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Reports of the demise of SMSFs are unfounded

The Mark Twain quotation that "The report of my death has been grossly exaggerated" has become embellished over many years, but let's run with it as an analogy for SMSFs. The headlines react to small variations in SMSF establishments, only for the sector to recover the next year. 

Superannuation in Australia is a multi-trillion-dollar arms race. Not only has the total amount in super reached $3.5 trillion, but each year, new contributions are over $150 billion into large super funds. While over time, withdrawals will increase as more people reach pension age, the two big winners in recent years are industry funds, now at $1.1 trillion, and SMSFs, at $891 billion. Both have overwhelmed retail funds. SMSFs are called 'Funds with less than 7 members' in the ASFA table below.

While recent headlines suggest SMSFs are declining in importance, in the March 2023 quarter alone, net rollovers from large funds into SMSFs were $1.2 billion, suggesting many people still want the control and flexibility that personal funds deliver, even transferring money from industry funds.

As recently as February 2023, The Australian Financial Review reported the expected ‘plunge’ in SMSF accounts, and how brokers were seeing the number of SMSF accounts ‘plummet’. It was argued that SMSF establishments were brought forward in 2020 and 2021 as new investors engaged with their own investments during the pandemic, but this boost is over. The latest statistics indicate otherwise.

SMSFs are thriving

While large funds continue to evolve and give investors much of what they need, more SMSFs were established in the 12 months to December 2022 than in the calendar years of 2018, 2019 and 2020, as shown below. Yes, 2021 was exceptional, driven by the freedom to acquire new assets such as Bitcoin which are not offered in managed funds, but the total number of SMSFs is now over 600,000 for the first time. Indeed, the data below drawn by Investment Trends from ATO sources shows a significant fall in wind-ups, although this is a notoriously volatile series subject to updating.

It's also popularly believed that the age of new SMSF trustees is falling, but recent data shows the reverse. In the chart below, where ‘newly established’ means set up in the preceding two years, the average age has increased by a couple of years and average set up balance risen from $220,000 to $300,000. This tends to support the claim that younger people set up SMSFs in 2021 to participate in pandemic fads which have since faded.

Source: ATO and Investment Trends

Why do people set up an SMSF?

The dominant reason for establishing an SMSF remains ‘control’, given the flexibility to invest in almost anything. But it is common for new trustees to think they can perform better than professional investors, with ‘achieve better returns’, ‘can make better investments than super funds’ and ‘saw what existing super funds were charging’ high on the list. A recommendation from accountants and advisers to set up an SMSF still makes up a healthy 30%.

This confidence in personal expertise is confirmed in the reasons most SMSFs do not use a financial adviser, where ‘can manage my own financial affairs’ is the top reason, followed by cost, lack of confidence in advisers and difficulty finding an adviser.

However, SMSF trustees do nominate areas where they need assistance, and the most popular are not the advice on investment selections traditionally thought of as the role of an adviser. Rather, inheritance and estate planning, pensions strategies, tax planning, impact of regulations and contribution strategies are vital parts of the advice experience.

Investment Trends concludes from looking at the data on financial advice:

“SMSFs’ use of financial advisers has stagnated, while unmet advice needs continue to accumulate. Two key segments in particular – female investors and those in Transition To Retirement phase – would be particularly receptive.”

How are SMSFs investing?

While data is produced by the ATO showing asset allocation by SMSFs, the categories obscure trends by grouping global and Australian equities into one number. The Investment Trends Survey asks trustees directly and generally shows a move back to cash, up to 22%, and a decline in direct shares, down to 31% (but still by far the highest).

This may coincide with caution about the equity markets and better rates on cash, although the latter has always received a surprisingly high allocation among SMSFs. Alternatives also received a decent jump in the last year. ETFs have retained a small but steady allocation of 5%, while managed funds occupy 9%. Property remains popular at 15%.

On the new $3 million super tax, the Survey suggests far more changes to investments are likely in response. Although the Government and Treasury estimate that only 80,000 people will be affected, representing 0.5% of members, it is a significant issue with SMSF trustees, where large balances are usually held. Nearly half, at 46%, of surveyed trustees think the tax is a ‘bad idea’, while only 24% say it’s a ‘good idea’. The rest are neutral or want more detail. Surprisingly, given the $3 million threshold, a high 25% say they are ‘very likely’ to be affected, with a further 22% saying ‘somewhat likely’.

