s not all about the rich nevertheless. That 20.5% of new entrants on $100-200k represents 2333 new trustees, yet there was also an increase of 1161 earning $80-100k, 1764 earning $60-80k and 1775 earning $40-60k, highlighting the fact SMSFs are now potentially suitable for even earners of an average wage.

Despite the swing towards younger new entrants to SMSF investing, the legacy older bias means wealth preservation and secure yield remain strong overall themes. As at March SMSFs were holding 32.1% in stocks, 28.0% in cash and 12.2% in non-residential real estate.

Australians have long been insular with regard their investment diversity and have shunned offshore opportunities, but that is quietly changing. Once again such a shift may be put down to greater accessibility through tailored products (such as ETFs) and currency-hedged products as well as availability of information and marketing from offshore sources. CoreData notes that as at March, growth of investment in offshore residential property hit 3.0%, in non-residential 2.2%, in offshore equities 2.6% and in offshore managed investments 2.7%. Each of these numbers exceeds the overall average growth of SMSF investments last quarter of 2.0%.

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