SMSF performance falls short of APRA-regulated funds

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A sum of $200,000 is often what is quoted as being enough to justify owning an SMSF but the reality is that it should be 10 times that amount to be truly effective.

Analysis of data from the Australian Tax Office (ATO) by Industry Super Australia economists has discovered that the average net return for an SMSF in 2015 was only 6.2 per cent. When compared to retail and industry funds of similar balances, which had returns of 7.8 per cent and 9.7 per cent respectively, the reality of an SMSF isn’t so rosy.

And the range of returns on SMSF varies greatly depending on the balance of its assets – minus 16.9 per cent for funds with balances of less than $50,000 to 7.7 per cent for funds with balances of $2 million.

Industry Super’s chief economist Stephen Anthony said the findings should confirm once and for all the value of an SMSF. “A self-managed super fund with less than $2 million in assets is unviable as a retirement savings vehicle.

“The best performing SMSFs will have a diverse portfolio of assets is unviable as a retirement savings vehicle.”

Yet, SMSFs remain popular, with a spike in ownership amongst younger members aged 35 to 44. SMSF ownership increased by 5.5 per cent in 2015.

Citing the findings of a 2016 CIFR Working Paper, which linked SMSF popularity to low financial literacy, high confidence and links to financial and tax professions, Mr Anthony said, “We share the view that SMSF sector growth is being driven by sales efforts. It’s important that consumers look at the returns and fully understand what they’re signing up to.”

Read more at Industry Super Australia

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Written by Debbie McTaggart

14 Comments

Total Comments: 14
  1. 0
    0

    What absolute rubbish and a complete misrepresentation.

    SMSF returns are entirely a function of the asset classes held and many SMSFs, conservatively, hold cash thus weighting returns down.

    This is just another rentseeker from another union boss controlled industry fund spruiking on their behalf – dishonest.

  2. 0
    0

    I’m afraid I have to agree with Not on this.
    It is very difficult to get an accurate read on the SMSF returns because some variables are conveniently omitted.

  3. 0
    0

    Hogwash! I have $1.5mill in SMSF. Costs are .39%. Let see an industry or retail fund who can top that. Agree though that lower balances under 500k not worth the effort. I am 85% in growth (commercial property and shares). Last 5 years average 8.55% net. Well above CPI plus 5% which is my strategy. ‘Not a Bludger’ comments are spot on. Industry and retail funds must look on with envy and how they can grab a bit more of that $650mill in SMSF land.

    • 0
      0

      GOLDY, it is unfortunate for the unions that things are not quite working the way it was planned. All this super was supposed to be under their control so that they could exert some political pressure. dear oh dear.

  4. 0
    0

    Sounds like a lot of people in control of these super funds are feeling butt hurt as they see “their” income starting to slip through their fingers and back into the hands of the people whose money it really is!!!
    I don’t personally have a SMSF but I know a few that do and they are all doing very well!!! and do not have a minimum of $2,000,000 in the fund.
    I would be interested to know what amount of fees are coming out on these managed funds? Then we might be able to see the dollar value and wether it’s worth runnng the fund yourself or having it run for you.

  5. 0
    0

    I started my SMSF in 2001 with a lot less than $100,000 and today in pension mode I have to take out more each year than I started the fund with. All I can say is that there much be a lot of lazy investing happening in a lot of SMSFs.

    • 0
      0

      Old Geezer, many SMSFs have commercial property. I suspect if these are long term options they could be conservatively valued regardless of location? Just a guess?
      I just think this story is a lot of hot air from the unions who may be disappointed that 96% of Super Funds in this country are SMSFs.

    • 0
      0

      One of my specialists used to have rooms at a private hospital. It was small and patients had trouble parking. He and his colleagues decided to buy a property around the corner with their super money. Now the waiting room alone is bigger than their whole rooms were at the hospital and they have a huge parking area for their patients. Patients happy and their super fund is getting the rent instead of who ever owns the hospital with ample room for every body.

    • 0
      0

      Yes, that rent is not taxed by the practice company but taxed at 15%. That is not a calculation which is considered by the article above. With a quick extrapolation it blows the argument out of the water by more than doubling the return on the best industry fund! After 10 years at $10,000 per month they have put another $1,020,000 to work in their fund.
      Not only that but they have created a sustainable environment for their business to grow, while at the same time, providing better care for their patients.
      Good point OG!

    • 0
      0

      Not only that he now has more room for more specialists to have rooms in his practice so he makes more money too. Yes he told me all about his ideas and asked me what I thought and I said go for it.

      It is really funny as when he has about half a dozen students with him he is very business like but by himself we pull each others leg and have a good laugh.

  6. 0
    0

    Again we see an attempt by greedy administrators to grab a slice of the action. This statement of “When compared to retail and industry funds of similar balances, which had returns of 7.8 per cent and 9.7 per cent respectively, the reality of an SMSF isn’t so rosy.”
    Two days ago YLC had a table showing rolling ten year returns for superfunds were about 5%. My wife’s SMSF has a rolling ten year average of 7.6% based on about $400k. The only fees she pays are to an Auditor and the ATO levy, this amounts to less than $700 per year. We only have Shares, property trust units and cash. If that ain’t rosy then at least I can say that operating the fund keeps the grey matter working and that is not to be discounted. I imagine that both retail and industry funds are hurting as they watch even smucks like us doing a good job managing our own money. Linking SMSF popularity to low financial literacy and high confidence maybe an insult but when we do better than the professionals that insult really rebounds on them – keep bleeding you leeches.

    • 0
      0

      My auditing fees keep increasing as the balance increased so when a super specialist offered to do the accounts plus the audit for less than I was paying the auditor then I thought why not? It works out at less than 0.2% of the balance of the fund and I have a specialist to ask questions and run scenarios past.

  7. 0
    0

    I wonder what numbers they are looking at? Many SMSFs top up income substantially with franking credits. These credits are not necessarily reflected in the taxable profit statement, yet they can make a huge difference to total returns. I wonder did they factor that in? Also, investors who invest largely for growth are often happy with low returns for a lengthy period. Year to year figures might not accurately reflect the profits of many SMSFs.
    Another factor is that administration costs of SMSFs are falling. It can now be very inexpensive to manage an SMSF if you are willing to do a little work yourself and hunt around for competitive quotes for accountancy and audit etc. There are even specialist SMSF marketplaces where you can post tasks and invite competing quotations and proposals.

  8. 0
    0

    It is still a fact that the Industry funds generally are returning higher growth to their members than retail or other funds. Refer the ratings tables.


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