In summary, SMSFs remain a vibrant and growing part of the superannuation landscape, and with decent investment markets, will also push through the $1 trillion barrier in the next few years. 


Graham Hand is Editor-At-Large for Firstlinks. This article is general information. All charts are copyright Investment Trends and are sourced with permission from the Vanguard/Investment Trends 2023 SMSF Report.


June 29, 2023

In response to Eddie, I do pay plenty of tax both within and outside of super and have done so since I started working at 14 years of age - some in the top tax bracket when I have breached that threshold). I am presently looking to move assets out of super, to other tax vehicles, thereby realising the increase in the asset valuation and pay the CGT owed, where I will still be paying higher tax than presently, but not nearly as high as I would under this egregious proposal. The proposal will mean well over 50% tax for me taking into account the calculation, the added tax on the withdrawal the following year to pay the tax and the the CGT on top when it is realised. There is no vehicle that I know of where the tax is well in excess of 50%!

I may as well have full access to the funds whenever I want and not have it locked up for the pickings of a greedy government.

If everyone paid their fair share, we wouldn't be in this situation.

Fortunately, I am close to retirement so I have this option. It will mean a lot of work and stress, and bringing everything forward, but the incentive is there now to do so if this passes.

Class warfare? Looking at the response from Eddie, you bet!

Seek first to understand.

Sorry for the spelling errors on my first response (telephone keypad - my age is coming through)

Thank you for your article and for allowing comments to come through. I know that there will be many like Eddie but I am prepared to stick my head up against this egregious tax. Eddie has the numbers on "their" side - we are apparently only 80000 people. No wonder I am feeling discriminated against.

June 27, 2023

To me it's interesting that a significant 24% say it’s a ‘good idea’.

June 29, 2023

Graham, purely and simply it's because they don't understand it. The government has deceptively told them it is only 30% tax.

June 26, 2023

The 'confidence in personal expertise' brings to mind the Dunning-Kruger Effect. SMSF Trustees that believe the odds are in their favour to outperform the collective wisdom of the market and/or a bona-fide professional investor (as a part time investor doing it as a hobby), surely reside on the peak of Mount Stupid.

The flexibility and control argument has validity. But I'd question the value of individuals having too much choice re what to invest in based on a large body of evidence.

June 23, 2023

In the ASFA Table, what type of fund are the 'platforms' eg. Netwealth, HUB24?

June 29, 2023

Their Super/Pension products would be 'Retail'. Many Wrap platforms are owned by banks. The two you mentioned are exceptions. A lot of SMSFs use wrap accounts too (as IDPS accounts, not Super).

Geoff Booth
June 23, 2023

Dear Graham, re Super Tax & Unrealized Capital Gains Tax: I’m unsure just how far this issue has spread into the general community. However, consider the scenario whereby the Super Tax concept of taxing un-realized capital gains (TURG) becomes the leaven that affects a far broader community, including: • Taxpayers (people, businesses, fund managers etc.) who own shares/investment/commercial properties outside of Super. However, should momentum build, politicians (plus officials in Taxation, Treasury etc.) might start to take notice. If so, I would imagine that once “community noise” levels reached a certain threshold, placatory “I/We promise” responses would be triggered: • “This Government will not introduce such a TAX to investments outside Super” etc. However, who indeed could (or can) believe the “promises” of such people. I am of the opinion that it is a bad idea to introduce such a tax into the Australian landscape: • It will inevitably affect (infect) a far larger percentage of the community than is the present case. • There is no precedent for this form of Tax in Australia. Thank you for the work you do backed by your extensive experience in financial markets (and, no doubt, dealing with people in “high places”).

June 23, 2023

I agree with the $3 million super tax and will go as far to say anyone with more than $3 million in super is using super more as a tax dodge than money for their retirement. I'd like to see any excess of $3 million withdrawn from super as you simply don't need any more than $3 million in a super fund.

June 23, 2023

I can't agree with Kerrie more. I think people who have their principle resident and $3m is enough for their retirement. Government have to pay pension to the less fortunate. Someone have to pay tax.

