Recent data published by the Australian Taxation Office (ATO) has shown a significant decrease in the annual number of self-managed super funds (SMSFs) being established for the first time in a number of years. The ATO data showed that in the year ended 30 June 2018, the number of SMSFs being established was just over 25,000 for the year. This shows the ongoing popularity of SMSFs, however, this is down on the previous five years, which all had over 30,000 SMSFs established per annum.
So does this mean that SMSFs are starting to lose some of their shine?
Statistics can be an interesting insight into what is happening, but it is often worth looking a little deeper and seeing what else has been happening. Looking again at the year ended 30 June 2018, whilst the number of new SMSFs being set up fell, so did the number of SMSFs being wound up. This could be a sign that more people are carefully weighing up their different super options, so that while fewer people may be opening up an SMSF, those who do are confident that it is the right structure for their super.
In fact, in the year ended 30 June 2018, there was still a net increase in the number of SMSFs registered with the ATO of close to 15,000. So the number of SMSFs is still on the rise. And as of 30 June 2018, there are nearly 1,200,000 SMSF members – an increase of around 28,000 from the year before.
Rule changes have an impact
Whilst the growth in the overall number of SMSFs has slowed, digging a little deeper may provide some insights as to the possible reasons why.
With changes to rules around who can recommend that someone establish an SMSF, the introduction of a $1.6 million cap on amounts that can be invested in superannuation income streams that are income tax exempt, as well as a focus on the performance and cost of running an SMSFs compared to traditional, larger superannuation funds, the slow-down in growth is, perhaps, not surprising.
The decision to establish an SMSF and take control of your own superannuation savings is not a decision to be taken lightly, or rushed. Here are things to be mindful of:
1. It’s important for people taking an active interest in their super and knowing where it is invested.
2. Have an idea of which fund you are in, how your super is invested (and ask yourself if you are comfortable with it).
3. Know what fees you are paying and how much you are contributing.
4. Review whether you have insurance in your super – and whether it is the right type and amount of cover for you.
5. Consider getting financial advice if you need help.
But taking the next step to move to an SMSF is an important one, and if the slow-down in net growth is an indication of people taking more time to carefully consider their options and whether this is the right step to take, then that is a positive development.
Taking on the responsibility of setting up and managing your own SMSF is a decision that should not be rushed. It takes time, energy and there are costs to getting it all up and running, and you would not then want to have to spend more time, energy and money to undo the change, if you suddenly changed your mind.
If you want to establish an SMSF, there are a lot of views on how much you need to justify the running costs. While there is no minimum balance required to establish your SMSF, ASIC has suggested that a balance of around $200,000 (collectively with other prospective members of the SMSF) is the tipping point at which an SMSF becomes cost competitive with an APRA regulated super fund, although in recent times even higher amounts have been contemplated. Now this increase in the suggested minimum account balance is not necessarily because of the costs associated with SMSFs. In fact, in many cases, the costs of running an SMSF have come down but as have the fees of many traditional super funds over time.
Weighing up the benefits
But the costs, whilst important, shouldn’t be your only (or even main) consideration. The real question has to come back to these considerations:
1. Why do you think you need an SMSF?
2. What are you going to be able to achieve with your SMSF that you can’t achieve in your existing super fund?
3. How long are you willing to not only spend each week, month or year on running your SMSF, but how long are you willing to do this for? Are you willing to do this for the next 10 years? Until you retire? Into your retirement years?
The answers to all these questions can help you determine if setting up an SMSF is right for you, or if you are in one – if it is right to stay in it. The good news is that you don’t have to do all this yourself, and in reality, you probably shouldn’t. There are SMSF professional advisers that can help you by providing SMSF financial advice, legal advice, and administration and audit – to assist and guide you to the best outcome.
It can take time to be comfortable that the decision you make is the right one, and it’s worth taking that time. After all, your super is for your retirement and we all want that to be as long and as enjoyable as possible.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.
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 regard to your circumstances.