Required SMSF balances underestimated

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

Written by Debbie McTaggart

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