Self funded super fund trustees are still feeling very happy with their choice of retirement savings vehicle, according to the latest survey of satisfaction among super fund members by Roy Morgan Research. But with other figures showing that more than half SMSF assets are now supporting pension payouts, the question for the future may be how long some SMSF trustees will remain this happy.
So happy
In the latest half year to May, SMSFs’ satisfaction rating (based on financial performance) increased to 75.6% from 72.4% a year ago. This was in line with the trend: in a year when a booming stock market lifted most portfolios, the survey found a proportionately larger gain for both retail funds (up from 44.6% to 53.7%) and industry funds (up from 49.4% to 55.8%).
It seems the healthy rise in 2013-14 account balances is the main reason for everyone feeling so satisfied. There’s the “wealth effect” from rising savings and, says Morgan’s industry communications director Norman Morris, as a consequence there’s also a rise in the level of members’ engagement.
However, the SMSF world shouldn’t necessarily assume the picture won’t change. Other figures issued earlier by the DEXX&R group suggest there is scope for the retail sector, in particular, to regain some market share of total super assets over the next decade. This follows on from the surprising fact that already a majority of SMSF assets are in pension mode. DEXX&R calculates that at December last year, of the more than $500 billion in SMSFs, some $294 billion represented assets in pension funds. This represents about 65% of all types of retirement income funds under management, leaving 33% in retail allocated pensions and a tiny 2% in annuities.
For the moment, for those reaching retirement with a sizeable amount in their account, it’s an SMSF rather than a retail fund. The Morgan survey shows that, for amounts over $250,000, people with SMSFs are even more satisfied – 78.8% compared with only 66.4% for retail super funds.
Changes afoot
But DEXX&R managing director, Mark Kachor, thinks the retail super sector could gain in future as more SMSF retirees need advice, partly because they simply no longer want (or feel able) to manage their investments.
It’s easy to lose motivation if the share market is falling and it’s depressing if cash is yielding 3% and shares not much more – especially if the ATO rules require 6% or 7% of assets to be paid in pensions.
And, Kachor suggests, as SMSF pension account balances inevitably run down, retail allocated funds might start to look for a more cost-effective option compared with the fixed costs of operating an SMSF. His group is projecting retail allocated funds to increase their share of the retirement income market from the present 33% to 41% by 2023 – a handy rise in the retail sector’s total retirement funds under management from $149 billion now to $366 billion in 2023.
As a result, this will erode SMSFs’ share of the retirement income market from 65% to 57% over the next decade, though this still means that in 10 years, the pool of pension assets in SMSFs will be roughly equal to the current total SMSF assets.
The interesting exception in all this is the annuity market; DEXX&R don’t see annuities gaining any traction in the market, projecting annuities only to maintain that 2% share of the retirement market by 2023.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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