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Are SMSFs Losing Their Appeal?

26 Nov 2014 |

Research carried out by DEXX&R, an Australian financial services research house, appears to indicate that the dominance of the superannuation retirement income sector by SMSFs will decline over the next 10 years.

DEXX&R recently carried out a detailed analysis of superannuation funds with accounts in the drawdown or pension phase. For the first time this research included self managed super funds. In a media release issued by DEXX&R on November 19, 2014 the retirement income market was stated as being $486 billion as at June 30, 2014.

Reflecting the fact that SMSFs makes up the largest percentage of the superannuation sector by value of member’s accounts, 62% of the total retirement income market is managed through SMSFs. Coming in second place with 30% was retail superfunds, industry funds came in third with 6%, and those entities that pay annuities come in last with only 2%.

The fact that industry funds have such a low percentage of members in the pension phase is not surprising. These funds have for many years concentrated on increasing the number of members in accumulation phase, by improving the administration and investment choice for accumulation members, and done very little to improve the administration or investment choices for members in pension phase.

Another fact of why SMSFs are so popular with members in pension phase is because the cost differential between administration fees for an SMSF and other types of super funds, including industry funds, is much less once members commence drawing an account based pension.

An example of this is the difference in administration fees charged by Cbus. Members in accumulation phase with Cbus pay an administration fee of only $78 a year. Once a member commences an account based pension their administration fee is $104 a year plus .08% of the balance of their account, with the maximum extra amount payable limited to $640 per year per member.

What is surprising about the research carried out by DEXX&R is their projection of what the makeup of superannuation retirement income accounts by June 2024. According to their analysis the value of superannuation retirement income accounts will grow to $477 billion with the percentage held by SMSFs dropping to only 50%. According to DEXX&R retail funds will increase their share to 35% and industry funds increase their share to 13%.

This increase in the popularity of retail and industry funds over the next 10 years could possibly be attributed to more members going into retirement with smaller superannuation account balances than is the case now.

In the final analysis SMSFs will still be the popular choice for anyone that has a significant balance in their superannuation account when they retire, wants greater control over where their funds are invested, and does not want to face several levels of bureaucracy when accessing their superannuation.


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