June 24, 2023

Due mostly to capital gains on investments, some luck, some hard knocks (learning ecperienxes) and a lot of sacrufice and hard work, my super has grown to over $3m. The tax payable by my partner and myself under this proposal if it sees the light of day, based on our last 2 tax returns, will be more than 300% times more than we presently pay on super earnings, so a 30% headline tax is deliberately deceiptful. It is almosr equuvalent to 47% tax on the existing income metric for super tax on income.
We have no savings outside of super. To pay the tax personally on the unrealised gains, it will eat up most of a very good post tax incone, leaving us just eniugh for rates and utilities, no food or other living expenses covered, so we would be in survival mode if we couldnt pay the tax within super. We are nearing retirement and are exhausted from years of hard work and sacrifice and our hours as business owners are already well above 40 hours per week. Therefore, a second job is not an answer.
We would have no option but to pay the tax out of the snsf, but the investments are mostly illiquid and we will run out of cash reserves in just several years if this tax goes ahead,, given that our investments are making good capital gains which placed us into this situation in the first place.. The taxable smsf income was adequate to replace our working life, after tax, income, fir many years begore a forced sale of the assets for luquidation purposes. That was the plan, allowing us to be fully independant and not rely on the govt purse in old age.
Imagine a repeat year of high growth, and the withdrawals to pay the tax in the next fy are also taxed at the more than 300% that the fund already pays. Because the individual us taxed and not the fund, with withdrawals to pay the tax added back, the effective tax rate will be well over 50% at current rates of growth of the fund. But it is largely capital growth only, not realised.income. Then when we inevitably sell sooner than expected in order to pay the tax, we are hit with capital gsins tax too! Its like a cascading avalanche of tax. I love my home and won't sell unltil it gets too much to handle. I guess Ill be down under $3m again in no time if this proposal sees the light of day.
I think that people need to look at different scenarios, such as for farmers, to understand just how egregious this proposal is. It is a tax grab and nothing more.
PS I pay plenry of tax both personally and through the smsf. Tbis is a class warfare exervise only. Seek to understand what is really hapoening with this propisal..please. Yes, we all need to pay our faur share of tax, I agree but there is bleeding and wastage everywhere that also needs to be addressed before hitting out at hardworking aspiring Australians, who did nothing wrong except to work their hard earned savings.
And what will be the buying power of $3m on 30th June 2026 when this is calculated for the first time? Significantly less at this rate than when it was announced on 28th feb 2023.

June 28, 2023

No sympathy for your situation. Sell assets and use the super for its intended purposesand contribute to the society taht pays for your medical bills, roads and other services.

June 29, 2023

In response to those who have no sympathy for the INITIAL 80000 that will be hit by the Treasury proposal of "30%" tax proposal (actually a lot more than 30% tax), and being one of those caught up in this mess, I would like to remind them that it is the top 1% of earners that paid close to 17% of net taxes in 2016FY. I don't know what the stats are now, but I can assure them that I pay far more than my share of medical bills, roads and other services, paid for well and truly with my taxes, including current super taxes.

Furthermore, this golden goose is now getting too old to bother or care to work. This goose will look after "itself" in retirement from "its" hard earned savings locked up in superannuation (or outside of super as the case may be due to circumstances such as this proposal) and will likely still pay taxes until the day "it" dies.

Labor's go-to is always to pitch one group against another instead of working together towards a common goal. No one cares about this minority group despite society's absolute need for them!

Graham W
June 22, 2023

When I was auditing SMSF's I encouraged interaction with fund trustees. Overwhelmingly they were astute, financially aware and competent in managing their fund's investments. Most had significant amounts in their SMSF's. It has been evident for years that the Canberra pollies and bureaucrats greatly dislike the SMSF sector. The recent decision to tax funds with over $3 million on unrealised gains seems to be nothing but spite. I am waiting to see how the Industry funds report their performance figures for the current financial year. Their big bets on unlisted property are looking shaky at the very least. Unrealised losses ???

June 22, 2023

As a SMSF funds member and Trustee I intend to use the first chance to have the current legislation to hang the SMSF's out to dry and virtually destroy them repealed and or amended by voting against the current Federal Govt at the first opportunity.


June 23, 2023

Good option Trevor but who would you vote for as the alternatives have proven themselves to be useless.

June 22, 2023

The QAR Review by Michelle Levy, and the Government's Response make scarcely any reference to SMSFs ... and these hold 25.5% of Total Super Assets.

Phillip Mahon
June 22, 2023

It would be interesting to know the distribution of the size of the funds to see where I sit.

June 22, 2023

Numbers are out of date and rough but...

June 22, 2023

All of course true Graham but be under no illusions that SMSF's of any size, are squarely in the crosshairs of Canberra with the Industry Funds as puppet masters. The corollary of course is that those very same Funds did not get there by being stupid and the wonderful thing about SMSF's is that you can react to almost any bout of Canberra stupidity!


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